FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-9800
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
INCSTAR CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1254731
(State of Incorporation) (I.R.S. Employer Identification No.)
1990 Industrial Boulevard
Stillwater, Minnesota 55082
(Address of principal executive offices) (Zip Code)
(612) 439-9710
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Common Stock, $.01 Par Value
Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days, Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K, [ X ].
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 27, 1996 was approximately $47,736,000.
The number of shares of the Registrant's Common Stock outstanding on March
27, 1997 was 16,505,457.
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PART I.
ITEM 1. BUSINESS
GENERAL
INCSTAR Corporation and its subsidiaries (the "Company" and
"INCSTAR") develop, manufacture, and market test kits and related products
used by major hospitals, clinical reference laboratories and researchers
involved in diagnosing and treating immunological conditions. Since
December 1989, the Company has been majority-owned by BioFin Holding
International B.V. ("BFHI"), a subsidiary of Sorin Biomedica Diagnostics
S.p.A. (Sorin) which is an Italian affiliate of Fiat, Inc. The Company was
incorporated in Minnesota in 1975 under the name of Immuno Nuclear
Corporation. The Company's principal executive offices are located at 1990
Industrial Boulevard, Stillwater, Minnesota, 55082.
On March 10, 1997, INCSTAR and the other parties to the Merger
executed the Agreement and Plan of Merger (the "Merger Agreement"), among
American Standard Inc., a Delaware corporation ("ASI"), American Standard
Medical Systems, Inc., a Delaware corporation and a wholly owned subsidiary
of ASI ("ASM"), ISTR Merger Corporation, a Minnesota corporation and a
wholly owned subsidiary of ASM ("Mergeco"), and INCSTAR, pursuant to which
each share of INCSTAR Common Stock issued and outstanding immediately prior
to the time when the Merger becomes effective, other than shares of Common
Stock with respect to which dissenters' rights have been properly
exercised, will be converted into and become the right to receive $6.32 per
share in cash. Pursuant to the Merger, Mergeco will merge with and into
INCSTAR, with INCSTAR as the surviving corporation (the "Merger").
Consummation of the Merger is subject to the affirmative vote of a majority
of shareholders entitled to vote at a special meeting of the shareholders
of INCSTAR scheduled to be held in May 1997.
The Merger Agreement has been signed concurrently with the signing
of the Agreement, dated March 10, 1997, by and among Sorin Biomedica
S.p.A., an Italian corporation, Sienna Biotech International Inc., a
Delaware corporation ("Sienna"), and ASI (the "European Agreement"). The
European Agreement provides for the sale to Sienna and ASI by Sorin of such
assets, as defined in the European Agreement, associated with Sorin's
European Diagnostics Division.
Under to the Merger Agreement the consummation of transactions under
the European Agreement is a condition to the closing of the Merger
Agreement.
It is currently anticipated that the Merger will be effected prior
to June 30, 1997.
PRODUCTS
The Company currently markets, develops and manufactures individual
test reagents and test kits, using primarily radioimmunoassay ("RIA"),
enzyme immunoassay ("EIA"), immunoturbidimetric assay ("ITA") and
immunofluorescent assay ("IFA") technologies for clinical diagnostic and
medical research purposes. The Company also produces and markets
histochemical antisera and natural and synthetic peptides also used in
clinical diagnostic and medical research. The Company's product focus is
on diagnostic tests for autoimmune, infectious disease, endocrinology and
bone and mineral metabolism product segments, utilizing a variety of
technologies. The immunodiagnostic market is shifting away from manual
testing to automated or semi-automated testing in an effort to reduce
laboratory costs involved in processing medical diagnostic tests. As a
result, the research and development activities of the Company are mainly
focused on developing non-isotopic tests that can be run on open instrument
systems that are either currently in the customers labs, or can be placed
there in a cost effective manner.
DIAGNOSTIC AND RESEARCH KITS. The Company believes that it is one of
the largest producers of RIA products in the world. The total RIA market,
however, has been significantly decreasing in recent years due to two
factors: (1) isotopic technologies such as RIA are not easily convertible
to automated instrument testing systems and (2) disposal issues relative to
radioactive materials. Current trends in the immunodiagnostic market are
to employ technologies such as EIA, which require less labor to process
test results. Consequently, the challenge facing the Company is, and will
continue to be, to develop products that are non-isotopic and amiable to
semi and fully automated assay systems. Although the current trend in the
domestic market, and to a lesser degree in the international market, is
away from manual, RIA testing, the Company feels that its' strengths in RIA
manufacturing and marketing will allow it to maintain or grow its share of
this declining market. The Company believes that in the near-term its RIA
products will provide it with the capital resources necessary to pursue new
research and development activities.
RIA test procedures are used to precisely measure the extremely low
levels of certain hormones, peptides and other substances present in the
human body. Antibodies are proteins produced by higher animals in response
to some foreign material, known as the "antigen," entering the blood or
tissue. The antibody protects the animal by binding to the antigen and
helping other body mechanisms destroy it. When human hormones and peptides
are injected as antigens into a laboratory animal, the animal develops
antibodies to eliminate the antigens. Serum containing these antibodies
(antiserum) is taken from the laboratory animals and processed into a
binding reagent for the specific human hormone or peptide. The reagent is
then combined with other reagents in a test kit to create an analytical
system to measure the level of that human hormone or peptide present in the
specimen to be tested.
Precise amounts of antiserum, which act as the binder, are mixed with
radioactively-labeled (isotopic) tracer antigen and a lower concentration
unlabeled antigen. The tracer antigen and the unlabeled antigen compete for
binding locations on the antibody in the antiserum. The bound antigen is
measured by a radiation counter and the level of bound antigen is
calculated. The results of this controlled procedure are repeated for
several concentrations of known antigen and a standard curve is plotted. A
fluid specimen is then taken from a patient for testing and substituted for
the unlabeled antigen. The results of the competitive binding of the tracer
antigen and the antigen in the fluid specimen are compared with the
standard curve, and the precise quantity of hormone or peptide being
measured is determined. The sensitivity and accuracy of RIA tests depend
primarily upon the quality of the binding antisera and tracer antigen.
The Company currently markets approximately 80 RIA products,
primarily used in the analysis of endocrine, neuroendocrine, bone and
mineral metabolism, therapeutic drug monitoring and thyroid function. The
majority of thyroid function testing products are marketed under the
Clinical Assays trademark product line that the Company, together with
Sorin, acquired in 1990 from Baxter International Inc. ("Baxter"). Each
RIA kit contains the following: an antiserum consisting of primary
antibodies and, in most cases, a reagent used to precipitate the primary
antigen antibody complex; a radioactively-labeled antigen to act as tracer;
a non-radioactive or cold antigen to act as test calibrators; and a
protocol booklet that provides specific test instructions. The tracers in
the RIA kits have shelf lives of six to twelve weeks depending on the
product. The process of RIA testing requires the use of skilled labor in
diagnostic laboratories.
The Company markets approximately 55 EIA products primarily for
infectious disease and autoimmune disorders. The basic principles of EIA
technology is very similar to RIA in that a highly specific and sensitive
reaction of an antigen and antibody must take place. With EIA, the result
is measured by color development intensity rather than radioactivity. EIA
technology uses standard laboratory procedures and facilitates throughput
of large testing volumes such as those of a large reference laboratory.
EIA product lines include the Epstein Barr Virus ("EBV") and TheraTest
products, as discussed below, and the ToRCH group of tests (toxoplasmosis,
rubella, cytomegalovirus and herpes).
The Company also markets approximately 20 products based on IFA
technology for infectious disease and autoimmune disorders. The kits based
on IFA technology are employed in sophisticated diagnostic laboratories for
antibody detection and semi-quantitation in infectious disease and
autoimmune disorders. Patient serum samples are incubated on microscope
slides containing prepared antigen substrate, for example, virus-infected
mammalian cells. The antibody, if present, will bind to the antigen.
After a saline rinse, which removes unbound serum, the microscope slide is
reacted with a fluorescein conjugate that binds to antigen-antibody
complexes, which formed during initial incubation. Following a saline
rinse, the slides are viewed under a fluorescence microscope and examined
for fluorescent staining on the specific antigen sites. Immunofluorescence
kits provide prepared multi-sample slides, positive and negative reference
serum controls, fluorescein conjugate, buffered saline and mounting medium
as ready-to-use stabilized reagents. The Company's infectious disease IFA
assays include Toxoplasmosis, Cytomegalovirus, Herpes and a confirmatory
test for syphilis. The autoimmune product offerings incorporate a broad
range of kits and components intended for detection of antinuclear
antibodies and anti-native DNA antibodies (useful in systemic lupus
erythematosus testing), antimitochondrial antibody testing and antithyroid
antibodies intended for diagnosis of primary biliary cirrhosis and Grave's
disease, respectively.
In addition to the distribution of those products that the Company
develops and manufactures, the Company is the exclusive distributor in the
United States and Canada of certain of Sorin's hepatitis in vitro
diagnostic products. Sorin has developed RIA and EIA hepatitis tests that
are used worldwide in the diagnosis of Hepatitis A and Hepatitis B.
SERUM PROTEIN MEASUREMENT. The Company currently markets 23 ITA
kits for the assessment of specific human serum proteins. Sold under the
trade name "SPQ Test System," the tests are designed for use on common
automated clinical chemistry analyzers. The ITA kits are utilized on a
large number of different automated analyzers. Consequently, the
development of new instrument-specific applications is required on an
ongoing basis. Each assay is based on the principle of immunoturbidimetric
or immunonephelometric measurement of antigen-antibody complexes. These
antigen-antibody complexes are formed when patient samples are combined
with the specific antibody of the test kit. As a part of the SPQ Test
System, specific human protein controls, patient sample diluents and
specific antibodies are provided as separate products. ITA technology
offers the clinical laboratory the advantages of superior speed, precision
and automation. Included in the ITA product line are specific assays for
Apolipoprotein A-1, Apolipoprotein B and Lipoprotein(a), which are useful
in cardiac risk assessment. The remaining ITA assays in the SPQ Test
System are used in the assessment of immunological disorders, nutritional
status, acute response and kidney failure.
ANTISERA PRODUCTS. The antisera product lines from the Company are
used for the analysis of human serum proteins present in the human serum.
Common clinical laboratory procedures using the antisera products include
immunofixation electrophoresis, immunoelectrophoresis and radial
immunodiffusion methods. The techniques utilized by the laboratory result
in the determination of specific protein levels and the assessment of
specific protein components following the binding of the antiserum to a
specific serum protein. The presence of the serum protein is determined by
protein staining or through the use of fluorescent or enzyme staining
procedures.
BULK AND CUSTOM ANTISERA PRODUCTS. The bulk and custom antisera
products produced by the Company are used by major medical diagnostic
instrumentation manufacturers worldwide in the production of diagnostic
test kits to be used on their instruments. The Company offers an extensive
line of antisera products to human serum proteins that are monospecific,
avid, and of high titer. Antisera products are produced as nephelometric
quality, standard antisera, IgG fractions and fluorescent or enzyme
conjugated preparations. The Company also produces calibrators to be used
as reference standards in conjunction with the various antisera products
offered.
Custom antisera from the Company's standard supply are also produced
according to specifications provided by customers. The Company also
performs custom immunization and development of specific antibodies upon
customer request.
HISTOCHEMICAL ANTISERA. Unlike RIA, ITA and EIA methods, which are
used to analyze fluid samples taken from the human body, histochemical
antisera are utilized in an in vitro procedure to determine the presence of
hormones or peptides in body tissue. A histochemical antiserum is used as
a binding reagent for a specific hormone or peptide. Once binding has
occurred, the presence of the hormone or peptide is determined by
fluorescent or enzyme staining procedures performed on the tissue specimen.
The Company's histochemical products are used in clinical diagnoses and
medical research, frequently in conjunction with RIA, ITA or EIA
technologies.
RECENT DEVELOPMENTS
During the fourth quarter of 1996 the Company announced its receipt
of Food and Drug Administration ("FDA") approval for its second generation
tests for the detection of the infectious diseases, rubella,
cytomegalovirus ("CMV") and herpes simplex. These products have been
marketed in Europe for several years through the Company's affiliate and
have been widely accepted as the gold standard in the industry, offering
high sensitivity and ease of use.
Also during the fourth quarter, the Company received FDA approval
for its 25-OH-D RIA assay, the first test method on the market to be
cleared by the FDA for the detection of 25-Hydroxyvitamin D in the
bloodstream. This detection is becoming an increasingly important tool to
determine levels of vitamin D, which is necessary for the body's metabolism
of calcium.
During the second quarter of 1995 the Company announced the
completion of the manufacturing transfer of its TheraTest1 trademark
product line of diagnostic assays to its Stillwater facility. INCSTAR
acquired this FDA-cleared EIA panel of autoimmune diagnostic assays in May
1994 from TheraTest Laboratories, Inc. of Chicago. The TheraTest products
are used as a confirmatory test for the diagnosis of rheumatoid arthritis
and other connective tissue diseases such as systemic lupus erythematosus
and scleroderma. The TheraTest products are also an extension of the
Company's existing immunofluorescence autoimmunity product line and
complement the Company's EIA product offerings.
Also during the second quarter of 1995 the Company received approval
from the FDA for its second generation EBV diagnostic tests. EBV is the
causative agent of infectious mononucleosis, and can cause lymphomas,
chronic fatigue syndrome and a variety of other diseases in patients with a
weakened immune system. International market introduction of these tests
began in the third quarter of 1994.
The Company launched two autoimmune products in the international
market during the second quarter of 1995, a quantitative thyroid receptor
autoantibodies assay, which is used for the diagnosis of Grave's disease
and the complement activation enzyme assay ("CAE") which provides general
information about the immune system in disease states such as rheumatic and
rare connective tissue disorders as well as tissue injury. The Company
received 510(k) clearance from the FDA in the fourth quarter of 1995 for
its CAE kit.
During the third quarter of 1995 the Company launched worldwide its
second generation Parathyroid Hormone-related Protein ("PTHrP") assay.
PTHrP is the agent responsible for the condition of humoral hypercalcemia
of malignancy. This is a condition in which serum calcium is increased to
potentially life threatening levels. This assay provides customers with a
superior product that has significantly improved sensitivity and better
definition of the protein under investigation than the first generation
product. This product is being distributed as a "research use only"
product in the US and is targeted to the clinical research market.
Internationally, the Company is pursuing registration in several European
countries as well as Japan.
During the third quarter of 1995, the Company experienced an
increase in demand for one of its hepatitis assays due to a competitor's
kit becoming unavailable to the market. This opportunity resulted in
approximately $2.9 million in sales during 1995. The competitor re-entered
the marketplace during the first quarter of 1996. Sales of this assay were
approximately $2.2 million during 1996. While a portion of these sales has
been maintained since the competitor re-entered the market, the impact on
future sales is uncertain at this time.
During the fourth quarter of 1995 the Company received the approved
licensure from the FDA for the final two assays within the Hepatitis line
which gave the Company a complete panel of seven EIA approved/licensed
assays used in the diagnosis of hepatitis A and B infections.
MARKETING
The Company's medical products are sold to commercial and public
health laboratories, blood banks, research and teaching institutions and
hospital laboratories, which use the Company's kits to conduct tests
ordered by physicians. Increased frequency of use of the Company's kits
will depend, in part, upon the acceptance by practicing physicians of the
need and desirability for measuring certain therapeutic drug, hormone,
peptide and serology levels in the evaluation of diseases and body
disorders.
In North America, the Company's principal market for its medical
products includes approximately 1,200 clinical reference laboratories and
2,500 hospitals, which have laboratories that perform immunodiagnostic
testing. In the United States and Canada, the Company utilizes a direct
sales force, combined with selected independent distributors, to market its
products.
The Company also utilizes foreign distributors in conjunction with a
subsidiary in the United Kingdom to market its products abroad. Since 1989
Sorin has been the distributor for many of the Company's products in Italy,
Spain, Portugal, Germany and the Benelux countries. As part of the 1990
acquisition from Baxter, the Company manufactures and sells to Sorin the
Clinical Assays products for distribution in the above mentioned countries
and France. Pursuant to these arrangements, the Company recorded sales to
Sorin of $7,965,000 for the year ended December 31, 1996, which comprised
18% of total sales. Other transactions entered into with Sorin and its
subsidiaries are set forth in Note 6 of the Company's consolidated
financial statements contained elsewhere herein. Other than Sorin, the
Company is not dependent on any single customer for more than 15% of its
business.
The Company's international sales constitute 50% of sales for the
year ended December 31, 1996; 48% of sales for the year ended December 31,
1995 and 50% of sales for the year ended December 31, 1994.
Because of the limited shelf life of the Company's radioactive
tracer, the Company delivers products by international air freight to its
foreign markets.
RESEARCH AND PRODUCT DEVELOPMENT
The ability of the Company to compete effectively in the marketplace
will depend upon the success of its efforts to improve existing products
and to develop new products, primarily non-isotopic and conducive to
instrumentation, that are useful to the medical diagnostic and research
markets. The levels of research and development expenditures by the Company
during the periods shown below were as follows:
Percent of
Amount Net Sales
Year ended December 31, 1996 $4,163,000 9.4%
Year ended December 31, 1995 $3,748,000 8.2%
Year ended December 31, 1994 $5,069,000 11.9%
The reduction in research spending in 1995 from the level in 1994,
resulted primarily from the discontinuance of a development program
discussed in Note 2 of the financial statements contained elsewhere herein.
