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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [Fee Required]
For the fiscal year ended December 31, 1995
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934 [No Fee Required]
For the transition period from __________ to __________
Commission file number 0-5576
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BIOSPHERICS-REGISTERED TRADEMARK- INCORPORATED
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(Name of small business issuer in its charter)
Delaware 52-0849320
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(State or other jurisdiction of (I.R.S. Employer Identification
[caad 214]incorporation or organization) No.)
12051 Indian Creek Court, Beltsville, Maryland 20705
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(Address of executive offices) (Zip Code)
Issuer's telephone number, including area code: 301-419-3900
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock ($.01 par value per share)
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(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year: $13,739,514.
The total market value of the voting stock was $43,125,456, of which
$24,885,674 was held by nonaffiliates of the registrant, based upon the closing
price of the Common Stock on February 15, 1996, as quoted by NASDAQ.
The number of outstanding shares of the registrant's Common Stock on
February 15, 1996, was 3,920,496.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Biospherics Incorporated to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A of the
Securities Exchange Act of 1934 on or prior to April 30, 1996, are incorporated
herein by reference into Part III of this report.
Transitional Small Business Disclosure Format (Check One): Yes No X
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Page 1 of 78
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Biospherics Incorporated (the "Company"), a Delaware corporation, was
founded in 1967. The Company has developed into a scientific and technological
firm providing information services to private industry and to Federal, State,
and local government agencies, biological and chemical contract research
services, and is developing its own proprietary products. The Company consists
of an Information Services Division ("ISD"), a Research and Development Unit
("R&D"), and an Environmental and Laboratory Services Division ("ELSD"). As
discussed further below, on January 5, 1996, the Board of Directors approved a
plan to sell ELSD.
In 1969, the Company completed a public offering and its common stock
trades on the NASDAQ National Market System under the symbol "BINC."
INFORMATION SERVICES DIVISION
ISD's information professionals provide computerized health, pharmaceutical
and medical data collection and clinical trial management, report and
publication writing and editing, development of programmatic concepts in public
health information and education, database management, and computer-assisted
health resource information. ISD collects and disseminates information by
providing customized telesupport and database management systems that combine
the human element of live operators with advanced communication technology. It
answers millions of calls annually from professionals and the public nationwide
and disseminates millions of publications. The core of its operation consists
of state-of-the-art telecommunications equipment that efficiently manages and
tracks high volumes of calls. This technology is combined with computerized
database management systems, which results in an efficient and effective system
to collect and disseminate large amounts of information. With special emphasis
on quality, Biospherics has become known as a leading national health hotline
company.
ISD specializes in public health issues and provides information services
on a wide range of diseases and disabilities, disease prevention, and
education. Areas of expertise include Alzheimer's disease, AIDS, cancer,
diabetes, heart disease, and stroke, in addition to the broad areas of
smoking, aging, and environmental hazards, including potential health hazards
from mishandling of pesticides. Programs are staffed by health professionals
and other information specialists who are given extensive training and strict
quality control guidelines. ISD's clients include over 20 of the Nation's
top pharmaceutical companies, and Federal departments that deal with health
or education. ISD holds contracts with such agencies as the Department of
the Navy, the General Services Administration, the Department of Health and
Human Services, and the Department of Agriculture. Contracts with
non-governmental parties are typically obtained following private
negotiations and are most often for a term of 1 year although many such
contracts have continued to renew for several years. Contracts with
governmental parties are obtained after a competitive bidding process and are
most often for terms ranging from 2 to 3 years with additional option years.
During 1995, the Company recognized revenue from two of its commercial
customers, Parke-Davis and Merck, representing 23% and 10%, respectively, of
the total Company revenues. During 1994, the Company recognized 29% of its
total revenues from the Merck
contract.
ISD accounted for nearly 100% of the Company's total revenues from
continuing operations in 1995 and 1994, and accounted for all of the profits.
Growth in commercial health information programs has resulted in a change in the
mix of commercial and Federal business. During 1995, commercial business
accounted for approximately 54% of ISD's business compared with 46% in 1994.
This growth in commercial business is expected to continue in 1996 as companies
require ISD's services in response to a continuing high level of public interest
in health information.
ISD's primary operation is located in the Company's Beltsville, Maryland,
headquarters. ISD also operates a facility in Cumberland, Maryland.
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R&D UNIT
R&D is the Company's research and development arm, dedicated to developing
proprietary products and services with a view towards economic commercial
applications. Over the last several years, it has invested more than $2,600,000
in these developments, primarily in its nonfattening sugar. The Company has
accumulated a number of patents on its products.
SUGAREE-TM- R&D has patented the use of a rare, naturally occurring sugar,
D-tagatose, as a low-calorie and uniquely nonfattening sweetener. In 1994, D-
tagatose was named "Sugaree." It is a true sugar that looks, feels, performs,
and tastes like table sugar. Present in trace amounts in many dairy products,
it differs from competing low-calorie sweeteners in that it is the only one that
has the full bulk of sugar with a clean, sweet taste. Biospherics has been
developing the substance since receiving its patent for use as a food additive
in 1988. The Company has received additional key patents for the economic
production of the material and for its use as an anti-hyperglycemic agent (1994)
and, also as a treatment for diabetes (1995).
On August 16, 1995, the Company entered into a Letter of Intent with MD
Foods Ingredients amba ("MD Foods") to negotiate in good faith for 1 year for an
agreement to establish and operate a joint venture which will produce and
distribute commercial quantities of Sugaree worldwide. See Item 6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The Company is working with MD Foods in Denmark where a pilot plant is
producing small quantities of Sugaree for production testing by interested food
products manufacturers. The Company has made arrangements with prospective
distributors and hopes to begin the distribution of small quantities in Pacific
Rim countries, including Australia, as soon as commercial quantities are
available. Process data is also being collected for then design of a full-scale
plant. Management believes the experience gained and revenues generated
overseas will permit continuation of the FDA test program, leading to approval
to sell the product in the United States and those European countries requiring
FDA-like approvals, although any such approval could be several years away.
In 1993, several important animal safety studies conducted in accordance
with U.S. Food and Drug Administration ("FDA") test requirements were
successfully completed in independent toxicology laboratories. No toxic effects
were found. Based on the success of these studies, as intepreted by the
Company's independent consulting toxicologist, the Company decided to begin
sales of its product, when such amounts are available for any sales, in
Australia and a number of Pacific Rim Countries where regulations, modeled after
the recommendations of the World Health Organization, permit. Biospherics
believes the favorable safety results will satisfy requirements governing sale
of Sugaree in a number of countries. The Company plans to continue the tests
required for U.S. FDA approval utilizing foreign sales revenues for funding.
In 1993, the food product consulting firm of Hammond & Hatch formulated
chocolate candy and chewing gum with Sugaree and reported that the chocolate was
"an excellent-tasting product not inferior to the popular major brand of
chocolate candy upon which it was modeled." The Sugaree gum, formulated to
taste like a popular major brand of spearmint gum, was "equal to sugar-sweetened
gum, which should make it far superior to other commercial sugar-free gums."
Both products were described as having good appearance and consistency in
addition to good flavor.
The Company believes Sugaree will fill a market not currently accessible to
other sweetener products. That market includes chocolate confections, chewing
gums, baked goods, heat-processed foods, ice cream and frozen desserts, other
dairy products, cereals, and other products in which the full bulk of sugar is
required. Biospherics believes that chocolate candies and chewing gums are
excellent introductory uses for its nonfattening sugar because each constitutes
a large market and each uses sugar as a major ingredient. Manufacturers have
long sought a low-calorie substitute for table sugar in chocolate candy, which,
because of its high sugar content, suffers from a high-calorie profile. While
gum manufacturers have used alternative sweeteners to reduce caloric content,
none have succeeded in emulating the flavor of table sugar. Also, unlike table
sugar, Sugaree has been shown to cause virtually no tooth decay.
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Under an award from the State of Maryland and additional funding from
Biospherics, researchers at the University of Maryland School of Medicine, are
performing a human study to examine the potential usefulness of Sugaree for
people with diabetes.
LEV-O-CAL-TM- Earlier in its low calorie sweetener research, the Company
has obtained patents in the United States and abroad for the use of a broad
group of hexose L-sugars for sweetening and/or bulking purposes in foods,
beverages, and drugs. L-sugars contribute little or no caloric value to foods.
Research also demonstrates that common bacteria cannot effectively utilize
L-sugars, indicating reduced tooth decay. Additionally, foodstuffs substituted
with L-sugars would resist bacterial spoilage better and would have longer shelf
lives. To date no economic means for production exists. However, the Company
plans to develop such for some of the L-sugars. For now, Biospherics' research
efforts and investment are largely devoted to Sugaree because of the favorable
prospects for this product and its manufacturing process.
SAFE-FOR-HUMANS PESTICIDES The increasing national and worldwide concern
over pesticide hazards in foods and the general environment ensures a major
market for an economical and effective product that poses no human threat. In
November 1992, the Company received a U.S. patent for its safe-for-humans
pesticides. Some of these have already been demonstrated as being nontoxic to
mammals, and the Company believes the others will prove the same. In 1990, the
U.S. Department of Agriculture ("USDA") entered into a Cooperative Research and
Development Agreement with Biospherics under which the USDA tested the efficacy
of the pesticide against houseflies. The Company has designed a bait station
for use of one of the pesticides, "WingDinger-TM-", against houseflies.
Application for approval of a proposed label has been submitted to the U.S. EPA
which, in its initial review, stated that it had no objection to the claim of
non-toxicity to humans or other mammals.
THE PHOSTRIP-REGISTERED TRADEMARK- PROCESS Biospherics' patented PhoStrip
process for removing phosphorus from wastewater was first brought to market in
1974 and has since been contracted for in wastewater treatment facilities in
some 30 municipalities in the Unites States and abroad. The Company entered
into an agreement to establish PhoStrip Abwasser Technik GmbH (PAT) on June 6,
1989, with Biospherics having a 50% ownership position. The objective of PAT is
to promote, market, and sell the PhoStrip process for use in wastewater
treatment plants in Germany and Austria. To date, PAT has had limited success.
In August 1991, the Company assigned its rights to the PhoStrip process, except
for certain areas in Europe, to TETRA Technologies of Houston, Texas, for
initial and future cash payments and royalties on sales. Under the royalty
agreement, TETRA will continue marketing the PhoStrip process until 2004. The
agreement requires minimum royalty payments for its continuation. In April
1993, Biospherics assigned some of its future rights to royalty payments to a
former landlord in settlement of a lawsuit. To date, the Company has not been
advised of any sales of the process by TETRA.
ENVIRONMENTAL AND LABORATORY SERVICES DIVISION
Through its training and field services group and microscopy laboratory
facilities, ELSD provides a broad complement of field services, training,
consultation, and laboratory analysis concerning human exposure to hazardous
substances in the workplace and in public or private environments. ELSD's
environmental professionals conduct sampling operations to determine asbestos,
lead-in-paint and other hazards in buildings, train remediation workers to the
required state certification levels for hazardous substance removal operations,
and supervise those operations to ensure compliance with good practice and
regulations. Transmission electron microscopy ("TEM") is used to analyze
samples taken for asbestos in compliance with the Asbestos Hazard Emergency
Response Act, along with the more conventional optical microscopy. Lead-in-
paint field determinations are made with x-ray fluorescence spectrum analyzers
with confirmation, as needed, by chemical laboratory methods. The microscopy
laboratory is fully accredited and certified by every major national
accreditation program as well as by several state programs. National
accreditation includes the American Industrial Hygiene Association, National
Institute of Standards and Technology's National Voluntary Laboratory
Accreditation Program, and the National Institute of Occupational Safety and
Health's Proficiency in Analytical Testing Program.
On January 5, 1996, the Board of Directors of the Company approved a formal
plan to sell the net assets of ELSD because of a continuing lack of
profitability and diminishing opportunity for profitable new sales. On February
27, 1996, the Company entered into an agreement with ManTech Environmental
Corporation to sell substantially all
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assets of ELSD except for certain receivables retained by the Company relating
to completed contracts. The sale is expected to close on February 29, 1996.
The purchase price will be equal to the book value of substantially all ELSD
assets, less certain liabilities, plus approximately $150,000, subject to final
adjustments under the agreement. The aggregate cash received for the sale and
liquidation of remaining assets is expected to be approximately $850,000. The
Company will no longer be in the Environmental and Laboratory Services business
upon completion of this transaction. Management believes that the sale will
permit better focus on the major businesses of the Company, ISD and R&D.
INDUSTRY SEGMENTS
See Note 10 to Registrant's financial statements for information
concerning the industry segments of Registrant, which information is
incorporated herein by reference.
COMPETITION
The Company is in competition with other information firms across the
Nation and abroad. Many of its competitors are substantially larger than the
Company in assets, gross sales, working capital, operations facilities, and
number of personnel. While acknowledging strong competition from other
information firms, Biospherics has developed a specialized niche by
concentrating on high quality, personalized service combined with state-of-the-
art computerization for efficiency and cost-effectiveness. ISD has established
a reputation for rapidly starting up projects to meet its clients' critical
needs, while not compromising high quality and reasonable pricing.
Over the past several years, various sugar alcohols have been used in food
products as bulk sweeteners. However, all are caloric, and none has the taste
of table sugar. Three high-intensity, low-calorie sweeteners are on the market
in the United States. Aspartame was approved by FDA in 1981; saccharin was on
the market before FDA approval was required, and despite FDA's warning that it
is a health hazard, Congress has prevented FDA from banning it. Recently,
Acesulfame-K was approved by FDA for some limited food uses, but its ability to
achieve significant market penetration is not yet known.
Other low-calorie sweeteners are awaiting FDA approval. These sweeteners,
however, are either "high-intensity" and lack the important bulking properties
of Sugaree and Lev-O-Cal or, having bulk, are caloric. The Company believes
that no other products approach the table sugar taste of Sugaree.
SALES BACKLOG
Sales backlog for continuing operations at December 31, 1995 and 1994, were
as follows ($000s):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
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CURRENT LONG-TERM TOTAL CURRENT LONG-TERM TOTAL
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<S> <C> <C> <C> <C> <C> <C>
Information Services $ 10,693 $ 21,248 $ 31,941 $ 12,355 $ 19,809 $ 32,164
R&D Unit - - - - - -
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$ 10,693 $ 21,248 $ 31,941 $ 12,355 $ 19,809 $ 32,164
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</TABLE>
PATENTS AND TRADEMARKS
The Company has established a strong, worldwide patent position for
Sugaree, and its L-sugar sweeteners, and processes to manufacture each. The
Company's 1988 U.S. patent for the use of Sugaree as a low-calorie
sweetener/bulking agent has been obtained or filed in many countries. In October
1994, the Company received a patent for the discovery that Sugaree is effective
in reducing hyperglycemia, one of the principal causes of physical and mental
aging. In September, 1995, it received a patent for the use of D-tagatose in
treating diabetes. The Company developed a proprietary method for manufacture of
D-tagatose that is protected by two U.S. patents issued in 1991 and 1992.
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In 1981, the Company obtained a patent for the use of certain L-sugars as
low-calorie sweeteners/bulking agents in foods, beverages, and drugs and later
obtained patents on methods for the production of L-sugars. During 1992, the
Company reestablished the claims of its L-sugar patent by obtaining a reissue of
the patent in the United States.
In November 1992, a U.S. patent was awarded the Company for its safe-for-
humans pesticide. Foreign patents for the pesticide have also been applied for.
With respect to all of its inventions, the Company has received a total of
approximately 100 patents, including foreign issues. It has several patents
pending and many additional invention disclosures.
In addition to its strong patent position, the Company also relies on the
common law protection of such information as trade secrets and on
confidentiality agreements to protect the value of these assets.
GOVERNMENTAL REGULATION
The business activities of the Company are subject to a variety of Federal
and state compliance, licensing, and certification requirements. Management
believes that the Company is, and has been at all times, in full compliance with
Federal and state environmental protection and worker safety laws. The Company
has not incurred significant expense in complying with such laws and does not
anticipate material expense, except for the FDA approval for commercialization
of Sugaree and L-sugars. Commercialization of Sugaree and L-sugars in the
United States for use as food additives will require FDA approval unless it is
determined that the substances occur naturally in significant amounts in common
food to be classified as Generally Regarded as Safe (GRAS). Laboratory studies
must be submitted to and reviewed by FDA to demonstrate efficacy and safety of
the products. As of this date, Biospherics believes the results of its test
program warrant continuing the development efforts.
EMPLOYEES
The Company presently employs 329 persons, both full- and part-time,
including 25 persons in ELSD. The Company's employees are not currently
unionized, and management believes that its relations with the Company's
employees are harmonious.
RESEARCH AND DEVELOPMENT
R&D expenditures were $538,714 and $579,820 in 1995 and 1994, respectively.
These expenditures were incurred primarily in the ongoing development of Sugaree
and its safe-for-humans pesticides.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company leases a 95,000 square foot facility in Beltsville, Maryland
under the terms of a lease which expires on April 30, 1998. The Company
currently occupies 52,000 square feet of this facility and has subleased the
remaining space. In connection with the sale of ELSD, the Company will sublease
approximately 9,000 square feet to the Purchaser for at least 2 months and will
seek to continue to sublease the space subsequent to the Purchaser moving out.
Current annual rent is approximately $1,139,000 and is subject to scheduled base
rent increases during the lease term. In 1991, the Company entered into an
Agreement of Sublease for approximately 25,000 square feet of its Beltsville
facility for a lease term from September 1, 1991, through April 30, 1998, with
annual rental income of $136,000. In 1994, the Company entered into an
additional Agreement of Sublease for approximately 18,000 square feet of its
Beltsville facility for a lease term from February 1, 1994, through April 30,
1998, with annual rental income of $290,200. The Company also provides
telesupport services in a 12,700 square foot facility in Cumberland, Maryland.
The lease was scheduled to expire on September 30, 1994, but was continued on a
month-to-month basis until March 1995, at which time it was extended until
December 31, 1998. Annual base rent is $58,000.
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ITEM 3. LEGAL PROCEEDINGS
As a result of routine audits of the Company's Federal income tax returns
by the Internal Revenue Service ("IRS"), the IRS had disputed the timing of
certain rent expense deductions taken during the 1986 through 1992 tax years.
The aggregate amount of the IRS' claims and penalties were $348,666 and $79,808,
respectively. The deficiencies in question constituted temporary differences
regarding the period in which certain rent expenses should have been deducted.
The Company had filed a petition in the United States Tax Court disputing all of
the claims and penalties. Additionally, the Company had identified certain
errors in the IRS audit findings. As a result, on August 28, 1995, the Company
entered into a settlement agreement under which the IRS claims were
substantially reduced and all penalties assessed were waived. The overall
impact on net income and cash flow was immaterial.
In November, 1995, the Company received a notice of potential liability
from the U.S. Environmental Protection Agency. See "Liquidity and Capital
Resources," under ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company is also involved in litigation arising from the normal course
of business. In the opinion of management, based on advice of legal counsel,
this litigation will not have any material adverse effect on the financial
statements of Biospherics.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Biospherics' common stock is traded on the NASDAQ National Market System.
No cash dividends were paid in 1995 or 1994. The Company's loan agreement with
its bank does not expressly restrict the payment of dividends, though no such
payments are anticipated in the near future.
As of February 15, 1996, the number of stockholders of record of
Biospherics' common stock was approximately 4,800, based on the number of proxy
requests of the Company's transfer agent. The per share market value at the
close of each quarter for 1995 and 1994 is listed below.
<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
1st Quarter 1995 5-3/4 4-1/4
2nd Quarter 1995 8 4-1/2
3rd Quarter 1995 27 6-1/2
4th Quarter 1995 13-3/4 7-7/8
1st Quarter 1994 8 6-1/2
2nd Quarter 1994 8-1/4 5-7/8
3rd Quarter 1994 7-3/4 5-1/4
4th Quarter 1994 7-1/2 4-3/4
</TABLE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--1995 COMPARED WITH 1994
The Company earned income from continuing operations of $424,000 for the
year ended December 31, 1995, compared with a net loss from continuing
operations of $183,000 during 1994. The primary reason for this improvement was
the substantial reduction in losses associated with the Company's Department of
Agriculture Forest Service campsite reservation contract (the "Forest Service
Contract"). Revenues from continuing operations were $13,740,000 for the year
ended December 31, 1995, which represents a 2%, or $229,000, increase from 1994
revenues from continuing operations of $13,511,000. These fluctuations are
discussed further below. On January 5, 1996, the Board of Directors of the
Company approved a formal plan to sell the net assets of ELSD. See "Liquidity
and Capital Resources" below.
ISD revenues were $13,715,000, which reflects an increase of 2% or
$239,000, compared with revenues of $13,476,000 in 1994. This increase was
primarily from commercial business growth which accounted for 54% of ISD's
business as compared to 46% in 1994. Profit before interest and taxes increased
$566,000, or 128%, to $1,006,000 in 1995 from $440,000 in 1994. This increase
was directly attributable to the substantial reduction in losses on the
Company's Forest Service Contract from $840,000 in 1994 to $260,000 in 1995 as a
result of certain cost control measures put into place in late 1994. The
Company anticipates earning a minimal profit on this contract in 1996.
R&D generated revenues of $25,000 during 1995 compared with $35,000 in
1994. During 1995 and 1994, R&D has focused primarily on developing its bulk
sugar substitute, D-tagatose (which was named "Sugaree-TM-"), and to a lesser
extent its safe-for-humans pesticides. During 1995, R&D's loss before interest
and taxes was $583,000, compared with a loss of $624,000 in 1994. The
expenditures primarily relate to ongoing efforts to develop an economical
manufacturing process for Sugaree and ongoing negotiations for its commercial
production. Management believes that significant progress continues on the
development of an economical manufacturing process and market introdution of
Sugaree and that there is a substantial market for nonfattening, bulk sugar
substitutes. If the manufacturing process can be implemented, the
commercialization of Sugaree could have a substantial impact on future results
of operations. However, no assurance can be given that the Company will be
successful in its efforts to commercialize this product.
On August 16, 1995, the Company entered into a Letter of Intent with MD
Foods Ingredients amba ("MD Foods") to negotiate within 1 year an agreement to
establish and operate a joint venture which will produce and distribute
commercial quantities of Sugaree worldwide. No assurance can be given that the
Company will be able to negotiate such an agreement under terms satisfactory to
the Company. The Letter of Intent provides for the construction and operation
of a pilot plant in Denmark to obtain product development quantities of the
sugar and obtain data on which to design a full-scale plant. The pilot plant is
now operating and producing small quantities of Sugaree. Under the agreement,
MD Foods will incur costs up to $550,000 for the construction and operation of
the pilot plant, costs associated with establishing the joint venture, and other
costs. MD Foods will be reimbursed for 100% of such costs by the joint venture,
if organized, or 50% by the Company if the parties do not reach an agreement.
If no agreement is reached, the product of the effort and all the technology
resides with the Company. No amounts have been accrued by the Company to
reimburse MD Foods for these costs. The Company will be reimbursed up to
$170,000 by the joint venture for certain costs to produce limited quantities of
D-tagatose, costs associated with establishing the joint venture, and certain
other costs. MD Foods will reimburse the Company for up to 50% of these costs
if an agreement is not reached. The Company has recognized a receivable of
$32,000 for the recovery of such costs. The Company and MD Foods are in the
process of negotiating an agreement. While the Letter of Intent contemplates a
joint venture, the parties are also discussing the possibility of the grant of a
non-exclusive license by the Company to MD Foods.
General and administrative expenses ("G&A") have been fully allocated to
each segment's operating results discussed above. G&A expenses which will not
be eliminated after the sale of ELSD is completed have been allocated to ISD and
R&D in the discussion above. As reflected in the accompanying Statements of
Operations, G&A increased $297,000 from $2,053,000 in 1994 to $2,350,000 in
1995. This increased cost is primarily a result of the transfer of certain
salary, fringe benefit, and other costs to G&A from ISD in connection with the
formation of a corporate
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communications group. As a result of the sale of ELSD, G&A expenses of $355,000
and $17,000 in 1995 that would have been absorbed by ELSD, has been allocated to
ISD and R&D, respectively; and G&A expenses of $325,000 and $16,000 in 1994
previously absorbed by ELSD, has been allocated to ISD and R&D, respectively.