The Company has established scientific advisory panels for its
autoimmune and bone and mineral metabolism product lines. In addition, the
Company intends to establish a third scientific panel in its infectious
disease segment. These panels are overseen by a scientific advisory board.
Prior to his death in March 1997, the scientific advisory board was led by
Dr. Pierre M. Galletti, the Company's Chairman of the Board. Also, Dr.
Michael Steffes, a director of the Company, is a member of the Scientific
Advisory Board.
MANUFACTURING
The Company manufactures its immunoassay kits and serum protein
products in two locations within the United States. It maintains
manufacturing and administration activities in its principal facility in
Stillwater, Minnesota, which consists of 120,000 square feet.
Additionally, the Company is vertically integrated into the production of
bulk antisera and maintains a USDA licensed animal facility on 116 acres in
Windham, Maine (the Serum Proteins segment of the Company's business).
Management believes that it will have adequate capability to meet its
anticipated manufacturing needs in all current product lines for the
foreseeable future.
The steps involved in manufacturing the Company's immunoassay and
serum protein kits include the following: i) the isolation and production
of antigens; ii) the development and production of antibodies; iii) the
design and development of the required reagent system; iv) the iodination
or conjugation of precursors; v) the manufacture and packaging of the
components in the kit format; and vi) ongoing quality control to meet all
regulatory requirements.
As a result of strategic alliances and acquisitions over the past
several years, the Company has an extensive line of immunoassay and serum
protein assays that are manufactured in a cost effective manner in a
quality environment. The Company's products and kits consist of the
components necessary to perform specific assays in consistent and
reproducible fashion. Antisera are a critical component in the products
which are manufactured using RIA, ITA, EIA and IFA technologies and the
Company insures the quality of this raw material from its source in its
Serum Protein segment of the business. In addition to these antiserums,
the components of the immunoassay kits include specialized chemical
reagents, reference standards and performance data required to properly
calibrate test results. Raw materials used in these components meet design
specifications. The Company is not dependent on any particular supplier
for ongoing operations. Some raw materials critical in the production of
the Company's products have extensive lead times for supply. Lack of
supply of critical raw materials would have a materially adverse affect on
the Company. For this reason the Company continually strives to maintain
multiple sources for its most critical raw materials.
The Company maintains quality controls for the assurance of accurate
and reliable test kits and to meet FDA good manufacturing practices
("GMP"). The Company also complies with procedures mandated by the Nuclear
Regulatory Commission (NRC) for the use and disposal of radioactive
materials.
COMPETITION
Historically the Company has developed and marketed diagnostic and
research products serving specialized markets not adequately served by its
largest competitors. Included here are the fields of endocrinology, bone
and mineral metabolism and therapeutic drug monitoring. However, as a
result of the Company's acquisition of the Clinical Assay product lines
from Baxter and relationship with Sorin, the Company now competes with a
number of the larger immunodiagnostic companies offering similar lines of
RIA and EIA products.
The Company's major competition, outside the specialty product area,
includes Abbott Diagnostics, Diagnostic Products Corporation, Hybritech,
Ares-Serono, and CIBA Corning Diagnostic Corporation. The principle
elements of competition for the Company are based upon providing quality,
consistent and reliable products and services. Price is only a factor for
those tests in the larger, more competitive markets. The Company intends
to maintain its competitive differentiation in the market by selecting new
and innovative technology approaches to both the routine and specialty
market analytes. Also, the Company intends to develop and maintain quality
customer relationships with health care professionals.
GOVERNMENT REGULATION
Under the Medical Device Amendments of 1976, the Company is required
to file an annual registration statement with the FDA and to provide
updated device listings. The Company is also required to submit a pre-
market notification submission to the FDA for each new diagnostic product.
This submission may be either a 510(k), a premarket approval application,
or a product license application, unless the product is being distributed
for research or investigational use only. The FDA also imposes rules with
respect to GMP. The Company believes it is in compliance with FDA
regulations. The Company also complies with foreign government
regulations, specifically for Japan, France, Germany, Canada, England and
other countries where required. These requirements include adherence to
GMP, device listings, premarket notifications, or product licenses where
applicable. Additionally, the Company is in the process of certifying its
Quality Assurance system to ISO 9000 standards and hopes to complete the
registration process under this standard by the end of 1997.
Because the Company uses radioactive isotopes in the manufacture of
some of its products, it is required to maintain licenses authorizing the
possession, use and distribution of radioactive material. The licenses
were renewed in 1993 and will expire by their terms in 1998. To maintain
the licenses, the Company is required to keep certain records and to
demonstrate continued compliance with NRC regulations and the conditions of
its radioactive licenses. Although not expected, loss of these licenses
would have a materially adverse affect on the Company.
The Company believes it is in compliance with all federal, state and
local regulations regarding the discharge of material into the environment.
Additionally, the cost to maintain licenses and meet environmental and
safety requirements is not material to the Company's consolidated financial
statements and the Company does not expect any material financial
commitment in the near-term.
FOREIGN AND DOMESTIC OPERATIONS AND INTERNATIONAL SALES
Company information with respect to foreign and domestic operations
and international sales is set forth in Note 12 to the Company's
consolidated financial statements contained elsewhere herein.
PATENTS
The Company has been issued patents covering (i) the method and
radioactive tracers used for the immunoassay of C-terminal parathyroid
hormone, (ii) bioassay for parathyroid hormone, and (iii) usage of
iodinated or fluorescent forms of cyclosporin in immunoassay kits. These
patents expire on July 26, 1999; January 17, 2000; and April 1, 2002,
respectively.
The Company does not believe that patent protection will be a
material factor for its current product line offering, because of the
Company's proprietary know-how regarding the production and development of
its product lines. Going forward, the Company has filed patent
applications for several new product development programs, and has also
negotiated exclusive licenses to patent applications filed by outside
product development collaborators. Certain other companies may have been
issued or applied for patents with respect to products or technology
manufactured by, or of interest to the Company. Management is unable at
this time to determine the impact, if any, which any such patents may have
on the Company.
LICENSES AND TRADEMARKS
The Company holds certain licenses for technology, intellectual
property and distribution rights. The Company also holds certain
registered trademarks such as CYCLO-Trac registered trademark, N-tact
registered trademark and PTH-MM registered trademark as well as several
other non-registered trademarks. The terms of these licenses and
trademarks vary. The Company does not believe that any of these licenses
or trademarks is material to its business or operations.
EMPLOYEES
As of December 31, 1996 the Company had 282 employees, including part-
time employees.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are listed below:
John J. Booth President and Chief Executive Officer since
September, 1994 and Senior Vice President
and Chief Financial Officer since May,
1992, age 42. Mr. Booth joined the Company
in December, 1989 as Vice President of
Finance and Administration and prior to
that was Vice President, Controller and
Secretary of CSI from October, 1989 to
December, 1989.
Stephen P. Gouze Vice President of Sales and Marketing of
the Company since February 1997, age 45.
From October 1994 to February 1997, Mr.
Gouze was Vice President of Sales and
Marketing at PATHCOR, Inc., a Pathologist
Practice Management Company. Prior to
joining PATHCOR, Mr. Gouze held a number of
sales and marketing positions, with Sanofi
Pasteur's Diagnostics Division, most
recently as Director of Marketing.
Fabio Lunghi Executive Vice President and Chief
Operating Officer of the Company since
September, 1994, age 52. Prior to joining
the Company, from 1986 to 1994 Mr. Lunghi
was Vice President and General Manager of
the radiopharmaceutical business unit at
Sorin Biomedica, S.p.A.
Gerald L. Majewski, Ph.D. Vice President of Research and Development
since October 1992, age 47. Prior to
joining the Company, from 1983 to 1992 Dr.
Majewski held a variety of positions at
Fisher Scientific/Instrumentation
Laboratory, most recently as Director of
Research and Development, Reagents
Development from 1989 to 1992.
Thomas P. Maun Vice President and Chief Financial Officer
of the Company since September, 1994 and
Director of Finance since January, 1990,
age 43. Mr. Maun joined the Company in
1987 as Corporate Controller.
George E. Wellock Vice President of Manufacturing of the
Company since March 1991, age 47. From
June 1988 to March 1991, Mr. Wellock was
Vice President of Operations of Baxter Dade
in Cambridge, Massachusetts, a subsidiary
of Baxter International. From June
1984 to June 1988, he served as
Manufacturing Manager for Travenol
Genentech Diagnostics and Baxter Dade.
At each annual meeting of the Board of Directors, the board elects
executive officers as necessary. Such elected officers hold office until
the next annual meeting of the directors or until their successors are
elected and qualified.
ITEM 2. PROPERTIES
The Company presently owns three adjacent concrete buildings
totaling approximately 120,000 square feet located on a 14 acre site in
Stillwater, Minnesota, which is part of the metropolitan area of
Minneapolis-St. Paul. One building houses all manufacturing operations. A
second building houses a research laboratory. The third building houses
the Company's executive offices. The Company believes this capacity to be
adequate for present and future needs. The Company owns a farm operation
of 116 acres and related buildings in Windham, Maine, which houses
laboratory animals.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in ordinary routine litigation incident to
its business, which management believes will not have an adverse effect
upon its operations or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock is currently traded on the Nasdaq National
Market under the symbol "ISTR". As of December 31, 1996, there were
approximately 1,134 shareholders of record holding 16,505,457 shares. The
following table sets forth for the calendar quarters indicated the high and
low sales prices as reported by the American Stock Exchange for the periods
prior to May 28, 1996 and by the Nasdaq National Market for the periods
thereafter.
High Low
1995
First Quarter $ 2 3/4 $ 1 1/2
Second Quarter 3 3/4 2 1/2
Third Quarter 5 5/16 2 7/8
Fourth Quarter 5 3 3/4
1996
First Quarter 6 1/4 4
Second Quarter 6 3/4 4 1/4
Third Quarter 5 5/8 3 5/8
Fourth Quarter 4 7/8 2 5/8
DIVIDENDS. The Company did not pay cash dividends on its common stock
during 1995 or 1996. It is not currently anticipated that cash dividends
will be paid in the future on the Company's Common Stock. The Board of
Directors of the Company will review its dividend policy from time to time.
Any future determination as to the payment of dividends on the Company's
Common Stock will depend upon future earnings, results of operations,
capital requirements, the financial condition of the Company and any other
factors the Board of Directors of the Company may consider relevant.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Set forth below is selected consolidated historical financial
information of the Company derived from the audited consolidated financial
statements of the Company for the fiscal years ended December 31, 1996,
1995, 1994, 1993 and 1992.
SUMMARY OPERATIONS STATEMENT
Year Ended
December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Domestic sales $22,017,000 $23,832,000 $21,282,000 $23,321,000 $24,712,000
International sales 22,287,000 21,928,000 21,221,000 19,967,000 21,272,000
Net sales 44,304,000 45,760,000 42,503,000 43,288,000 45,984,000
Cost of goods sold 21,599,000 23,271,000 22,039,000 23,007,000 22,052,000
Inventory valuation
adjustment --- --- 750,000 (a) --- ---
Gross profit 22,705,000 22,489,000 19,714,000 20,281,000 23,932,000
Operating expenses:
Selling, general and
administrative 13,206,000 12,592,000 12,853,000 12,761,000 13,621,000
Research and
development 4,163,000 3,748,000 5,069,000 5,719,000 3,277,000
Unusual items --- --- 5,750,000 (a) 750,000 (a) ---
Total operating
expenses 17,369,000 16,340,000 23,672,000 19,230,000 16,898,000
Operating income(loss) 5,336,000 6,149,000 (3,958,000) 1,051,000 7,034,000
Interest income
(expense), net 96,000 (348,000) (365,000) (472,000) (656,000)
Investment and other
income (expense) (21,000) 33,000 11,000 (42,000) 73,000
INCOME (LOSS) BEFORE
INCOME TAXES 5,411,000 5,834,000 (4,312,000) 537,000 6,451,000
Provision for income
taxes 1,299,000 1,571,000 193,000 284,000 1,577,000
NET INCOME (LOSS) $ 4,112,000 $ 4,263,000 $ (4,505,000) $ 253,000 $ 4,874,000
NET INCOME (LOSS)
PER SHARE $ .25 $ 0.26 $ (0.28) $ 0.02 $ 0.30
Weighted average
shares and equivalents 16,661,367 16,491,501 16,322,301 16,432,883 16,337,857
<CAPTION>
BALANCE SHEET INFORMATION December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total assets $41,958,000 $38,761,000 $38,154,000 $43,426,000 $45,069,000
Working capital 19,189,000 14,947,000 13,873,000 14,555,000 13,863,000
Long-term debt --- 3,000 4,143,000 6,501,000 8,167,000
Shareholders' equity 33,141,000 28,384,000 23,889,000 28,240,000 27,277,000
Book value per share 1.99 1.72 1.46 1.73 1.69
<FN>
Note 1.For information with respect to dividends, see Item 5 above.
(a) Relates to the write off of certain tangible and intangible costs,
severance and related costs and inventory write downs as discussed in Note
2 to the consolidated financial statements contained elsewhere herein.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales in 1996 were $44,304,000, a 3 percent decrease from
$45,760,000 in 1995. 1995 and 1996 results included sales from a single
test that resulted from a competitor's product becoming unavailable to the
market from June 1995 until March 1996. In the absence of this
development, 1995 and 1996 total sales would have remained relatively
unchanged. 1995 sales were 8 percent above 1994 sales of $42,503,000.
This increase was due primarily to sales from the Company's hepatitis
assays, as previously discussed, combined with sales from new products
introduced during 1995 and the latter part of 1994 in the Company's
autoimmune disease, bone and mineral metabolism and infectious disease
market segments. Increased sales were partially offset by declines in the
Company's oncology and endocrinology market segments due to the continued
shift in the diagnostic industry from isotopic, manual testing to non-
isotopic, automated and semi-automated testing.
Domestic sales decreased 8% from $23,832,000 to $22,017,000. As
discussed above, through February 1996, the Company experienced an increase
in demand for one of its hepatitis assays due to a competitor's kit
becoming unavailable to the market in June 1995. Since the competitor's re-
entry during the first quarter of 1996, the Company has experienced a
decline of these product sales from their levels during the second half of
1995. This opportunity resulted in approximately $2.2 million and $2.9
million in sales during 1996 and 1995, respectively. In addition, domestic
sales have continued to be negatively impacted by declines in the Company's
oncology and endocrinology market segments, as discussed above. Partially
offsetting these declines were continued increases in the autoimmune
disease market segment, increases in the Company's serum protein market
segment and increases in the Company's Vitamin D assays, which are part of
the bone and mineral metabolism market segment. 1995 sales increased 12%
from $21,282,000 in 1994 due primarily to the increase in sales from the
hepatitis assay described above, as well as increases in the autoimmunity
segment offset with declines in the endocrinology and oncology market
segments.
1996 international sales increased 2% to $22,287,000 compared with
1995 sales of $21,928,000. 1995 sales increased 3% from 1994 sales of
$21,221,000. Sales were favorably impacted in 1996 and 1995 due primarily
to the introduction of second generation Epstein Barr Virus diagnostic kits
during 1995. Sales were negatively impacted in both years due to the
continued declines in the routine endocrinology and transplantation
segments.
Gross margins were 51 percent of sales in 1996 compared with 49
percent of sales in 1995 and 46 percent in 1994. The decline in 1994
margins is attributable to the $750,000 charge for excess inventories as
discussed in Note 2 of the Company's consolidated financial statements
contained elsewhere herein. Exclusive of the inventory write down, gross
margins were 48 percent of sales in 1994. Gross margins have improved
during the last two years due to improved product mix as well as
efficiencies derived from an operational restructuring. Notwithstanding
this improvement, the Company's margins continue to be highly sensitive to
product mix and volume changes.
The Company's ratio of selling, general and administrative expenses
to sales was 30 percent in 1996, 28 percent in 1995 and 30 percent in 1994.
These expenses, as a percentage of sales, are expected to remain relatively
consistent with 1996.
Research and development expenses were $4,163,000 in 1996, compared
with $3,748,000 in 1995 and $5,069,000 in 1994. The increase in 1996 is
primarily due to increased emphasis on new product development, including
the establishment of scientific advisory panels for the Company's
autoimmune and bone and mineral metabolism segments. These panels are
intended to strengthen the Company's ties with the scientific community.
The decrease in 1995 spending compared with 1994 levels is attributable to
the discontinuance during 1994 of the Fluorescence Polarization Immunoassay
("FPIA") development project as discussed in Note 2 of the Company's
consolidated financial statements contained elsewhere herein. Exclusive of
FPIA, these expenses represent 9 percent, 8 percent and 9 percent of sales
in 1996, 1995 and 1994, respectively. Research and development expenses
are projected to increase slightly due to the Company's increased emphasis
on new development activities and increased scientific panel activity.
Interest income net of expense was $96,000 in 1996 compared with
interest expense of $348,000 in 1995 and $365,000 in 1994. The interest
income was attributable to the elimination of all long term debt during
1995 and higher average cash balances in 1996. 1995 expense includes
interest on certain tax obligations.
Income tax expense was 24 percent of income before taxes or
$1,299,000, compared with 27 percent or $1,571,000 in 1995 and $193,000 in
1994. The decline in the effective tax rate is due to the recognition of
certain deferred tax assets during 1996. The tax expense in 1994 related
primarily to book reserves and liabilities not deductible for tax purposes
until paid. The effective rate is expected to remain relatively consistent
with 1996.
Net income in 1996 was $4,112,000, or 25 cents per share, compared
with a net income of $4,263,000, or 26 cents per share, in 1995 and net
loss of $4,505,000, or 28 cents per share, in 1994. The 1994 loss results
from $6.5 million in charges, as discussed in Note 2 to the Company's
consolidated financial statements contained elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
INCSTAR's free cash flow (operating cash flow less investment
activities) was $905,000 in 1996, compared to $5,190,000 in 1995 and
$3,118,000 in 1994. This decrease is attributable to increased capital
spending associated with instrumentation, manufacturing improvements and
computer upgrades as well as spending associated with the purchase of
intellectual property and purchased technology. The Company's ratio of
total debt to total capital was 16 percent in 1994.
Working capital increased to $19,189,000 at year-end 1996, from
$14,947,000 at the end of 1995, resulting from increased cash levels and
higher inventory balances combined with lower accrued compensation due to
timing of payroll disbursements.
Capital expenditures for 1996 were $2,645,000, compared with
$1,557,000 in 1995 and $923,000 in 1994. For 1997, capital expenditures
are expected to be approximately $3.8 million, primarily for a new
enterprise resource planning system, manufacturing improvements and
instrumentation.
The Company's primary sources of liquidity are a $1 million
revolving bank credit line secured by Company assets and a $4.0 million
unsecured credit line with Fiat Finance N.A., Inc. (Fiat). At year-end,
the Company had no outstanding borrowings under these credit lines. The
Company anticipates that the generation of free cash flow and the resources
available within the Fiat Group will provide sufficient sources of
liquidity for planned capital and research and development expenditures.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and financial
statement schedules are listed under Items 6, 14 (a) (1) and 14 (a) (2) of
this report and contained elsewhere herein.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
[The remainder of this page left blank intentionally.]
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
John J. Booth 42 President, Chief Executive Officer,
Director and Acting Chairman of the Board
Thomas P. Maun 43 Vice President and Chief Financial
Officer
Fabio Lunghi 54 Executive Vice President and Chief
Operating Officer
Stephen P. Gouze 47 Vice President of Sales and Marketing
Gerald L. Majewski, Ph.D. 49 Vice President of Research and
Development
George E. Wellock 49 Vice President of Manufacturing
Ennio Denti 64 Director
George H. Dixon 76 Director
Franco Fornasari 46 Director
Ezio Garibaldi 59 Director
D. Ross Hamilton 59 Director
Umberto Rosa 63 Director
Michael W. Steffes, M.D., Ph.D. 53 Director
Carlo Vanoli 47 Director
JOHN J. BOOTH was appointed Acting Chairman of the Board on March 8,
1997, following the death of Pierre M. Galletti, M.D., Ph.D., who had been
the Chairman of the Board of the Company since March 1995. Mr. Booth has
been President, Chief Executive Officer, and a director of the Company
since September 1994, Senior Vice President and Chief Financial Officer
from May 1992 to September 1994, and Vice President of Finance and
Administration from 1989 to 1992. Mr. Booth was Vice President, Controller
and Secretary of Clinical Sciences, Inc. ("CSI") prior to joining the
Company in 1989.
THOMAS P. MAUN has been Vice President and Chief Financial Officer of
the Company since September, 1994 and Director of Finance since January,
1990. Mr. Maun joined the Company in 1987 as Corporate Controller.
FABIO LUNGHI has been Executive Vice President and Chief Operating
Officer of the Company since September, 1994. Prior to joining the
Company, from 1986 to 1994, Mr. Lunghi was Vice President and General
Manager of the radiopharmaceutical business unit at Sorin.
STEPHEN P. GOUZE has been Vice President of Sales and Marketing of the
Company since February 1997. From October 1994 to February 1997, Mr. Gouze
was Vice President of Sales and Marketing at PATHCOR, Inc., a Pathologist
Practice Management Company. Prior to joining PATHCOR, Mr. Gouze held a
number of sales and marketing positions, with Sanofi Pasteur's Diagnostics
Division, most recently as Director of Marketing.
GERALD L. MAJEWSKI, PH.D. has beenVice President of Research and
Development since October 1992. Prior to joining the Company, from 1983 to
1992, Dr. Majewski held a variety of positions at Fisher
Scientific/Instrumentation Laboratory, most recently as Director of
Research and Development, Reagents Development from 1989 to 1992.
GEORGE E. WELLOCK has been Vice President of Manufacturing of the
Company since March 1991. From June 1988 to March 1991, Mr. Wellock served
as Vice President of Operations of Baxter Dade in Cambridge, Massachusetts,
a subsidiary of Baxter International. From June 1984 to June 1988, he
served as Manufacturing Manager for Travenol Genentech Diagnostics and
Baxter Dade.
ENNIO DENTI has been a director since December 1989. Mr. Denti was
Chairman of the Company from December 1989 to September 1994. Mr. Denti is
Chairman of the Board of SNIARICERCHE S.p.A., a research and development
company affiliated with SNIA. Mr. Denti was General Manager of Sorin from
1990 to 1992. From 1981 to 1990, he was Vice President of External Affairs
of Sorin. Mr. Denti is also a director of Conbiotec S.p.A., an affiliate
of Sorin involved in research and development activities relating to
medical diagnostics. Prior to December 1989, Mr. Denti was Chairman of the
Board of CSI.
GEORGE H. DIXON has been a director since February 1987. Prior to his
retirement in November 1985, Mr. Dixon held various management positions
with First Bank System, Inc., including Chairman and Chief Executive
Officer from November 1983 to November 1985.
FRANCO FORNASARI has been a director since May 1995. Mr. Fornasari is
Executive Vice President of Fiat U.S.A., Inc. He was Vice President for
International Trade at Fiat from 1990 to 1995 and has served as Secretary
General of the International Advisory Board of Fiat since March 1994. From
1985 to 1990, Mr. Fornasari held a variety of positions with the World Bank
organization.
EZIO GARIBALDI has been a director since September 1994. Mr. Garibaldi
has been President and Chief Executive Officer of Sorin since 1990.
D. ROSS HAMILTON has been a director since December 1989. Mr. Hamilton
was a director of CSI. He is President and a director of Hamilton Research
Inc., a financial consulting firm. Mr. Hamilton is also Chairman of the
Board of Altris Software, Inc., an electronic document management company.
He is also a director of Luther Medical Products, Inc., a medical device
company.
UMBERTO ROSA has been a director since December 1989. Professor Rosa
has been the Chief Executive Officer of SNIA since 1990. Prior to that he
was Chief Executive Officer and General Manager of Sorin. Professor Rosa
is also President of Biofin, a wholly owned subsidiary of Sorin, and
Executive Vice President of Technobiomedica S.p.A., a biotechnology
research holding company. He is also a member of the Board of Directors of
Tecnogen S.p.A., a biotechnology research company, and President of SNIA
Fibre S.p.A., a nylon fibers manufacturer.
MICHAEL W. STEFFES, M.D., PH.D. has been a director since September
1984. Dr.Steffes served as the Director of Clinical Laboratories at the
University of Minnesota Hospital from October 1984 to July 1992 and has
been a Professor in the Department of Laboratory Medicine and Pathology at
the University of Minnesota since 1981.
CARLO VANOLI has been a director since September 1994. Mr. Vanoli has
been Vice President of Corporate Development of SNIA since 1994. From 1992
to 1994, he served as President and Chief Executive Officer of Sorin
Biomedical, Inc., in Irvine, California, and, from 1987 to 1992, he served
as Strategic Planning Manager of merger and acquisition activities for
SNIA.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and noncash compensation
for each of the last three years awarded to or earned by the Chief
Executive Office of the Company and the four highest paid executive
officers of the Company whose salaries and other compensation earned in
1996 exceeded $100,000.
Long-Term
Annual Compensation Compensation
Securities
Underlying All Other
Name and Principal Positions Year Salary Bonus Options Compensation(1)
John J. Booth (2) 1996 $251,900 0 0 4,500
President and Chief Executive 1995 226,600 116,900 0 4,500
Officer 1994 166,800 0 50,000 4,500
Fabio Lunghi (3) 1996 197,700 0 0 0
Executive Vice President and 1995 187,000 77,200 0 0
Chief Operating Officer 1994 _ _ _ _
Gerald L. Majewski 1996 160,300 0 0 4,500
Vice President of Research 1995 153,000 63,100 0 4,500
and Development 1994 147,900 0 0 4,500
George E. Wellock 1996 141,600 0 0 4,500
Vice President of Operations 1995 137,700 56,800 0 4,100
1994 133,400 0 0 4,400
Thomas P. Maun (4) 1996 111,500 0 0 4,100
Vice President and Chief 1995 100,000 41,300 0 3,000
Financial Officer 1994 76,100 0 27,000 2,400
___________________
(1)Includes Company contributions under a Salary Savings Plan qualified
under Section 401(k) of the Internal Revenue Code of 1986, as amended.
In 1996, Company contributions equaled 50% of the first 6% of
compensation (or the allowable IRS limit, if less) contributed by the
employee.
(2)Mr. Booth began serving as the Company's Chief Executive Officer in
September 1994; prior to that, he served as its Senior Vice President
and Chief Financial Officer.
(3)Mr. Lunghi was named Executive Vice President and Chief Operating
Officer of the Company in September 1994.
(4)Mr. Maun was named Vice President and Chief Financial Officer in
September 1994; prior to that, he served as the Company's Director of
Finance.
EMPLOYMENT AGREEMENTS
The Company has a written employment agreement with Mr. Booth, the
initial term of which expired in December 1993 and which provides for
automatic one year extensions unless one of the parties gives notice at
least 30 days prior to the expiration date that the agreement will
terminate at the end of the current extension. The employment agreement
includes provisions with respect to base salary level, annual cost of
living increases, annual bonus and termination of employment. The
employment agreement also provides that one year of Mr. Booth's base salary
shall be paid to him in the event the Company terminates his employment
without cause.
RETIREMENT ARRANGEMENTS
The Company has retirement arrangements with Mr. Booth which is
intended to provide continued compensation to an individual or his
respective beneficiaries upon the later of (1) an individual's retirement
from the Company after attainment of 60 years of age, (2) his attainment of
60 years of age following termination of employment or (3) his death during
the term of employment (each one a "triggering event"). Subject to vesting
requirements (the annual benefit amounts vest at the rate of 10% per year
of employment), the retirement agreement provides for the payment to the
individuals or their beneficiaries of annual benefits for a period of 15
years following the occurrence of a triggering event. The amount of the
benefit is adjusted annual to reflect changes in the cost of living. The
annual benefit amount at December 31, 1996 for Mr. Booth was $62,800.
The Company maintains an executive income continuation plan for the
benefit of Dr. Majewski, Mr. Wellock and Mr. Maun. The plan provides
payments for 15 years to such officers or their respective beneficiaries
upon the later of (1) an officer's retirement from the Company after
attainment of 60 years of age, (2) his attainment of 60 years of age
following termination of employment or (3) his death during the term of
employment. The annual retirement payment is the product of an annual
benefit rate set by the Board of Directors ( in 1996) multiplied by the
number of years of employment, up to a maximum of 15 years, and as adjusted
to reflect cost of living changes during the payment period. An officer's
rights under the plan are fully vested after 10 years of employment. As of
December 31, 1996, the estimated annual retirement payment amounts were as
follows: Dr. Majewski, $13,800; Mr. Wellock, $28,300 and Mr. Maun, $7,500.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is furnished as of March 21, 1997, to indicate
beneficial ownership of the Common Stock of the Company by (i) each person
who is known by the Company to be the beneficial owner of more than 5% of
the outstanding shares, (ii) shares beneficially owned by each of the
Company's directors (including shares subject to stock options that will
become exercisable as a result of the Merger), and (iii) shares
beneficially owned by directors and executive officers as a group. Except
as otherwise indicated, the persons listed have sole voting and investment
power over such shares.
Amount and Nature
of Beneficial Percent of
Name of Beneficial Owner Ownership (1)(2)(3) Outstanding Shares
D. Ross Hamilton (4) 198,461 1.2%
130 East End Avenue
New York, NY 10028
John J. Booth dagger 172,738 *
George Wellock dagger 56,000 *
Gerald L. Majewski, Ph.D.dagger 40,000 *
Ennio Denti 24,035 *
SNIARICHERCHE
VIA Borgonuovo, 14
20100 Milano
Italy
Thomas P. Maun dagger 37,127 *
Michael W. Steffes, M.D., Ph.D. 19,900 *
1583 Fulham Street
St. Paul, MN 55108
George A. Dixon 15,000 *
121 Washington Avenue South, #617
Minneapolis, MN 55401
Umberto Rosa 10,000 *
SNIA BPD S.p.A.
VIA Borgonuovo, 14
20100 Milano
Italy
Fabio Lunghi dagger 6,000 *
Franco Fornasari 10,000 *
FIAT USA
375 Park Avenue
New York, NY 10152
Ezio Garibaldi 10,000 *
Sorin Biomedica S.p.A.
Via Crescentino
13040 Saluggia (VC)
Italy
Carlo Vanoli 10,000 *
SNIA BPD S.p.A.
VIA Borgonuovo, 14
20121 Milano
Italy
All directors and executive
officers as a group (13 persons) 609,261 3.7
______________
* Less than 1%
dagger INCSTAR Corporation, P.O. Box 285, Stillwater, MN 55082
(1) Includes the following shares held by wives or children: Mr. Hamilton,
27,108 shares; Mr. Booth, 2,385 shares; Mr. Maun, 1,727 shares; Dr.
Steffes, 3,600 shares.
(2) Includes the following shares that could be acquired within 60 days
upon exercise of outstanding options: Mr. Hamilton, 17,018 shares; Mr.
Booth, 123,333 shares; Mr. Wellock, 50,000 shares; Dr. Majewski, 40,000
shares; Dr. Denti, 24,035 shares; Mr. Maun, 25,567 shares; Dr. Steffes,
10,000 shares; Mr. Dixon, 10,000 shares; Prof. Rosa, 10,000 shares; Mr.
Fornasari, 3,333 shares; Mr. Garibaldi, 6,667 shares; Mr. Vanoli, 6,667
shares and all directors and executive officers as a group, 326,620
shares.
(3) Includes the following shares subject to stock options that will become
exercisable as a result of the Merger: Mr. Booth, 16,667 shares; Mr.
Maun, 9,333 shares; Mr. Garibaldi, 3,333 shares; Mr. Vanoli, 3,333
shares and Mr. Fornasari, 6,667 shares.
(4) Includes 51,000 shares held by R & C Partners, a partnership of which
Mr. Hamilton is a general partner and 7,500 shares held by Leeds
Security, Inc., a corporation of which Mr. Hamilton is principal owner.
PRINCIPAL SHAREHOLDERS
As of March 21, 1997, Biofin holds 8,507,707 shares of Common Stock
which consists of approximately 52% of the outstanding shares of Common
Stock, which excludes 730,720 shares that could be acquired within 60 days
upon exercise of outstanding warrants and 105,404 shares that could be
acquired within 60 days upon exercise of outstanding options, which Biofin
has agreed not to exercise pursuant to the European Agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has an agreement with Fiat Finance N.A., Inc., an affiliate
of the Company, pursuant to which the Company may borrow up to $4,000,000
at an interest rate of LIBOR plus 1.00%. At December 31, 1996, the Company
had no outstanding borrowings pursuant to the agreement.
Pursuant to two distributorship agreements between the Company and
Sorin, which provide for the distribution by the Company and Sorin of
certain of each other's diagnostic products in specified areas, the Company
had product sales to and product purchases from Sorin in the amounts of
$7,965,000 and $2,272,000, respectively, for the year ended December 31,
1995. Pursuant to certain other product distribution agreements between
the Company and Sorin, the Company accrued royalties to Sorin of $582,000
during the year ended December 31, 1995.
Reference is also made to the second through fifth paragraphs under
Part I, Item 1. Business, General Section, describing the Merger Agreement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Consolidated Statements of Operations -
Years Ended December 31, 1996, December 31, 1995,
and December 31, 1994
Consolidated Balance Sheets - As of December
31, 1996 and 1995
Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, December 31, 1995;
and December 31, 1994
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1996; December 31, 1995;
and December 31, 1994
Consolidated Quarterly Results (unaudited)
for the Years Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules not listed have been
omitted since the required information is included in the
consolidated financial statements or the notes thereto or is
not applicable or required.
(3) Exhibits:
Number Description
3.1 Restated Articles of Incorporation of
INCSTAR Corporation, as amended to date [incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 (File No. 33-84498)].
3.2 Bylaws of INCSTAR Corporation, as amended
to date [incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8 (File No.
33-84498)].
4.1 Specimen Certificate representing the
Registrant's Common Stock [incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on
Form S-3 (File No. 33-37805)].
4.2 Form of Warrant Certificate issued by the
Registrant in favor of Bioengineering International B.V.
(now BioFin Holding International B.V.) [incorporated by
reference to Exhibit 10.11 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
4.3 Form of Purchase Rights Agreement between
Bioengineering International B.V. (now BioFin Holding
International B.V.) and the Registrant [incorporated by
reference to Exhibit 10.12 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
10.1* INCSTAR Corporation Stock Option Plan
[incorporated by reference to Exhibit 10.1 of the
Registrant's Report on From 10-K for the year ended
December 31, 1995 (File No. 1-9800)].