Interest expense increased $89,000 from $123,000 in 1994 to $212,000 in
1995. This increase was primarily caused by interest accrued relating to the
IRS settlement, offset by lower interest expense associated with the line of
credit because of lower borrowings outstanding during 1995. The after-tax
impact of the interest expense associated with the IRS settlement was offset by
the reversal of estimated tax accruals which reduced the current year's tax
expense.
1995 net income was positively impacted by a settlement of a claim against
the U.S. Department of Agriculture. See "Liquidity and Capital Resources."
The Company's backlog as of December 31, 1995 has remained steady at
$31,941,000 compared to $32,164,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
On January 5, 1996, the Board of Directors of the Company approved a formal
plan to sell the net assets of ELSD because of a continuing lack of
profitability and diminishing opportunity for profitable new sales. On February
27, 1996, the Company entered into an agreement with ManTech Environmental
Corporation to sell substantially all assets of ELSD except for certain
receivables retained by the Company relating to completed contracts. The sale
is expected to close on February 29, 1996. The purchase price will be equal to
the book value of substantially all ELSD assets, less certain liabilities, plus
approximately $150,000, subject to final adjustments under the agreement. The
aggregate cash received for the sale and liquidation of remaining assets is
expected to be approximately $850,000. The Company will no longer be in the
Environmental and Laboratory Services business upon completion of this
transaction. Management believes that the sale will permit better focus on the
major businesses of the Company, ISD and R&D.
On May 31, 1995, the Company entered into a Loan Agreement (the "New Loan
Agreement") which replaced the Company's previous bank line of credit. The New
Loan Agreement, which expires on May 31, 1996, provides for borrowings of up to
$2 million, subject to an advance rate as defined in the agreement. Amounts
outstanding under the New Loan Agreement accrue interest at the bank's prime
rate plus .75% per annum and are collateralized by the Company's accounts
receivable. The New Loan Agreement contains covenants which require the Company
to meet certain tangible net worth and cash flow coverage ratios, and excludes a
specific limitation on research and development expenditures. The Company was
in compliance with all covenants as of December 31, 1995.
On October 12, 1995, the Company entered into a $200,000 Promissory Note
which matures on October 12, 1998. The Promissory Note accrues interest at the
rate of 8.55% per annum and the Company is required to make monthly payments of
interest and principal. The proceeds were used to provide financing for a
portion of the Company's property and equipment purchases during 1995. The
Promissory Note is collateralized by equipment purchased prior to October 12,
1995.
In November 1995, the Company received a notice of potential liability (the
"Notice") from the U.S. Environmental Protection Agency ("EPA") regarding a
small quantity of hazardous materials shipped in 1988 and 1989 to a sight owned
and operated by a company which was in the business of disposing of such
materials. The EPA is conducting an investigation of the source, extent, and
the nature of release or threatened release of hazardous substances at this
sight. The Notice stated that the EPA has spent over $2.1 million in its
investigation and restoration activities and that the Company has a potential
liability under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, for such costs. Based upon information in the
Notice, the amount of hazardous material shipped to the sight by the Company is
less than .2% of all such materials found at the sight. If the EPA allocates
its costs based upon the amount of materials shipped by each company to the
sight in proportion to the total materials shipped to the sight, the Company's
share of the costs should be immaterial. The Company is reviewing its
alternatives in response to the Notice and believes that it has defenses against
such claims, but that, should the EPA
-9-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
persist and prevail, the impact on the financial statements will be immaterial.
However, no assurance can be given about the final outcome.
Cash flow improved significantly as reflected in the accompanying
Statements of Cash Flows. Net cash provided by operating activities was
$1,432,413 which is an improvement of $631,884 compared to 1994. This was
primarily due to a decrease in accounts receivable of $1,014,369 and an
improvement in earnings of $485,986. Net cash used in investing activities
decreased $165,446 because of a decrease in payments for purchases of property
and equipment. Cash flow from financing activities changed substantially as the
Company repaid a net amount of $1,214,000 during 1995 under its line of credit
compared to net repayments of $108,000 during 1994.
On February 22, 1996, the Company settled a claim against the U.S
Department of Agriculture relating to the startup and early operation of the
Forest Service Contract. The claim, which was originally filed in late 1994,
was amended in 1995 to include certain additional costs. This settlement was
recorded as other income in the Statement of Operations included herein and
increased pre-tax income from continuing operations by $335,000 in 1995. The
full amount due to the Company as a result of the claim is expected to be
received in March 1996.
Consistent with the Company's policy, profits will be retained by the
Company to help bring Sugaree and its other products to market and for
reinvestment in the growth of ISD. Thus, no dividends were paid in 1995 and
none are anticipated in 1996. While management believes that continuing
operations of the business will generate positive cash flow, management is
pursuing additional financing alternatives to accelerate bringing its products
to market and to support growth of its core businesses.
The Company may require additional funds to pursue its commercialization of
Sugaree depending upon the negotiations with MD Foods. Such funds could be
generated by further assets sales, sales of debt and/or equity securities or
other methods.
ITEM 7. FINANCIAL STATEMENTS
Financial statements and supplementary data required by this Item 7 follow.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Statements of Operations for each of the two years ended December 31, 1995 . . . . . . . . . . . . . 12
Balance Sheet as of December 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Statements of Changes in Stockholders' Equity for each of the two years ended December 31, 1995. . . 14
Statements of Cash Flows for each of the two years ended December 31, 1995 . . . . . . . . . . . . . 15
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
-10-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994
---------------- --------------
<S> <C> <C>
REVENUES
Contract revenues $ 13,739,514 $ 13,510,716
-------------- --------------
OPERATING EXPENSES
Direct costs and operating expenses 10,005,559 10,698,332
General and administrative expenses 2,349,684 2,052,762
Research and development expenses 538,714 579,820
Depreciation and amortization expenses 421,263 363,061
-------------- --------------
Total operating expenses 13,315,220 13,693,975
-------------- --------------
Income (loss) from operations 424,294 (183,259)
Other income (expense)
Other income 329,631 12,765
Interest expense (211,979) (122,816)
-------------- --------------
Income (loss) from continuing operations
before income taxes 541,946 (293,310)
Income tax expense (benefit) 115,103 (112,936)
-------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 426,843 (180,374)
Discontinued operations
Income (loss) from discontinued operations, net of
applicable income tax expense (benefit) of
$(19,949) and $54,354 in 1995 and 1994, respectively (32,549) 88,682
-------------- --------------
NET INCOME (LOSS) $ 394,294 $ (91,692)
-------------- --------------
-------------- --------------
NET INCOME (LOSS) PER SHARE DATA:
Income (loss) per share from continuing operations $ 0.09 $ (0.05)
Income (loss) per share from discontinued operations (0.01) 0.03
-------------- --------------
Net income (loss) per share $ 0.08 $ (0.02)
-------------- --------------
-------------- --------------
Weighted average shares and common stock equivalents
outstanding 4,662,992 3,904,770
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements
-11-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
Balance Sheet
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 29,861
Trade accounts receivable, net 1,602,486
Costs and estimated earnings in excess
of billings on contracts 49,030
Other receivables 562,706
Prepaid expenses and other assets 507,487
Current deferred income taxes 36,721
Net assets of discontinued operations 710,958
----------
Total current assets 3,499,249
Restricted cash-security deposit 27,408
Property and equipment, net 1,610,860
Patents, net 96,675
----------
TOTAL ASSETS $ 5,234,192
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ 321,000
Accounts payable and accrued expenses 1,045,211
Accrued salaries and benefits 382,201
Accrued vacation 133,773
Income taxes payable 66,010
Deferred revenue
191,461
Note payable-current portion 61,893
----------
Total current liabilities 2,201,549
Deferred compensation 110,626
Deferred income taxes 148,028
Deferred rent 114,741
Note payable 127,917
----------
Total liabilities 2,702,861
----------
Commitments and contingencies
Redeemable common stock 169,595
----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 18,000,000
shares authorized, 3,934,947 issued,
of which 1,642,253 shares are classified
in redeemable common stock 22,926
Paid-in capital in excess of par 773,050
Treasury stock, 14,451 shares at cost (156,268)
Retained earnings 1,722,028
----------
Total stockholders' equity 2,361,736
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,234,192
----------
----------
</TABLE>
See notes to financial statements
-12-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
PAID-IN
COMMON CAPITAL IN TREASURY RETAINED STOCKHOLDERS'
STOCK EXCESS OF PAR STOCK EARNINGS EQUITY
---------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 20,883 $ 654,416 $ - $ 1,419,426 $ 2,094,725
Exercise of employee
stock options 5 2,170 - - 2,175
Net reclassification
for redeemable
common stock 457 2,743 - 3,200
Net loss - - - (91,692) (91,692)
---------- ------------- ----------- ------------ -------------
Balance, December 31, 1994 21,345 659,329 - 1,327,734 2,008,408
Exercise of employee
stock options 151 105,141 - 105,292
Acquisition of treasury
stock in connection
with option exercises - - (160,258) - (160,258)
Issuance of treasury stock
in payment of expense - - 3,990 - 3,990
Net reclassification
for redeemable
common stock 1,430 8,580 - - 10,010
Net income - - - 394,294 394,294
---------- ------------- ----------- ------------ -------------
Balance, December 31, 1995 $ 22,926 $ 773,050 $ (156,268) $ 1,722,028 $ 2,361,736
---------- ------------- ----------- ------------ -------------
---------- ------------- ----------- ------------ -------------
</TABLE>
See notes to financial statements
-13-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net income (loss) $ 394,294 $ (91,692)
---------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 467,054 436,753
Deferred compensation adjustment (38,000) (55,513)
Loss on sales and retirements of property and equipment 32,414 -
Treasury stock issued in payment of expense 3,990 -
Provision for uncollectible accounts (11,216) 36,000
Decrease (increase) in trade accounts receivable 1,036,801 (552,683)
Decrease (increase) in costs and estimated earnings
in excess of billings on contracts 213,194 (143,631)
Decrease (increase) in other receivables (360,314) 74,748
Decrease in income taxes receivable - 421,176
Decrease (increase) in prepaid expenses and other assets (75,558) 120,947
Increase (decrease) in accounts payable and accrued expenses (303,025) 486,103
Increase (decrease) in accrued salaries and benefits (53,506) 24,371
Decrease in accrued vacation (9,504) (6,541)
Decrease (increase) in current deferred income taxes 16,824 (77,118)
Decrease in deferred income taxes (42,397) (20,824)
Increase in income taxes payable 14,289 31,772
Increase in deferred revenue 191,461 -
Decrease in deferred rent (44,388) (51,984)
---------- ----------
Total adjustments 1,038,119 723,576
Net cash provided by operating activities 1,432,413 631,884
---------- ----------
Cash flows from investing activities:
Decrease in short-term investment - 29,457
Payments for purchases of property and equipment (468,657) (669,231)
Additions to patent costs (18,162) (12,511)
---------- ----------
Net cash used in investing activities (486,819) (652,285)
---------- ----------
Cash flows from financing activities:
Net repayments under line of credit (1,214,000) (108,000)
Net change in book overdraft 95,766 125,160
Proceeds from note payable 200,000 -
Repayments of note payable (10,190) -
Proceeds from issuance of common stock 4,712 2,175
---------- ----------
Net cash (used in) provided by financing activities (923,712) 19,335
---------- ----------
Net increase (decrease) in cash 21,882 (1,066)
Cash, beginning of period 7,979 9,045
---------- ----------
Cash, end of period $ 29,861 $ 7,979
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunded) $ 73,135 $ (413,588)
Interest paid 110,473 122,816
Non-cash redemption of common stock in connection with
stock option exercises 160,258 -
</TABLE>
See notes to financial statements
-14-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are summarized below.
REVENUE RECOGNITION
Revenue is recognized using the following methods depending upon the terms
of the contracts: time & materials, fixed price, and cost-plus-fixed-fee.
Revenue recognized under time & material contracts is based upon direct labor
hours and other direct costs incurred. Revenue for fixed-price contracts is
recognized using the percentage-of-completion and unit-of-delivery methods.
Revenue for cost-plus-fixed-fee contracts is recognized based on the allowable
total costs incurred plus a pro rata share of the fee. Losses, if any, on
contracts are recorded during the period when first determined. Included in
prepaid expenses and other assets is $180,403 at December 31, 1995 attributable
to certain start-up costs which have been deferred and which will be amortized
and recovered over the related period of service provided to the client.
RECEIVABLES
Trade accounts receivable are reflected in the accompanying Balance Sheet
net of an allowance for doubtful accounts of $79,398, including $38,520 included
in net assets of discontinued operations.
Costs and estimated earnings in excess of billings on contracts represents
revenues recognized which are not billable as of December 31, 1995 under the
terms of the contracts. There are no significant contract retainages as of
December 31, 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
DEPRECIATION AND AMORTIZATION
Depreciation is provided on the straight-line basis over the estimated
useful lives of the various assets. Leasehold improvements are amortized over
the shorter of the periods of the leases or the useful lives of the
improvements. Expenditures for maintenance, repairs, and minor renewals are
charged to expense as incurred; expenditures for improvements, replacements, and
major renewals are added to the property and equipment accounts. Assets retired
or otherwise disposed of are removed from the asset accounts, along with the
related amounts of accumulated depreciation. Gains or losses from disposals, if
any, are included in earnings.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
-15-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
PATENT COSTS
Legal and acquisition costs relating to patents are capitalized when
incurred. When patents are granted, costs are amortized over a term
representing the lesser of the life of the patent or the projected sales period
of the product or process.
DEFERRED RENT
The Company entered into a lease for its headquarters and research
facilities in 1987. The excess of the rent expense over the cash payments for
rent is recorded as deferred rent and is being amortized over the life of the
lease.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of common shares outstanding during each period. Outstanding common stock
equivalents, consisting of shares under option, have an anti-dilutive effect on
loss per share in 1994 and therefore are excluded from the calculation.
RECLASSIFICATIONS
The Statement of Changes in Stockholders' Equity has been reclassified to
conform to the 1995 presentation for redeemable common stock.
ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
which establishes fair value-based accounting and reporting standards for all
transactions in which a company acquires goods or services by issuing equity
securities. As such, Statement 123 covers stock-based compensation plans
including all arrangements under which employees receive shares of stock.
Statement 123 encourages, but does not require, employers to adopt its
prescribed fair value-based method of accounting to recognize compensation
expense for employee stock compensation plans. Employers must comply with the
disclosure requirements set forth in the statement. Statement 123 is effective
for fiscal years beginning after December 15, 1995. The Company expects to
adopt only the reporting standards of Statement 123. The Company accounts for
its employee stock compensation plan under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees".
2. DISCONTINUED OPERATIONS
On January 5, 1996, the Board of Directors of the Company approved a formal
plan to sell the net assets of ELSD because of a continuing lack of
profitability and diminishing opportunity for profitable new sales. On February
27, 1996, the Company entered into an agreement with a corporation to sell
substantially all assets of ELSD except for certain receivables retained by the
Company relating to completed contracts. The sale is expected to close on
February 29, 1996. The purchase price will be equal to the book value of
substantially all ELSD assets, less certain liabilities, plus approximately
$150,000, subject to final adjustments under the agreement. The aggregate cash
received for the sale and liquidation of remaining assets is expected to be
approximately $850,000. The Company will no longer be in the Environmental and
Laboratory Services business upon completion of this transaction. Management
believes that the sale will permit better focus on the major businesses of the
Company, ISD and R&D.
-16-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
Assets and liabilities of ELSD consisted of the following at December 31,
1995:
<TABLE>
<CAPTION>
<S> <C>
Trade accounts receivable, net $ 649,852
Costs and estimated earnings in excess of
billings on contracts 76,586
Prepaid expenses and other assets 60,308
Property and equipment, net 71,483
-----------
Total assets 858,229
Accounts payable and accured expenses 147,271
-----------
Net assets of discontinued operations $ 710,958
-----------
-----------
</TABLE>
Assets are shown at their expected net realizable values and accounts
payable and accrued expenses at their face amounts.
3. PROPERTY AND EQUIPMENT
The components of property and equipment as of December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
AMOUNT ESTIMATED LIFE
------------- --------------
<S> <C> <C>
Office furniture and equipment $ 4,114,569 3 to 10 years
Leasehold improvements 265,191 3 to 7 years
-------------
4,379,760
Accumulated depreciation and
amortization (2,768,900)
-------------
Property and equipment, net $ 1,610,860
-------------
-------------
</TABLE>
4. BANK LINE OF CREDIT
On May 31, 1995, the Company entered into a Loan Agreement (the "New Loan
Agreement") which replaced the Company's previous bank line of credit. The New
Loan Agreement, which expires on May 31, 1996, provides for borrowings of up to
$2 million, subject to an advance rate as defined in the agreement. Amounts
outstanding under the New Loan Agreement accrue interest at the bank's prime
rate plus .75% per annum and are collateralized by the Company's accounts
receivable. The New Loan Agreement contains covenants which require the Company
to meet certain tangible net worth and cash flow coverage ratios, and excludes a
specific limitation on research and development expenditures. The Company was
in compliance with all covenants as of December 31, 1995. The Company will seek
to renew the line under similar terms and conditions.
5. NOTE PAYABLE
On October 12, 1995, the Company entered into a $200,000 Promissory Note
which matures on October 12, 1998. The Promissory Note accrues interest at the
rate of 8.55% per annum and the Company is required to make monthly payments of
interest and principal. The proceeds were used to provide financing for a
portion of the Company's property and equipment purchases during 1995. The
Promissory Note is collateralized by equipment purchased prior to October 12,
1995. The unpaid principal balance of the note was $189,810 as of December 31,
1995 of which $61,893, $67,464, and $60,453 matures in 1996, 1997, and 1998,
respectively.
-17-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
6. INCOME TAXES
The components of the provision (benefit) for income taxes from continuing
operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994
--------------- -------------
<S> <C> <C>
Current
Federal $ 114,065 $ (12,291)
State 26,611 (2,703)
--------------- -------------
Total current provision 140,676 (14,994)
--------------- -------------
Deferred
Federal (21,207) (77,703)
State (4,366) (20,239)
--------------- -------------
Total deferred benefit (25,573) (97,942)
--------------- -------------
Total expense [benefit] for
income taxes from continuing
operations $ 115,103 $ (112,936)
--------------- -------------
--------------- -------------
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT
--------------- -------------
<S> <C> <C>
Depreciation and amortization $ 36,216 $ 183,384
Deferred compensation - (45,356)
Accrued vacation (40,384) -
Other (32,553) 10,000
--------------- ------------
Deferred tax liability (asset) $ (36,721) $ 148,028
--------------- -------------
--------------- -------------
</TABLE>
Differences between the effective income tax rates and the federal
statutory rates for 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Federal income tax expense [benefit] at 34% $ $184,262 $ (99,723)
State income tax expense [benefit], net of federal 12,898 (6,981)
Expenses not deductible for tax purposes 9,096 27,825
Adjustments relating to resolving the IRS audit (73,081) -
Pther, primarily changes in prior year estimates (18,072) (34,055)
----------- ----------
Income tax expense [benfit]
from continuing operations $ 115,103 $ (112,936)
----------- -----------
----------- -----------
</TABLE>
As a result of routine audits of the Company's Federal income tax returns
by the Internal Revenue Service ("IRS"), the IRS had disputed the timing of
certain rent expense deductions taken during the 1986 through 1992 tax years.
The aggregate amounts of the IRS' claims and penalties were $348,666 and
$79,808, respectively. The deficiencies in question constituted temporary
differences regarding the period in which certain rent expenses should have been
deducted. The Company had filed a petition in the United States Tax Court
disputing all of the claims and penalties. Additionally, the Company had
identified certain errors in the IRS audit findings. As a result, on August 28,
1995, the Company entered into a settlement agreement under which the IRS claims
were substantially reduced and all penalties assessed were waived. During the
third quarter of 1995, the Company reduced its current income tax liability
-18-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
relating to excess income tax accruals, maintained until a settlement with the
IRS was reached, which was offset overall by accrued interest expense relating
to the settlement. The overall impact on the financial statements was
immaterial.
7. COMMITMENTS AND CONTINGENT LIABILITIES
CONTRACT REVENUES
The financial statements include revenues under U.S. Government contracts
that are subject to final Government audit adjustments. DCAA has completed its
audits for all years through 1993. The Company believes that no material
adjustments to the financial statements will arise from the unaudited years.
LEASE COMMITMENTS
The Company incurred expenses of $1,471,485 in 1995 and $1,160,703 in 1994
under operating leases. It is obligated for future minimum rental payments
under leases for office space and telecommunications equipment as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, AMOUNT
---------------------------------------
<S> <C>
1996 $ 1,464,688
1997 1,462,934
1998 660,898
1999 222,978
2000 186,307
Thereafter 217,604
---------------------------------------
Total $ 4,215,409
---------------------------------------
---------------------------------------
</TABLE>
The Company recorded rental income of $426,166 in 1995 and $401,982 in
1994, under sublease agreements, which is offset against rent expense in the
accompanying financial statements. Future minimum receipts under sublease
agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, AMOUNT
---------------------------------------
<S> <C>
1996 $ 483,860
1997 410,043
1998 45,320
---------------------------------------
TOTAL $ 939,223
---------------------------------------
---------------------------------------
</TABLE>
RELATED PARTY TRANSACTIONS
STOCK REDEMPTION AGREEMENTS
In August 1978, the Company, with stockholders' approval, entered into
agreements, which were restated on January 15, 1996, with two officer-
stockholders who beneficially own 45.5% of the outstanding common stock. Under
the agreement, upon their deaths, the Company may be required to redeem from
their estates the number of shares of the Company's stock necessary to pay
estate taxes and administrative expenses of the estate, if any, up to
$5,000,000. Shares would be redeemed at the then-current market price. The
Company is the beneficiary to an insurance policy on the lives of the two
officer-stockholders, which the Company maintains to provide benefits of
$5,000,000 for this agreement.
-19-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
DEFERRED COMPENSATION AND CONSULTING AGREEMENTS
The Company has entered into agreements with two officer-stockholders, who
beneficially own 45.5% of the outstanding common stock, whereby the officer-
stockholders agreed to serve as full-time employees of the Company until their
respective retirements. Under the agreements, upon retirement, the officer-
stockholders will receive deferred compensation equal to 70% of their average
annual total compensation less the assumed returns from investment of their
funded pension plans and their social security payments. The deferred
compensation plan is unfunded. During 1995 and 1994, the deferred compensation
liability was reduced by $38,000 and $55,513, respectively, as determined by
actuarial calculation. Upon completion of their employment, the officer-
stockholders also agreed to serve as consultants to the Company on a minimum
part-time, plus as-needed basis, at a specified daily rate.
OTHER
On August 16, 1995, the Company entered into a Letter of Intent with MD
Foods Ingredients amba ("MD Foods") to negotiate within 1 year an agreement to
establish and operate a joint venture which will produce and distribute
commercial quantities of the Company's patented, non-fattening sugar, Sugaree
worldwide. No assurance can be given that the Company will be able to negotiate
such an agreement under terms satisfactory to the Company. The Letter of Intent
provides for the construction and operation of a pilot plant to obtain product
development quantities of the sugar and obtain data on which to design a full-
scale plant. The pilot plant is now operating and producing small quantities of
Sugaree. Under the agreement, MD Foods will incur costs up to $550,000 for the
construction and operation of the pilot plant, costs associated with
establishing the joint venture, and other costs. MD Foods will be reimbursed
for 100% of such costs by the joint venture, if organized, or 50% by the Company
if the parties do not reach an agreement. If no agreement is reached, the
product of the effort and all the technology resides with the Company. No
amounts have been accrued by the Company to reimburse MD Foods for these costs.
The Company will be reimbursed up to $170,000 by the joint venture for certain
costs to produce limited quantities of Sugaree, costs associated with
establishing the joint venture, and certain other costs. MD Foods will
reimburse the Company for up to 50% of these costs if an agreement is not
reached. The Company has recognized a receivable of $32,000 for the recovery of
such costs. The Company and MD Foods are in the process of negotiating an
agreement. While the Letter of Intent contemplates a joint venture, the parties
are also discussing the possibility of the grant of a non-exclusive license by
the Company to MD Foods.