10.2* Economic Value Sharing Plan [incorporated
by reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.3* Form of Executive Survivor Benefit Income
Continuation Agreement between the Registrant and certain
of its employees [incorporated by reference to Exhibit
10.4 of the Registrant's Registration Statement on Form S-
4 (File No. 33-30785)].
10.4* Executive Survivor Benefit Income
Continuation Plan covering certain executive officers of
the Registrant [incorporated by reference to Exhibit 10.4
of the Registrant's Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-9800)].
10.5* Form of Employment Agreement between the
Registrant and John J. Booth [incorporated by reference to
Exhibit 10.13 of the Registrant's Registration Statement
on Form S-4 (File No. 33-30785)].
10.6* Amendments to Employment Agreement between
the Registrant and John J. Booth [incorporated by
reference to Exhibit 10.8 of the Registrant's Report on
Form 10-K for the year ended December 31, 1993 (File No. 1-
9800)].
10.7* Employment Continuation Agreement between
the Registrant and Orwin L. Carter [incorporated by
reference to Exhibit 10.1 of the Registrant's report on
Form 10-Q for the quarter ended September 30, 1994 (File
No. 1-9800)].
10.8* Separation Agreement between the
Registrant and Jacques A. Bagdasarian [incorporated by
reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.9 Form of Scientific Advisory Board
agreement between the Registrant and Dr. Pierre M.
Galletti and Dr. Michael Steffes [incorporated by
reference to Exhibit 10.9 of the Registrant's Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-
9800)].
10.10 Consulting Agreement between the
Registrant and Dr. Michael Steffes [incorporated by
reference to Exhibit 10.10 of the Registrant's Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-
9800)].
10.11 Form of Distributorship Agreement between
the Registrant and Sorin Biomedica S.p.A., without
exhibits or schedules [incorporated by reference to
Exhibit 10.15 of the Registrant's Registration Statement
on Form S-4 (File No. 33-30785)].
10.12 Form of Distributorship Agreement between
Sorin Biomedica S.p.A. and the Registrant [incorporated by
reference to Exhibit 10.16 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
10.13 Distribution Agreement, dated October 30,
1986, between Clinical Sciences Inc. and Sorin Biomedica
S.p.A., as amended [incorporated by reference to Exhibit
10.17 of the Registrant's Registration Statement on Form S-
4 (File No. 33-30785)].
10.14 Form of Technology Transfer Agreement
between the Registrant and Sorin Biomedica S.p.A.
[incorporated by reference to Exhibit 10.18 of the
Registrant's Registration Statement on Form S-4 (File No.
33-30785)].
10.15 Distribution and Supply Agreement between
Baxter International Inc. and the Registrant dated
September 19, 1990 [incorporated by reference to Exhibit
10(b) of the Registrant's report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 1-9800)].
10.16 Product Distribution Agreement between
Centocor, Inc. and the Registrant dated December 2, 1991
[incorporated by reference to Exhibit 10.14 of the
Registrant's Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-9800)].
10.17.1 Letter agreements dated August 3, 1992 and
February 19, 1993 amending the product distribution
agreement filed as Exhibit 10.15 [incorporated by
reference to Exhibit 10.14.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1993 (File No. 1-
9800)].
10.18 Revolving Credit, Security and Note
Agreement, with exhibits thereto, dated as of December 27,
1993 between Norwest Bank Minnesota, National Association
and the Registrant [incorporated by reference to Exhibit
10.1 of the Registrant's Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-9800)].
10.18.1 First Amendment dated January 3, 1995 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-9800)].
10.18.2 Second Amendment dated February 15, 1995
to Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-9800)].
10.18.3 Third Amendment dated January 29, 1996 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-9800)].
10.18.4+Fourth Amendment dated January 31, 1997 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16.
10.19 Agreement for Purchase, Sale and
Distribution of Assets between TheraTest Laboratories Inc.
and the Registrant dated May 16, 1994 [incorporated by
reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.20+ Agreement and Plan of Merger, dated March
10, 1997, among American Standard Inc., American Standard
Medical Systems, Inc., ISTR Merger Corporation and INCSTAR
Corporation.
11+ Statement Re: Computation of Net Income (Loss) Per Common
Share.
21+ Subsidiaries of the Registrant.
23+ Independent Auditors' Consent
27+ Financial Data Schedules
*Executive Compensation Plans and Arrangements
+Filed with this Annual Report on Form 10-K
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
INCSTAR CORPORATION
Dated: March 27, 1997 By: /s/ John J. Booth
John J. Booth
President
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on March 27, 1997.
/s/John J. Booth Acting Chairman of the Board,
John J. Booth President and Director
(Principal Executive Officer)
/s/Thomas P. Maun Vice President and Chief Financial
Thomas P. Maun Officer
(Principal Accounting and Financial
Officer)
/s/Ennio Denti Director
Ennio Denti
/s/Michael W. Steffes Director
Michael W. Steffes, M.D., Ph.D.
/s/George H. Dixon Director
George H. Dixon
/s/Unberto Rosa Director
Umberto Rosa
/s/Carlo Vanoli Director
Carlo Vanoli
/s/D. Ross Hamilton Director
D. Ross Hamilton
/s/Franco Fornasari Director
Franco Fornasari
/s/Ezio Garibaldi Director
Ezio Garibaldi
<PAGE>
INCSTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1995 1994
Net sales $44,304,000 $45,760,000 $42,503,000
Cost of goods sold 21,599,000 23,271,000 22,039,000
Inventory valuation adjustment -- -- 750,000
Gross profit 22,705,000 22,489,000 19,714,000
Operating expenses:
Selling, general and
administrative 13,206,000 12,592,000 12,853,000
Research and development 4,163,000 3,748,000 5,069,000
Unusual items -- -- 5,750,000
Total operating expenses 17,369,000 16,340,000 23,672,000
Operating income (loss) 5,336,000 6,149,000 (3,958,000)
Interest income (expense), net 96,000 (348,000) (365,000)
Investment and other income
(expense) (21,000) 33,000 11,000
INCOME (LOSS) BEFORE INCOME
TAXES 5,411,000 5,834,000 (4,312,000)
Provision for income taxes 1,299,000 1,571,000 193,000
NET INCOME (LOSS) $ 4,112,000 $ 4,263,000 $(4,505,000)
INCOME (LOSS) PER SHARE:
Net income (loss) per share $ 0.25 $ 0.26 $ (0.28)
Weighted average shares and
equivalents 16,661,367 16,491,501 16,322,301
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
INCSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,554,000 $ 460,000
Restricted cash 250,000 251,000
Accounts receivable, net of allowance
for doubtful accounts of $190,000 and
$107,000, respectively 7,573,000 7,575,000
Other receivables 413,000 24,000
Inventories 14,302,000 13,445,000
Other current assets 629,000 294,000
TOTAL CURRENT ASSETS 24,721,000 22,049,000
PROPERTY AND EQUIPMENT:
Land and land improvements 1,573,000 1,573,000
Buildings and improvements 13,531,000 13,252,000
Equipment and furniture 19,993,000 18,170,000
Construction in progress 41,000 6,000
35,138,000 33,001,000
Less allowance for depreciation and
amortization (20,032,000) (18,387,000)
15,106,000 14,614,000
INTANGIBLE ASSETS, NET 791,000 1,105,000
OTHER ASSETS 1,340,000 993,000
$41,958,000 $38,761,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,000 $ 76,000
Accounts payable 1,819,000 1,914,000
Accrued compensation 898,000 1,972,000
Accrued expenses 2,448,000 2,928,000
Income taxes payable 364,000 212,000
TOTAL CURRENT LIABILITIES 5,532,000 7,102,000
LONG-TERM DEBT --- 3,000
OTHER NON-CURRENT LIABILITIES 3,285,000 3,272,000
SHAREHOLDERS' EQUITY:
Undesignated stock, authorized
5,000,000 shares - - - - - -
Common stock, par value $.01,
authorized 25,000,000 shares; issued
and outstanding 16,505,457 and
16,363,477 shares, respectively 165,000 164,000
Additional paid-in capital 18,531,000 17,940,000
Foreign currency translation
adjustment (98,000) (151,000)
Retained earnings 14,543,000 10,431,000
TOTAL SHAREHOLDERS' EQUITY 33,141,000 28,384,000
$41,958,000 $38,761,000
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
INCSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 4,112,000 $ 4,263,000 $(4,505,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Provision for deferred income taxes (555,000) -- --
Provision (payments) for unusual items and (590,000) (1,060,000) 5,371,000
inventory valuation adjustment
Provision for retirement plans 261,000 272,000 529,000
Depreciation and amortization 2,882,000 2,910,000 3,395,000
Changes in operating assets and liabilities:
Accounts receivable 2,000 (816,000) 39,000
Other receivables (389,000) 95,000 (29,000)
Inventories (857,000) (1,077,000) 194,000
Other current assets (77,000) 212,000 (21,000)
Accounts payable (95,000) 254,000 (229,000)
Accrued compensation (1,074,000) 554,000 (108,000)
Accrued expenses (105,000) 975,000 90,000
Income taxes payable 481,000 320,000 (56,000)
Other, net 53,000 (33,000) 35,000
Net cash provided by operating activities 4,049,000 6,869,000 4,705,000
INVESTING ACTIVITIES:
Additions to property and equipment, net (2,645,000) (1,557,000) (923,000)
Payments for product distribution rights -- -- (599,000)
Payments for intellectual property and (407,000) (86,000) --
purchased technology
Increase in other assets (92,000) (36,000) (65,000)
Net cash used in investing activities (3,144,000) (1,679,000) (1,587,000)
FINANCING ACTIVITIES:
Net repayments under lines of credit -- -- (422,000)
Net decrease in cash overdraft -- (602,000) (512,000)
(Increase) decrease in restricted cash 1,000 -- (11,000)
Payments on long-term debt (76,000) (4,342,000) (2,364,000)
Issuance of common stock to employees 264,000 61,000 119,000
Net cash provided by (used in) financing
activities 189,000 (4,883,000) (3,190,000)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,094,000 307,000 (72,000)
Cash and cash equivalents at beginning of year 460,000 153,000 225,000
Cash and cash equivalents at end of year $ 1,554,000 $ 460,000 $ 153,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
INCSTAR CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Foreign
Additional Currency
Number of Paid-In Translation Retained
Shares Amount Capital Adjustment Earnings
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 16,281,057 $ 163,000 $17,557,000 $ (153,000) $10,673,000
Common stock issued under
employee stock purchase plan
and upon exercise of stock
options 41,464 _ 119,000 _ _
Translation adjustments _ _ _ 35,000 _
Net loss _ _ _ _ (4,505,000)
Balance at December 31, 1994 16,322,521 $ 163,000 $17,676,000 $ (118,000) $ 6,168,000
Common stock issued under
employee stock purchase plan
and upon exercise of stock
options 40,956 1,000 61,000 _ _
Translation adjustments _ _ _ (33,000) _
Compensation expense on
executive stock options _ _ 203,000 _ _
Net income _ _ _ _ 4,263,000
Balance at December 31, 1995 16,363,477 $ 164,000 $17,940,000 $ (151,000) $10,431,000
Common stock issued under
employee stock purchase plan
and upon exercise of stock
options, net of tax effect 97,873 1,000 199,000 _ _
Issuance of shares to BFHI 44,107 _ 64,000 _ _
Translation adjustments _ _ _ 53,000 _
Compensation expense on
executive stock options _ _ 328,000 _ _
Net income _ _ _ _ 4,112,000
Balance at December 31, 1996 16,505,457 $ 165,000 $18,531,000 $ (98,000) $14,543,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
INCSTAR CORPORATION
<TABLE>
<CAPTION>
QUARTERLY RESULTS (UNAUDITED):
(in thousands, except per share data)
Net Gross
Sales Profit
Year Ended Year Ended
December 31, December 31,
Quarter 1996 1995 Quarter 1996 1995
<S> <C> <C> <S> <C> <C>
First $ 11,455 $ 11,117 First $ 5,916 $ 5,130
Second 11,355 11,041 Second 5,679 5,319
Third 10,604 11,664 Third 5,479 5,873
Fourth 10,890 11,938 Fourth 5,631 6,167
<CAPTION>
Net Income Net Income Per Share
Year Ended Year Ended
December 31, December 31,
Quarter 1996 1995 Quarter 1996 1995
<S> <C> <C> <S> <C> <C>
First $1,158 $ 799 First $ 0.07 $ 0.05
Second 1,119 827 Second 0.07 0.05
Third 986 1,092 Third 0.06 0.07
Fourth 849 1,545 Fourth 0.05 0.09
</TABLE>
<PAGE>
INCSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1_SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
INCSTAR Corporation (the "Company") is a medical immunodiagnostics
company focused on the development, production and worldwide marketing of
reagents, particularly for bone/mineral metabolism, endocrinology,
infectious and autoimmune diseases. The Company predominantly markets
these products in North America, Europe and Asia.
Since December 1989, the Company has been majority-owned by BioFin
Holding International B.V. ("BFHI"), a subsidiary of Sorin Biomedica
Diagnostics S.p.A. ("Sorin") which is an Italian affiliate of Fiat, Inc.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of INCSTAR Corporation and its wholly-owned subsidiaries,
Atlantic Antibodies, Inc., INCSTAR Ltd. and Immuno Nuclear Export Ltd. All
material inter-company accounts and transactions have been eliminated in
consolidation. Certain amounts for periods prior to the year ended
December 31, 1996 have been reclassified to conform with the current
classifications.
CASH EQUIVALENTS
Cash equivalents consist primarily of investments in money market
accounts with current maturities.
RESTRICTED CASH
Through December 31, 1995 the Company maintained a self insured
workers compensation insurance plan. Pursuant to the plan, the Company
holds a certificate of deposit with current maturity as a compensating
balance with a bank. These funds are restricted to assure future credit
availability for the potential self insured aggregate limits under the
plan. The funds are required to be on deposit with a bank under Minnesota
state regulations and are expected to be released in the fourth quarter of
1997. As of January 1, 1996, the Company is no longer self insured.
INVENTORIES
Inventories are valued at the lower of average cost, which
approximates the first-in, first-out (FIFO) method, or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments are carried at amounts that approximate
estimated fair value.
PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, is
reported at cost less accumulated depreciation and amortization.
Maintenance and repairs are charged to expense as incurred. The Company
computes depreciation and amortization using the straight-line method based
on estimated useful lives of three to seven years for equipment and
furniture and seven to thirty years for buildings and improvements.
INTANGIBLE ASSETS
Intangible assets includes patents, trademarks, intellectual property
and purchased technology, goodwill and product distribution rights. Patents
and trademarks are amortized using the straight-line method over a five-
year period. Goodwill, which represents the cost in excess of the fair
value of net assets acquired, is amortized using the straight-line method
over a ten-year period. Intellectual property and purchased technology is
amortized using the straight line method over the properties estimated
useful lives which range from seven to ten years. Product distribution
rights are amortized using the straight line method over the life of the
agreement or the estimated product life, whichever is shorter. The
carrying value of intangible assets is regularly reviewed by the Company,
and a loss is recognized when the net realizable value falls below the
unamortized cost.
RESEARCH and Development
Research and development costs are expensed when incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 109. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
INCOME (LOSS) PER SHARE
Income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares of common stock and common stock
equivalents, consisting of stock options and warrants, outstanding during
the period. For all periods presented, fully diluted and primary income or
loss per share are the same. For 1994, the effects of stock options and
warrants were excluded from the computation of weighted average shares
outstanding because their effects were antidilutive.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated at rates
of exchange in effect at period end. Statement of operations amounts are
translated at the average rate of exchange for the period. Gains and losses
resulting from translation are accumulated in a separate component of
shareholders' equity. Foreign currency transaction gains and losses, which
are not material, are included in the consolidated statements of
operations.
STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 (APB
No. 25), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations in accounting for its plans. Accordingly, no compensation
expense has been recognized for its stock-based compensation plans. The
Company has adopted the disclosure requirements under SFAS No. 123,
Accounting and Disclosure of Stock-Based Compensation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2_ UNUSUAL ITEMS AND INVENTORY VALUATION ADJUSTMENTS
In December, 1994 the Company recorded a $750,000 charge related to the
write down of excess inventories and a $2,450,000 unusual charge related to
the termination of certain distribution and supply agreements ($540,000) as
well as severance and other costs related to senior management changes
($1,910,000). The amount remaining to be paid at December 31, 1996,
exclusive of amounts included in noncurrent liabilities (Note 9, Executive
Retirement Plans) is $10,000, which is included in accrued expenses in the
accompanying consolidated balance sheet.
In May, 1994 the Company discontinued the development of certain
purchased technology acquired in 1992 from Robert Dowben Associates, a
diagnostic research company, and incurred a one-time pre-tax charge of
$3,300,000. The majority of this charge related to the write off of
tangible and intangible assets ($1,560,000), costs incurred to terminate
contracts with outside vendors and consultants ($797,000), as well as
severance and related costs for terminated employees ($943,000). None of
these amounts remain to be paid on December 31, 1996.