In November 1995, the Company received a notice of potential liability (the
"Notice") from the U.S. Environmental Protection Agency ("EPA") regarding a
small quantity of hazardous materials shipped in 1988 and 1989 to a sight owned
and operated by a company which was in the business of disposing of such
materials. The EPA is conducting an investigation of the source, extent, and
the nature of release or threatened release of hazardous substances at this
sight. The Notice stated that the EPA has spent over $2.1 million in its
investigation and restoration activities and that the Company has a potential
liability under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, for such costs. Based upon information in the
Notice, the amount of hazardous material shipped to the sight by the Company is
less than .2% of all such materials found at the sight. If the EPA allocates
its costs based upon the amount of materials shipped by each company to the
sight in proportion to the total materials shipped to the sight, the Company's
share of the costs should be immaterial. The Company is reviewing its
alternatives in response to the Notice and believes that it has defenses against
such claims, but that, should the EPA persist and prevail, the impact on the
financial statements will be immaterial. However, no assurance can be given
about the final outcome.
8. STOCK OPTION PLAN
The Company has an Employees' Nonqualified Stock Option Plan (the "Plan"),
whereby options may be granted to officers and other key employees to purchase
up to 2,200,000 shares of common stock in amounts determined by the Board of
Directors at a price not less than 50% of the publicly quoted closing price of
the stock on the date the options are granted, and for a term not to exceed five
years from the date of grant. The Board of Directors determines the vesting
period of options granted. To date, all options granted, except for those part
of an anti-hostile takeover plan
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BIOSPHERICS INCORPORATED
-------------
explained below, have been at the then-publicly quoted price of the stock.
Activity for the two years ending December 31, 1995, is shown below:
<TABLE>
<CAPTION> OPTION PRICE
SHARES PER SHARE
---------------- ------------------
<S> <C> <C>
Outstanding as of January 1, 1994 148,600 $2.25 - $8.25
Granted 1,152,500 5.75 - 7.00
Exercised (15,500) 2.25 - 4.875
Expired (83,400) 2.25 - 8.25
----------------
Outstanding as of December 31, 1994 1,202,200 2.875 - 8.25
Granted 287,500 6.625 - 10.50
Exercised (13,177) 5.75 - 8.00
Expired (12,800) 4.00 - 8.25
----------------
Outstanding as of December 31, 1995 1,463,723 5.75 - 10.50
----------------
----------------
Exerciseable as of December 31, 1995 240,973
----------------
----------------
Options available for grant as of
December 31, 1995 736,277
---------------
---------------
</TABLE>
On November 18, 1994, two officer-shareholders were each granted options to
purchase 500,000 of common stock of the Company at $2.875 per share subject to
two conditions. The options will be exercised in the event that both (i) a
third party acquires 5% or more of the issued and outstanding common stock of
the Company and (ii) the exercise is approved by the Board of Directors of the
Company. This plan was put in place not for compensatory purposes but as a
means of protecting shareholder value against unsolicited offers deemed
inadequate by the Board of Directors and to help ensure fair and equal treatment
of all shareholders.
9. EMPLOYEE BENEFIT PLANS
Effective January 1, 1990, the Company established the Biospherics
Incorporated 401(k) Retirement Plan. The plan is a discretionary defined
contribution plan and covers substantially all employees who have attained the
age of 21, have completed 1 year of service, and have worked a minimum of 1,000
hours in the past Plan or anniversary year.
Under provisions of the plan, the Company, for any plan year, has
contributed an amount equal to 50% of the participant's contribution or 2 1/2%
of the participant's eligible compensation, whichever is less. The Company may,
at its own discretion, make additional matching contributions to participants.
Company contributions, net of forfeitures, amounted to $58,662 in 1995 and
$66,634 in 1994.
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BIOSPHERICS INCORPORATED
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10. INFORMATION BY BUSINESS SEGMENT
Financial information by business segment for the two years ended December
31, 1995 is summarized below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands)
1995 1994
---------- ----------
<S> <C> <C>
REVENUES Information Services Division $ 13,715 $ 13,476
R&D Unit 25 35
---------- ----------
Total revenues $ 13,740 $ 13,511
---------- ----------
---------- ----------
OPERATING PROFIT Information Services Division $ 1,006 $ 440
AND INCOME BEFORE R&D Unit (583) (624)
INCOME TAXES --------- ---------
Total operating profit 423 (184)
Other income 330 13
Interest expense 212 122
--------- ---------
Income (loss) from continuing
operations before income taxes $ 541 $ (293)
--------- ----------
--------- ----------
IDENTIFIABLE ASSETS Information Services Division 3,168 $ 3,164
R&D Unit 174 131
General corporate assets 1,181 948
Discontinued operations 711 1,479
Total assets --------- ----------
$ 5,234 $ 6,172
--------- ----------
--------- ----------
CAPITAL Information Services Division $ 382 $ 401
EXPENDITURES R&D Unit 17 8
General corporate assets 67 172
Discontinued operations 3 88
Total assets --------- ----------
$ 469 $ 699
--------- ----------
--------- ----------
DEPRECIATION Information Services Division $ 292 $ 258
AND AMORTIZATION R&D Unit 27 21
General corporate assets 56 85
Discontinued operations 46 -
---------- -----------
Total depreciation and
amortization $ 421 $ 364
---------- ----------
---------- ----------
</TABLE>
The Information Services Division ("ISD") provides computerized
medical data collection and clinical trial management, report and publication
writing and editing, development of programmatic concepts in public health
information and education, database management, and computer-assisted health
resource information. During 1995, commercial and government business accounted
for approximately 54% and 46%, respectively, of ISD's business compared with 46%
and 54%, respectively, in 1994. During 1995, the Company recognized revenue
from two of its commercial customers of $3,185,911 and $1,407,626 representing
23% and 10%, respectively, of total revenues from continuing operations. The
Company recognized revenue from one of these customers in 1994 of $3,938,382 or
29% of total revenues from continuing operations in 1994.
The R&D Unit has invented and patented for the Company the use of D-
tagatose and L-sugars as low-calorie sweeteners and has invented and patented
safe-for-humans pesticides. The Company also has filed for patents on other
inventions.
Operating profit consists of revenue less operating expenses. In computing
operating profit, general corporate and selling expenses, research and
development, interest expense, and income taxes were not deducted. As a result
of the sale of ELSD, G&A expenses of $354,869 and $17,013 in 1995 that would
have been absorbed by ELSD, has been allocated to ISD and R&D, respectively; and
G&A expenses of $325,384 and $16,491 in 1994 previously absorbed by ELSD, has
been allocated to ISD and R&D, respectively.
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BIOSPHERICS INCORPORATED
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Identifiable assets by business segment are those assets used in the
Company's operations in each segment, such as accounts receivable, inventories,
fixed assets, and patent costs. Corporate assets are principally cash and
certain other assets not related to a particular segment's operations.
11. SUBSEQUENT EVENT
On February 22, 1996, the Company settled a claim against the U.S
Department of Agriculture relating to the startup and early operation of the
Forest Service Contract. The claim, which was originally filed in late 1994,
was amended in 1995 to include certain additional costs. This settlement was
recorded as other income in the Statement of Operations included herein and
increased pre-tax income from continuing operations by $335,000 in 1995. The
full amount due to the Company as a result of the claim is expected to be
received in March 1996.
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<PAGE>
BIOSPHERICS INCORPORATED
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Report of Independent Accountants
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
BIOSPHERICS INCORPORATED
We have audited the financial statements of Biospherics Incorporated as of
and for the year ended December 31, 1995 listed in Item 7 of this Form 10-KSB.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Biospherics Incorporated as
of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Rockville, Maryland
February 28, 1996 COOPERS & LYBRAND L.L.P.
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BIOSPHERICS INCORPORATED
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Report of Independent Accountants
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS,
BIOSPHERICS INCORPORATED
We have audited the financial statements of Biospherics Incorporated for
the year ended December 31, 1994, listed in Item 7 of this Form 10-KSB. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Biospherics Incorporated for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
March 2, 1995 Rubino & McGeehin, Chartered
Bethesda, Maryland Certified Public Accountants
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BIOSPHERICS INCORPORATED
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
- --------------
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Item 9 is hereby incorporated by reference to the Company's Proxy Statement
to be filed with the Securities and Exchange Commission on or prior to April 30,
1996.
ITEM 10. EXECUTIVE COMPENSATION
Item 10 is hereby incorporated by reference to the Company's Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 11 is hereby incorporated by reference to the Company's Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 12 is hereby incorporated by reference to the Company's Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
April 30, 1996.
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BIOSPHERICS INCORPORATED
-------------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
1. EXHIBITS
3. Articles of Incorporation and Bylaws of the Company
(incorporated by reference to the Company's Annual Proxy
Statement of May 15, 1992, as filed with the Commission)
10.1 Supplemental Executive Retirement Plan Agreement dated as of
February 17, 1993, by and between Gilbert V. Levin and the
Company (incorporated by reference to Form 10-KSB filed
March 31, 1993)
10.2 Supplemental Executive Retirement Plan Agreement dated as of
February 17, 1993, by and between M. Karen Levin and the
Company (incorporated by reference to Form 10-KSB filed
March 31, 1993)
10.3 Consulting Agreement dated as of February 17, 1993, by and
between Gilbert V. Levin and the Company (incorporated by
reference to Form 10-KSB filed March 31, 1993)
10.4 Consulting Agreement dated as of February 17, 1993, by and
between M. Karen Levin and the Company (incorporated by
reference to Form 10-KSB filed March 31, 1993)
10.5 Employment Agreement dated as of November 17, 1995, by and
between Gilbert V. Levin and the Company
10.6 Restated Stock Redemption Agreement dated as of January 15,
1996, by and between Gilvert V. Levin, M. Karen Levin, and
the Company
10.7 Asset Purchase Agreement dated February 27, 1996 by and
between the Company and ManTech Environmental Corporation
11. Schedule showing computations of average number of common
shares outstanding, as used in the calculations of per share
earnings for each of the two years ended December 31, 1995.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Rubino & McGeehin Chartered
27. Financial Data Schedule (included only with electronic
filing)
2. REPORTS ON FORM 8-K
No reports on Form 8-K were required to be filed during the fourth
quarter of the year ended December 31, 1995.
-27-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
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.
BIOSPHERICS INCORPORATED
Date: February 29 ,1996 By: /s/ Richard C. Levin
----------------- ------------------------------
Richard C. Levin
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Chairman of the
/s/ Gilbert V. Levin Board, President, and February 29, 1996
- --------------------- Treasurer
Gilbert V. Levin
Director, Vice President
/s/ M. Karen Levin for Communications, February 29, 1996
- ------------------- Secretary
M. Karen Levin
Vice President for Finance,
/s/ Arthur S. Locke, III Principal Financial and February 29, 1996
- ------------------------- Accounting Officer
Arthur S. Locke, III
Vice President for
/s/ Lee R. Zehner Science Services, Director, February 29, 1996
- ------------------ Environmental and Laboratory
Lee R. Zehner Services Division
/s/ Lionel V. Baldwin Director February 16, 1996
- ----------------------
Lionel V. Baldwin
/s/ David A. Blake Director February 29, 1996
- -------------------
David A. Blake
/s/ George S. Jenkins Director February 29, 1996
- ----------------------
George S. Jenkins
/s/ Anne S. MacLeod Director February 16, 1996
- --------------------
Anne S. MacLeod
/s/ A. Bruce Cleveland Director February 29, 1996
- -----------------------
A. Bruce Cleveland
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BIOSPHERICS INCORPORATED
-------------
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, is entered into on the 17th day of November, 1995,
but should be effective as of the 28th of January, 1995, between Biospherics
Incorporated, a Delaware corporation (the "Corporation"), and Gilbert V. Levin
(the "Executive").
WITNESSETH:
WHEREAS, the Corporation is engaged in providing information services in
health, pharmaceutical and civic areas; in providing services in the areas of
chemistry, biology, exobiology, microbiology, occupational health, air and water
pollution and hazardous wastes control, industrial hygiene; and in the
development of proprietary products; and
WHEREAS, the Executive has been engaged as an expert and corporate
executive in major enterprises in the areas indicated above; and
WHEREAS, the Executive is presently, and has been since the formation of
the Corporation, President of the Corporation; and
WHEREAS, during the period of the Executive's employment the Corporation
has greatly enhanced its activities and prestige largely as a result of the
activities on behalf of the Corporation by the Executive; and
WHEREAS, the Executive has led the Company's effort to commercialize its
non-fattening sugar as a major food products ingredient, and its safe-for-humans
pesticides; and
WHEREAS, the value of the services provided by the Executive to the
Corporation in the past have had a value in excess of the compensation actually
paid to the Executive by the Corporation; and
WHEREAS, the Corporation desires to provide additional compensation to the
Executive for the services previously rendered to the Corporation in order to
assure that the Executive will continue to render substantial services to the
Corporation and to any joint venture or subsidiary which may be formed to
exploit its products and services,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein set forth and other good and valuable consideration, the receipt of which
is hereby acknowledged, the Corporation and the Executive do hereby agree, each
with the other, as follows:
1. FULL-TIME EMPLOYMENT OF EXECUTIVE.
1.1. DUTIES AND STATUS.
1.1.1. The Corporation hereby engages the Executive as a full-time
executive employee for the period (the "Employment Period") specified in Section
4 and the Executive accepts such employment, on the terms and conditions set
forth in this Agreement. During the Employment Period, the Executive shall
exercise such authority and perform such executive duties as are commensurate
with the authority being exercised and duties being performed by the Executive
for the Corporation immediately prior to the effective date of this Agreement.
1.1.2. During the Employment Period, the Executive shall (i) devote
his full time and efforts to the business of the Corporation and its
subsidiaries or affiliates, including, without limitation, efforts to
commercialize its non-fattening sugar and/or other products and will not engage
in consulting work or any trade or business for his own account or for or on
behalf of any other person, firm or corporation which competes, conflicts or
interferes with the performance of his duties hereunder in any way and (ii)
accept such additional office or offices to which he may be elected by the Board
of Directors of the Corporation or its subsidiaries or affiliates, including,
without limitation, any joint venture or subsidiary
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BIOSPHERICS INCORPORATED
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formed to commercialize the Company's non-fattening sugar and/or other products,
provided that the performance of the duties of such office or offices shall be
consistent with the scope of the duties provided for in Section 1.1.1.
1.1.3. The Executive shall be required to perform the services and
duties provided for in Section 1.1.1. only at the location where the Executive
was employed immediately prior to the effective date of this Agreement or such
other location of the principal executive offices of the Corporation in the
Washington, D.C. greater metropolitan area as the Board of Directors of the
Corporation may designate. The Executive shall be entitled to vacation, leave
of absence, and leave for illness or temporary disability in accordance with the
policies of the Corporation in effect, which shall not be less favorable than
those in effect at the date of this Agreement; and any leave on account of
illness or temporary disability which is short of total disability, as defined
in the Corporation's long-term disability insurance plan ("Total Disability"),
shall not constitute a breach by the Executive of his agreements hereunder.
1.2. COMPENSATION AND GENERAL BENEFITS. As compensation for his services
under this Agreement, the Executive shall be compensated as follows:
1.2.1. The Corporation shall pay the Executive an annual base
salary of $190,000. Such salary shall increase annually by the greater of (i)
three percent (3%) over the previous year or (ii) at such greater amount as is
determined by the Board of Directors of the Corporation. Such salary shall be
payable in equal, semi-monthly installments. Such salary shall be subject to
normal periodic review at least annually for increases based on the policies of
the Corporation and contributions to the enterprises, but in no event shall such
base salary be adjusted downward.
1.2.2. The Executive shall be eligible to participate in such
profit-sharing, stock option, bonus, incentive and performance award programs
which provide opportunities to receive compensation which are the greater of the
opportunities (i) then provided by the Corporation to executives with reasonably
comparable authority and duties (and in any event not lesser than those provided
to executives with junior authority or duties), or (ii) available to the
Executive immediately prior to the effective date of this Agreement. Upon
signing this Agreement, the Executive shall be given a stock option for 100,000
shares of Biospherics' common stock under the Biospherics Non-Qualified Stock
Option Plan. The exercise price shall be $ 9.375/share. The option shall be
immediately exercisable in whole or part, and otherwise remain in force and
exercisable as to the remainder or any part for a period of five years from the
date issued.
1.2.3. The Executive shall be entitled to receive employee
benefits, including, without limitation, pension, disability, group life,
sickness, accident and health insurance programs and split-dollar life insurance
programs, and perquisites provided by the Corporation to executives which are
the greater of the employee benefits and perquisites (i) then provided by the
Corporation to executives with comparable authority or duties (and in any event
not lesser than those provided to executives with junior authority or duties),
or (ii) available to the Executive immediately prior to the effective date of
this Agreement. The health insurance benefits received by the Executive shall
continue for the Executive and the Executive's spouse following the retirement
of the Executive and until the death of the survivor of the Executive and the
Executive's spouse.
1.2.4. The Corporation shall pay the premiums as required to
maintain a life insurance policy or policies with a death benefit of not less
than $5,000,000 payable on the death of the last to survive of Gilbert V. Levin
and M. Karen Levin to provide liquidity to the last survivor's estate in the
event of his or her death. The benefits paid by policy or policies will be used
in the manner described in the Restated Stock Redemption Agreement signed
January 15, 1996, between the Company and Gilbert V. Levin and M. Karen Levin.
1.2.5. The Corporation shall reimburse the Executive for all
reasonable expenses incurred by the Executive in the performance of his duties
hereunder.
2. COMPETITION; CONFIDENTIAL INFORMATION.
2.1. GENERAL. The Executive and the Corporation recognize that due to the
nature of his prior association with the Corporation and of his engagements
hereunder, and the relationship of the Executive to the Corporation, both in the
past as an executive and in the future hereunder, the Executive has had access
to and has acquired, will have access to and will acquire, and has assisted in
and may assist in developing, confidential and proprietary information relating
to the business
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BIOSPHERICS INCORPORATED
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and operations of the Corporation and its affiliates, including, without
limiting the generality of the foregoing, information with respect to their
present and prospective research projects; products, systems and processes
(whether or not patentable); customers and agents; and sales and marketing
methods. The Executive acknowledges that such information has been and will
continue to be of central importance to the business of the Corporation and its
affiliates and that disclosure of it to or its use by others could cause
substantial loss to the Corporation. The Executive and the Corporation also
recognize that an important part of the Executive's duties will be to develop
good will for the Corporation and its affiliates through his personal contact
with customers, agents and others having business relationships with the
Corporation and its affiliates, and that there is a danger that this good will,
a proprietary asset of the Corporation and its affiliates, may follow the
Executive if and when his relationship with the Corporation is terminated. The
Executive accordingly agrees as follows:
2.2. NON-COMPETITION.
2.2.1. During the Employment Period the Executive will not,
directly or indirectly, either individually or as owner, partner, agent,
employee, consultant or otherwise, except for the account of and on behalf of
the Corporation or their affiliates, engage in any activity competitive with the
business of the Corporation or its affiliates, nor will he, in competition with
the Corporation or its affiliates, solicit or otherwise attempt to establish for
himself or any other person, firm or entity, any business relationships with any
person, firm or corporation which was, at any time during the Employment Period,
a customer of the Corporation or one of its affiliates.
2.2.2. Nothing in this Section 2.2. shall be construed to prevent
the Executive from owning, as an investment, not more than 1% of a class of
equity securities issued by any competitor of the Corporation or its affiliates
and publicly traded and registered under Section 12 of the Securities Exchange
Act of 1934.
2.3. TRADE SECRETS. The Executive will keep confidential any trade secrets
or confidential or proprietary information of the Corporation and its affiliates
which are now known to him or which hereafter may become known to him as a
result of his employment or association with the Corporation and shall not at
any time directly or indirectly disclose any such information to any person,
firm or corporation, or use the same in any way other than in connection with
the business of the Corporation or its affiliates during and at all times after
the expiration of the Employment Period. For purposes of this Agreement, "trade
secrets or confidential or proprietary information" means information unique to
the Corporation or any of its affiliates which has a significant business
purpose and is not known or generally available from sources outside the
Corporation or any of its affiliates or typical of industry practice.
2.4. INTELLECTUAL PROPERTY. Throughout the Employment Period, the
Executive will disclose to the Corporation all processes, operations, products
or improvements developed by him which relate directly or indirectly to the
business of the Corporation or its affiliates which may be patentable or
copyrightable. The Executive agrees that such will be the property of the
Corporation and that he will, at the Corporation's request and cost, do whatever
is necessary to secure the rights thereto by patent or copyright.
3. CORPORATION'S REMEDIES FOR BREACH. It is recognized that damages in the
event of breach of Section 2 by the Executive would be difficult, if not
impossible, to ascertain, and it is therefore agreed that the Corporation, in
addition to and without limiting any other remedy or right they may have, shall
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and the Executive hereby
waives any and all defenses he may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable relief.
The existence of this right shall not preclude any other rights and remedies at
law or in equity which the Corporation may have.
4. EMPLOYMENT PERIOD.
4.1. DURATION. The Employment Period shall commence on the effective date
of this Agreement and shall continue until the earlier of (i) close of business
on December 31, 1997 or (ii) any termination of this Agreement that does not
constitute an improper termination as defined in Section 4.3.1.
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BIOSPHERICS INCORPORATED
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4.2. TERMINATION PAYMENTS.
4.2.1. In the event of an improper termination of this Agreement
(as defined in Section 4.3.1. of this Agreement), the Corporation shall pay to
the Executive and provide him with the following:
4.2.1.1. During the remainder of the Employment Period, the
Corporation shall continue to pay the Executive his salary at the rate and as
required by Section 1.2.1 and in effect immediately prior to the date of
termination.
4.2.1.2. During the remainder of the Employment Period, the
Executive shall continue to be treated as an executive (at the level provided
for in Section 1.1.1.) under the provisions of the Corporation's profit-sharing,
bonus, incentive and performance award programs and any other incentive
compensation arrangement described in Section 1.2.2. In addition, the Executive
shall continue to be entitled to all benefits and service credits for benefits
under any pension plan, or medical, insurance, split-dollar life insurance and
other employee benefit plans, programs and arrangements of the Corporation
described in Section 1.2.3. as if he were still employed during such period
under this Agreement.
4.2.1.3. If, despite the provisions of Section 4.2.1.2.,
benefits or the right to accrue further benefits under any profit sharing,
bonus, incentive or performance award programs or other long-term incentive
compensation arrangement described in Section 1.2.2. shall not be provided under
any such arrangement to the Executive, or his dependents, beneficiaries and
estate, because he is no longer an employee of the Corporation, the Corporation
shall, to the extent necessary, provide, pay or provide for payment of amounts
equal to the after tax benefits to the Executive, his dependents, beneficiaries
and estate.
4.2.1.4. If, despite the provisions of Section 4.2.1.2.,
benefits or service credits under any employee benefit plan, including, without
limitation, benefits under any pension plan, or any medical, insurance,
split-dollar life insurance and other employee benefit plans, programs and
arrangements described in Section 1.2.3. shall not be payable or provided under
any such plan to the Executive, or his dependents, beneficiaries and estate,
because he is no longer an employee of the Corporation, the Corporation shall,
to the extent necessary, pay or provide for payment of equivalent after tax
benefits and service credits for such after tax benefits to the Executive, his
dependents, beneficiaries and estate.
4.2.1.5. The Executive shall not be required to mitigate the
amount of any payment provided for in this Section 4.2. by seeking employment or
otherwise, nor shall the amount of any payment provided for in this Section 4.2
be reduced by any compensation or remuneration earned by the Executive as the
result of employment by another employer, or self-employment, or as a partner,
after the date of termination or otherwise.