NOTE 3 - INVENTORIES
Inventories consist of the following:
December 31,
1996 1995
Raw materials $ 2,458,000 $ 2,281,000
Work in progress 9,515,000 9,421,000
Finished goods 2,329,000 1,743,000
$14,302,000 $13,445,000
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31
1996 1995
Patents $ 717,000 $ 717,000
Trademarks 17,000 17,000
Goodwill 619,000 619,000
Intellectual property and purchased 1,141,000 734,000
technology
Product distribution rights 2,700,000 2,700,000
5,194,000 4,787,000
Less accumulated amortization (4,403,000) (3,682,000)
$ 791,000 $ 1,105,000
NOTE 5_LINE OF CREDIT, LEASE AND ROYALTY COMMITMENTS
Long-term debt consists of the following:
December 31,
1996 1995
Capitalized lease obligations, 8.0%, due
through 1996 --- 72,000
Other 3,000 7,000
3,000 79,000
Less current portion (3,000) (76,000)
Total long-term debt $ --- $ 3,000
The Company has a revolving line of credit from a bank which provides
for maximum borrowings of $1,000,000 through January 31, 1997, is secured
by accounts receivable, and has an interest rate based on the prime
interest rate or LIBOR plus 2.50%. In addition, the Company has a
$4,000,000 revolving line of credit with Fiat Finance N.A., Inc. which
expires on October 1, 1997.
At December 31, 1996 and 1995, property and equipment includes
capital lease costs of $288,000 and $842,000, respectively, and accumulated
amortization of $288,000 and $773,000, respectively. Lease amortization
included in depreciation was $40,000 for the year ended December 31, 1996
and $158,000 for the year ended December 31, 1995.
The Company leases certain manufacturing and other equipment in
connection with its normal operations. Rent expense under these operating
leases was $226,000, $295,000 and $238,000 for the years ended December 31,
1996, 1995 and 1994, respectively. Future minimum lease payments for all
noncancelable operating leases having a remaining term in excess of one
year are as follows: 1997_$173,000; 1998_$116,000; 1999_$44,000;
2000_$5,000.
The Company is obligated to make royalty payments under several
distribution and licensing agreements. The majority of these agreements
call for payments based on a percentage of sales and contain no minimum
royalty clause. Royalty expense under these agreements was $1,563,000 in
1996, $1,715,000 in 1995 and $1,099,000 in 1994.
NOTE 6 - RELATED PARTY TRANSACTIONS
<TABLE>
As part of the ongoing operations of the Company, various
transactions were entered into during 1996, 1995 and 1994 with its
affiliates, Sorin, an affiliate of the Fiat group, and Fiat Finance N.A.,
Inc. The following tables summarize transactions and related balances:
<CAPTION>
OPERATING Sorin Fiat Finance N.A., Inc.
STATEMENT DATA: Year Ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Product sales $ 7,965,000 $ 7,625,000 $ 6,903,000 $ --- $ --- $ ---
Product purchases 2,272,000 1,807,000 1,248,000 --- --- ---
Royalty expense 432,000 582,000 176,000 --- --- ---
Interest expense --- --- --- 6,000 170,000 312,000
<CAPTION>
BALANCE SHEET DATA: Sorin
December 31,
1996 1995
<S> <C> <C>
Assets
Trade receivables $ 2,442,000 $ 1,965,000
Other receivables 59,000 6,000
Liabilities
Accounts payable $ 353,000 $ 675,000
Accrued royalty 798,000 480,000
</TABLE>
NOTE 7_INCOME TAXES
The provision for income taxes is summarized as follows:
Year Ended December 31, Federal State Foreign Total
1996
Current $ 1,644,000 $ 212,000 $ (2,000) $1,854,000
Deferred (491,000) (64,000) - - - (555,000)
Provision for Income Taxes $ 1,153,000 $ 148,000 $ (2,000) $1,299,000
1995
Current $ 1,505,000 $ 89,000 $(23,000) $1,571,000
Deferred - - - - - - - - - - - -
Provision for Income Taxes $ 1,505,000 $ 89,000 $(23,000) $1,571,000
1994
Current $ 123,000 $ 34,000 $ 36,000 $ 193,000
Deferred - - - - - - - - - - - -
Provision for Income Taxes $ 123,000 $ 34,000 $ 36,000 $ 193,000
The provision for income taxes differs from the statutory federal tax
rate of 34% applied to income (loss) before income taxes as follows:
Year Ended December 31,
1996 1995 1994
Federal tax calculated at the
statutory rate $ 1,840,000 $ 1,984,000 $(1,466,000)
Change in the valuation allowance
for deferred taxes (914,000) (532,000) 1,872,000
Exempt income attributable to
foreign sales (266,000) (333,000) (288,000)
State taxes, net of federal
benefit 98,000 59,000 22,000
Compensation expense on executive
stock options 328,000 203,000 - - -
Other, net 213,000 190,000 53,000
Provision for income taxes $ 1,299,000 $ 1,571,000 $ 193,000
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are as follows:
December 31, December 31,
1996 1995
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 56,000 $ 29,000
Accrued vacation pay 33,000 27,000
Inventories, reserves and additional
costs inventoried for tax purposes 637,000 728,000
Patents, due to different book and tax lives 24,000 27,000
Retirement plans 1,117,000 1,066,000
Tax credits 60,000 492,000
Accrual not currently deductible 265,000 ---
Severance and related costs not currently --- 189,000
deductible
Other 35,000 26,000
Gross deferred tax assets 2,227,000 2,584,000
Valuation allowance (1,639,000) (2,553,000)
Net deferred tax asset $ 588,000 $ 31,000
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation and $ 44,000 $ 41,000
capitalized interest
Other 4,000 5,000
Deferred tax liability $ 48,000 $ 46,000
Total net deferred tax asset (liability) $ 540,000 $ ( 15,000)
The valuation allowance for deferred tax assets as of December 31,
1996 and 1995 was $1,639,000 and $2,553,000, respectively. The net change
in the valuation allowance for the year ended December 31, 1996 was a
decrease of $914,000. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers its
projected future taxable income and tax planning strategies in making this
assessment.
NOTE 8_EMPLOYEE SAVINGS RETIREMENT AND VALUE SHARING PLAN
The Company adopted a Salary Savings Plan under Section 401(k) of the
Internal Revenue Code, effective November 1, 1985. Participants make pre-
tax contributions of up to 15% of their wages subject to an annual limit of
$9,500. The Company is required to match 50% of that portion of the
participant's pre-tax contribution which does not exceed 6% of the
participant's compensation. The Company contributed $270,000 for the year
ended December 31, 1996, $262,000 for the year ended December 31, 1995, and
$273,000 for the year ended December 31, 1994.
In 1994 the Company changed its profit sharing plan to a non-
contributory value sharing plan. Cash payments to all eligible employees
are based on the improvement in economic value as well as a targeted
performance factor for economic value added. The Company incurred $0
expense for the year ended December 31, 1996, $984,000 expense for the year
ended December 31, 1995 and $0 for the year ended December 31, 1994.
NOTE 9_EXECUTIVE RETIREMENT PLANS
The Company has individual retirement agreements with certain
current and prior executive officers which are intended to provide
continued compensation to such individuals or their respective
beneficiaries upon the later of their retirement from the Company after
attainment of sixty years of age (fifty-five years of age for one plan
participant) or attainment of sixty years of age (fifty-five years of age
for one plan participant) following termination of employment, or upon
death during the term of employment (the "triggering events"). Subject to
vesting requirements, the retirement agreements provide for the payment to
these individuals or their respective beneficiaries, of annual benefits for
a period of fifteen years following the occurrence of a triggering event.
The amount of annual benefits is adjusted annually to reflect changes in
the cost of living. The annual benefit amounts vest at the rate of 10% per
year.
The Company maintains an executive income continuation plan for the
benefit of executive officers not covered under the agreements discussed
above. The plan provides payments for fifteen years to such officers or
their respective beneficiaries upon the later of an officer's retirement
from the Company after attainment of sixty years of age or attainment of
sixty years of age following termination of employment, or upon death
during the term of employment. The annual retirement payment is the
product of an annual benefit rate set by the Board of Directors ($3,333 for
1996) multiplied by the number of years of employment, up to a maximum of
fifteen years, and as adjusted to reflect the cost of living changes during
the payment period. An officer's rights under the plan are fully vested
after ten years of employment or upon change in the controlling interest of
the Company.
In connection with both of the above plans, included in other
noncurrent liabilities at December 31, 1996 and 1995 is $3,285,000 and
$3,136,000, respectively, representing the present value of the future
liability. Also, included in accrued expenses at December 31, 1996 and
December 31, 1995 is $145,000 and $31,000, respectively, representing the
current portion of this liability. The Company intends to fund this
obligation through life insurance contracts on the individual executives.
Included in Other assets at December 31, 1996 and 1995 is $1,020,000 and
$934,000, respectively, of cash surrender value in connection with these
policies.
NOTE 10_EMPLOYEE STOCK PURCHASE AND OPTION PLAN
Under the Company's stock option plans, officers, directors,
consultants and key employees may be granted options to purchase the
Company's common stock at no less than 100% of the market price on the date
the option is granted. Options generally become exercisable over two to
four years and have terms of five or ten years.
Option activity in the Company's various option plans is summarized as
follows:
Options Outstanding
Weighted-
Shares Average
reserved Option
for grant Shares price
Balance December 31, 1993 337,168 842,175 $ 3.88
Exercised --- (1,500) 1.79
Canceled 136,000 (136,000) 4.05
Granted (119,000) 119,000 2.60
Balance December 31, 1994 354,168 823,675 $ 3.68
Exercised outside the plan (1,000) 1.44
Canceled 206,000 (206,000) 3.40
Canceled outside the plan (14,035) 1.85
Granted (103,000) 103,000 2.95
Balance December 31, 1995 457,168 705,640 $ 3.66
Exercised --- (48,000) 2.50
Canceled 30,000 (30,000) 3.30
Granted (42,000) 42,000 4.39
Balance December 31, 1996 445,168 669,640 $ 3.81
As of December 31, 1996 options for 538,140 shares were exercisable
at prices ranging from $1.44 to $8.25 per share.
At December 31, 1996, the range of exercise prices and weighted-
average remaining contractual life of outstanding options was $1.44-$8.25
and 6.12 years, respectively.
The Company also had an Employee Stock Purchase Plan. This plan
enabled eligible employees to purchase the Company's Common Stock at the
lower of 85% of the fair market value on the first or the last day of each
plan year. The number of shares reserved for sale under this plan was
300,000, of which all shares have been sold. The Company does not intend
to issue more shares under this plan.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation." The Company has adopted the disclosure-only
provisions. Had compensation cost for the Company's stock option grants
and employee stock purchase plan been determined consistent with SFAS 123,
the Company's net income and earnings per share would have been changed to
the pro forma amounts indicated below:
1996 1995
Net income (in 000s) As reported $ 4,112 $ 4,263
Pro forma 4,032 4,209
Earnings per share As reported $ 0.25 $ 0.26
Pro forma 0.24 0.26
The effects of applying SFAS No. 123 in this pro forma disclosure
are not indicative of future amounts as compensation expense applicable to
awards made prior to 1995 are not considered.
The fair value of stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at
grant date using a Black-Scholes option-pricing model with the following
weighted average assumptions for 1996 and 1995: dividend yield of 0%;
expected weighted average volatility of 63.7%; a weighted average risk free
interest rate of 5.9% and an expected holding period of 9.3 years. The
weighted average values of the options granted are $3.40 and $1.98 for 1996
and 1995, respectively.
NOTE 11_SUPPLEMENTARY CASH FLOW INFORMATION
Year Ended December 31,
1996 1995 1994
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 17,000 $ 192,000 $ 369,000
Income taxes, net 1,295,000 1,151,000 242,000
NOTE 12_GEOGRAPHIC SEGMENT DATA
Comparative geographical data for the Company's operations is
summarized as follows:
1996 1995 1994
SALES
United States $ 22,017,000 $ 23,832,000 $ 21,282,000
Europe 13,824,000 13,518,000 12,478,000
Asia 5,022,000 4,948,000 5,290,000
Other Foreign 3,441,000 3,462,000 3,453,000
Total $ 44,304,000 $ 45,760,000 $ 42,503,000
OPERATING INCOME
United States $ 2,305,000 $ 3,052,000 $ 877,000
Europe 1,361,000 1,223,000 639,000
Asia 903,000 1,076,000 290,000
Other Foreign 767,000 798,000 736,000
5,336,000 6 ,149,000 2,542,000
Unusual items --- --- (5,750,000)
Inventory valuation adjustment --- --- (750,000)
Other income(expenses), net 75,000 (315,000) (354,000)
Income(loss) before income taxes$ 5,411,000 $ 5,834,000 $ (4,312,000)
Total assets
United States $ 41,021,000 $ 38,059,000 $ 37,272,000
Europe 937,000 702,000 882,000
Total $ 41,958,000 $ 38,761,000 $ 38,154,000
NOTE 13_WARRANTS AND STOCK PURCHASE RIGHTS
The Company has issued to BFHI a warrant to purchase up to 730,720
shares of Common Stock at the prevailing market price and has granted BFHI
the right to purchase additional Common Stock at a price identical to any
new issuances. These agreements enable BFHI to maintain a minimum 51%
ownership in the Company.
NOTE 14_SUBSEQUENT EVENT
On January 24, 1997, the Company announced that it has signed a
Memorandum of Understanding ("the Memorandum") with American Standard
Inc.("ASI"), a subsidiary of American Standard Companies Inc., which
contemplates acquisition of the Company by a subsidiary of ASI. Pursuant
to the Memorandum, each INCSTAR common share would be converted into the
right to receive $6.32 in cash, and INCSTAR would become a wholly-owned
subsidiary of ASI. Under the merger proposal, INCSTAR would become part of
a newly formed Medical Systems Group within ASI.
The Memorandum of Understanding has been approved by a Special
Committee of independent INCSTAR directors and the boards of directors of
INCSTAR and ASI.
The proposed merger is subject to negotiation and execution of
mutually satisfactory definitive documentation, receipt by the Special
Committee and the board of directors of INCSTAR of a fairness opinion,
approval of the definitive merger agreement by the Special Committee and
the boards of directors of INCSTAR and ASI, approval of the merger by the
holders of a majority of the issued and outstanding shares of INCSTAR
common stock, and receipt of all required regulatory approvals and material
third party consents.
The Merger Agreement further provides for the payment by the
Company to ASI of a $2.5 million termination fee if the Company terminates
the merger as defined in the Agreement.
The Company also announced that BFHI, the majority shareholder of
INCSTAR and a wholly owned subsidiary of Sorin, has informed INCSTAR that
Sorin has entered into a Memorandum of Understanding with ASI regarding the
proposed sale of Sorin's European Diagnostics Division to ASI. The
Memorandum of Understanding between ASI and INCSTAR contemplates that the
simultaneous closing of the Sorin sale of its European Diagnostics Division
will be a condition to the proposed merger.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of INCSTAR Corporation:
We have audited the consolidated financial statements of INCSTAR
Corporation and subsidiaries as listed in the accompanying index in Item
14(a)(1) on page 24. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule
as listed in the accompanying index in Item 14(a)(2) on page 24. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
INCSTAR Corporation and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material aspects, the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 24, 1997
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
INCSTAR CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at
the Charged to
Beginning Charged Other Balance at
of to Costs Accounts Deductions_ the
Period & Expenses Describe (Describe) End of Period
Allowance for doubtful
accounts receivable:
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996 $107,000 $118,000 $ - - $ 35,000(A) $190,000
Year ended December 31, 1995 113,000 16,000 - - 22,000(A) 107,000
Year ended December 31, 1994 195,000 23,000 - - 105,000(A) 113,000
<FN>
(A) Uncollectible accounts written off, net of recoveries
</FN>
</TABLE>
<PAGE>
EXHIBIT INDEX
(a) List of documents filed as part of this report:
(1) Consolidated Statements of Operations -
Years Ended December 31, 1996, December 31, 1995, and
December 31, 1994
Consolidated Balance Sheets - As of December
31, 1996 and 1995
Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, December 31, 1995; and
December 31, 1994
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1996; December 31, 1995;
and December 31, 1994
Consolidated Quarterly Results (unaudited)
for the Years Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules not listed have been
omitted since the required information is included in the
consolidated financial statements or the notes thereto or is
not applicable or required.
(3) Exhibits:
Number Description
3.1 Restated Articles of Incorporation of
INCSTAR Corporation, as amended to date [incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 (File No. 33-84498)].
3.2 Bylaws of INCSTAR Corporation, as amended
to date [incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8 (File No.
33-84498)].
4.1 Specimen Certificate representing the
Registrant's Common Stock [incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on
Form S-3 (File No. 33-37805)].
4.2 Form of Warrant Certificate issued by the
Registrant in favor of Bioengineering International B.V.
(now BioFin Holding International B.V.) [incorporated by
reference to Exhibit 10.11 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
4.3 Form of Purchase Rights Agreement between
Bioengineering International B.V. (now BioFin Holding
International B.V.) and the Registrant [incorporated by
reference to Exhibit 10.12 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
10.1* INCSTAR Corporation Stock Option Plan
[incorporated by reference to Exhibit 10.1 of the
Registrant's Report on From 10-K for the year ended
December 31, 1995 (File No. 1-9800)].
10.2* Economic Value Sharing Plan [incorporated
by reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.3* Form of Executive Survivor Benefit Income
Continuation Agreement between the Registrant and certain
of its employees [incorporated by reference to Exhibit
10.4 of the Registrant's Registration Statement on Form S-
4 (File No. 33-30785)].