4.2.2. In the event of an improper termination, the Executive may
elect, within 60 days after such termination, to elect to be paid a lump sum
severance allowance, in lieu of termination payments, in an amount which is
equal to the sum of all of the salary payments which he would have been entitled
to receive in accordance with Section 4.2.1.1. In the event that the Executive
makes an election pursuant to the preceding sentence to receive a lump sum
severance allowance, then, in addition to such amount, he shall accelerate all
future payments due with respect to (i) the pension benefits he would have
accrued under any pension benefit plan maintained by the Corporation if he had
remained in the employ of the Corporation for the remainder of the Employment
Period, which benefits will be paid concurrently with, and in addition to, the
benefits provided under such pension benefit plan, (ii) incentive compensation
(including, but not limited to the right to participate in all of the
Corporation's profit sharing plans and to receive and exercise stock options and
stock appreciation rights and to receive bonuses and performance awards and
similar incentive compensation benefits) to which he would have been entitled
under this Agreement if he had remained in the employ of the Corporation for the
remainder of the Employment Period, and (iii) employee benefits (including, but
not limited to, coverage under any disability, group life, sickness, accident
and health insurance programs, split-dollar life insurance arrangements or
programs and prerequisite) to which he would have been entitled under this
Agreement if he had remained in the employ of the Corporation for the remainder
of the Employment Period. By accelerating all future payments as described in
this Section 4.2.2., the Executive will have the right to receive an amount
equal to the commuted actuarial value of those payments within sixty (60) days
after the date of Executive's termination.
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4.2.3. In the event of a termination other than an improper
termination, the Executive shall be entitled to any salary accrued to the date
of the termination, but shall not be entitled to any further salary or any
further payments hereunder.
4.3. DEFINITIONS. The following terms shall have the specified meanings
when used in the Sections specified:
4.3.1. In this Section 4, the term "improper termination" means
termination (i) by the Corporation of the employment of the Executive with the
Corporation for any reason other than death or Total Disability of the
Executive, or cause; or (ii) of the employment of the Executive by resignation
of the Executive due to (A) a significant change in the nature or scope of his
authorities or duties from those contemplated in Section 1.1.1., (B) a merger or
consolidation of the Corporation or other similar transaction which is likely to
materially and adversely affect the financial ability of the Corporation or any
successor assign thereto that agrees in writing to assume the obligations of the
Corporation hereunder to perform this Agreement, (C) a reduction in total
compensation and benefits from that provided in Section 1.2, or (D) the breach
by the Corporation in any material respect of any other provision of this
Agreement.
4.3.2. In Section 4.3.1. the term "cause" means (i) a final
judicial finding that Executive has been guilty of fraud, misappropriation or
intentional material damage to the property or business of the Corporation or
the commission of a felony; (ii) continuance of willful and repeated failure by
the Executive to perform his duties in compliance with this Agreement after
written notice to the Executive by the Board of Directors specifying such
failure, provided that such "cause" shall have been found by a majority vote of
the Board of Directors of the Corporation after at least 10 days' written notice
to the Executive specifying the cause proposed to be claimed and after an
opportunity for the Executive to be heard at meetings of such Boards of
Directors; or (iii) a violation of Section 2 of this Agreement.
4.3.3. In Section 4.2., "Employment Period" shall mean the full
period for which the Employment Period would have continued, without any
improper termination, under Section 4.3.1.
4.3.4. In Section 2.2.1., "Employment Period" shall mean the full
period for which the Employment Period would have continued under Section 4.1.
in the event of any termination of the employment of the Executive which is not
an improper termination as defined in Section 4.3.1.
5. LEGAL COSTS. If the Corporation shall fail to pay or provide for payment
of any amounts required to be paid or provided for hereunder at any time, the
Executive shall be entitled to consult with counsel, and the Corporation agrees
to pay the reasonable fees and expenses of independent counsel for the Executive
in advising him or in bringing any proceedings, or in defending any proceedings,
involving the Executive's rights under this Agreement, such right to
reimbursement to be immediate upon the presentment by Executive of written
billings for such reasonable fees and expenses. The Executive shall be entitled
to the prime rate of interest established from time to time at NationsBank, or
its successors or successors in interest for any payments of such expenses, or
any other payments under this Agreement, that are overdue.
6. NOTICES. Any notices, requests, demands and other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Corporation or, in the case of the Corporation, at its
principal executive offices.
7. BINDING AGREEMENT. This Agreement shall be effective as of the effective
date hereof and shall be binding upon and inure to the benefit of the Executive,
his executors, administrators and personal representatives. The rights and
obligations of the Corporation under this Agreement shall inure to the benefit
of and shall be binding upon any successor of the Corporation as defined in
Section 1-l0l(u) of the Maryland General Corporation Law as now in effect;
provided, that this Agreement may not be assigned by the Corporation without the
consent of the Executive, and in the case of a successor by transfer of all or
substantially all of the assets of the Corporation, or any other successor in
which the Corporation does not cease to exist by operation of the transaction in
question as a matter of law, the Corporation shall not be relieved of its
obligations hereunder.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding of
the Executive and the Corporation with respect to the subject matter hereof and
supersedes any and all prior understandings written or oral (including but not
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limited to the Employment Agreement dated as of December 31, 1987, between the
Corporation and the Executive). This Agreement may not be changed, modified, or
discharged orally, but only by an instrument in writing signed by the parties.
This Agreement shall be governed by the laws of the State of Maryland and the
invalidity or unenforceability of any provisions hereof shall in no way affect
the validity or enforceability of any other provision.
9. INDEMNIFICATION. In addition to any indemnification rights the Executive
may have by statute, by-law or otherwise, the Corporation to the fullest extent
permitted by, and in accordance with and subject to the requirements of, the
General Corporation Law of the State of Delaware, (i) shall indemnify the
Executive and hold him harmless for all losses, costs, expenses or liabilities
(whether or not arising during the Employment and pay all expenses, including
reasonable attorneys' fees and court fees, actually and necessarily incurred by
the Executive in connection with the investigation or defense of, or being a
witness in, any such action, suit or proceeding and in connection with any
appeal thereof.
10. OTHER AGREEMENTS. Each of the Supplemental Executive Retirement Plan
Agreement dated as of February 17, 1993, by and between the Corporation and the
Executive (the "SERP Agreement"), and the Consulting Agreement dated as of
February 17, 1993, by and between the Corporation and the Executive (the
"Consulting Agreement") are amended by deleting from Section 1 thereof the
phrase "Employment Agreement dated December 31, 1987" and substituting in lieu
thereof the phrase "Employment Agreement dated November 17, 1995".
The Deferred Compensation Agreement dated as of march 13, 1981, by and between
the Corporation and the Executive, and amended on October 14, 1982, and December
31, 1987, is amended by deleting from the second Whereas of the December 31,
1987 Amendment the phrase "January 27, 1995" and substituting in lieu thereof
the phrase "until the end of the Employment Period as defined in Section 4.1 of
the Executive's Employment Agreement dated November 17, 1995." The Stock
Redemption Agreement dated as of August 16, 1978, by and between the Corporation
and the Executive, as amended October 14, 1982, and as must be further amended
to comport to the changed dollar benefit of the insurance currently funding said
Stock Redemption Agreement, and to the changed designation of the insured from
the Executive to the last to service of the Executive and M. Karen Levin, is
amended by deleting from Amendment No. 1, dated October 14, 1982, First, all
phrases "three million dollars ($3,000,000)", and "three million dollar
($3,000,000)" and substituting in lieu thereof the phrases "five million dollars
($5,000,000) and "five million dollar ($5,000,000)", respectively. This same
amendment No. 1, First, is further amended by adding the phrase "the Executive
or" before the phrase "M. Karen Levin".
In all other respects, the SERP Agreement, the Consulting Agreement, the
Deferred Compensation Agreement and the Stock Redemption Agreement are ratified
and confirmed as of the date hereof.
IN WITNESS WHEREOF, the parties have executed, under seal, and
delivered this Agreement the date first above written.
BIOSPHERICS INCORPORATED
BOARD OF DIRECTORS
ATTEST_____________ By: _____________
Lionel V. Baldwin, Chair
Compensation Committee
ATTEST______________ _____________
Gilbert V. Levin
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EXHIBIT 10.6
RESTATED STOCK REDEMPTION AGREEMENT
THIS AGREEMENT made and entered into this 15TH day of JANUARY, 1996 between
BIOSPHERICS INCORPORATED, a corporation organized under the laws of the State of
Delaware (hereinafter referred to as the "Corporation"), and GILBERT V. LEVIN
and M. KAREN LEVIN (hereinafter referred to as the "Shareholders"). This
agreement takes effect upon the death of Gilbert V. Levin or M. Karen Levin
whichever shall occur last.
WITNESSETH
WHEREAS, the Corporation is engaged in research, development, products and
services in the areas of chemistry, biology, microbiology, occupational health,
air and water pollution control, toxicology, wastewater treatment, environmental
and medical products, writing, editing, word processing, graphics arts, and
information services, and
WHEREAS, the Shareholders have been highly valued and important employees
and Officers of the Corporation and have contributed in great part to the
financial success of the Corporation, and
WHEREAS, the Shareholders currently own shares of the common stock of the
Corporation (hereinafter sometimes referred to as the "Shares"), currently in
the amount of 1,642,253 Shares, and
WHEREAS, the Corporation wishes to forestall the possibility of a forced
sale of substantial amounts of its shares by the heirs and representatives of
the Shareholders in the event of the Shareholders' death, and
WHEREAS, the Corporation, in return for the valuable services of these
Shareholders as employees and Officers of the Corporation, wishes to provide the
Shareholders' estate and heirs with a source of funds, at minimal tax cost to
the Corporation, in order to prevent anticipated problems to the Shareholders'
heirs and representatives in paying Federal estate taxes and other expenses on
the event of the Shareholders' death,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein set forth and other good and valuable consideration, the receipt of which
is hereby acknowledged, the Corporation and the Shareholders hereby agree, each
with the other, as follows:
1. REDEMPTION AT DEATH.
(a) The Corporation hereby agrees to purchase and the Shareholders
hereby agree that their executors or administrators shall sell such shares of
the Corporation as are provided for in this Agreement.
(b) Except as limited in Section 1(d) of this Agreement, the number
of shares subject to the requirement of sale and redemption as specified in
Section 1(a) of this Agreement shall be the maximum number of shares, the
payment for which will qualify for treatment as a distribution in full payment
or exchange for the shares in accordance with the provisions of Section 303 of
the Internal Revenue Code of 1986, as amended (hereinafter referred to as
"Section 303 of the Code"), as it may be in force and applicable at the time of
such sale and redemption , subject, however, to adjustment as provided in
Section 2 of this Agreement. In the event that Section 303 of the Code is not
applicable to the estate of the Shareholder at the time of such sale and
redemption, this Agreement shall be null and void at that time.
(c) Within the limitations of Section 1(d) of this Agreement, the
amount of shares to be so redeemed shall be determined by the executors or
administrators of the Shareholders' estate and shall be certified in writing to
the Corporation at its principal office at least ten (10) days before the date
of such sale and redemption as determined under Section 2(b) of this Agreement.
The Corporation shall have the right to inspect and review the computations made
by such executors or administrators in order to determine the accuracy thereof
and shall only be required to accept a reasonable computation of the number of
shares to be sold and redeemed under this Agreement.
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(d) Notwithstanding the foregoing provisions of this Section 1, the
Corporation's obligation to purchase shares from the Shareholders' estate shall
be limited to the number of shares that can be purchased under the terms of this
Agreement by a gross purchase price of five million dollars ($5,000,000).
Purchases of shares in excess of this amount may be made upon the mutual
agreement of the Corporation and the Shareholders' executors or administrators.
(e) This Agreement shall be operative only with respect to sales and
redemptions occurring upon and after the death of the Shareholders and shall not
be construed to in any way affect or restrict the right or ability of the
Shareholders or the Corporation to sell, exchange, gift, dispose of or otherwise
transfer any shares of the Corporation during the lifetime of the Shareholders.
Further, any sales, exchanges, gifts, dispositions or other transfers of the
shares of the Corporation that are made during the Shareholders' lifetimes shall
not have any affect on the rights and obligations imposed by this Agreement.
2. TERMS AND PRICE.
(a) The purchase price at which the Corporation shall make payment
for the shares sold and redeemed in accordance with Section 1 of this Agreement
shall be the average end-of-day closing sale price on the NASDAQ stock exchange
for the five (5) consecutive trading days the first day of which precedes by
fifteen (15) days the date of such scheduled sale and redemption. Payment of
the amounts so determined for redemption of the shares shall be made by the
Corporation in cash and closing shall take place at the principal office of the
Corporation.
(b) The redemption of the shares required pursuant to Section 1 of
this Agreement shall take place fifteen (15) days after receipt of insurance
proceeds; provided, however, that the Corporation and the executors or
administrators of the Shareholders' estate may, by mutual agreement, postpone
the date for sale and redemption until such later time as may mutually be agreed
upon.
(c) It is further agreed and understood that, in order to correctly
compute and determine the amount of shares to be sold and redeemed in accordance
with the provisions of Section 1 of this Agreement, it may be necessary to have
more than one sale and redemption. In such event, subsequent sales and
redemptions shall occur thirty (30) days following the date upon which the
executors or administrators of the Shareholders' estate certify in writing to
the Corporation that previous redemptions have not redeemed the full number of
shares to which Section 1 of this Agreement applies. In no event, however,
shall any subsequent redeterminations in the amount of shares to be sold and
redeemed in accordance with Section 1 of this Agreement require the Corporation
to sell any shares back to the Shareholders' estate or heirs and any shares sold
and redeemed in excess of the amounts required in accordance with Section 1 of
this Agreement shall not be required to be reissued or returned as a result of
any subsequent redeterminations.
Any such subsequent sales and redemptions shall be made at the terms and
price specified in Section 2(a) of this Agreement, except that the price shall
be determined by the average end-of-day closing price on the NASDAQ stock
exchange for the five (5) consecutive trading days preceding the date scheduled
for such subsequent sale and redemption.
3. APPLICABILITY OF AGREEMENT.
(a) This Agreement shall inure to the benefit of and shall be binding
upon the Corporation and its successors and assigns, the Shareholders, their
personal representatives, heirs and assigns.
(b) In making the redemption required pursuant to Section 1 of this
Agreement, the Corporation shall be required only to redeem shares held by the
Shareholders' estate, whether held for distribution to any testamentary trust
established by the Shareholders' will, the Shareholders' children, the
Shareholders' spouse or any other person. Only shares that qualify for
treatment under Section 303 of the Code shall be sold and redeemed. The
Shareholders' executors and administrators shall obtain either a private ruling
from the Internal Revenue Service or a satisfactory opinion of counsel that the
sale and redemption will qualify for treatment under Section 303 of the Code.
The shares to be sold and redeemed shall include only shares inherited or passed
by devise or descent from the Shareholders and shall not include any shares
acquired by purchase or gift.
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(c) Any shares transferred by the Shareholders before death shall not
in any way be restricted or affected by this Agreement in the hands of the
recipient of such shares whether such shares are transferred for adequate
consideration or not and whether such shares are includable in the gross estate
of the Shareholders for federal estate tax purposes or not.
(d) As used herein, the term "executors or administrators" means the
executor, executrix, executors or administrator or administrators with the will
annexed for the time in office.
4. FUNDING.
In order to insure that adequate funds will be available from the
Corporation's general assets to make the purchase of shares required by this
Agreement, the Corporation hereby agrees to maintain life insurance on the life
of the Shareholders and to maintain such life insurance for the duration of the
Shareholders' lives. The face amount of insurance to be purchased and
maintained shall be at least five million dollars ($5,000,000). The Corporation
may, in the discretion of the Board of Directors, purchase additional insurance
to the extent necessary to provide adequate funds to enable the Corporation to
make the redemption required by this Agreement. The Shareholders agree to
cooperate and assist in all respects in the purchase and maintenance of such
insurance and further agrees to take any physical examinations or complete any
applications necessary for such insurance to be purchased. Any such insurance
purchased shall be owned and every right thereunder shall be exercisable solely
by the Corporation.
5. INSUFFICIENT CORPORATE SURPLUS.
If the Corporation does not have sufficient surplus to permit it
lawfully to purchase all the shares required to be purchased under this
Agreement, the Stockholders; executors or administrators shall promptly take
such measures to vote the shares in order to adjust the par value of the
Corporation's common stock and the capital of the Corporation or to take such
other steps as may be appropriate or necessary in order to enable the
Corporation lawfully to purchase and pay for all of the shares so offered for
sale and so required to be purchased, including by way of illustration and not
by way of limitation, and up-to-date appraisal of the assets of the Corporation.
6. SPECIFIC PERFORMANCE.
(a) The parties hereby declare that it is impossible to measure in
money the damages that will accrue to the Corporation and to the Shareholders,
their estate or heirs, by reason of a failure to perform any of the obligations
of this Agreement. Therefore, if any action or proceeding is instituted to
enforce provisions of the Agreement, any person (including the Corporation)
against whom such action or proceeding is brought hereby waives the claim or
defense therein that such plaintiff has an adequate remedy at law and such
person shall not urge in any such action or proceeding the claim or defense that
such remedy at law exists.
(b) Notwithstanding Section 6(a) of this Agreement, if performance of
this Agreement would result in the bankruptcy or insolvency of the Corporation,
then Section 6(a) of this Agreement shall be null and void.
7. NOTICES.
Any notice required or permit to be given under the terms of this
Agreement shall be transmitted in writing and mailed, by certified or registered
mail, return receipt requested, to the person to whom such notice is given.
Unless a party hereto shall notify the other party of a change of
address, the address of each such party for purposes of notification shall be as
follows:
The Corporation:
Biospherics Incorporated
12051 Indian Creek Court
Beltsville, MD 20705
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The Shareholders:
Dr. Gilbert V. Levin and M. Karen Levin
3180 Harness Creek Road
Annapolis, MD 21403
8. SEPARABILITY.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the other provisions hereof, and the Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
9. ENTIRE AGREEMENT.
This instrument contains the entire Agreement concerning stock
redemption between the parties hereto; all prior negotiations and understandings
between the parties hereto are superseded by this Agreement including the Stock
Redemption Agreement dated August 16, 1978 as amended.
10. ARBITRATION.
Should any dispute arise with respect to the rights and
obligations of the parties under this Agreement, the dispute shall be submitted
to arbitration proceedings conducted in accordance with the rules of the
American Arbitration Association. The Shareholders' executors or administrators
and the Corporation shall each choose an arbitrator and the two arbitrators so
chosen shall select a third. If the two arbitrators cannot agree on a third
arbitrator within thirty (30) days from the selection of the second arbitrator,
the American Arbitration Association shall appoint the third arbitrator who
shall serve as chairman of the arbitral tribunal. Such tribunal shall have the
power to examine the parties to the arbitration dispute and all private books
and records of such parties, as well as to call and examine witnesses and to
receive evidence. Each party shall bear the cost of his own counsel.
11. WAIVER.
A waiver of any breach of this Agreement shall not be a waiver of
any subsequent, similar or dissimilar, breach of any provision hereof.
12. GOVERNING LAW.
This Agreement is executed in the State of Maryland and shall be
governed and construed under the laws of the State of Maryland.
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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf, and its Corporate Seal to be hereto affixed, by its duly
appointed Officers and the Shareholders have set their hand and seal to this
Agreement, all as of this date first written above.
BIOSPHERICS INCORPORATED
BOARD OF DIRECTORS
ATTEST By:
----------------------- --------------------------------
Lionel V. Baldwin, Chair
Compensation Committee
ATTEST
----------------------- ------------------------------------
Gilbert V. Levin
ATTEST
----------------------- ------------------------------------
M. Karen Levin
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EXHIBIT 10.7
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is dated February 27, 1996 (hereinafter
referred to as the "Agreement") by and between ManTech Environmental
Corporation, a Virginia corporation ("Buyer") and Biospherics Incorporated, a
Delaware corporation ("Seller"). Buyer and Seller are sometimes referred to
individually as a "Party" and collectively as the "Parties."
1. DEFINITIONS. For all purposes of this Agreement, capitalized terms
shall have the meanings set forth in this SECTION 1 unless otherwise expressly
provided.
"ASSETS" shall have the meaning attributed thereto in SECTION 2.1 hereof.
"BELTSVILLE MASTER LEASE" shall have the meaning attributed thereto in
SECTION 6.1(c) hereof.
"BELTSVILLE SUBLEASE" shall have the meaning attributed thereto in SECTION
6.1(c) hereof.
"BELTSVILLE OFFICE SPACE" shall have the meaning attributed thereto in
SECTION 6.1(c) hereof.
"BUSINESS" means Seller's Environmental & Laboratory Services Division.
"BUYER INDEMNIFIED PERSONS" means Buyer and its affiliates, employees,
representatives, agents, officers and directors.
"CMHA CONTRACT" means the Cuyahoga Metropolitan Housing Authority contract
for which Seller has made a bid.
"CLAIMS" means all demands, claims, actions or causes of action,
assessments, losses, damages (including, without limitation, diminution in
value), Liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and disbursements, other than
Environmental Claims.
"CLEVELAND OFFICE LEASE" shall have the meaning attributed thereto in
SECTION 2.2 hereof.
"CLOSING" shall have the meaning attributed thereto in SECTION 15.1 hereof.
"CLOSING DATE" shall have the meaning attributed thereto in SECTION 15.1
hereof.
"CLOSING DATE FINANCIAL SCHEDULE" shall have the meaning attributed thereto
in SECTION 2.3(b)(ii) hereof.
"CODE" means the Internal Revenue Code of 1986, as amended, and all Laws
promulgated pursuant thereto or in connection therewith.
"CONFIDENTIALITY AGREEMENT" shall have the meaning attributed thereto in
SECTION 7 hereof.
"DEFERRED OPERATIONAL RECEIVABLES" means those Operational Receivables
relating to Bernard Johnson Young (in the amount of $68,740), CMHA (in the
amount of $211,641) in the event the CMHA Contract is awarded to Seller and the
assets relating to the Business' operations in Cleveland, Ohio are purchased by
Buyer pursuant to the provisions of this Agreement, and all unpaid invoices for
under $1,000.
"ENCUMBRANCE" means any mortgage, lien, pledge, encumbrance, security
interest, deed of trust, option, encroachment, reservation, order, decree,
judgment, condition, restriction, charge or claim of any kind.
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"ENVIRONMENTAL CLAIM" means any claim, action, cause of action, study,
investigation, notice, demand, suit, proceeding, hearing, losses, damages
(including without limitation, diminution in value), Liabilities, costs and
expenses, including, without limitation, interest, penalties and attorneys' fees
and disbursements (written or oral) made by any person or entity alleging or
related to potential or actual liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries,
or penalties) arising out of, based on or related to the manufacture,
processing, analysis, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, presence, release, or
threatened release into the environment, of any Hazardous Material at any
location, whether or not owned or operated by Seller and any other circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law.
"ENVIRONMENTAL LAWS" shall mean any applicable federal, state or local
statute, regulation or ordinance, whether currently existing or hereinafter
promulgated, relating to Hazardous Materials, drinking water, ground water,
landfills, open dumps, storage tanks, underground storage tanks, solid waste,
waste water, storm water run-off, waste emissions, or wells. Without limiting
the generality of the foregoing, the term shall encompass each of the following
statutes, as amended as of the date hereof, and all regulations promulgated
thereunder as of the date hereof: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (Superfund or CERCLA) (codified in
scattered sections of 26 U.S.C.; 33 U.S.C.; 42 U.S.C. and 42 U.S.C. Section 9601
et seq.), the Clean Water Act of 1977 (33 U.S.C. Section 1251 et seq.), the
Clean Air Act (42 U.S.C. Section 7401 et seq.), the Resource Conservation and
Recovery Act of 1975 (the Solid Waste Disposal Act or RCRA) (42 U.S.C. Section
6901 et seq.), the Safe Drinking Water Act (21 U.S.C. Section 349; 42 U.S.C.
Sections 201 and 300f through 300j-9), and the Toxic Substances Control Act (15
U.S.C. Section 2601 et seq.); and the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Sections 1801-1812).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"HAZARDOUS MATERIALS" shall mean all pesticides, pollutants, contaminants,
chemicals, gasoline, petroleum products, asbestos, radioactive materials
(including by-product, source, and/or special nuclear materials),
unreaformaldehyde, flammable explosives, or other hazardous wastes or toxic
materials, that are now or hereafter subject to regulation under [the]
Environmental Laws.
"LAWS" means all applicable foreign, federal, state and local statutes,
laws, ordinances, regulations, rules, resolutions, orders, determinations,
writs, injunctions, awards (including, without limitation, Laws relating to
securities registration and regulation; the sale, leasing, ownership or
management of real property; employment practices, terms and conditions, and
wages and hours; building standards, land use and zoning; safety, health and
fire prevention; and environmental protection, including Environmental Laws).
"LIABILITIES" means liabilities, debts or other obligations, whether
accrued, absolute, contingent or otherwise, known or unknown.
"NON-COMPETITION AGREEMENT" shall have the meaning attributed thereto in
SECTION 4 hereof.
"OPERATIONAL RECEIVABLES" means current billed accounts receivable of the
Business and the unbilled work in process of the Business that relate to active
clients; PROVIDED, HOWEVER, that, in the event the CMHA Contract is not awarded
to Seller prior to Closing, "Operational Receivables" shall not include any
amounts related to the CMHA Contract or any other receivables related to the
Business' operations in Cleveland, Ohio. For purposes of the preceding
sentence, "active clients" shall mean the Business' clients that are not listed
as an inactive client on SCHEDULE I.
"ORIGINAL FINANCIAL SCHEDULE" means the financial assets and accrued
vacation schedule of Seller as of December 31, 1995, which Seller has previously
provided to Buyer, as reflected in SECTION 2.3(a) HEREOF.
"ORDINARY COURSE OF BUSINESS" means ordinary course of business consistent
with past practices and prudent business operations.
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"OTHER ARRANGEMENT" means a benefit program or practice providing for
bonuses, incentive compensation, vacation pay, severance pay, insurance,
restricted stock, stock options, employee discounts, company cars, tuition
reimbursement or any other perquisite or benefit (including, without limitation,
any fringe benefit under Section 132 of the Code) to employees, officers or
independent contractors that is not a Plan.
"PLAN" means any plan, program or arrangement, whether or not written, that
is or was an "employee benefit plan" as such term is defined in Section 3(3) of
ERISA and (a) which was or is established or maintained by Seller or any
subsidiary of Seller; (b) to which Seller or any subsidiary of Seller
contributed or was obligated to contribute or to fund or provide benefits; or
(c) which provides or promises benefits to any person who performs or who has
performed services for Seller or any subsidiary of Seller and because of those
services is or has been (i) a participant therein or (ii) entitled to benefits
thereunder.
"PURCHASE PRICE" shall have the meaning attributed thereto in SECTION
2.3(a) hereof.
"SELLER INDEMNIFIED PERSONS" means Seller and its affiliates, employees,
representatives, agents, officers and directors.
"SELLER'S SECURED LENDER" means NationsBank, N.A., which has a secured
interest in and lien on all of the Assets contemplated to be transferred to
Buyer pursuant to this Agreement.
"SELLER TAX RETURNS" means all federal, state, local, foreign and other
applicable tax returns, declarations of estimated taxes, and other tax-related
reports required to be filed by Seller (without regard to extensions of time
permitted by law or otherwise).
"TAXES" means all federal, state, local and foreign taxes (including,
without limitation, income, profit, franchise, sales, use, real property,
personal property, ad valorem, excise, employment, social security and wage
withholding taxes) and installments of estimated taxes, assessments,
deficiencies, levies, imports, duties, license fees, registration fees,
withholdings, or other similar charges of every kind, character or description
imposed by any governmental or quasi-governmental authorities, and any interest,
penalties or additions to tax imposed thereon or in connection therewith.
2. SALE AND TRANSFER OF ASSETS
2.1 IN GENERAL. Seller hereby agrees to sell, transfer, convey,
assign and deliver to Buyer at the Closing, and Buyer hereby agrees to purchase
at the Closing, all right, title and interest in certain of the assets of the
Business in existence on the Closing Date, including, but not limited to,
Operational Receivables, prepaid expenses, property and equipment, laboratory
and Business supplies, customer lists, goodwill and, subject to assignment,
novation or subcontract as provided in SECTION 3 hereof, current contract
backlog, rights, options and proposals, and any documents, materials or
property, tangible or intangible relating to the foregoing and such other assets
as are shown on the Original Financial Schedule, all as more particularly
described on SCHEDULE 2.1 hereto, but excluding (a) all assets relating to the
Business' operations in Cleveland, Ohio, if the CMHA Contract is not awarded to
Seller, (b) all cash, (c) the right to utilize the "Biospherics" name or mark
(or any similar name or mark) except as specifically permitted by SECTION 6.1(d)
hereof, (d) any assets (including, without limitation, receivables) relating to
Job #1005 for Montgomery County, Maryland and (e) Scitec XRF analyzer including
radioactive source. All of the assets referred to in the preceding sentence
exclusive of the assets referred to in Section 2.1(a)-(e) shall hereafter be
referred to as the "Assets."
2.2 ASSUMPTION OF CERTAIN LIABILITIES. Buyer shall not assume any
Liabilities of Seller, except as specifically provided in this SECTION 2.2. The
only Liabilities which Buyer agrees to assume are (a) Seller's accrued vacation
Liability as of the Closing Date with respect to those employees hired by Buyer
pursuant to the provisions of SECTION 5 hereof, and (b) the assumption of
Seller's obligations under that certain lease for office space located at 1382
West 9th Street, Suite 220, Cleveland, Ohio (the "Cleveland Office Lease"), but
only if Seller is awarded the CMHA Contract, and only to the extent such
obligations arise with respect to occupation of such premises on or after the
Closing Date. The amount of the assumed vacation Liability shall be deemed a
partial payment of the Purchase Price
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and the cash portion of the Purchase Price shall be reduced by an amount equal
to the amount of the assumed vacation Liability, as further provided in SECTION
2.3(b)(i) hereof.
2.3 PURCHASE PRICE.
(a) PURCHASE PRICE. Subject to adjustment as provided in
SECTIONS 2.3(b) AND 2.3(c) hereof, Buyer agrees to pay to Seller a purchase
price (the "Purchase Price"), which the Parties agree has been calculated as
follows:
<TABLE>
<CAPTION>
With Cleveland Without Cleveland
Operations Operations
-------------- -----------------
<S> <C> <C>
Operational Receivable 638,335 $411,080
Lab & Business Supplies 24,460 24,460
Prepaid Expense 3,372 2,372
Property & Equipment (Net) 71,483 71,483
--------- ---------
Subtotal $737,650 $509,395
Goodwill (Proposals,
Backlog, etc.) 150,000 115,000
--------- ---------
TOTAL ASSET VALUE 887,650 624,395
Less: Assumed Vacation
Liability -30,386 -27,959
--------- ---------
TOTAL VALUE $857,264 $596,436
--------- ---------
--------- ---------
</TABLE>
(b) PAYMENT OF PURCHASE PRICE. Buyer shall pay the Purchase
Price as follows:
(i) At the Closing, an amount equal to (A) the value
attributed to Lab & Business supplies, prepaid
expense, property and equipment and goodwill, as
calculated in SECTION 2.3(a) hereof, less (B) the
amount of accrued vacation Liability assumed by
Buyer pursuant to SECTION 2.2 hereof, shall be
paid by certified check, bank check or wire
transfer to an account designated by Seller; and
(ii) On the date which is two weeks from the Closing Date,
an amount equal to (A) 100% of the Operational
Receivables, (B) minus the Deferred Operational
Receivables, (C) plus 70% of the Deferred
Operational Receivables, (D) less the amount of
Operational Receivables relating to any contract
which is not either assigned, novated or
subcontracted to Buyer as of the date of such
payment, the value of which shall be as set forth
in a financial assets and accrued vacation
schedule which Seller shall provide to Buyer not
less than three days prior to the date on which
payment is due pursuant to this SECTION
2.3(b)(ii), and shall be as of the Closing Date or
as close to the Closing Date as is practically
possible (the "Closing Date Financial
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Schedule"). Such amount shall be paid by
certified check, bank check or wire transfer to an
account designated by Seller.
(iii) An amount equal to 30% of the Deferred
OperationalReceivables shall be paid as follows:
no amount shall be paid until Buyer collects 70%
of the Deferred Operational Receivables from the
applicable account debtors. Once Buyer has
collected such amount, any further amounts
collected from such account debtors shall be paid
to Seller within two weeks of such collection
until the remaining 30% of the Deferred
Operational Receivables have been paid to Seller;
PROVIDED, HOWEVER, that Buyer shall not be
required to make payments of such amounts more
often than once every two weeks.
(iv) In the event that the CMHA Contract has not been
awarded by the Closing Date, the parties agree
that the Purchase Price will be calculated using
the Without Cleveland Operations assumptions. In
the event the CMHA Contract is awarded to Seller
on or prior to 60 days after the Closing Date, the
Purchase Price will be adjusted using the With
Cleveland Operations assumptions, and the
additional amounts due shall be paid within two
weeks after award of the CMHA Contract.
Regardless of whether the CMHA Contract is
awarded prior to or after Closing, the Purchase
Price shall be adjusted if the gross amount of the
CMHA Contract is less than $900,000. The
adjustment shall be calculated based on the
following formula: (a) a fraction, the numerator
of which is $900,000 minus the gross amount of
the CMHA Contract, and the denominator of which
is $900,000, (b) multiplied by $35,000. The
Purchase Price shall also be adjusted in
accordance with SECTION 2.3(C). In the event that
the CMHA Contract is awarded to the Seller after
60 days after the Closing Date but before
September 1, 1996, Buyer shall pay, in addition
to the Purchase Price (using the Without Cleveland
assumptions), $15,000 to Seller within two weeks
of the award of the CMHA Contract. In the event
the CMHA Contract is awarded to Seller on terms
other than the terms on which Seller bid such
contract, Buyer shall have the right to approve
the terms and conditions of the CMHA Contract.
If Buyer does not approve such terms and
conditions, Buyer shall not be obligated to
purchase the CMHA Contract or any assets related
to the Cleveland operations, and Buyer shall not
be obligated to assume the Cleveland Office Lease.
In addition, the aforementioned $15,000 payment
shall be adjusted dollar-for-dollar to the extent
that the CMHA Contract is not projected to produce
a net profit of at least $15,000.
(c) ADJUSTMENTS TO PURCHASE PRICE. In the event the Closing
Date Financial Schedule reflects different values for any item(s) from those
values reflected in the Original Financial Schedule, the Purchase Price shall be
increased in an amount equal to any increase in such value(s), and shall be
decreased in an amount equal to any decrease in such value(s). Furthermore, in
the event any contracts cannot be either assigned, novated or subcontracted to
Buyer, the goodwill portion of the Purchase Price shall be decreased in an
amount equal to (i) the ratio that the dollar value of such contract(s) bears to
the dollar value of all contracts to be assigned, novated or subcontracted
pursuant to this Agreement, (ii) multiplied by the total goodwill reflected in
SECTION 2.3(A) hereof. Any such adjustment to the Purchase Price shall increase
or decrease, as the case may be, the payment due to Seller pursuant to SECTION
2.3(B)(II) hereof.
3. NOVATION OR ASSIGNMENT OF SPECIFIC CONTRACTS. The Parties acknowledge
that the transfer of current contract(s), contract option(s), or contract
right(s) is subject to and conditioned upon any required novation or assignment
of such contract(s), contract right(s) or contract option(s) by the relevant
customers, which have not been specified by Seller to Customer as of the date
hereof. It is the intent of the Parties to use their best efforts to obtain
such
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assignments or novations. Seller agrees to cooperate fully with Buyer to secure
any required novation or assignment. If or to the extent novation or assignment
is not obtained as to any contract(s), contract right(s) or contract option(s)
as of the Closing Date or such later date as Buyer may agree, the Parties shall
use their best efforts to have Buyer perform such contract(s), contract
right(s), or contract option(s) as subcontractor, subject to the approval of the
customers. To the extent the customers agree to have Buyer perform such
contract(s), contract right(s), or contract option(s) as subcontractor, there
shall be no adjustment to the Purchase Price. To the extent the customers do
not agree to have Buyer perform such contract(s), contract right(s) or contract
option(s), the Purchase Price shall be decreased as provided in SECTION 2.3
hereof.
4. NON-COMPETE. Seller agrees to enter into a Non-Competition Agreement
substantially in the form of EXHIBIT A (the "Non-Competition Agreement") at the
Closing, pursuant to which Seller shall agree not to compete with Buyer in the
Business for a period of five years following the Closing, all as more
particularly described in the Non-Competition Agreement.
5. EMPLOYEES. As a condition to Buyer's obligation to consummate the
Closing, Buyer shall have received prior to Closing the firm acceptance of
offers of employment from the employees whom Buyer deems in its sole discretion
to be key employees of the Business and to whom Buyer wishes to offer
employment, as set forth in SCHEDULE 5 hereto. Buyer intends, but shall not be
obligated, to hire employees of the Business, by separate agreement or
arrangement and on such terms as Buyer may deem advisable. Seller agrees to use
its best efforts to persuade employees of the Business to accept offers of
employment by Buyer if and as tendered. With respect to any employees of Seller
hired by Buyer, the period of employment with Seller shall be considered as
employment with Buyer for purposes of benefits determinations.
6. COOPERATION; TRANSITION.
6.1 BY SELLER.
(a) Seller shall cooperate fully with Buyer and give Buyer all
assistance reasonably requested by Buyer to effect an orderly transition of the
operation of the Business, including, but not limited to, the actions described
in this Section 6.1.
(b) In the event the CMHA Contract is awarded to Seller, Seller
shall take all actions necessary or reasonably requested by Buyer to effectuate
an assignment of the Cleveland Office Lease to Buyer. The Parties acknowledge
and agree that the Cleveland Office Lease will not be assigned to Buyer if the
CMHA Contract is not awarded to Seller.
(c) Buyer desires to sublet office space from Seller for a
period of up to six months after the Closing Date at the current Business
location, being 12051 Indian Creek Court, Beltsville, Maryland (the "Beltsville
Office Space"). Seller agrees to enter into a sublease substantially in the
form of EXHIBIT B relating to the Beltsville Office Space (the "Beltsville
Sublease"). Seller also agrees that at least ten business days prior to
Closing, Seller will provide Buyer with a copy of Seller's lease with the
landlord of the Beltsville Office Space (the "Beltsville Master Lease"). If,
after the Beltsville Sublease terminates, Seller receives any calls for the
Business, Seller shall inform such callers of the new telephone number and
address for the Business, as directed by Buyer. Seller shall take all actions
necessary or reasonably requested by Buyer to effectuate a sublease of the
Beltsville Office Space to Buyer.
(d) Seller shall permit Buyer to refer to the Business as
"formerly known as the Biospherics ELSD Division" or some permutation thereof
for a period of one year from the Closing Date.
(e) Seller shall transfer to Buyer personnel, contracts and
other records relevant to the Business.
(f) Seller shall take all actions necessary or reasonably
requested by Buyer to effectuate the assignments, novations, and/or subcontracts
of contracts contemplated in this Agreement.
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6.2 BY BUYER. After the Closing, Buyer agrees to provide the
necessary administrative resources to assist Seller in the collection of all
receivables other than Operational Receivables, and allow the former employees
of Seller who become employees of Buyer to assist Seller in preparing the
Closing Date Financial Schedule.
7. PURCHASER'S RIGHT TO CONDUCT DUE DILIGENCE. Subject to the terms and
conditions of the Confidentiality Agreement dated September 5, 1995, by and
between the Parties (the "Confidentiality Agreement"), and any limitations
imposed by applicable Laws or the provisions of any contracts or other
agreements binding on Seller or the Business, including, but not limited to any
Laws governing the treatment of classified information, Buyer and its legal
counsel, accountants and other representatives during normal business hours may,
prior to the Closing, inspect and review, to its reasonable satisfaction,
relevant financial books and records, contracts and other information of or
about the Business. Also, prior to Closing, Buyer may, after receiving
permission therefor from the Chief Executive Officer of Seller, or Seller's
designated representative, talk with or interview employees of the Business and
selected customers. Seller shall cooperate with Buyer's reasonable requests to
inspect such books, records, contracts and other information of or about the
Business and to talk with or interview employees and selected customers of
Seller relating to the Business. In the course of conducting its due diligence
review, Buyer shall cooperate with Seller and use its best efforts not to cause
any undue disruption to the ongoing business and prospects of the Business.
Furthermore, while conducting its due diligence review, Buyer shall fully comply
with and abide by the terms of the Confidentiality Agreement, which shall
survive the execution of this Agreement.
8. CONFIDENTIALITY; NO PUBLICITY.
8.1 CONFIDENTIALITY. All financial, technical, commercial or other
information relating to and provided by either Party (the "Source") to the other
Party (the "Recipient"), other than information that (i) was already known to
the Recipient prior to the disclosure by the Source, (ii) is or becomes publicly
available through no fault of the Recipient, (iii) is rightfully received by the
Recipient from third parties, without restriction, (iv) is independently
developed by the Recipient, (v) is identified in writing by the Source as no
longer being subject to this SECTION 8.1, or (vi) is purchased by Buyer pursuant
to this Agreement (collectively, "Confidential Information of the Source"),
shall constitute confidential and proprietary information of the Source.
Without the express written consent of the Source, the Recipient shall not,
directly or indirectly, disclose, divulge or communicate any Confidential
Information of the Source to anyone, except to the Recipient's own directors,
officers, shareholders, employees or representatives (each, an "Authorized
Representative") and then only on a need-to-know basis. Prior to disclosing,
divulging or communicating any Confidential Information of the Source to any
Authorized Representative after the date hereof, the Recipient shall cause such
Authorized Representative to agree in writing to be bound by the terms of this
SECTION 8.1. In addition, the Recipient shall cause any Authorized
Representative who has received Confidential Information of the Source prior to
the date hereof to likewise agree in writing to be bound by the terms hereof.
8.2 NO PUBLICITY. Except as specifically provided herein, neither of
the Parties will make any disclosures regarding the existence or contents of
this Agreement or the transactions contemplated hereby without the prior consent
of the other Party hereto, which consent shall not be unreasonably withheld,
conditioned or delayed.
8.3 REMEDIES. In the event that either Party is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information or any information regarding
the existence or content of this Agreement or the transactions contemplated
hereby and the other Party does not wish to have such information disclosed, the
Party who is so requested or required will notify the other Party promptly of
the request or requirement so that the other Party may seek an appropriate
protective order or waive compliance with the provisions of this SECTION 8. If,
in the absence of a protective order or the receipt of a waiver hereunder,
either Party is, on the advice of counsel, compelled by law to disclose any
Confidential Information or any information regarding the contents of this
Agreement or the transactions contemplated hereby or else stand liable for
contempt, that Party may disclose such information as required by law; provided,
however, that the disclosing Party shall use his or its best efforts to obtain,
at the request of the other Party, an order or other assurance that confidential
treatment will be accorded to such portion of the information required to be
disclosed as such other Party shall designate. The foregoing provisions shall
not apply to any information which is generally available to the public
immediately prior to the time of disclosure. Notwithstanding
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the foregoing, Buyer may, if required by applicable law, and with prior or
concurrent written notice to Seller, make such disclosures as are so required.
9. COVENANTS OF SELLER.
9.1 AFFIRMATIVE COVENANTS. From the date of this Agreement until the
Closing Date, Seller shall have complete control and supervision of and sole
responsibility for the Business and its operation, and during such period,
Seller shall:
(a) Operate the Business in good faith and in a manner
consistent with the normal and prudent operation of businesses of its type.
(b) Keep and preserve the records of the Business in accordance
with good business practice.
(c) Duly perform all of Seller's obligations under all
contracts, leases, Benefit Plans, and other agreements to which Seller or the
Assets are bound.
(d) Maintain all of the tangible Assets so that when the same
are delivered to Buyer they shall satisfy all the warranties in all material
respects on the part of Seller set forth herein, subject to reasonable wear and
tear.
(e) Pay all premiums for and maintain in full force and effect
all of the insurance policies necessary or customary for businesses of similar
type.
(f) Give prompt notice to Buyer of any occurrence that comes to
Seller's attention that may constitute a misrepresentation, breach of warranty,
or nonfulfillment of any covenant or condition on the part of the Seller or
Buyer contained in this Agreement, as well as any changes in the conduct of the
Business that could reasonably be expected to have a material adverse effect on
the financial condition of the Business taken as a whole.
(g) Make all reasonable efforts to obtain the consents and
approvals required hereunder to proceed to Closing, including, but not limited
to, the consent of Seller's Secured Lender to the transactions contemplated
hereby and the release by Seller's Secured Lender of its security interest in
and lien on the Assets, so that Buyer may acquire title to the Assets free and
clear of all Encumbrances at the Closing.
9.2 NEGATIVE COVENANTS. Between the date hereof and the Closing
Date, Seller shall not, with respect to the Assets, the Business, or the
operation thereof, without the consent of Buyer, which consent shall not be
unreasonably withheld:
(a) AGREEMENTS AND CONTRACTS. Cancel, modify, alter, amend,
encumber, or in any way discharge, terminate, or impair any agreements,
contracts or leases pertaining to the Business in any manner that could
materially adversely affect the value of the Assets or the Business.
(b) NO DISPOSITION OF ASSETS. Other than in the Ordinary Course
of Business, sell or dispose of any of the Assets; Seller shall replace all
Assets disposed of in the Ordinary Course of Business with assets having an
aggregate value at least equal to the aggregate value of the Assets sold or
otherwise disposed of.
(c) NO LIENS OR OTHER ENCUMBRANCES. Create or suffer or permit
the creation of any mortgage, conditional sales agreement, security interest,
lien, hypothecation, pledge, encumbrance, restriction, liability, charge, claim
or imperfection of title on any of the Assets or with respect thereto, other
than Seller's Secured Lender's security interest in and lien on the Assets.
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(d) REPAIRS AND MAINTENANCE. Fail to repair or maintain any of
its technical equipment or any other equipment, supplies, and other tangible
Assets used or usable in the operations of the Business in accordance with the
normal standards of maintenance applicable to businesses of the same type as the
Business (and in no event at a standard below that standard at the date hereof).
(e) ADVERSE TRANSACTIONS. Take any action that would prevent
Seller from consummating the transactions contemplated in this Agreement.
10. BUYER'S COVENANTS. From the date of this Agreement until the Closing
Date, Buyer covenants that it will (a) give prompt notice to Seller of any
occurrence that comes to Buyer's attention that may constitute a
misrepresentation, breach of warranty or nonfulfillment of any covenant or
condition on the part of Buyer or Seller contained in this Agreement, and (b)
make all reasonable efforts to obtain the consents and approvals required
hereunder to proceed to Closing.
11. REPRESENTATIONS AND WARRANTIES BY SELLER
11.1 ORGANIZATION AND STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, and has the full corporate power and authority to own, operate and
lease its assets, including but not limited to the Assets, to carry on its
business as currently conducted, to execute and deliver this Agreement and to
carry out the transactions contemplated hereby.
11.2 ORIGINAL FINANCIAL SCHEDULE. The Original Financial Schedule
sets forth a complete and correct description of all of the Assets owned by
Seller and used or useful in the Business.
11.3 UNBOOKED LOSSES. To the best of Seller's knowledge, as of the
date hereof, there are no material Liabilities of the Business that are not
fully reflected on the financial statements heretofore prepared and furnished to
Buyer by Seller.
11.4 TAXES. Seller has (or, in the case of returns becoming due after
the date hereof and on or before the Closing, will have prior to the Closing)
duly filed all Seller Tax Returns required to be filed by Seller on or before
the Closing Date with respect to all applicable Taxes, and paid all Taxes due to
be paid by Seller on or before the Closing.
11.5 ASSETS. Seller has at the date hereof, and shall have at the
Closing, good, valid and marketable title to all Assets, and all Assets will be
transferred to Buyer free and clear of all Encumbrances at the Closing. Except
as disclosed in writing to Buyer, all the Assets are in good operating condition
and repair and are suitable and adequate for the uses for which they are
intended or are being used. The Assets and the excluded assets referred to in
SECTION 2.1(A)-(E) hereof are all the assets which are used or useful in the
operation of the Business.