10.4* Executive Survivor Benefit Income
Continuation Plan covering certain executive officers of
the Registrant [incorporated by reference to Exhibit 10.4
of the Registrant's Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-9800)].
10.5* Form of Employment Agreement between the
Registrant and John J. Booth [incorporated by reference to
Exhibit 10.13 of the Registrant's Registration Statement
on Form S-4 (File No. 33-30785)].
10.6* Amendments to Employment Agreement between
the Registrant and John J. Booth [incorporated by
reference to Exhibit 10.8 of the Registrant's Report on
Form 10-K for the year ended December 31, 1993 (File No. 1-
9800)].
10.7* Employment Continuation Agreement between
the Registrant and Orwin L. Carter [incorporated by
reference to Exhibit 10.1 of the Registrant's report on
Form 10-Q for the quarter ended September 30, 1994 (File
No. 1-9800)].
10.8* Separation Agreement between the
Registrant and Jacques A. Bagdasarian [incorporated by
reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.9 Form of Scientific Advisory Board
agreement between the Registrant and Dr. Pierre M.
Galletti and Dr. Michael Steffes [incorporated by
reference to Exhibit 10.9 of the Registrant's Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-
9800)].
10.10 Consulting Agreement between the
Registrant and Dr. Michael Steffes [incorporated by
reference to Exhibit 10.10 of the Registrant's Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-
9800)].
10.11 Form of Distributorship Agreement between
the Registrant and Sorin Biomedica S.p.A., without
exhibits or schedules [incorporated by reference to
Exhibit 10.15 of the Registrant's Registration Statement
on Form S-4 (File No. 33-30785)].
10.12 Form of Distributorship Agreement between
Sorin Biomedica S.p.A. and the Registrant [incorporated by
reference to Exhibit 10.16 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
10.13 Distribution Agreement, dated October 30,
1986, between Clinical Sciences Inc. and Sorin Biomedica
S.p.A., as amended [incorporated by reference to Exhibit
10.17 of the Registrant's Registration Statement on Form S-
4 (File No. 33-30785)].
10.14 Form of Technology Transfer Agreement
between the Registrant and Sorin Biomedica S.p.A.
[incorporated by reference to Exhibit 10.18 of the
Registrant's Registration Statement on Form S-4 (File No.
33-30785)].
10.15 Distribution and Supply Agreement between
Baxter International Inc. and the Registrant dated
September 19, 1990 [incorporated by reference to Exhibit
10(b) of the Registrant's report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 1-9800)].
10.16 Product Distribution Agreement between
Centocor, Inc. and the Registrant dated December 2, 1991
[incorporated by reference to Exhibit 10.14 of the
Registrant's Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-9800)].
10.17.1 Letter agreements dated August 3, 1992 and
February 19, 1993 amending the product distribution
agreement filed as Exhibit 10.15 [incorporated by
reference to Exhibit 10.14.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1993 (File No. 1-
9800)].
10.18 Revolving Credit, Security and Note
Agreement, with exhibits thereto, dated as of December 27,
1993 between Norwest Bank Minnesota, National Association
and the Registrant [incorporated by reference to Exhibit
10.1 of the Registrant's Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-9800)].
10.18.1 First Amendment dated January 3, 1995 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-9800)].
10.18.2 Second Amendment dated February 15, 1995
to Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-9800)].
10.18.3 Third Amendment dated January 29, 1996 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-9800)].
10.18.4+Fourth Amendment dated January 31,
1997 to Revolving Credit, Security and Note Agreement
filed as Exhibit 10.16.
10.19 Agreement for Purchase, Sale and
Distribution of Assets between TheraTest Laboratories Inc.
and the Registrant dated May 16, 1994 [incorporated by
reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.20+ Agreement and Plan of Merger, dated March
10, 1997, among American Standard Inc., American Standard
Medical Systems, Inc., ISTR Merger Corporation and INCSTAR
Corporation.
11+ Statement Re: Computation of Net Income
(Loss) Per Common Share.
21+ Subsidiaries of the Registrant.
23+ Independent Auditors' Consent
27+ Financial Data Schedules
*Executive Compensation Plans and Arrangements
+ Filed with this Annual Report on Form 10-K
EXHIBIT 10.18.4
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT is made as of the 31st day of January, 1997, and is
by and between INCSTAR Corporation (the "Borrower") and Norwest Bank
Minnesota, National Association, a national banking association
("Norwest").
REFERENCE IS HEREBY MADE to that certain credit agreement dated as of
December 27, 1993 and amended January 3, 1995 and amended February 15, 1995
and amended January 29, 1996 (the "Credit Agreement") made between the
Borrower and Norwest. Capitalized terms not otherwise defined herein shall
have the respective meanings ascribed to them in the Credit Agreement.
WHEREAS, the Borrower has requested Norwest to extend the Line to February
28, 1998; and
WHEREAS, the Borrower has requested Norwest to amend Section 7.3(l) of the
Credit Agreement; and
WHEREAS, the Borrower has requested Norwest amend Section 8.1(h) of the
Credit Agreement; and
WHEREAS, Norwest is willing to grant the Borrower's request, subject to the
provisions of this Fourth Amendment;
NOW, THEREFORE, in consideration of the premises and for other valuable
consideration received, it is agreed as follows:
1. Section 1.2 of the Credit Agreement is hereby amended by changing the
said Section so that, when read in its entirety, it provides as
follows:
Line Availability Period. The Line Availability Period
will mean the period from the Effective Date to February 28, 1998
(the "Line Expiration Date").
2. Section 7.3(l) is added to the Credit Agreement so that, when read in
its entirety, it provides as follows:
Management Change. Refrain from permitting or suffering
any substantial change in Borrower's management team in place as
of the date of this Fourth Amendment.
3. Section 8.1(h) is added to the Credit Agreement so that, when
read in its entirety, it provides as follows:
A material change of control shall occur. A material
change of control shall be deemed to have occurred if a change in
ownership of stock having the power to elect a majority of the
Borrower's Board of Directors has occurred.
4. Simultaneously with the execution of this Fourth Amendment the
Borrower shall execute and deliver to Norwest a Fourth Amendment to
Note (the "Fourth Amendment to Note"), duly executed by the Borrower
and in form and content acceptable to Norwest. Pursuant to the Fourth
Amendment to Note, the maturity date of the Note shall be extended to
February 28, 1998. All references in the Credit Agreement to "the
Note" shall be deemed to mean the Note as modified by the First Note
Amendment and the Second Note Amendment and the Third Note Amendment
and the Fourth Note Amendment.
5. The Borrower hereby represents and warrants to Norwest as follows:
A. As of the date of this Fourth Amendment, the outstanding
principal balance of the Note is $0, and accrued but unpaid
interest thereon equals $0.
B. The Credit Agreement and the Note constitute valid, legal
and binding obligations owed by the Borrower to Norwest, subject
to no counterclaim, defense, offset, abatement or recoupment.
C. The execution, delivery and performance of this Fourth
Amendment and the Fourth Amendment to Note by the Borrower are
within its corporate powers, have been duly authorized, and are
not in contravention of law or the terms of the Borrower's
Articles of Incorporation or By-laws, or of any undertaking to
which the Borrower is a party or by which it is bound.
D. All financial statements delivered to Norwest by or on
behalf of the Borrower, including any schedules and notes
pertaining thereto, fully and fairly present the financial
condition of the Borrower at the dates thereof and the results of
operations for the periods covered thereby, and there have been
no material adverse changes in the financial condition or
business of the Borrower from December 31, 1996 to the date
hereof.
6. This Fourth Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but which taken together
shall constitute one and the same instrument. This Fourth Amendment
shall not become effective until this Fourth Amendment and the Fourth
Note Amendment have been duly executed by the Borrower and Norwest.
7. Except as expressly modified by this Fourth Amendment, the Credit
Agreement remains unchanged and in full force and effect. Without
limiting the generality of the foregoing, all advances under the Line
shall continue to be evidenced by the Note, as amended by the First
Note Amendment and The Second Note Amendment and the Third Note
Amendment and the Fourth Note Amendment.
IN WITNESS WHEREOF, the Borrower and Norwest have executed this Fourth
Amendment as of the date first written above.
INCSTAR CORPORATION NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: By:
Its: Its:
By:
Its:
EXHIBIT 10.20
AGREEMENT AND PLAN OF MERGER
AMONG
AMERICAN STANDARD INC.
AMERICAN STANDARD MEDICAL SYSTEMS, INC.
ISTR MERGER CORPORATION
AND
INCSTAR CORPORATION
Dated as of March 10, 1997
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
(Not Part of the Agreement)
Page
RECITALS 1
ARTICLE I THE MERGER 1
1.1 The Merger 1
1.2 Articles of Incorporation 2
1.3 By-Laws 2
1.4 Directors and Officers 2
1.5 Effective Time 2
ARTICLE II CONVERSION OF SHARES 2
2.1 Company Common Stock 2
2.2 Dissenting Shares 3
2.3 Mergeco Common Stock 3
2.4 Exchange of Shares 4
2.5 Employee Stock Options 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 6
3.1 Organization 6
3.2 Capitalization 7
3.3 Authorization of this Agreement; Recommendation
of Merger 8
3.4 Consents and Approvals 8
3.5 No Conflicts 8
3.6 Compliance 9
3.7 SEC Reports; Financial Statements;
No Undisclosed Liabilities 9
3.8 Proxy Statement 10
3.9 Employee Agreements and Plans 11
3.10 Absence of Certain Changes 14
3.11 Litigation 15
3.12 Taxes 15
3.13 Environmental and Occupational Safety and
Health Matters 16
3.14 Opinion of Financial Advisor 18
3.15 Certain Anti-takeover Provisions Not Applicable 18
3.16 Intellectual Property 19
3.17 Licenses and Permits 20
3.18 Insurance 20
3.19 Contracts 21
3.20 Vote Required 21
3.21 Finders and Investment Bankers 21
3.22 Real Property and Leases 21
3.23 No Other Representations and Warranties 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGECO 22
4.1 Organization 22
4.2 Authorization of this Agreement 23
4.3 Consents and Approvals; No Violations 23
4.4 Proxy Statement 24
4.5 Financial Ability to Perform 24
4.6 Finders and Investment Bankers 24
4.7 Litigation 24
4.8 Certain Anti-takeover Provisions Not Applicable 24
4.9 No Other Representations and Warranties 24
ARTICLE V COVENANTS 25
5.1 Conduct of the Business of the Company 25
5.2 Access to Information 26
5.3 Shareholder Approval 27
5.4 All Reasonable Efforts 27
5.5 Consents 27
5.6 Public Announcements 28
5.7 Consent of Holdings 28
5.8 No Solicitation 28
5.9 Indemnification 29
5.10 Transfer Taxes 30
5.11 Anti-takeover Statutes 31
5.12 Notification of Certain Matters 31
5.13 Certain Resignations 31
5.14 Employee Matters 31
5.15 Extinguishment of Credit Line 32
ARTICLE VI CLOSING CONDITIONS 32
6.1 Conditions to the Obligations of Parent, Mergeco
and the Company 32
6.2 Conditions to the Obligations of Parent and Mergeco 33
6.3 Conditions to the Obligations of the Company 33
ARTICLE VII CLOSING 34
7.1 Time and Place 34
7.2 Filing at the Closing 34
ARTICLE VIII TERMINATION AND ABANDONMENT 34
8.1 Termination 34
8.2 Procedure and Effect of Termination 36
8.3 Fees and Expenses 36
ARTICLE IX MISCELLANEOUS 38
9.1 Amendment and Modification 38
9.2 Waiver of Compliance; Consents 38
9.3 Survival of Warranties 38
9.4 Notices 38
9.5 Assignment; Parties in Interest 39
9.6 Specific Performance 40
9.7 Governing Law 40
9.8 Counterparts 40
9.9 Interpretation 40
9.10 Entire Agreement 40
EXHIBIT A Articles of Incorporation of ISTR Merger Corporation A-1
EXHIBIT B Options Under Stock Option Plan B-1
EXHIBIT C Material Contracts C-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated as of March 10, 1997 (this
"Agreement"), among American Standard Inc., a Delaware corporation
("Parent"), American Standard Medical Systems, Inc., a Delaware corporation
that is a wholly-owned subsidiary of Parent ("Holdings"), ISTR Merger
Corporation, a Minnesota corporation that is a wholly-owned subsidiary of
Holdings ("Mergeco"), and INCSTAR Corporation, a Minnesota corporation (the
"Company") (the Company and Mergeco being sometimes hereinafter referred to
as the "Constituent Corporations");
Whereas, the Boards of Directors of Parent, Holdings, Mergeco and
the Company deem the merger of the Constituent Corporations advisable and
in the best interests of their respective corporations, and such Boards of
Directors have approved the merger (the "Merger") of Mergeco with and into
the Company, with the Company as the surviving corporation, upon the terms
and subject to the conditions set forth herein;
Whereas, the respective Boards of Directors of Parent, Holdings,
Mergeco and the Company have, by resolutions, approved the execution and
delivery of this Agreement providing for the Merger;
Whereas, the respective Boards of Directors of the Company and
Mergeco have directed that this Agreement be submitted to their respective
shareholders for approval as provided for by the Minnesota Business
Corporation Act (the "MBCA");
Whereas, Holdings, as the sole shareholder of Mergeco, has, by
resolution, approved this Agreement and the Merger as provided for by the
MBCA; and
Whereas, Parent, Mergeco and the Company desire to make certain
representations, warranties, covenants and agreements in connection with
this Agreement;
Now, Therefore, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, and for the purpose of prescribing the terms and conditions of the
Merger, the manner and basis of converting certain shares of stock of the
Company and setting forth such other provisions as are deemed necessary and
desirable, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the satisfaction
or waiver, if permissible, of the conditions set forth in ArticleVI hereof,
at the Effective Time, as defined in Section 1.5, the parties hereto shall
cause Mergeco to be merged with and into the Company, and the Company shall
be the surviving corporation in the Merger (hereinafter sometimes called
the "Surviving Corporation") and shall continue its corporate existence
under the laws of the State of Minnesota. At the Effective Time, the
separate existence of Mergeco shall cease.
(b) The Merger shall have the effects set forth in Section
302A.641 of the MBCA. Without limiting the generality of the
foregoing, and subject thereto, the Surviving Corporation shall retain
the name of the Company and shall possess all the rights, privileges,
immunities, powers and franchises of Mergeco and the Company and shall
by operation of law become liable for all the debts, obligations,
liabilities and duties of the Company and Mergeco.
1.2 ARTICLES OF INCORPORATION. At the Effective Time, the
Articles of Incorporation of Mergeco (in the form attached hereto as
Exhibit A) shall become the Articles of Incorporation of the Surviving
Corporation, by virtue of the Merger and this Agreement and without any
further action by the Constituent Corporations, until, subject to Section
5.9(a) hereof, thereafter amended in accordance with the provisions thereof
and as provided by law, provided that effective at the Effective Time,
Article I of such Articles of Incorporation shall be amended, by virtue of
the Merger and this Agreement and without any further action by the
Constituent Corporations, so that the name of the Surviving Corporation
shall be "INCSTAR Corporation."
1.3 BY-LAWS. At the Effective Time, the By-Laws of Mergeco
shall become the By-Laws of the Surviving Corporation until, subject to
Section 5.9(a) hereof, thereafter amended, altered or repealed as provided
therein and by law.
1.4 DIRECTORS AND OFFICERS. The directors of Mergeco and the
officers of the Company immediately prior to the Effective Time shall be
the directors and officers, respectively, of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and By-
Laws of the Surviving Corporation.
1.5 EFFECTIVE TIME. The Merger shall become effective at the
date and time when properly executed Articles of Merger (the "Articles of
Merger") relating to the Merger shall be filed with the Secretary of State
of the State of Minnesota in accordance with the MBCA or at such other
later date and time, if any, as Mergeco and the Company shall agree and as
shall be specified in the Articles of Merger. The date and time when the
Merger shall become effective is herein referred to as the "Effective
Time."
ARTICLE II
CONVERSION OF SHARES
2.1 COMPANY COMMON STOCK. The manner and basis of converting
the Shares (as hereinafter defined) shall be as follows:
At the Effective Time, each share of Common Stock, par value
$.01 per share, of the Company (a "Share" and, collectively, the "Shares")
issued and outstanding immediately prior to the Effective Time (except for
Shares then owned beneficially or of record by Parent or Mergeco or any
other subsidiary of Parent and except for Dissenting Shares (as defined in
Section 2.2)), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive $6.32
(the "Merger Consideration") in cash payable to the holder thereof (pro-
rated for fractional Shares, if any), without interest thereon, upon
surrender of the certificate representing such Share.
At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time which is then owned beneficially or
of record by Parent or Mergeco or any other subsidiary of Parent shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be canceled and cease to exist, and no payment shall be made with
respect thereto.
At the Effective Time, the holders of certificates
representing Shares shall cease to have any rights as shareholders of the
Company, except such rights, if any, as they may have pursuant to the MBCA
(including the rights of holders or beneficial owners of Dissenting Shares
pursuant to Sections 302A.471 and 302A.473 of the MBCA), and, except as
aforesaid, their sole right shall be the right to receive the Merger
Consideration for each Share represented by a certificate as aforesaid.