11.6 OPERATIONAL RECEIVABLES. With respect to all Operational
Receivables, (a) they are genuine, and in all respects what they purport to be,
and are not evidenced by a judgment, an instrument, or chattel paper; (b) they
represent bona fide transactions completed in accordance with the terms and
provisions contained in the invoices, purchase orders and other contracts
relating thereto, and the underlying transaction therefor is in accordance with
all applicable Laws, (c) the amounts shown on Seller's books and records, with
respect thereto are actually and absolutely owing to Seller and are not
contingent or subject to reduction for any reason other than regular discounts,
credits or adjustments allowed by Seller in the ordinary course of its business,
(d) all account debtors thereon have the capacity to contract, and (e) the goods
sold, leased or transferred or the services furnished giving rise thereto are
not subject to any liens except (such liens as are to be released at Closing).
11.7 LEASES. Seller has heretofore provided Buyer with a list and
brief description of all leases and other agreements under which Seller is
lessee or lessor of any Asset, or holds, manages or operates any Asset owned by
any third Party, or under which any Asset owned by Seller is held, operated or
managed by a third Party. Seller is the owner and holder of all the leasehold
estate for the Beltsville Office Space and the premises subject to the Cleveland
Office Space, and is the owner of all equipment, machinery and other Assets
thereon or in buildings and structures thereon, in each case free and clear of
all Encumbrances, subject only to Encumbrances of Seller's Secured Lender,
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which will be released at the Closing. Each such lease and other agreement is
in full force and effect and constitutes a legal, valid and binding obligation
of, and is legally enforceable against, the respective parties thereto and
grants the leasehold estate it purports to grant free and clear of all
Encumbrances. All necessary governmental approvals with respect to such leases
have been obtained, all necessary filings or registrations therefor have been
made, and there have been no threatened cancellations thereof and are no
outstanding disputes thereunder. Seller has in all respects performed all
obligations under the leases required to be performed by Seller to date. Seller
is not in default, and to Seller's best knowledge, no other party is in default,
in any respect under any lease, and there has not occurred any event which
(whether with or without notice, lapse of time or the happening or occurrence of
any other event) would constitute such a default. All of the Assets subject to
the leases are in good operating condition and repair.
11.8 LITIGATION DISPUTES. Except as set forth in SCHEDULE 11.9(A),
there are no actions, suits, claims (other than in the Ordinary Course of
Business), litigation, arbitrations, proceedings or investigations pending or,
to the best of Seller's knowledge, threatened or reasonably anticipated against,
affecting or involving Seller or its business or assets, including, but not
limited to, the Business and the Assets, or the transactions contemplated by
this Agreement, at law or in equity, or before or by any court, arbitrator or
governmental authority, domestic or foreign. Seller is not operating under,
subject to or in default with respect to any order, award, writ, injunction,
decree or judgment of any court arbitrator or governmental authority.
11.9 ENVIRONMENTAL.
(a) Except as set forth in SCHEDULE 11.9(A), Seller is in full
compliance with all applicable Environmental Laws, which compliance includes,
but is not limited to, the possession by Seller of all permits, licenses and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof. Except as set forth in
SCHEDULE 11.9(A), Seller has not received any communication (written or oral),
whether from a governmental authority, citizens group, employee or otherwise,
that alleges that Seller is not in such full compliance, and, to Seller's best
knowledge after due inquiry, there are no circumstances that may prevent or
interfere with such full compliance in the future. All permits and other
governmental authorizations currently held by the Seller pursuant to the
Environmental Laws are identified in SCHEDULE 11.9(A).
(b) Except as set forth in SCHEDULE 11.9(A), there is no
Environmental Claim pending or threatened against Seller or, to Seller's best
knowledge after due inquiry, against any person or entity whose liability for
any Environmental Claim Seller has or may have retained or assumed either
contractually or by operation of law.
(c) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Hazardous
Material, that could form the basis of any Environmental Claim against Seller
or, to Seller's best knowledge after due inquiry, against any person or entity
whose liability for any Environmental Claim Seller has or may have retained or
assumed either contractually or by operation by law.
(d) Without in any way limiting the generality of the foregoing,
(i) all on-site and off-site locations where Seller has stored, disposed of or
arranged for the disposal of Hazardous Materials, including, but not limited to
the environmental lab previously operated by Seller and known as the "Main Lab,"
are identified in SCHEDULE 11.9 (D), (ii) all underground storage tanks, and the
capacity and contents of such tanks, located on property owned or leased by
Seller are identified in SCHEDULE 11.9(D), (iii) except as set forth in SCHEDULE
11.9(D), there is no asbestos contained in or forming part of any building,
building component, structure or office space owned or leased by Seller, and
(iv) except as set forth in SCHEDULE 11.9(D), no polychlorinated biphenyls
(PCB's) are used or stored at any property owned or leased by Seller.
(e) Seller has maintained continuous insurance coverage for
pollution Liabilities, as well as errors and omissions insurance coverage at all
times during which it has operated the Business, as set forth in SCHEDULE
11.9(E).
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(f) Except as set forth in SCHEDULE 11.9(F), Seller's methods of
inspection, testing, and assessment are in full compliance with all applicable
Laws, statutes and regulations. To the extent applicable, Seller has employed
methods that are approved or accepted by the United States Environmental
Protection Agency, the American Public Health Association, the American
Industrial Hygiene Association, the Occupational Health and Safety Act and all
state and local regulations of same.
(g) Seller's training and certification methods are in full
compliance with all applicable Laws, statutes and regulations.
11.10 INTELLECTUAL PROPERTY. Except for the "Biospherics" name or
mark (or any similar name or mark), Seller holds no patents, trademarks, trade
names, copyrights or other intellectual property, or applications therefor,
which are used or useful in the operation of the Business.
11.11 EMPLOYMENT PRACTICES/HEALTH CLAIMS. Seller is in compliance
with all applicable Laws respecting employment and employment practices, terms
and conditions of employment, occupational safety and health, and wages and
hours. All information provided by Seller to Buyer prior to the date hereof
regarding health insurance maintained by Seller for the benefit of its employees
is true and correct in all material respects, and does not omit any material
fact necessary to make the information contained therein not misleading.
11.12 PENSION AND BENEFIT PLANS. Seller maintains a 401(k) plan
covering substantially all of Seller's employees who have completed one year of
service and are at least 21 years of age. Seller is in full compliance with
ERISA and all applicable Laws, which compliance includes, but is not limited to,
the possession by Seller of all governmental authorizations or approvals
required under ERISA or other applicable Laws, and compliance with the terms and
conditions thereof. Seller has not received any communication (oral or
written), whether from a governmental authority, an employee or otherwise, that
alleges that Seller in not in such full compliance, and, to Seller's best
knowledge after due inquiry, there are no circumstances that may prevent or
interfere with such full compliance in the future.
11.13 RESTRICTIONS AND CONSENTS. Except for the contracts which
require assignment, novation or Seller's Secured Lender's consent, as otherwise
specifically described or referred to herein, there are no agreements, Laws or
other restrictions of any kind to which Seller (or any asset of Seller) is party
or subject that would prevent or restrict the execution, delivery or performance
of this Agreement or result in any penalty, forfeiture, Agreement termination,
or restriction on business operations of Buyer or Seller as a result of the
execution, delivery or performance of this Agreement.
11.14 AUTHORIZATION. The execution, delivery and performance by
Seller of this Agreement and all other documents contemplated hereby, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by Seller of the transactions contemplated
hereby and thereby have been authorized by all necessary corporate action of
Seller, including, but not limited to, approval by the directors of Seller in
accordance with Seller's governing documents, and do not and will not: (a)
require any consent or approval of stockholders which has not already been
obtained; (b) conflict with, or violate any provision of, any Law having
applicability to Seller or any of its assets, including, but not limited to, the
Assets, or any provision of the certificate or articles of incorporation or
bylaws of Seller; (c) except as otherwise set forth herein, conflict with, or
result in any breach of, or constitute a default under any agreement to which
Seller is a Party or by which it or any of its Assets may be bound; or
(d) result in or require the creation or imposition of or result in the
acceleration of any indebtedness, or of any Encumbrance of any nature upon, or
with respect to, Seller or any of the assets now owned or hereafter acquired by
Seller, including, but not limited to, the Assets.
11.15 ABSENCE OF VIOLATION. Seller is not in violation of or
default under, nor has it breached, any term or provision of its certificate or
articles of incorporation or bylaws or any agreement or restriction to which
Seller is a Party or by which Seller or any asset of Seller, including, but not
limited to, the Assets, is bound or affected. To the best of Seller's
knowledge, Seller has complied and is in full compliance with all Laws.
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11.16 BULK TRANSFER LAWS. The transactions contemplated by this
Agreement are not subject to the bulk transfer Laws of any jurisdictions.
11.17 BINDING OBLIGATION. This Agreement constitutes a valid and
binding obligation of Seller, enforceable in accordance with its terms; and each
document to be executed by Seller pursuant hereto, when executed and delivered
in accordance with the provisions hereof, shall be a valid and binding
obligation of Seller, enforceable in accordance with its terms, except to the
extent that such enforcement may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other Laws of general application
relating to or affecting the enforcement of creditors' rights as from time to
time in effect.
11.18 COMPLETE DISCLOSURE. No representation or warranty by
Seller in this Agreement, and no written statement contained in any document,
certificate, or other writing, delivered by Seller to Buyer in connection with
the transactions contemplated by this Agreement, contains any untrue statement
of material fact or omits to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
12. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to Seller as follows:
12.1 ORGANIZATION AND STANDING. Buyer is a corporation organized and
in good standing under the Laws of the Commonwealth of Virginia and has the
authority to enter into this Agreement and to carry out the transactions
contemplated hereby.
12.2 AUTHORIZATION. The execution, delivery and performance by Buyer
of this Agreement and all other documents contemplated hereby, the fulfillment
of and the compliance with the respective terms and provisions hereof and
thereof, and the consummation by Buyer of the transactions contemplated hereby
and thereby have been duly authorized, and will not: (a) conflict with, or
violate any provision of, any term or provision of the certificate of
incorporation or bylaws of Buyer or (b) conflict with, or result in any breach
of, or constitute a default under, any agreement to which Buyer is a party or by
which Buyer is bound.
12.3 BINDING OBLIGATION. This Agreement constitutes a valid and
binding obligation of Buyer, enforceable in accordance with its terms. Each
document to be executed by Buyer pursuant hereto, when executed and delivered in
accordance with the provisions hereof, shall be a valid and binding obligation
of Buyer, enforceable in accordance with its terms.
13. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The obligations of
Seller under this Agreement are subject to the fulfillment at or prior to the
Closing, of each of the following conditions, and failure to satisfy any such
condition shall excuse and discharge all obligations of Seller to carry out the
provisions of this Agreement, unless such failure is agreed to in writing by
Seller:
13.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Buyer in this Agreement or in any document furnished by Buyer
pursuant to this Agreement shall be true and complete when made and on and as of
the Closing as though such representations and warranties were made on and as of
such date, except for any changes expressly permitted by this Agreement.
13.2 PERFORMANCE. Buyer shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by Buyer prior to or at the Closing.
13.3 LEGAL PROCEEDINGS. No action or proceeding by or before any
governmental authority shall have been instituted or, to the best of Seller's
knowledge, threatened (and not subsequently dismissed, settled or otherwise
terminated) which is reasonably expected to restrain, prohibit or invalidate the
transactions contemplated by this Agreement, other than an action or proceeding
instituted or threatened by Seller.
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13.4 DOCUMENTS AT CLOSING. All documents required to be furnished by
Buyer to Seller prior to or at the Closing, as provided in SECTION 15.2(B)
hereof, shall have been so furnished.
13.5 CONSENTS AND APPROVALS. All consents and approvals required
hereunder shall have been duly obtained and evidence thereof provided to Buyer,
including, but not limited to, the consent of Seller's Secured Lender to the
transactions consummated hereby and the release of its entire security interest
in and lien on the Assets of Seller, so that Buyer shall obtain title thereto
free and clear of all Encumbrances as of the Closing.
14. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of
Buyer under this Agreement are subject to the fulfillment, at or prior to the
Closing, of each of the following conditions, and failure to satisfy any such
condition shall excuse and discharge all obligations of Buyer to carry out the
provisions of this Agreement, unless such failure is agreed to in writing by
Buyer:
14.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Seller in this Agreement and the statements contained in any
documents heretofore delivered to Buyer or furnished by Seller pursuant to this
Agreement shall be true and complete when made, and on and as of the Closing as
though such representations and warranties were made on and as of such date,
except for any changes expressly permitted by this Agreement.
14.2 PERFORMANCE. Seller shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with prior to or at the Closing Date.
14.3 COMPLETION OF DUE DILIGENCE. Seller shall have made available to
Buyer all materials regarding the following matters, and Seller shall have given
Buyer the opportunity to discuss such matters with Seller's officers and, after
receiving permission therefor from the Chief Executive Officer of Seller,
employees and selected customers of the Business, all so that Buyer shall have
been able to complete its due diligence with respect to such matters in its
reasonable judgment: (a) all insurance matters relating to Seller, (b) the
portion of the Business operated out of Cleveland, Ohio, (c) Buyer's review of
contracts it would be performing as a result of the consummation of the
transactions contemplated by this Agreement, and (d) contract backlog reports,
and (e) satisfactory UCC, judgment and lien searches; and the results of such
due diligence review shall have been satisfactory to Buyer in its reasonable
discretion.
14.4 ABSENCE OF ADVERSE CHANGES. There shall have been no changes
since December 31, 1995, in the business, operations, prospects, conditions
(financial or otherwise), assets, including, but not limited to, the Assets, or
Liabilities of Seller (regardless of whether or not such events or changes are
inconsistent with the representations and warranties given herein by Seller
which will have a material adverse effect on Buyer's use of the Assets), except
changes contemplated by this Agreement.
14.5 EMPLOYEES. Buyer shall have received the firm acceptance of
offers of employment from employees of Seller, as more particularly described in
SECTION 5 hereof.
14.6 LEGAL PROCEEDINGS. No action or proceeding by or before any
governmental authority shall have been instituted or threatened (and not
subsequently settled, dismissed or otherwise terminated) which is reasonably
expected to restrain, prohibit or invalidate the transactions contemplated by
this Agreement other than an action or proceeding instituted or threatened by
Buyer.
14.7 DOCUMENTS AT CLOSING. All documents required to be furnished by
Seller to Buyer prior to or at the Closing, as provided in SECTION 15.2(A)
hereof, shall have been so furnished.
14.8 CONSENTS. Seller shall have received all consents,
authorizations and approvals of governmental, quasi-governmental and private
parties which are required to be obtained in order to consummate the
transactions contemplated hereby, including but not limited to, (a) the consent
of the landlords of the Beltsville Office Space and the Cleveland Office Space
to the Beltsville Sublease and the assignment of the lease for the Cleveland
Office Space to Buyer, respectively, (b) the consent of such landlords to a
collateral assignment of the Beltsville Sublease and the assignment of the lease
for the Cleveland Office Space, respectively, as security to a commercial
banking institution on
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behalf of Buyer, and (c) the consent of Seller's Secured Lender to consummation
of the transactions contemplated hereby, and the release by Seller's Secured
Lender of its entire security interest in and lien on the Assets.
14.9 ASSETS. All tangible Assets shall be in good working condition
and all Assets shall be free and clear of all Claims and Encumbrances.
15. THE CLOSING; CLOSING DATE.
15.1 IN GENERAL. The closing of the transactions (the "Closing")
contemplated hereby shall take place on February 29, 1996, or such other date as
Buyer and Seller shall agree (the "Closing Date") at such time and at such place
as Buyer and Seller shall agree. Notwithstanding the foregoing, if the Closing
has not occurred by March 15, 1996, unless such date is extended by the mutual
consent of the Parties, either Party may terminate this Agreement by providing
written notice thereof to the other Party. Any such termination shall be
without liability to Seller or Buyer except to the extent that there shall have
occurred a willful or intentional breach of this Agreement or any intentional
misrepresentation or breach of warranty, as to each of which all legal remedies
of the Party adversely affected shall survive and be enforceable.
15.2 DELIVERIES AT CLOSING.
(a) At the Closing, Seller shall deliver to Buyer, in
consideration of the Purchase Price, the following:
(i) a Bill of Sale substantially in the form of EXHIBIT C
duly executed on behalf of Seller and dated as of
the Closing Date;
(ii) the Non-Competition Agreement duly executed on behalf
of Seller;
(iii) assignments of contracts relating to and leases of
personal property included in the Assets, except
with respect to assignments requiring the consent
of third parties, which have not been obtained as
of the Closing;
(iv) evidence of all assignments, novations and/or
subcontracts of contracts as contemplated by this
Agreement, which are available as of the Closing;
(v) the Beltsville Sublease duly executed on behalf of
Seller;
(vi) the consent of the landlord of the Beltsville Office
Space to the Beltsville Sublease;
(vii) the consent of the landlord of the Beltsville
Office Space to a collateral assignment of the
Beltsville Sublease in favor of Buyer's lender;
(viii) a certificate, dated as of the Closing and executed
by Seller's President, in his capacity as such,
certifying to the fulfillment of the conditions
specified in SECTIONS 14.1 THROUGH 14.6 hereof;
(ix) an opinion of Smith, Somerville & Case, L.L.C.,
counsel to Seller, dated as of the Closing,
addressing such matters and in form reasonably
satisfactory to Buyer;
(x) a certified copy of the resolutions adopted by the
Board of Directors of Seller authorizing the
transactions contemplated by this Agreement;
(xi) a certificate of incumbency and specimen signatures
of the signatory officers of Seller;
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(xii) good standing certificates as of a date not more
than 25 days prior to the Closing issued by the
Secretary of State of the state of incorporation
of Seller and any state in which the Business is
conducted;
(xiii) certificates executed by Bruce Reynolds and Cathy
Jones substantially in the form of EXHIBIT D-I,
and a certificate executed by Arthur S. Locke, III
substantially in the form of EXHIBIT D-II hereto;
and
(xiv) all other documents of title, deeds, endorsements,
assignments and other instruments as, in the
reasonable judgment of Buyer, are necessary to
vest in Buyer good and marketable title to the
Assets.
In addition, simultaneously with the Closing, Seller shall take all steps
requisite to put Buyer in actual possession (to the extent applicable) and
operating control of the Assets.
(b) At the Closing, Buyer shall deliver to Seller, the
following:
(i) the Purchase Price provided for in Section 2.3;
(ii) the Non-Competition Agreement duly executed on behalf
of Buyer; and
(iii) acceptance of assignments of contracts relating to
and leases of personal property included in the
Assets, except with respect to assignments
requiring the consent of third parties which have
not been obtained as of the Closing.
(iv) evidence of all assignments, novations and/or
subcontracts of contracts as contemplated by this
Agreement which are available as of the Closing;
(v) the Beltsville Sublease duly executed on behalf of
Buyer;
(vi) a certified copy of the resolutions adopted by the
Board of Directors of Buyer authorizing the
transactions contemplated by this Agreement;
(vii) a certificate of incumbency and specimen
signatures of the signatory officers of Buyer
which shall have been attached thereto a
[certified] copy of Buyer's Articles of
Incorporation and Bylaws;
(viii) a certificate, dated as of the Closing and
executed by Buyer's President or any Vice
President, in his capacity as such, certifying to
the fulfillment of the conditions specified in
Sections 13.1 through 13.4 hereof; and
(ix) an opinion of Verner, Liipfert, Bernhard, McPherson
and Hand, Chartered, counsel to Buyer, dated as
of the Closing, addressing such matters and in
form reasonably satisfactory to Seller.
(x) Resolutions of Guarantor authorizing the Guaranty.
(c) At the Closing, each Party shall deliver to the other all
other previously undelivered documents, instruments, and writings required to be
delivered by it at the Closing pursuant to this Agreement or otherwise required
in connection herewith.
16. SURVIVAL. All representations, warranties, covenants, indemnities and
other agreements made by any Party herein or pursuant hereto shall also be
deemed made on and as of the Closing as though such representations, warranties,
covenants and indemnities and other agreements were made on and of such date,
and such representations,
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warranties, covenants, indemnities and other agreements shall survive the
Closing and any investigation, audit or inspection at any time made by or on
behalf of any Party for a period (the "Survival Period") of two (2) years from
the Closing Date (except that as to environmental matters only, the Survival
Period shall be five (5) years from the Closing Date), at which time they shall
terminate and be of no force and effect. Upon the expiration of the applicable
Survival Period as set forth in the preceding sentence, no proceeding or Claim
shall be made, filed or initiated against any Party to this Agreement by the
other in connection with any matter arising out of, related to, in connection
with or respect of any representations, warranties, covenants, indemnities or
other agreements made by any Party herein that do not survive the applicable
Survival Period. Notwithstanding any of the foregoing provisions of this
Section 16, none of the foregoing provisions of this Section 16 shall apply to
any of the following, each of which shall remain in effect in perpetuity: (i)
Sections 1, 2.2, 2.3, 8, 18.5--18.11 inclusive and 18.13--18.15 inclusive, and
(ii) any other provision of this Agreement not set forth in any of the
provisions of this Agreement referred to in clause (i) of this sentence that
relate to: (a) the obligation of Buyer to pay the Purchase Price or to pay the
$15,000 referred to in Section 2.3(b)(iv), or (b) the obligation of Buyer to
assume any Liability or to assume or perform under any agreement which is being
assigned or novated pursuant to or in connection with this Agreement.
17. INDEMNIFICATIONS.
17.1 AGREEMENT OF SELLER TO INDEMNIFY.
(a) Subject to the conditions and provisions of SECTION 17.3
hereof, Seller hereby agrees to indemnify, defend and hold harmless Buyer
Indemnified Persons from and against and in any respect of all Claims asserted
against, resulting to, imposed upon or incurred by the Buyer Indemnified Persons
(whether such Claims are by, against or relate to Seller or any other party,
including a governmental entity), directly or indirectly, by reason of or
resulting from:
(i) any misrepresentation or breach of any representation
or warranty, or noncompliance with any conditions
or other agreements, given or made by Seller in
this Agreement or in any document furnished by or
on behalf of Seller pursuant to this Agreement;
(ii) any Operational Receivables which are not collected
by Buyer as and when such Operational Receivables
become due and owing; PROVIDED, HOWEVER, that with
respect to such uncollected Operational
Receivables, (A) Buyer shall use such internal
collection procedures as are deemed advisable in
Buyer's reasonable discretion, it being
understood, however, that unless instructed to do
so by and at the expense of Seller, Buyer shall
not be obligated to employ counsel or use any
other outside collection procedures; (B) Buyer
shall keep Seller generally advised from time to
time of the status of collection of any such
accounts and otherwise cooperate with Seller; (C)
Buyer shall not compromise or settle any such
accounts without the prior written consent of
Seller, which consent shall not be unreasonably
withheld, conditioned or delayed; (D) Buyer shall
assign to Seller or its assigns all rights to any
Operational Receivables for which an
indemnification payment has been made by Seller
hereunder; and (E) in the event it is unclear to
Buyer whether a particular payment is to be
applied to an Operational Receivable purchased
pursuant to this Agreement or to an invoice
generated by Buyer after the Closing, Buyer shall
request that the payor clarify to which invoice
such payment should be applied; if the payor
indicates that the payment is to be applied to an
invoice representing an Operational Receivable
purchased pursuant to this Agreement, Buyer shall
so apply it; PROVIDED, FURTHER, that Seller shall
not be obligated to make any indemnification
payments to Buyer for any Operational Receivables
which are actually collected by Buyer, even if
such Operational Receivables are collected after
the due date therefor;
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(iii) any Liabilities of Seller that are not specifically
assumed by Buyer pursuant to this Agreement,
including, but not limited to, Liabilities
arising from the errors or omissions of Seller
and/or in the operation of the Business prior
to the Closing; and
(iv) the application of the bulk transfer Laws of any
jurisdiction to the transactions contemplated
by this Agreement.
(b) Subject to the conditions and provisions of SECTION 17.3
hereof, Seller agrees to indemnify, reimburse, defend, and hold harmless Buyer
for, from, and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including,
without limitation, interest, penalties, reasonable attorneys' fees,
disbursements and expenses, and reasonable consultants' fees, disbursements and
expenses, asserted against, resulting to, imposed on, or incurred by Buyer,
directly or indirectly, in connection with any of the following:
(i) the events, circumstances, or conditions described in
SCHEDULE 11.9(A);
(ii) any Environmental Claim or any pollution or threat to
human health or the environment that is related
in any way to Seller's or any previous owner's
or operator's management, use, control, ownership
or operation of the Assets or Business including,
without limitation, all on-site and off-site
activities involving Hazardous Materials, and
that occurred, existed, arises out of conditions
or circumstances that occurred or existed, or was
caused, in whole or in part, on or before the
Closing Date, whether or not the Environmental
Claim, pollution or threat to human health or the
environmental is described in SCHEDULE 11.9(A);
(iii) any Environmental Claim against any person or entity
whose liability for such Environmental Claim
Seller has or may have assumed or retained either
contractually or by operation of law; and
(iv) the breach of any environmental representation or
warranty set forth in SECTION 11.9 hereof.
(c) Buyer hereby agrees that Seller shall have no liability to
Buyer or its successors or permitted assigns, for any liability, damage, loss or
expense, unless the aggregate amount of all Liabilities, damages, losses or
expenses suffered by Buyer and its successor and permitted assigns exceeds
$10,000, and then only to the extent such aggregate amount exceeds $10,000.
17.2 AGREEMENT OF BUYER TO INDEMNIFY. Subject to the conditions and
provisions of SECTION 17.3 hereof, Buyer hereby agrees to indemnify, defend and
hold harmless the Seller Indemnified Persons from and against and in respect of
all Claims asserted against, resulting to, imposed upon or incurred by the
Seller Indemnified Persons (whether such Claims are by, against or relate to
Buyer or any other party, including, without limitation, a governmental entity),
directly or indirectly, by reason of or resulting from any (i) misrepresentation
or breach of any representation or warranty, or noncompliance with any
conditions or other agreements, given or made by Buyer in this Agreement, and
(ii) damage or loss resulting from or arising out of the conduct of the Business
after the Closing. Seller hereby agrees that Buyer shall have no liability to
Seller or its successors or permitted assigns, for any Liability, damage, loss
or expense pursuant to this SECTION 17, unless the aggregate amount of all
Liabilities, damages, losses or expenses suffered by Seller and its successor
and permitted assigns exceeds $10,000, and then only to the extent such
aggregate amount exceeds $10,000.
17.3 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities
of Seller and Buyer hereunder with respect to their respective indemnities
pursuant to this SECTION 17, resulting from any Claim or Environmental Claim
shall be subject to the following terms and conditions:
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(a) In the event an indemnified Party suffers an event giving
rise to liability of the indemnifying Party pursuant to this SECTION 17 which
does not involve a Claim or Environmental Claim made by a third party, the
indemnified Party shall give prompt written notice to the indemnifying Party of
such Claim or Environmental Claim stating (to the extent known or reasonably
anticipated) the nature and basis of such Claim or Environmental Claim, and the
amount thereof. Within three business days of receipt of such notice, the
indemnifying Party shall reimburse the indemnified Party for the amount of such
Claim or Environmental Claim requested in such notice.
(b) In the event an indemnified Party suffers an event which
could give rise to liability of the indemnifying Party pursuant to this SECTION
17 which does involve a Claim or Environmental Claim made by a third party, the
indemnified Party shall give prompt written notice to the indemnifying Party of
any Claim or Environmental Claim which is asserted against, resulting to,
imposed upon or incurred by such indemnified Party and which may give rise to
liability of the indemnifying Party pursuant to this SECTION 17 stating (to the
extent known or reasonably anticipated) the nature and basis of such Claim or
Environmental Claim, and the amount thereof. The indemnifying Party may engage
counsel or representatives of its own choosing with respect to any such Claim,
or Environmental Claim (including the compromise or settlement of any Claim or
Environmental Claim; PROVIDED, HOWEVER, that no such compromise or settlement
shall (i) be effected without the prior written consent of the indemnified Party
if such compromise or settlement does not include an unconditional release by
the third-party claimant of the indemnified Party from any and all liability in
respect of the such Claim or Environmental Claim, as the case may be, or (ii)
result in any obligations or Liabilities to the indemnified Party without the
indemnified Party's prior written consent, which the indemnified Party may
withhold in its absolute discretion). In the event the indemnifying Party
elects not to undertake such defense by its own representatives, the
indemnifying Party shall give prompt written notice of such election to the
indemnified Party and the indemnified Party will undertake the defense thereof
at the indemnifying Party's sole expense, by counsel or other representatives
designated by it whom the indemnifying Party determines in writing to be
satisfactory for such purposes. The consent of the indemnifying Party to the
indemnified Party's choice of counsel or other representative shall not be
unreasonably withheld, conditioned or delayed.
(c) In the event that any Claim or Environmental Claim shall
arise out of a transaction or cover any period or periods wherein Seller, on the
one hand, and Buyer, on the other hand, shall each be liable hereunder for part
of the liability or obligation arising therefrom, then the Parties shall, each
choosing its own counsel and bearing its own expense, defend such Claim or
Environmental Claim, and no settlement or compromise of such Claim or
Environmental Claim may be made without the joint consent or approval of Seller
and Buyer (which consent shall not be unreasonably withheld, conditioned or
delayed), except where the respective Liabilities and obligations of Seller and
Buyer are clearly allocable or attributable on the basis of objective facts.
(d) The Parties agree that any Liability, damage, loss or
expense for which indemnity or damages are sought pursuant to any provision of
this Agreement shall be computed after deduction (or increase) of any net tax
benefit (or disadvantage) which may accrue to the Party seeking indemnity or
damages after giving effect to the incurrence by such Party of the Liability,
damage, loss or expense giving rise to the claim for indemnification or damages,
the payment by such Party of any such Liability, damage, loss or expense and the
receipt by such Party of any indemnity or damage payment pursuant hereto.
18. MISCELLANEOUS
18.1 ADDITIONAL ACTIONS AND DOCUMENTS. Each of the Parties hereto
hereby agrees to take or cause to be taken such further actions, to execute,
deliver and file or cause to be executed, delivered and filed such further
documents, and will obtain such consents, as may be necessary or as may be
reasonably requested in order to fully effectuate the purposes, terms and
conditions of this Agreement.
18.2 BROKERS. Each Party represents and warrants to the other Party
that, except for Seller's broker, Hempstead & Company, whose commissions
relating to the transactions contemplated by this Agreement are solely the
responsibility of Seller, such Party has not engaged any broker, finder or agent
in connection with the transactions contemplated by this Agreement. Each Party
represents and warrants to the other Party that it has not incurred (and will
not incur) any unpaid Liability to any broker, finder or agent for any brokerage
fees, finders' fees or commissions, with respect to the transactions
contemplated by this Agreement. Each Party agrees to indemnify, defend and hold
harmless
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the other Party from and against any and all claims asserted against such Party
for any such fees or commissions by any persons purporting to act or to have
acted for or on behalf of the indemnifying Party.
18.3 EXPENSES. Each Party hereto shall pay its own expenses incident
to this Agreement and the transactions contemplated hereunder including all
legal and accounting fees and disbursements. Buyer shall be responsible for any
and all sales or similar tax due as a result of the transactions described in
this Agreement.
18.4 ASSIGNMENT. Buyer shall have the right to assign its rights and
obligations under this Agreement, in whole or in part, to an affiliate of Buyer
or to designate any of its affiliates (to the extent permitted by Law) to
exercise any of the rights of Buyer, or to perform any of its obligations
hereunder. Notwithstanding any such assignment, Buyer shall remain responsible
and liable to Seller with respect to all of the obligations of Buyer set forth
herein.
18.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and other documents
referred to herein or furnished pursuant hereto, constitutes the entire
agreement among the Parties hereto with respect to the transactions contemplated
herein, and it supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein, including, but
not limited to, the letter of intent dated February 14, 1996 between ManTech
International Corporation (Buyer's parent company) and Seller. No amendment,
modification or discharge of this Agreement shall be valid or binding unless set
forth in writing and duly executed and delivered by the Party against whom
enforcement of the amendment, modification or discharge is sought.
18.6 WAIVER. No delay or failure on the part of any Party hereto in
exercising any right, power or privilege under this Agreement or under any other
documents furnished in connection with or pursuant to this Agreement shall
impair any such right, power or privilege or be construed as a waiver of any
default or any acquiescence therein. No single or partial exercise of any such
right, power or privilege shall preclude the further exercise of such right,
power or privilege, or the exercise of any other right, power or privilege. No
waiver shall be valid against any Party hereto unless made in writing and signed
by the Party against whom enforcement of such waiver is sought and then only to
the extent expressly specified therein.
18.7 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that such court shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of any
applicable appeal period.
18.8 GOVERNING LAW. This Agreement, the rights and obligations of the
Parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the Laws of the State of Maryland (excluding
the choice of law rules thereof).
18.9 NOTICES. All notices, demands, requests, or other communications
which may be or are required to be given, served, or sent by any Party to any
other Party pursuant to this Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
telegram, telecopy or telex, addressed as follows:
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(i) IF TO BUYER:
ManTech Environmental Corporation
12015 Lee Jackson Highway
Eighth Floor
Fairfax, Virginia 22033-3300
Attention: Michael J. Cromwell, III, Executive Vice President
with a copy (which shall not constitute notice) to:
Verner, Liipfert, Bernhard, McPherson and Hand
901 - 15th Street, N.W.
Seventh Floor
Washington, D.C. 20005
Attention: Michael D. Golden, Esquire
(ii) IF TO SELLER:
Biospherics Incorporated
12051 Indian Creek Court
Beltsville, Maryland 20705
Attention: Richard C. Levin
with a copy (which shall not constitute notice) to:
Smith, Somerville & Case, L.L.C.
100 Light Street, 5th Floor
Baltimore, Maryland 21202
Attention: James E. Baker, Jr., Esquire
Each Party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request or communication which shall be hand delivered,
sent, mailed, telecopied or telexed in the manner described above, or which
shall be delivered to a telegraph company, shall be deemed sufficiently given,
served, sent, received or delivered for all purposes at such time as it is
delivered to the addressee (with the return receipt, the delivery receipt, or
(with respect to a telecopy of telex) the answerback being deemed conclusive,
but not exclusive, evidence of such delivery) or at such time as delivery is
refused by the addressee upon presentation.
18.10 HEADINGS. Article and Section headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
18.11 EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It shall
not be necessary that the signatures of, or on behalf of, each Party, or that
the signatures of all persons required to bind any Party, appear on each
counterpart but it shall be sufficient that the signature of, or on behalf of
each Party, or that the signatures of the persons required to bind any Party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single Agreement. It shall not be necessary in making proof of
this Agreement to produce or account for more than a number of counterparts
containing the respective signature of, or on behalf of, all of the Parties
hereto.
18.12 LIMITATION ON BENEFITS. The covenants, undertakings and
agreements set forth in this Agreement shall be solely for the benefit of, and
shall be enforceable only by, the Parties hereto and their respective
successors, heirs, executors, administrators, legal representatives and
permitted assigns, except that the agreements set forth in SECTION 7
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hereof also shall be for the benefit of, and enforceable by, Buyer Indemnified
Persons, Seller Indemnified Persons and their respective successors, heirs,
executors, administrators, legal representatives or permitted assigns.
18.13 BINDING EFFECT. Subject to any provisions hereof
restricting assignment, this Agreement shall be binding upon and shall inure to
the benefit of the Parties hereto and their respective successors, heirs,
executors, administrators, legal representatives and permitted assigns.
18.14 ARBITRATION. Any controversy between Buyer and Seller
arising out of or related to this Agreement, including, without limitation, the
scope of this SECTION 18.14, shall be settled by arbitration in Prince George's
County, Maryland, in accordance with the rules of the American Arbitration
Association. In the event a Party determines that there is a dispute hereunder
which such Party does not believe can be resolved without arbitration, such
Party shall give notice thereof to the other Party and such notice shall
specifically state that it is being given pursuant to this SECTION 18.14.
Within 15 days after the other Party receives such notice, both Parties shall
select an arbitrator mutually agreeable to them, or, if the Parties cannot agree
on the selection of an arbitrator, then an arbitrator shall be selected within
15 days by the American Arbitration Association, in accordance with the rules
thereof. Any award or determination made by the arbitrator shall be binding and
conclusive upon the Parties and shall not be subject to appeal to any court
except for the reasons now set forth in 9 U.S.C. Section 10(a)(1)-(5). The
expenses of arbitration shall be allocated to the Parties as determined by the
arbitrator.
18.15 MONTHLY REPORTS. Until such time as Buyer has paid the full
amount due hereunder for the Operational Receivables, Buyer shall provide Seller
on a monthly basis with accounts receivable reports which shall reflect in
detail all unpaid Operational Receivables. Such reports shall be provided not
later than the 15th day after the end of each preceding month.
IN WITNESS WHEREOF, the Parties hereto have duly caused this Agreement to
be executed on their behalf as of the day and year first above written.
BUYER:
MANTECH ENVIRONMENTAL
CORPORATION
By:__________________________________________
Name:__________________________________
Title:_______________________________________
SELLER:
BIOSPHERICS INCORPORATED
By:__________________________________________
Name:__________________________________
Title:_______________________________________
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EXHIBIT A
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT ("Agreement") is entered into as of
February 27, 1996, by and among (I) ManTech Environmental Technology, Inc.,
a Virginia corporation (the "Company"), and Biospherics Incorporated, a
Delaware corporation ("Biospherics") (the Company and Biospherics are
hereinafter sometimes referred to individually as a "Party" and collectively
as the "Parties").
WITNESSETH:
WHEREAS, the Parties have agreed to enter that certain Asset Purchase
Agreement (the "Asset Purchase Agreement") of even date herewith, pursuant to
which the Company has agreed to purchase certain assets of Biospherics; and
WHEREAS, the Asset Purchase Agreement requires Biospherics to execute
and deliver this Non-Competition Agreement: and
WHEREAS, the Parties wish to set forth herein their understandings and
agreements regarding the terms of Biospherics' agreement not to compete with the
Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. TERMS. Capitalized terms not otherwise defined herein shall have the
meanings attributed thereto in the Asset Purchase Agreement.
2. NON-COMPETITION, NON-INDUCEMENT, NON-SOLICITATION.
(a) Subject to (b) herein, Biospherics hereby agrees that for a
period of five (5) years from the date hereof, it shall not:
(i) engage in the same business lines as those of the
Biospherics' Environmental and Laboratory Services Division,
including, but not limited to asbestos surveys, lead-based paint
surveys, indoor air quality investigations, remediation design,
abatement oversight, abatement monitoring with air sample
collection; environmental auditing, site assessment, historical
research, environmental testing; environmental training for
contractors, consultants, and property owners; laboratory
analytical services for asbestos (referred to herein as the
"Business Line(s)");
(ii) own, manage, operate, join, control, or participate in the
ownership, management, operation, or control of or work for any
person, corporation or entity which, directly or indirectly, is
engaged in similar Business Lines;
(iii) actively solicit or attempt to solicit for hire any person
who the Company or any of its Affiliates (as defined below)
employs, whether or not such person was an employee,
representative or agent of Biospherics prior to the date hereof,
for employment by any other business or entity in competition
with the Company; or
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(iv) induce or attempt to induce any person, business or entity
which is a customer of the Company or any of its Affiliates, or
which otherwise is a contracting party with the Company or any of
its Affiliates, to terminate any written or oral agreement or
understanding with the Company or any of its Affiliates, or to
enter into a business arrangement with Biospherics that is
similar to or in competition with the Company.
Items (i), (ii), (iii) and (iv) above, shall be referred to herein as
"Compete" or "Competing".
(b) Notwithstanding anything to the contrary herein, any
relationships, associations, or alliances by Biospherics with third
parties that Compete with Biospherics' ELSD shall be specifically
excluded from the purview of this Agreement if, and only if,
Biospherics can establish by contemporaneous, clear, and convincing
written evidence that the relationship, association or alliance is
based on principles unrelated to the Business Lines.
(c) Biospherics has carefully read and considered the provisions of
this Agreement and, having done so, agrees that the restrictions set
forth herein are fair and reasonable and are reasonably required for
the protection of the Company and its Affiliates.
(d) Biospherics agrees that, if the Company believes in its reasonable
judgment reached in good faith that Biospherics shall be violating the
provisions of this Agreement, the Company shall so advise Biospherics.
3. DEFINITION OF AFFILIATE. For purposes of this Agreement, "Affiliate"
means, in relation to any Person (as defined herein), any other Person that
(directly or indirectly) controls or is controlled by or is under the common
control with such Person, and also shall include any Person that is so
affiliated with any such Affiliate, as well as any partner, shareholder,
warrantholder, member, director, officer, or manager of any such Person or of
any Person so affiliated with such Person. For the purposes of this definition,
the term "control", as used with respect to any Person, shall mean the
possession (directly or indirectly) of the power to direct or to cause the
direction of the management or the policies of such Person, whether through the
ownership of shares of any class in the capital of such Person or by contract or
otherwise. Also for purposes of this definition, the term "Person" shall mean
any natural person, corporation, association, partnership, joint venture, trust,
governmental authority or any agency or department thereof, or any other entity
of any kind.
4. REMEDIES.
(a) The Company shall be entitled, if it elects, to enjoin any breach
or threatened breach of, or enforce the specific performance of, the
obligations of Biospherics under this Agreement without showing any
actual damage or that monetary damages would be inadequate. Any such
equitable remedy will not be the sole and exclusive remedy for any such
breach, and the Company may pursue other remedies for such a breach.
(b) Any court proceeding to enforce this Agreement may be commenced in
the federal courts, or in the absence of federal jurisdiction, the
state courts, located in Maryland. The Parties submit to the
non-exclusive jurisdiction of such courts and waive any objection which
they may have to the pursuit of any such proceeding in any such court.
5. AGREEMENT BILLING. Biospherics' obligations hereunder shall be binding
legal obligations and shall inure to the benefit of any successor(s) to all or
substantially all of the Company's business by purchase, merger, consolidation,
or otherwise. This Agreement shall be binding upon and inure to the benefit of
any representatives and/or successor(s) of Biospherics, unless such successor(s)
already operates similar Business Lines.
6. WAIVER. No waiver by either Party at any time of any breach by the
other Party of, or compliance with, any condition or provision of this Agreement
to be performed by any other Party shall be deemed a waiver of any other
provisions or conditions at the same time or at any prior or subsequent time.
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7. APPLICABLE LAW. This Agreement shall be construed and interrupted
pursuant to the laws of Maryland without giving effect to conflict of laws
provisions thereof.
8. ENTIRE AGREEMENT. This Agreement, together with the Asset Purchase
Agreement, contains the entire agreement between the Parties relating to the
subject matter hereof and supersedes any and all previous agreements, written or
oral, between the parties relating to the subject matter hereof. No amendment
or modification of the terms of this Agreement shall be binding upon the Parties
unless reduced to writing and signed by all Parties affected thereby.
9. SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision, to delete specific
words or phrases, or to replace any invalid or unenforceable term or provision,
and this Agreement shall be enforceable as so modified after the expiration of
the time within which the judgment may be appealed. Without limiting the
foregoing, in the event that any provisions of this Agreement relating to the
time period of restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period, the time period deemed
reasonable and enforceable shall become and thereafter be the maximum time
period.
10. COUNTERPARTS. This Agreement may be executed in counterparts and may
be executed by facsimile signature, each of which shall be deemed an original
and all of which together shall constitute one and the same instrument.
11. NOTICE. Notices under this Agreement shall be in writing and deemed
effective when received via certified, registered mail or common carrier, return
receipt requested, to the following addresses or to such other address as the
Party being notified may have previously furnished to the others by written
notice.
IF TO THE COMPANY:
ManTech Environmental Technology, Inc.
12015 Lee Jackson Highway
Fairfax, Virginia 22033-3300
Attention: Michael J. Cromwell, III
With a copy (which shall not constitute notice) to:
Verner, Liipfert, Bernhard, McPherson and Hand
901 15th Street, N.W., Suite 700
Washington, DC 20004
Attention: Hedy L. Nelson
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IF TO BIOSPHERICS:
Biospherics Incorporated
12051 Indian Creek Court
Beltsville, Maryland 20705
Attention: Richard C. Levin
With a copy (which shall not constitute notice) to:
Smith, Somerville & Cox, L.L.C.
100 Light Street, 5th Floor
Baltimore, Maryland 21202
Attention: James E. Baker, Jr., Esquire
IN WITNESS WHEREOF, each Party hereto has executed this Agreement or caused this
Agreement to be executed in its name and on its behalf as of the day and year
first above written.
MANTECH ENVIRONMENTAL TECHNOLOGY, INC.
_____________________________________
Michael J. Cromwell, III
Vice President
______________________________________
Name: ______________________
Title: _____________________
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EXHIBIT B
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (this "Sublease") is effective this 29th day of
February, 1996, by and between Biospherics Incorporated ("Sublessor"), a
Delaware corporation, having offices at 12051 Indian Creek Court, Beltsville, MD
20705, and ManTech Environmental Corporation, a Virginia corporation qualified
to transact business in the State of Maryland ("Sublessee"), having offices at
12015 Lee Jackson Highway, Fairfax, VA 22033. For the purposes of this
Sublease, the term "Party" shall mean Sublessor and Sublessee severally and the
term "Parties" shall mean Sublessor and Sublessee collectively.
RECITALS
WHEREAS, pursuant to that certain Agreement of Lease ("Master Lease") by
and between Indian Creek Holding Associates Limited Partnership c/o Liberty
Property Trust as Landlord ("Master Lessor"), and Sublessor as Tenant, effective
the 7th day of April, 1987, a copy of which is attached hereto and incorporated
herein as EXHIBIT A. Sublessor is leasing from Master Lessor approximately
95,100 square feet in the building known as 12051 Indian Creek Court,
Beltsville, MD 20705 (the "Building") on the lot which underlies the Building
(the Building and lot hereinafter referred to collectively as the "Premises").
WHEREAS, Sublessor desires to sublease to Sublessee, and Sublessee desires
to sublease from Sublessor approximately 9,000 square feet (the "Subleased
Premises") upon, and subject to, the prior consent of Master Lessor on the terms
and conditions hereinafter set forth. The Subleased Premises are more
particularly delineated on the floor plan attached hereto and incorporated
herein as EXHIBIT B.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt and sufficiency which are hereby acknowledged by
both Parties, it is agreed as follows:
1. INCORPORATION OF RECITALS AND MASTER LEASE DEFINITIONS.
The Parties agree that the Recitals above are a part of this Sublease.
Unless otherwise expressly defined in this Sublease, terms defined in the Master
Lease shall have the same meaning under this Sublease.
2. SUBLEASED PREMISES.
(a) Sublessor hereby subleases to Sublessee and Sublessee hereby subleases
from Sublessor, the Subleased Premises, including the right to use a
proportionate number of parking spaces, upon and subject to all of the terms and
conditions hereinafter set forth.
(b) For the purposes hereof, it is agreed that the square footage of the
Subleased Premises is 9,000 square feet based upon previous measurement.
3. TERM.
(a) This Sublease shall be in full force and effect from the date of its
execution by Sublessor, Sublessee and Master Lessor. The term of the Sublease
shall commence on March 1, 1996 (the "Commencement Date") and expire on May 1,
1996 (the "Expiration Date") unless otherwise terminated or extended as
hereinafter provided (the "Primary Term").
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(b) If Sublessee does not immediately surrender the Subleased Premises on
the day after the end of the Primary Term, the term automatically extends to
August 31, 1996, on a month to month basis, unless earlier terminated as set
forth below (the "Extended Term"). The Primary Term and Extended Term shall be
referred to herein as the "Term." Sublessor and Sublessee shall be subject to
all of the conditions and covenants of this Sublease as though the tenancy had
originally been a monthly tenancy. Sublessee shall give at least fifteen (15)
days prior written notice to the Sublessor to terminate this Sublease at any
time during the Extended Term.