2.2 DISSENTING SHARES. To the extent required by the MBCA,
Shares that are issued and outstanding immediately prior to the Effective
Time and that are held or beneficially owned by holders or beneficial
owners of such Shares who have properly exercised and preserved and
protected dissenters' rights with respect thereto in accordance with
Sections 302A.471 and 302A.473 of the MBCA ("Dissenting Shares") will not
be converted into the right to receive the Merger Consideration, and
holders or beneficial owners of such Dissenting Shares will be entitled to
receive payment of the fair value of such Dissenting Shares in cash in
accordance with the provisions of such Section 302A.473 unless and until
such holders or beneficial owners fail to perfect or effectively withdraw
or lose their rights to payment under Section 302A.473 of the MBCA. If,
after the Effective Time, any such holder or beneficial owner fails to
perfect or effectively withdraws or loses such right, such Dissenting
Shares will thereupon be treated as if they had been converted into, at the
Effective Time, the right to receive the Merger Consideration per Share,
without interest. The Company will give Parent prompt written notice of
any notice of intent to demand payment of the fair value of Shares under
Section 302A.473 of the MBCA received by the Company and of any withdrawal
of any such notice of intent and, prior to the Effective Time, Parent and
Mergeco will have the right to direct all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the Company will
not, except with the prior written consent of Parent and Mergeco,
negotiate, make any payments with respect to, or settle or offer to settle,
any such demands.
2.3 MERGECO COMMON STOCK. The manner and basis of converting
the shares of Mergeco shall be as follows: At the Effective Time, each
share of common stock, par value $.01 per share ("Mergeco Common Stock"),
of Mergeco issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into one fully paid and non-assessable share
of common stock, par value $.01 per share ("Surviving Corporation Common
Stock"), of the Surviving Corporation, and shall constitute the only issued
and outstanding shares of capital stock of the Surviving Corporation
immediately following the Merger. From and after the Effective Time, each
outstanding certificate theretofore representing shares of Mergeco Common
Stock shall be deemed for all purposes to evidence ownership of and to
represent the same number of shares of Surviving Corporation Common Stock.
2.4 EXCHANGE OF SHARES. Prior to the Effective Time, Parent
shall deposit, or shall cause to be deposited, in trust with The Chase
Manhattan Bank or any other bank or trust company with offices in New York
or Minneapolis designated by Parent and reasonably acceptable to the
Company having capital, surplus and undivided profits of at least
$100,000,000 (the "Exchange Agent"), for the benefit of the holders of
Shares, cash in an aggregate amount equal to the product of (i)the number
of Shares issued and outstanding immediately prior to the Effective Time
(other than any such Shares owned beneficially or of record by Parent or
Mergeco or any other subsidiary of Parent and other than Shares which
continue to be Dissenting Shares immediately prior to the Effective Time),
pro-rated for fractional Shares, if any, and (ii)the Merger Consideration
(such amount being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions, make the
payments provided for in Section2.1
(a) of this Agreement out of the Exchange Fund, subject to the
requirements of the remainder of this Section 2.4. The Exchange Agent
shall invest the Exchange Fund as Parent directs, in direct obligations of
the United States of America, obligations for which the full faith and
credit of the United States of America is pledged to provide for the
payment of all principal and interest, commercial paper obligations
receiving the highest rating from either Moody's Investors Services, Inc.
or Standard & Poor's Corporation, or certificates of deposit, bank
repurchase agreements or banker's acceptances of commercial banks with
capital exceeding $100,000,000 or in money market funds which are invested
solely in the permitted investments set forth above (collectively, the
"Permitted Investments"); provided, however, that the maturities of
Permitted Investments shall be such as to permit the Exchange Agent to make
prompt payment to former holders of the Shares entitled thereto as
contemplated by this Section 2.4. The Exchange Fund shall not be used for
any other purpose except as provided in this Agreement. Notwithstanding
anything to the contrary set forth in this Agreement, the Exchange Agent
shall be permitted and required, upon the request of Parent, to remit from
time to time to Parent all interest or other income derived from the
investments constituting the Exchange Fund. The Surviving Corporation
shall cause the Exchange Fund to be promptly replenished to the extent of
any losses incurred as a result of the Permitted Investments. If for any
reason (including losses) the Exchange Fund is inadequate to pay the
amounts to which holders of Shares shall be entitled under Section 2.1 and
this Section 2.4, the Surviving Corporation shall in any event be liable
for payment thereof.
(b) As soon as practical after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each record holder
(other than Parent, Mergeco or any other subsidiary of Parent and other
than with respect to Dissenting Shares unless and until they cease to be
Dissenting Shares) as of the Effective Time of an outstanding certificate
or certificates which immediately prior to the Effective Time represented
Shares (the "Certificates") a form letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and instructions for use in effecting the surrender of
the Certificates for payment therefor. Upon, and only upon, surrender to
the Exchange Agent of a Certificate, together with such letter of
transmittal duly executed, and any other items specified in such letter of
transmittal as may be reasonably requested by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange
therefor payment by check or draft in an amount equal to the product of the
number of Shares represented by such Certificate (pro-rated for fractional
Shares, if any) and the Merger Consideration, less any applicable
withholding tax, and such Certificate shall forthwith be canceled. No
interest shall be paid or accrued on the amount payable upon the surrender
of the Certificates. If payment is to be made to a person other than the
person in whose name the Certificate surrendered is registered, it shall be
a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such payment shall pay any transfer or other taxes
required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of
the Exchange Agent and the Surviving Corporation that such tax has been
paid or is not applicable. Until surrendered in accordance with the
provisions of this Section2.4, each Certificate (other than Certificates
representing Shares owned beneficially or of record by Parent, Mergeco or
any other subsidiary of Parent and other than Certificates representing
Dissenting Shares in respect of which dissenters' rights are perfected and
have not been lost or withdrawn) shall represent for all purposes only the
right to receive the Merger Consideration in cash multiplied by the number
of Shares evidenced by such Certificate, without any interest thereon.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the holder
claiming such Certificate to have been lost, stolen or destroyed, the
amount to which such holder would have been entitled under Section 2.4(b)
hereof but for failure to deliver such Certificate to the Exchange Agent
shall nevertheless be paid to such holder, provided that the Surviving
Corporation may, in its sole discretion and as a condition precedent to
such payment, require such holder to give the Surviving Corporation a bond
in such sum as it may reasonably direct as indemnity against any claim that
may be had against the Surviving Corporation with respect to the
Certificate alleged to have been lost, stolen or destroyed.
After the Effective Time there shall be no transfers on the
stock transfer books of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged for cash as provided in this Article
II, subject to applicable law in the case of Dissenting Shares.
Any portion of the Exchange Fund which remains unclaimed by
the shareholders of the Company after December 31, 1997 (including any
interest received with respect thereto, to the extent not previously
remitted to Parent as contemplated by Section 2.4(a)) shall be repaid to
the Surviving Corporation, upon demand. Any shareholders of the Company
who have not theretofore complied with Section2.4(b) shall thereafter be
entitled to the payment of the Merger Consideration only from the Surviving
Corporation, without any interest thereon, but shall have no greater rights
against the Surviving Corporation than may be accorded to general creditors
of the Surviving Corporation under relevant law.
The Surviving Corporation shall pay all charges and
expenses, including those of the Exchange Agent, in connection with the
exchange of cash for Shares.
2.5 EMPLOYEE STOCK OPTIONS. Exhibit B to this Agreement sets
forth a true and complete list of all options to purchase Shares
(collectively, the "Options") issued pursuant to the Company's Restated
1986 Stock Option Plan (as amended, the "Stock Option Plan"), setting forth
(i) the identity of each Option holder, (ii) the number of Options held,
(iii) the exercise price of each Option, and (iv) the aggregate number of
Shares subject to Options. Immediately prior to the Effective Time, each
holder of an outstanding Option to purchase Shares granted under the Stock
Option Plan (including, without limitation, Options granted to non-employee
directors of the Company and members of the Company's Scientific Advisory
Board/Panel), whether or not then exercisable, shall be entitled to receive
for each Share subject to such Option, in cancellation of such Option, an
amount in cash equal to the excess, if any, of the Merger Consideration
over the per Share exercise price of such Option without interest thereon,
subject to all applicable tax withholding requirements, and such Option
shall thereupon be canceled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Mergeco as
follows:
3.1 ORGANIZATION. The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite
corporate power and corporate authority to own, lease and operate its
properties and to conduct its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have
such power and authority would not, individually or in the aggregate, have
a material adverse effect on the business or condition (financial or
otherwise), properties or assets of the Company and its subsidiaries taken
as a whole (a "Material Adverse Effect"). Each of the Company and its
subsidiaries is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified or
licensed and in good standing would not, individually or in the aggregate,
have a Material Adverse Effect. Section 3.1 of the Company's disclosure
schedule, dated the date hereof and delivered to Parent (the "Disclosure
Schedule") sets forth a true and complete list of the Company's
subsidiaries, listing, for each subsidiary, (i) its name, (ii) its
jurisdiction of incorporation, (iii) the names and titles of its directors
and executive officers and (iv) the number and percentage of shares of such
subsidiary's capital stock owned of record by the Company or another
subsidiary of the Company, and except as and to the extent set forth in
Section 3.l of the Disclosure Schedule, the Company owns, of record or
beneficially, directly or indirectly, all of the issued and outstanding
capital stock of each of its subsidiaries, free and clear of all liens,
pledges, security interests, claims or other encumbrances. Except for
capital stock of the subsidiaries listed in Section 3.1 of the Disclosure
Schedule, the Company owns no equity securities of any entity. The Company
has heretofore delivered to Parent accurate and complete copies of the
Articles of Incorporation and the Amended By-Laws (or equivalent
organizational documents) of the Company and each of its subsidiaries, as
currently in effect.
3.2 CAPITALIZATION. The authorized capital stock of the Company
consists of 30,000,000 shares, (i) 25,000,000 of which are designated as
Common Stock, of which, on the date hereof, there were 16,505,486 Shares
issued and outstanding, 1,200,000 Shares reserved for issuance under the
Stock Option Plan and 730,720 Shares subject to issuance upon exercise of a
like number of warrants evidenced by a Warrant Certificate dated as of
December 13, 1989 (the "Warrants"), and (ii) 5,000,000 of which are
divisible into such classes and series, with such designations, voting
rights and other rights and preferences as the Board of Directors of the
Company (the "Board of Directors") may from time to time determine
(consistent with paragraphs (a) and (b) of Article VII of the Company's
Articles of Incorporation), of which, on the date hereof, there are no
shares issued or outstanding, and no shares have been designated by the
Board of Directors as to classes or series. The Company has not acquired,
redeemed or repurchased any Shares or other shares of capital stock of the
Company that have been pledged by the Company as security for future
payment of all or part of the purchase price for such Shares or other
shares of capital stock. All issued and outstanding Shares are duly
authorized, validly issued, fully paid and nonassessable and have no
preemptive rights (other than preemptive rights created pursuant to the
Purchase Rights Agreement, dated as of December 13, 1989 (the "Purchase
Rights Agreement"), between the Company and Biofin Holding International
B.V. ("Biofin")). Except for (i) the Warrants, (ii) Options granted
pursuant to the Stock Option Plan to acquire not more than 669,640 Shares,
as set forth on Exhibit B hereto, and (iii) preemptive rights created
pursuant to the Purchase Rights Agreement, there are not now, and at the
Effective Time there will not be, any existing options, warrants, calls,
subscriptions, preemptive rights or other rights or other agreements or
commitments whatsoever obligating the Company or any of its subsidiaries to
issue, transfer, deliver or sell or cause to be issued, transferred,
delivered or sold any additional shares of capital stock of the Company
(including, without limitation, the Shares) or any of its subsidiaries, or
to acquire, redeem or repurchase any shares of capital stock of the Company
or any of its subsidiaries, or obligating the Company or any of its
subsidiaries to grant, extend or enter into any such agreement or
commitment. Each holder of Options granted pursuant to the Stock Option
Plan has consented to the cancellation of all of such holder's Options in
the manner provided in Section 2.5 hereof. No holder of an outstanding
Option has the right to exercise said Option in the event the Merger is
consummated. The holder of the Warrants has consented to the cancellation
of the Warrants at the Effective Time without payment of additional
consideration, and the Company and the other party or parties to the
Purchase Rights Agreement have agreed that the Purchase Rights Agreement
will be terminated at the Effective Time (without payment of additional
consideration to such party or parties).
3.3 AUTHORIZATION OF THIS AGREEMENT; RECOMMENDATION OF MERGER.
(a) The Company has all requisite corporate power and corporate authority
to execute and deliver this Agreement and, subject to approval by the
holders of the Shares, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Board of Directors and, except for the approval of this
Agreement by the shareholders of the Company holding a majority of the
outstanding Shares, no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and, subject only to approval hereof
by holders of the Shares, and assuming the accuracy of the representations
and warranties set forth in Section 4.2 hereof, this Agreement constitutes
a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms.
(b) The Board of Directors (at a meeting duly called and held at
which a quorum was present), based upon the unanimous recommendation of a
committee (the "Special Committee") comprised solely of all of the
Company's disinterested directors (as such term is defined in Section
302A.673 of the MBCA), has unanimously determined that the Merger is
advisable and in the best interests of the Company and has unanimously
resolved to recommend approval of the Merger and adoption of this Agreement
by the holders of the Shares.
3.4 CONSENTS AND APPROVALS. Except for (i)compliance with any
applicable requirements of the Exchange Act, (ii)compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations thereunder (together,
the "HSR Act"), (iii) the filing and recordation of the Articles of Merger
with the Minnesota Secretary of State and, if applicable, filings required
by the laws of other states in which the Company is qualified to do
business, (iv)filings under the securities or blue sky laws or takeover
laws of the various states (other than Minnesota), (v) the listing
requirements of the National Association of Securities Dealers ("NASD") and
the Nasdaq National Market, (vi)filings in connection with any applicable
transfer or other taxes in any applicable jurisdiction, and (vii) the other
filings, permits, authorizations, consents and approvals listed on Section
3.4 of the Disclosure Schedule, no filing with, and no permit,
authorization, consent or approval of, any public body or other
governmental authority is necessary for the consummation by the Company of
the transactions contemplated by this Agreement, the failure of which to
make or obtain would be reasonably likely to have a Material Adverse Effect
or a material adverse effect on the ability of the Company to consummate
the Merger or the other transactions contemplated hereby.
3.5 NO CONFLICTS. (a) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i)
conflict with or result in any violation of any provision of the Articles
of Incorporation or Amended By-Laws of the Company, or the certificate of
incorporation or by-laws (or equivalent instruments) of any of its
subsidiaries, (ii)except as set forth in Section 3.5(a) of the Disclosure
Schedule, result in a violation or breach of, or constitute a default (or
give rise to any right of termination, cancellation or acceleration) under,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or
any of its subsidiaries is a party or by which any of them or any of their
properties or assets is bound or (iii)assuming the truth of the
representations and warranties of Parent and Mergeco contained herein and
their compliance in all material respects with all agreements contained
herein and assuming the due making or obtaining of all filings, permits,
authorizations, consents and approvals referred to in Sections 3.4 and 4.3
hereof, violate any statute, rule, regulation, order, injunction, writ or
decreeof any public body or other governmental authority by which the
Company or any of its subsidiaries or any of their respective assets or
properties is bound, excluding from the foregoing clauses (ii) and (iii)
violations, breaches or defaults, or rights of termination, cancellation or
acceleration, which, either individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect or a material adverse
effect on the Company's ability to consummate the Merger or the other
transactions contemplated hereby.
(b) None of the written contracts, agreements and other
instruments listed in Schedule 3.5(b) of the Disclosure Schedule
(collectively, the "Main Contracts") contains any "change in control" or
similar provisions that would require consent by (or give rise to any right
of termination, cancellation or acceleration by) any third party to any
Main Contract as a result of the consummation of the Merger or the other
transactions contemplated hereby.
3.6 COMPLIANCE. Except as set forth in Section 3.6 of the
Disclosure Schedule, neither the Company nor any of its subsidiaries is in
conflict with, or in default or violation of, (i) any law, rule,
regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties are
bound or subject or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or its or any of their
respective properties are bound or subject, except for any such conflicts,
defaults or violations which would not, individually or in the aggregate,
reasonably be expected to either have a Material Adverse Effect or delay
materially or prevent the consummation of the Merger or the other
transactions contemplated hereby.
3.7 SEC REPORTS; FINANCIAL STATEMENTS; NO UNDISCLOSED
LIABILITIES. ( The Company has timely filed all forms, reports and
documents with the Securities and Exchange Commission ("SEC") required to
be filed by it since January 1, 1994 pursuant to the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act") and the Exchange Act and the rules and regulations
promulgated thereunder (collectively, the "SEC Reports"), all of which have
complied, at the time filed, in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, as applicable, and
the rules and regulations promulgated thereunder. None of such SEC
Reports, at the time filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The consolidated balance sheets and the related consolidated
statements of operations, consolidated cash flows and consolidated
shareholders' equity (including the notes thereto) of the Company and its
subsidiaries contained or incorporated by reference in the SEC Reports
comply in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto,
and present fairly the consolidated financial position of the Company and
its subsidiaries as of their respective dates, and the consolidated results
of their operations and their cash flows for the periods presented therein,
in conformity with United States generally accepted accounting principles
("GAAP") applied on a consistent basis, (i) except as otherwise noted
therein, (ii) subject in the case of unaudited financial statements to
normal year-end audit adjustments, (iii) except that the unaudited
financial statements do not contain all of the footnote disclosures
required by GAAP and (iv) except as may otherwise be permitted by Form 10-
Q.