4. RENT
(a) During the Term, Sublessee shall pay to Sublessor, monthly rent of
$9,500.00 ("Monthly Rent"). All such Monthly Rent shall be due and payable in
advance on or before the first (1st) day of each month during the Term without
any prior demand or previous notice. If the Sublease Commencement or
Termination Dates fall on a day other that the first day, or last day
respectively, of a calendar month, Monthly Rent shall be prorated on a per diem
basis at the rate of one-thirtieth (1/30th) of the Monthly Rent.
(b) Monthly Rent is all inclusive such that Monthly Rent includes, without
limitation, Minimum Annual Rent and all operating expenses, utility charges,
maintenance and janitorial fees, taxes, increases in insurance premiums
maintained by Master Lessor, parking fees, telephone/fax service including local
and long distance charges and any reproduction charges. Under no condition
shall Sublessee be required to pay any additional rent (as defined in the Master
Lease) or any other sums which may otherwise be due and payable pursuant to the
Master Lease.
(c) Monthly Rent and any other sums payable by Sublessee hereunder shall
be paid to Sublessor in lawful money of the United States at Sublessor's address
provided above or as otherwise designated in writing to Sublessee. A late
charge of five percent (5%) will be imposed with respect to Monthly Rent due
hereunder that is not received by Sublessor within ten (10) days following the
date such rent was due. In addition, such late payment shall bear interest at
ten percent (10%) per annum, accrued monthly, from the date that it is fifteen
(15) days past due to the date of payment thereof by Sublessee; provided,
however, that nothing contained herein shall be construed as permitting
Sublessor to charge or receive interest in excess of the maximum rate then
allowed by applicable law. Such late charge and interest shall be due and
payable with the next installment of Monthly Rent due hereunder.
5. SUBLESSEE'S INSURANCE
From the Commencement Date of this Sublease and continuing throughout the
Term hereof, Sublessee shall obtain and maintain all insurance with respect to
the Subleased Premises and the contents thereof that Sublessor is required to
obtain and maintain pursuant to the Master Lease with respect to the Premises
leased by Sublessor under the Master Lease and the contents thereof. The
insurance required to be carried by Sublessee pursuant hereto shall be carried
with a company or companies licensed to do business in the State of Maryland and
shall meet all other requirements for Sublessor's insurance under the Master
Lease. In addition, such insurance policies shall provide that such policies
cannot be canceled without thirty (30) days prior written notice to Sublessor.
If requested by Sublessor, Sublessee shall provide certificates of insurance.
6. USE
Sublessee shall use the Subleased Premises for the full Term hereof for an
analytical laboratory, the Sublessee's offices, a training facility and/or any
one or more lawful uses, but for no other purpose. Sublessee shall comply with
all present and future laws, ordinances, regulations and requirements of all
federal, state, and other governmental authorities relating to use of the
Subleased Premises. Sublessee shall not permit the Subleased Premises to be
used in any manner that constitutes a public or private nuisance or that
interferes with the lawful use of the Building by Sublessor or any other tenant
of the Building. Sublessee shall observe and abide by all rules and regulations
that are established by Master Lessor with respect to use of the Subleased
Premises or any other part of the Building.
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7. IMPROVEMENTS
(a) The Subleased Premises shall be delivered to Sublessee clean and ready
for use and Sublessee agrees to accept the Subleased Premises in their "as is"
"as built" condition as of the effective date of this Sublease. Sublessee
acknowledges that it has inspected the Subleased Premises and that they are in
reasonably good condition and repair.
(b) Sublessee shall not make or install any additions, renovations,
alterations, improvements or changes ("Tenant Improvements") in or to the
Subleased Premises, including the walls, floors, ceiling and fixtures located
therein, without first obtaining the prior written approval of Sublessor and, if
and to the extent required pursuant to the Master Lease, the Master Lessor. All
work done by or for Sublessee with respect to the Subleased Premises, including,
but not limited to, any removal or restoration work done at the expiration or
termination of this Sublease, shall be at Sublessee's sole cost and expense.
Sublessee shall comply with all present and future laws, ordinances, regulations
and requirements of all federal, state and other governmental authorities
relating to any and all Tenant Improvements of the Subleased Premises.
(c) Sublessor hereby waives any rights, whether vested as a matter of law
or otherwise, to liens or other security interests in or to any trade fixtures
or other personal property owned by Sublessee and located in or about the
Subleased Premises.
8. REPAIRS AND MAINTENANCE
Throughout the Term of this Sublease, Sublessee shall, at its sole cost and
expense, keep and maintain the Subleased Premises and all property located
therein in good order and condition, provided however, Sublessor shall keep and
maintain the exterior portions of the Subleased Premises as well as the
electrical and heating and air conditioning systems for the Subleased Premises
in good order and repair. Sublessor or Master Lessor shall have the right to
make repairs to the Subleased Premises which Sublessee does not make or
diligently pursue after receiving prior written notice requesting such repair be
made within a reasonable amount of time consistent with the nature of the repair
or replacement from Sublessor or Master Lessor, and Sublessee shall pay to
Sublessor all reasonable costs and expenses of such repairs within fifteen (15)
days after receiving an invoice for such work. Upon the expiration or
termination of this Sublease, Sublessee shall surrender the Subleased Premises
in as good condition as it was in at the effective date of this Sublease
reasonable wear and tear, casualty damage for which the Master Lessor and/or
Sublessor are responsible to repair or restore, and other conditions for which
the Master Lessor and/or Sublessor are responsible to repair or restore
excepted. The foregoing obligation includes by way of example and not by
limitation, the obligation of Sublessee to repair and restore any damage or
injury to the Subleased Premises caused by the installation and/or removal of
any of its trade fixtures, except for the costs of restoring the Subleased
Premises pursuant to the provisions herein relating to the relocation of the
Transmission Electron Microscope, where the Parties hereby agree to equally
divide the reasonable restoration costs thereof.
9. INDEMNIFICATION AND WAIVER OF SUBROGATION
(a) Sublessee hereby agrees to indemnify and hold harmless Sublessor from
and against any and all losses, damages, liabilities, actions, claims, costs and
expenses, including court costs and reasonable attorneys' fees, arising out of
or relating to (i) Sublessee's negligent use or occupancy of the Subleased
Premises; or (ii) any neglect act or omission by Sublessee or any of its
employees, guests or invitees; or (iii) any failure by Sublessee to perform or
observe any of the covenants or obligations required of Sublessee under this
Sublease, in each case only to the extent not caused by the negligence, gross
negligence or willful misconduct of Sublessor, its officers, representatives,
agents, employees or invitees, in which event Sublessor agrees to indemnify and
defend Sublessee as provided above. Sublessee's obligations under this
paragraph shall survive the expiration or termination of this Sublease.
(b) Sublessor and Sublessee hereby release each other and waive any claims
against each other for bodily injury or loss or damage to the Premises,
Subleased Premises, fixtures, equipment or any other personal property arising
from a risk insured against and actually paid under insurance policies required
to be carried by Sublessor and Sublessee hereunder even though such loss or
damage was caused by an act or omission of Sublessor or Sublessee, their
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representatives, agents, employees or invitees. Sublessor and Sublessee agree
to obtain and maintain throughout the Term of this Sublease endorsements to
their respective insurance policies waiving the right of recovery or subrogation
of their insurance companies against the other Party and its agents and
employees to the extent of the foregoing release and waiver. Except to the
extent expressly provided herein, nothing contained in this Sublease shall
relieve Sublessor or Sublessee of any liability to each other or to their
insurance carriers which Sublessor or Sublessee may have under law or the
provisions of this Sublease, in connection with any bodily injury or loss or
damage to the Premises, Subleased Premises, fixtures, equipment or any other
personal property.
10. BUILDING SERVICES
In the event Master Lessor agreed to furnish certain services to Sublessor
pursuant to the Master Lease, Sublessee shall be entitled to the use and benefit
of such services; however, Sublessor shall not have the liability or
responsibility to Sublessee for the quality of such services for interruption,
failure or disruption in the provision of such services to the extent not caused
by the negligence, gross negligence or willful misconduct of Sublessor, or its
agents, representatives, employees or invitees. Sublessee's obligations
hereunder shall survive the expiration or termination of this Sublease.
11. ASSIGNMENT AND SUBLETTING
Without the prior written approval of Sublessor, which approval may not be
unreasonably withheld, delayed or conditioned, Sublessee shall not assign,
pledge, or encumber this Sublease or any interest herein, further sublease the
Subleased Premises or any part thereof or permit anyone other than Sublessee's
employees, guests or invitees to use the Subleased Premises. Any attempted
assignment, pledge or hypothecation of this Sublease or subletting of the
Subleased Premises, whether voluntary or involuntary, without prior written
approval of Sublessor and Master Lessor shall be void and shall, and at the
option of the Sublessor, terminate this Sublease. In no event shall Sublessee
be released from liability under this Sublease. Sublessor reserves the right to
assign or otherwise transfer its interest in and to this Sublease, including all
of its rights and obligations hereunder, to any entity or person who shall
succeed to Sublessor's interest in and to Master Lease, provided, however,
Sublessor shall use its best efforts to obtain from any future mortgage non-
disturbance agreement subordinating its lien to Sublessee's right of quiet
enjoyment under this Sublease.
12. SUBORDINATION TO AND INCORPORATION OF THE TERMS OF THE MASTER LEASE
(a) Notwithstanding anything to the contrary in this Sublease, Sublessee
acknowledges the right it is hereby acquiring in and to the Subleased Premises
are derived from the Master Lease and that the rights, terms and conditions of
this Sublease are in all respects subordinate and subject to the terms and
conditions of the Master Lease. Except as expressly set forth herein, Sublessee
agrees to be bound by each term, condition and covenant of the Master Lease that
governs the use and occupancy of the Subleased Premises as if each such term,
condition, and covenant were set forth in full in this Sublease.
Notwithstanding anything to the contrary herein, it is further agreed that, in
the event the Master Lease terminates for any reason, this Sublease and all
rights of Sublessee in and to the Subleased Premises shall automatically
terminate on the date the Master Lease is terminated and neither Sublessor nor
Sublessee shall have any obligation or liability to the other as a result of
such termination. Notwithstanding anything to the contrary contained in the
foregoing, Sublessee shall remain obligated to Sublessor for all obligations
accrued prior to the termination date and such obligations shall survive such
termination.
(b) Except as otherwise provided herein, all acts to be performed and all
terms and provisions to be observed by Sublessor as Tenant under the Master
Lease shall be performed with respect to the Subleased Premises. Sublessee
covenants and agrees that Sublessee shall not do anything that would constitute
a default under the Master Lease or omit to do anything that Sublessee is
obligated to do under the terms of this Sublease so as to cause a default under
the Master Lease.
(c) Sublessor agrees that as long as Sublessee is not in default
hereunder, Sublessor will not (i) take any action which would constitute a
voluntary surrender under the Master Lease, or (ii) willfully default thereunder
resulting in the termination of this Sublease and/or Sublessee's eviction
thereunder.
-68-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
13. SUCCESSORS AND ASSIGNS
Subject to the restriction on assignment and subletting described above,
this Sublease shall be binding upon and shall inure to the benefit of the
Parties hereto, their successors, assigns and legal representatives.
14. DEFAULT
Either (i) the failure by Sublessee to pay Monthly Rent when due if such
failure shall continue for ten (10) days after receipt of written notice from
Sublessor; or (ii) the failure by Sublessee to pay other amounts when due, if
such failure shall continue for fifteen (15) days after receipt of written
notice from Sublessor, or (iii) the failure by Sublessee to observe or perform
any covenant, obligation or condition required to be observed or performed by
Sublessee hereunder, if such failure shall continue after fifteen (15) days
after receipt of written notice from Sublessor, shall constitute a default by
Sublessee and Sublessor shall have the right to terminate this Sublease and to
recover immediate possession of the Subleased Premises. In addition, in the
event of any default by Sublessee hereunder, Sublessor shall be entitled to
recover all damages and to enforce all rights, powers and remedies of Sublessor
which shall be cumulative, and the exercise of any one or more of such rights or
remedies shall not impair Sublessor's right to exercise any other right or
remedy, either concurrently or at any later time. In the event of any reletting
by Sublessor, Sublessee shall also pay to Sublessor the difference between the
Monthly Rent due through the remaining Term of this Sublease at the time of
default and any amount received under such reletting for the remaining Term, in
addition to all costs and expenses, including reasonable attorneys' fees in the
event Sublessor is deemed a prevailing party in such enforcement actions and
costs, incurred by Sublessor in such reletting.
15. SPACE COOPERATION
Sublessor and Sublessee hereby acknowledge the prior arrangement between
the Parties not to physically separate the Subleased Premises from the Premises
and agree to take all reasonable precautions to protect the property of one
another and respect the other Party's right to carry on their respective lines
of business.
16. DAMAGED SUBLEASED PREMISES
In the event the Subleased Premises shall at any time be destroyed by fire
(or other unavoidable casualty), not proximately caused by Sublessee or any of
its employees, guests or invitees, as to be unfit for occupancy or use, then the
Monthly Rent herein reserved, or a fair and just proportion thereof, shall be
suspended and cease to be payable unless and until the Subleased Premises have
been rebuilt or restored and made fit for occupancy or use.
17. CONDEMNATION
If the Subleased Premises, or any part thereof, is condemned or taken by
any Government authority under the power of eminent domain, this Sublease shall
terminate as of the date of such condemnation of taking. Sublessee shall have
no claim for any portion of the condemnation award or other compensation paid
for such taking; provided, however, that nothing contained herein shall waive or
prejudice Sublessee's right to independently pursue an award for damage to
Sublessee's furniture, equipment or other personal property, for Sublessee's
moving expenses or for loss of profits due to the interruption of Sublessee's
business, provided that no such claim by Sublessee shall in any way diminish the
award or compensation payable or recoverable by Master Lessor or Sublessor in
connection with such taking or condemnation.
-69-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
18. HOLDING OVER
Any holding over by Sublessee after the expiration of the Extended Term of
this Sublease shall be subject to the prior written approval of Sublessor, which
approval may not be unreasonably withheld, delayed or conditioned, and shall
continue at a month to month tenancy at a Monthly Rent to be determined by
mutual agreement of the Parties.
19. BROKER'S COMMISSIONS
Sublessor and Sublessee each represent and warrant that it has not employed
a broker in connection with this Sublease. Sublessor and Sublessee each agree
to indemnify and hold harmless the other from any and all claims, damages and
expenses, including reasonable attorneys' fees, incurred by the other as a
result of the breach by such Party of its representation and warranty set forth
herein.
20. SUBLESSOR'S COVENANT
Sublessor covenants that it has the right to make this Sublease for the
Term hereof, and if Sublessee shall pay the rents and perform all of the
covenants, terms and conditions of this Sublease, and if Sublessee is not in
default hereunder, Sublessee shall during the Term hereof (and any renewal and
extension thereof) peaceably and quietly have, hold and enjoy the Subleased
Premises, subject however to the terms of the Master Lease.
21. GENERAL PROVISIONS
(a) The waiver by Sublessor of a breach of any covenant, obligation or
condition set forth herein shall not be deemed to be a waiver of any subsequent
breach of any covenant, obligation or condition of this Sublease.
(b) This Sublease shall be governed by and construed in accordance with
the laws of the State of Maryland.
(c) This Sublease, including all exhibits, constitutes the entire
agreement between the Parties hereto and may not be modified except by a written
instrument executed by a written instrument executed by the Parties hereto.
(d) If any provision of this Sublease is declared invalid or
unenforceable, the remainder of this Sublease shall continue in full force and
effect.
(e) All notices required or permitted to be given to Sublessor hereunder
shall be effective upon receipt delivered in person or by certified mail, return
receipt requested or via common carrier with proof of receipt to Richard C.
Levin, Vice President, Biospherics Incorporated, 12051 Indian Creek Court,
Beltsville, MD 20705, or to such other individual or address as Sublessor shall
from time to time designate. All notices required or permitted to be given to
Sublessee hereunder shall be delivered in person or by certified mail, return
receipt requested or via common carrier with proof of receipt to Michael J.
Cromwell, III, Vice President, ManTech Environmental Technology, Inc., 12015 Lee
Jackson Highway, Fairfax, VA or to such other individual or address as Sublessor
shall from time to time designate.
(f) Paragraph headings are used herein solely for reference purposes and
are not to be construed as part of this Sublease.
(g) This Sublease may be executed in counterpart copies, each of which
shall constitute an original but all of which together shall constitute one and
the same Sublease.
(h) Time is of the essence in this Sublease.
-70-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
IN WITNESS WHEREOF, the Parties hereto have executed this Sublease
effective the day and year first written above.
Sublessee: Sublessor:
MANTECH ENVIRONMENTAL CORPORATION BIOSPHERICS INCORPORATED
By: By:
------------------------------ ---------------------------
Michael J. Cromwell, III
Title: Vice President Title:
-------------------------- -----------------------
MASTER LESSOR:
- --------------------------------
JOINS HEREIN FOR THE SOLE PURPOSE OF GRANTING ITS CONSENT TO THE SUBLEASE BUT
WITHOUT IN ANY WAY MODIFYING THE TERMS AND CONDITIONS OF THE MASTER LEASE.
BY:
------------------------------
TITLE:
------------------------------
-71-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
EXHIBIT C
BILL OF SALE
FOR VALUE RECEIVED, BIOSPHERICS INCORPORATED, a Delaware corporation
("Seller"), hereby grants, sells, assigns and conveys to MANTECH ENVIRONMENTAL
CORPORATION, a Virginia corporation ("Buyer"), all Seller's right, title and
interest in and to the Assets (as that term is defined in the Asset Purchase
Agreement dated February 27, 1996, by and between Seller and Buyer) of Seller
that are particularly described in Schedule A attached hereto and made a part
hereof.
IN WITNESS WHEREOF, the undersigned Seller has caused this instrument to be
duly executed this 29th day of February, 1996.
ATTEST: BIOSPHERICS INCORPORATED
___________________________________ By: ______________________________
Secretary
[Corporate Seal]
-72-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
EXHIBIT D-I
BIOSPHERICS INCORPORATED
CERTIFICATE
I, Bruce Reynolds, hereby certify:
1. I am a Program Manager for Biospherics Incorporated, a Delaware
corporation (the "Corporation"). As Program Manager, I am familiar with the
matters herein certified.
2. I have reviewed the financial statements, reports and certificates
(the "Information") furnished by the Corporation to ManTech Environmental
Corporation ("ManTech") in connection with the anticipated purchase by ManTech
of certain assets of the Corporation known as the Environmental & Laboratory
Services Division ("ELSD").
3. I do not know of, and have no reason to believe there are, any losses
or uncollectible debts that are not fully reflected in the Information.
IN WITNESS WHEREOF, I have executed this Certificate this 29th day of
February, 1996.
__________________________
Bruce Reynolds
ELSD Division Director
-73-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
EXHIBIT D-I, CONTINUED
BIOSPHERICS INCORPORATED
CERTIFICATE
I, Catherine A. Jones, hereby certify:
1. I am a Billing Coordinator for Biospherics Incorporated, a Delaware
corporation (the "Corporation"). As Billing Coordinator, I am familiar with the
matters herein certified.
2. I have reviewed the financial statements, reports and certificates
(the "Information") furnished by the Corporation to ManTech Environmental
Corporation ("ManTech") in connection with the anticipated purchase by ManTech
of certain assets of the Corporation known as the Environmental & Laboratory
Services Division ("ELSD").
3. I do not know of, and have no reason to believe there are, any losses
or uncollectible debts that are not fully reflected in the Information.
IN WITNESS WHEREOF, I have executed this Certificate this 29th day of
February, 1996.
__________________________
Catherine A. Jones
Billing Coordinator
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<PAGE>
BIOSPHERICS INCORPORATED
-------------
EXHIBIT D-II
BIOSPHERICS INCORPORATED
CERTIFICATE
I, Arthur S. Locke, III, hereby certify:
1. I am the Vice President of Finance for Biospherics Incorporated, a
Delaware corporation (the "Corporation"). As Vice President, I have access to
the books and records of the Corporation and am familiar with the matters herein
certified.
2. The financial statements, reports and certificates (the "Information")
furnished by the Corporation to ManTech Environmental Corporation ("ManTech") in
connection with the anticipated purchase by ManTech of certain assets of the
Corporation known as the Environmental & Laboratory Services Division ("ELSD")
pursuant to the Asset Purchase Agreement dated as of the date hereof between the
Corporation and ManTech (the "Asset Purchase Agreement") (a) do not contain any
untrue statement of a material fact and (b) do not omit any material fact
necessary to make statements contained therein not misleading. To the best of
my knowledge and up to the date hereof, there are no losses or uncollectible
debts that are not fully reflected in the Information.
3. I know of no fact that the Corporation has not disclosed to ManTech
prior to the date hereof with respect to the transactions contemplated by the
Asset Purchase Agreement which materially and adversely affects, or in the
future could, in my reasonable opinion, materially adversely affect the
condition, financial or otherwise, results of operations, business, or assets
being purchased by ManTech pursuant to the Asset Purchase Agreement.
IN WITNESS WHEREOF, I have executed this Certificate this 29th day of
February, 1996.
__________________________
Arthur S. Locke, III
Vice President of Finance
-75-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
EXHIBIT 11
STATEMENT OF COMPUTATIONS OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Net income (loss)
From continuing operations $ 426,843 $ (180,374)
From discontinued operations $ (32,549) 88,682
------------ -------------
Net loss $ 394,294 $ (91,692)
------------ -------------
------------ -------------
Weighted average shares outstanding 3,920,496 3,904,770
Common stock equivalents 742,496 -
------------ -------------
Weighted average shares and common
stock equivalents outstanding 4,662,992 3,904,770
------------ -------------
------------ -------------
Primary and fully diluted earnings (loss) per share (1)
From continuing operations $ 0.09 $ (0.05)
From discontinued operations (0.01) 0.03
------------ -------------
------------ -------------
Net loss $ 0.08 $ (0.02)
------------ -------------
</TABLE>
(1) Outstanding common stock equivalents, consisting of shares under option,
have an anti-dilutive effect on loss per share in 1994 and therefore are
excluded from the calculation.
-76-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Biospherics Incorporated on Form S-8 (File No. 333-01005) of our report dated
February 28, 1996, on our audit of the financial statements of Biospherics
Incorporated as of December 31, 1995 and for the year then ended, which report
is included in this Annual Report on Form 10-KSB.
Rockville, Maryland COOPERS & LYBRAND L.L.P.
February 28, 1996
-77-
<PAGE>
BIOSPHERICS INCORPORATED
-------------
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Biospherics Incorporated on Form S-8 (File No. 333-01005) of our report dated
March 2, 1995, on our audit of the financial statements of Biospherics
Incorporated as of December 31, 1994 and for the year then ended, which report
is included in this Annual Report on Form 10-KSB.
February 26, 1996 Rubino & McGeehin, Chartered
Bethesda, Maryland Certified Public Accountants
-78-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 29,861
<SECURITIES> 0
<RECEIVABLES> 1,677,808
<ALLOWANCES> 75,322
<INVENTORY> 0
<CURRENT-ASSETS> 3,499,249
<PP&E> 4,379,760
<DEPRECIATION> 2,768,900
<TOTAL-ASSETS> 5,234,192
<CURRENT-LIABILITIES> 2,201,549
<BONDS> 0
0
0
<COMMON> 22,926
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,234,192
<SALES> 13,739,514
<TOTAL-REVENUES> 13,739,514
<CGS> 10,005,559
<TOTAL-COSTS> 13,315,220
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211,979
<INCOME-PRETAX> 541,946
<INCOME-TAX> 115,103
<INCOME-CONTINUING> 426,843
<DISCONTINUED> (32,549)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394,294
<EPS-PRIMARY> .085
<EPS-DILUTED> .084
<FN>
<F1>LOSS FROM DOUBTFUL ACCOUNTS OF $70,300 INCLUDED IN TOTAL COSTS.
</FN>
</TABLE>