(c) Except to the extent reflected or reserved against on the
Company's audited consolidated balance sheet as of December 31, 1996,
previously delivered to Parent (the "Balance Sheet"), neither the Company
nor any of its subsidiaries had, as of the date of such Balance Sheet, any
liabilities, debt or obligations (whether absolute, accrued, contingent or
otherwise) of any nature that would be required as of such date to have
been included on a balance sheet, or in the notes thereto, prepared in
accordance with GAAP. Except as disclosed in Section 3.7(c) of the
Disclosure Schedule, since the date of the Balance Sheet, neither the
Company nor any of its subsidiaries has incurred any liabilities, debts or
obligations (whether absolute, accrued, contingent or otherwise) of any
nature that would be required to be included on a balance sheet, or in the
notes thereto, prepared in accordance with GAAP, except for liabilities,
debts or obligations incurred in the ordinary course of business.
3.8 PROXY STATEMENT. No proxy materials distributed by the
Company to its shareholders and/or filed with the SEC in connection with
the Merger, including any amendments or supplements thereto (collectively,
the "Proxy Statement") will, at the time the Proxy Statement is mailed,
contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading or, at the time of the meeting of shareholders to
which the Proxy Statement, as then amended or supplemented, relates or at
the Effective Time omit to state any material fact necessary to correct any
statement which has become false or misleading in any earlier communication
with respect to the solicitation of any proxy for such meeting; except that
no representation is made by the Company with respect to statements made or
incorporated by reference into the Proxy Statement based on information
furnished in writing to the Company by Parent, Holdings or Mergeco
specifically for use in the Proxy Statement. The Proxy Statement will
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder.
3.9 EMPLOYEE AGREEMENTS AND PLANS. (a) Except as set forth in
Section 3.9 (a) of the Disclosure Schedule, with respect to any employee or
former employee of the Company, neither the Company nor any ERISA Affiliate
presently maintains, contributes to or has any liability under:
(i) any bonus, incentive compensation, profit sharing,
retirement, pension, group insurance, death benefit, health,
cafeteria, flexible benefit, medical expense reimbursement, dependent
care, stock option, stock purchase, stock appreciation rights,
savings, deferred compensation, consulting, severance pay or
termination pay, vacation pay, life insurance, welfare or other
employee benefit or fringe benefit plan, program or arrangement; or
(ii) any plan, program or arrangement which is an "employee
pension benefit plan" as such term is defined in Section 3(2) of
ERISA, or an "employee welfare benefit plan" as defined in Section
3(1) of ERISA.
Each plan, program and arrangement set forth in Section 3.9 (a) of the
Disclosure Schedule is herein referred to as an "Employee Benefit Plan."
For purposes of this Agreement, the term "ERISA Affiliate" shall mean any
person (as defined in Section 3(9) of ERISA) that together with the Company
(or any person whose liabilities the Company has assumed or is otherwise
subject to) would be treated as a single employer under Section 4001(b) of
ERISA, or would be aggregated with the Company under Sections 414(b), (c),
(m) or (o) of the Code. Within the last twenty-four months neither the
Company nor any ERISA Affiliate has entered into any formal plan or
commitment, or has communicated to any current or former employee any
intention, whether legally binding or not, to create any additional
material Benefit Plan.
(b) A favorable determination letter has been received from the
Internal Revenue Service with respect to each Employee Benefit Plan which
is intended to comply with the provisions of Section 401(a) of the Code.
Each such Employee Benefit Plan complies in form and in operation in all
material respects with the requirements of the Code and meets the
requirements of a "qualified plan" under Section 401(a) of the Code. In
addition, amendments have been made to each such Employee Benefit Plan
evidencing substantial compliance with the Tax Reform Act of 1986, as
amended. Each Employee Benefit Plan subject to Sections 401(k) and 401(m)
of the Code satisfies the average deferral percentage test and the average
contribution percentage test under Sections 401(k) and 401(m) of the Code
for the applicable plan year preceding the plan year in which the Closing
Date occurs. No event has occurred and no condition exists which could
reasonably be expected to result in the revocation of any previously-issued
determination letter or the denial of any determination letter application.
(c) Except as set forth in Section 3.9 (c) of the Disclosure
Schedule, with respect to each Employee Benefit Plan which is subject to
Title I of ERISA, neither the Company nor any ERISA Affiliate has failed to
comply in any material respect with any of the applicable reporting,
disclosure or other requirements of ERISA and the Code and there has been
no "prohibited transaction" as described in Section 4975 of the Code or
Section 406 of ERISA.
(d) Neither the Company nor any ERISA Affiliate, nor any of
their respective directors, officers, employees or any other "fiduciary,"
as such term is defined in Section 3(21) of ERISA, has any material
liability for failure to comply with ERISA or the Code for any action or
failure to act in connection with the administration or investment of any
of the Employee Benefit Plans. No event has occurred with respect to which
the Company or any ERISA Affiliate could be liable for a civil penalty or
other liability under Section 502(c) or Section 502(l) of ERISA, except for
liabilities which would not, individually or in the aggregate, have a
Material Adverse Effect.
(e) No Employee Benefit Plan is subject to Section 412 of the
Code or Section 302 of ERISA. If contributions with respect to each
Employee Benefit Plan are intended to be tax-deductible, all reasonable
actions required to be taken to make such contributions tax-deductible have
been taken. Further, all applicable contributions and premium payments for
all periods ending prior to the Closing Date (including periods from the
first day of the then current plan year to the Closing Date) shall be or
have been made prior to the Closing Date in accordance with past practice,
except for contributions and premium payments not due prior to the Closing
Date (for which appropriate reserves have been taken). No Employee Benefit
Plan is subject to Title IV of ERISA. Neither the Company nor any ERISA
Affiliate has terminated any employee pension benefit plan subject to Title
IV of ERISA within the past eight years. Except as set forth in Section
3.9 (e) of the Disclosure Schedule, no Employee Benefit Plan has any
unfunded liability. The financial records of each Employee Benefit Plan
have been kept in accordance with GAAP.
(f) Neither the Company nor any ERISA Affiliate has any
liability (including current or potential withdrawal liability) with
respect to any "multiemployer plan" as such term is defined in Section
3(37) of ERISA, other than the obligation to make periodic contributions
with respect to those Employees covered by any such plan.
There is no pending or threatened legal action, claim,
proceeding or investigation against or involving any Employee Benefit Plan
and, to the knowledge of Company and each ERISA Affiliate, there is no
basis for, and the Company has no knowledge of any facts which could give
rise to, any such condition, legal action, claim, proceeding or
investigation, other than routine claims for benefits and other claims,
none of which routine and other claims would, individually or in the
aggregate, have a Material Adverse Effect. Any bonding required with
respect to any Employee Benefit Plan in accordance with applicable
provisions of ERISA has been obtained and is in full force and effect.
Except as set forth in Section 3.9 (h) of the Disclosure
Schedule, with respect to any employee or former employee of the Company,
neither the Company nor any ERISA Affiliate presently maintains,
contributes to or has any liability under any funded or unfunded medical,
health or life insurance plan or arrangement for terminated employees or
retirees except as required by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended. Neither the Company nor any ERISA
Affiliate maintains or contributes to a trust, organization or association
described in any of Sections 501(c)(9), 501(c)(17) or 501(c)(20) of the
Code.
Except as set forth in Section 3.9 (i) of the Disclosure
Schedule,
Neither the Company nor any ERISA
Affiliate is a party to any employment agreement, whether written
or oral, or agreement with change-in-control or similar
provisions, or collective bargaining agreement or contract with
any labor union relating to any employees or former employees;
The consummation of the transactions
contemplated by this Agreement will not entitle any individual to
severance pay or accelerate the time of payment or vesting, or
increase the amount, of compensation or benefits due to any
individual; and
Neither the Company nor any ERISA
Affiliate has currently outstanding any loan or loans to any
current or former employees, nor has the Company nor any ERISA
Affiliate guaranteed such loans.
There has been no act or acts which would result in a
disallowance of a deduction or the imposition of a tax pursuant to Section
4980B of the Code, or any predecessor provision thereof, or any regulations
promulgated thereunder, whether final, temporary or proposed.
With respect to each Employee Benefit Plan, the Company has
delivered to Parent accurate and complete copies of the following (where
applicable): (i)the plan documents, including any related trust agreements,
insurance contracts or other funding arrangements, or a written summary of
the terms and conditions of the plan if there is no written plan document,
and summaries of material modifications; (ii) the most recent determination
letter received from the Internal Revenue Service; (iii) the two most
recent IRS Form 5500 annual reports, including all schedules and
attachments thereto; (iv) the most recent financial statements; (v) all
correspondence with the Internal Revenue Service and the Department of
Labor with respect to the past three plan years (other than IRS Form 5500
filings); and (vi) the most recent summary plan description.
(l) With respect to employees of the Company or its subsidiaries
in Canada: (i) except as set forth in Section 3.9(l) of the Disclosure
Schedule, the Company has no obligation under and does not participate in
any registered pension plan as defined in the Income Tax Act (Canada)
and/or any pension plan registered under applicable federal or provincial
pension legislation, and as of the Closing Date, the Company shall have
paid all amounts due to or to be paid on behalf of the Company's employees
prior to the Closing Date, including, without limitation, all accrued
wages, salaries, commissions, bonuses, vacation pay, termination pay,
severance pay, employment benefit plans, income tax withholdings, Canada
Pension Plan contributions and Employment Insurance premiums; (ii) the
Company is in good standing under each of (A) Canada Pension Plan, (B)
Employment Standards Act (Ontario), (C) Income Tax Act, (D) Labour
Relations Act (Ontario), (E) Occupational Health and Safety Act (Ontario),
(F) Ontario Human Rights Code, (G) Pension Benefits Act (Ontario), (H)
Workers' Compensation Act (Ontario), (I) Employer Health Tax (Ontario), (J)
Unemployment Insurance Act and (K) Pay Equity Act (Ontario), and (iii) the
Company is in compliance with all applicable laws, rules and regulations
relating to pensions and employee benefits; provided, however, that the
Company represents and warrants as to the matters in this Section 3.9(l)
only to the extent that such matters, individually or in the aggregate,
have a Material Adverse Effect.
(m) With respect to employees of the Company or its subsidiaries
in the United Kingdom: (i) no circumstances have arisen under which the
Company is likely to be required to pay damages for wrongful dismissal, to
make any statutory redundancy payment or make or pay any compensation in
respect of unfair dismissal, to make any other payment under any employment
protection legislation or to reinstate or re-engage any former employee;
(ii) no circumstances have arisen under which the Company is likely to be
required to pay damages or compensation, or suffer any penalty or be
required to take corrective action or be subject to any form of discipline
under The Wages Act 1986, The Sex Discrimination Act 1975, The Equal Pay
Act 1970, Article 119 of the Treaty of Rome or The Race Relations Act 1976;
and (iii) all retirement schemes and other employee benefit plans described
in Section 3.9 (m) of the Disclosure Schedule comply with and have at all
times complied with the provisions of relevant legislation and the
requirements of applicable law and the Company has duly complied with its
obligations under such schemes and plans; provided, however, that the
Company represents and warrants as to the matters in this Section 3.9(m)
only to the extent that such matters, individually or in the aggregate,
have a Material Adverse Effect.
3.10 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section
3.10 of the Disclosure Schedule, from December 31, 1996 until the date of
this Agreement, the Company and its subsidiaries have conducted their
respective businesses and operations consistent with past practice only in
the ordinary course and there have not occurred (i)any events, changes, or
effects (including the incurrence of any liabilities or obligations of any
nature, whether accrued, contingent or otherwise) having, individually or
in the aggregate, a Material Adverse Effect; (ii)any declaration, setting
aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to the equity interests of the Company or
of any of its subsidiaries; (iii)any change by the Company or any of its
subsidiaries in accounting principles or methods, except insofar as may be
required by a change in GAAP; (iv) any grant of options or stock
appreciation rights under any Benefit Plan; (v)any change in the aggregate
indebtedness for money borrowed of the Company and its subsidiaries, except
for short-term borrowings incurred in the ordinary course of business and
prepayable at any time in accordance with their terms without penalty, (vi)
any loans, advances or capital contributions to, or investments in, any
person other than any subsidiaries of the Company, except for customary
loans or advances to employees or trade credit in the ordinary course of
business, (vii) any sales, transfers, mortgages or other dispositions of,
or the imposition of encumbrances on, any business, subsidiary or assets
that are material to the Company and its subsidiaries taken as a whole, or
fixed assets that have an individual value on the Company's books in excess
of $25,000, (viii) any settlements or compromises of any suit, action or
claim in which the amount involved is greater than $25,000 or which is
material to the Company and its subsidiaries taken as a whole or which
relates to the transactions contemplated hereby, (ix) the making of any tax
election or the cancellation or termination of any insurance policy naming
it as a beneficiary or a loss payable payee, without notice to Parent, (x)
the taking of any of the actions specified in Section 5.1(h), except as
permitted therein, (xi) the acquisition of any business or stock, the
merger or consolidation with any person, or the sale, encumbrance or
transfer of any business or material portion thereof, or (xii) any
agreement to do any of the foregoing.
3.11 LITIGATION. Except as disclosed in Section 3.11 of the
Disclosure Schedule, there are no suits, claims, actions, proceedings or
investigations pending or, to the knowledge of the Company, threatened
against, the Company or any of its subsidiaries (i) that, individually or
in the aggregate, would reasonably be expected to have a Material Adverse
Effect, or (ii) to delay materially or prevent the consummation of the
Merger or the other transactions contemplated hereby.
3.12 TAXES. (a) Except as otherwise disclosed in Section 3.12(a)
of the Disclosure Schedule: (i)the Company and each of its subsidiaries has
filed (or received an appropriate extension of time to file) all federal,
state, local, and foreign Tax Returns required to be filed by them prior to
the date hereof, except for Tax Returns the nonfiling of which would not,
individually or in the aggregate, have a Material Adverse Effect; (ii)since
the taxable year from August 1, 1987 to July 31, 1988, the Company and its
subsidiaries have filed consolidated U.S. federal income tax returns as
members of an affiliated group, the common parent of which is the Company;
(iii) all such Tax Returns were true and correct in all material respects;
(iv) the Company and each of its subsidiaries have paid all Taxes shown to
be due on such Tax Returns, and have made appropriate provisions in the
Company's consolidated financial statements for any Taxes not yet due, or
which are being contested in good faith, except for Taxes the failure to
pay which would not have a Material Adverse Effect; (v)the Company and each
of its subsidiaries have withheld and paid over to the appropriate
governmental authority all Taxes required by law to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party, except for amounts
which would not, individually or in the aggregate, have a Material Adverse
Effect; (vi)the Company and each of its subsidiaries have made all payments
of estimated Taxes required to be made under federal, state, local or
foreign law, except for amounts which would not, individually or in the
aggregate, have a Material Adverse Effect; (vii)all tax deficiencies
asserted or assessed against the Company and each of its subsidiaries have
been paid or finally settled or are being contested in good faith; (viii)no
claims have ever been made by any taxing authority in a jurisdiction where
the Company and each of its subsidiaries do not file Tax Returns that it or
they is or are or may be subject to taxation by that jurisdiction; (ix)no
waiver or comparable consent given by the Company or any of its
subsidiaries regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns is outstanding, nor is any request for
any such waiver or consent pending; (x)neither the Company nor any of its
subsidiaries is (nor has any of them ever been) a party to any written tax
sharing agreement; (xi)there is no pending, or to the knowledge of the
Company, threatened, action, audit, proceeding or investigation for the
assessment or collection of any Taxes; (xii)there are no requests for
rulings, subpoenas or requests for information pending with respect to any
taxing authority; (xiii)any adjustments of Taxes made by any federal taxing
authority in any examination which is required to be reported by the
Company or any of its subsidiaries to a state, local, or foreign taxing
authority have been reported to the appropriate authority, and any
additional Taxes due with respect thereto have been paid, except for
adjustments with respect to which any additional Taxes due would not,
individually or in the aggregate, have a Material Adverse Effect; (xiv)no
power of attorney has been granted by the Company or any of its
subsidiaries, which is currently in force, with respect to any matter
relating to Taxes; and (xv)there are no liens (other than liens for Taxes
that are not yet due or which are being contested in good faith) on any
assets of the Company or any of its subsidiaries that arose in connection
with any failure (or alleged failure) to pay any Tax, except for liens
which would not, individually or in the aggregate, have a Material Adverse
Effect.
(b) (i)Neither the Company nor any of its subsidiaries has made
an election under Section 341(f) of the Code; (ii)neither the Company nor
any of its subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under
Section 280G of the Code; (iii)neither the Company nor any of its
subsidiaries has been a United States real property holding company within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii); (iv)neither the Company nor any of
its subsidiaries will be required to include in income on a Tax Return
filed after the Effective Time any adjustment pursuant to Section 481(a) of
the Code (or any similar provision of law or regulations) by reason of a
change in accounting method prior to the Effective Time; (v)to the
knowledge of the Company neither the Company nor any of its subsidiaries
has disposed of any property which has been accounted for tax purposes
under the installment methodthat would require installment gain to be
reflected on a Tax Return filed after the Effective Time; and (vi)neither
the Company nor any of its subsidiaries would be liable for any increase in
Tax under former Section 47 of the Code, were such entity to dispose of all
of its assets at the Effective Time.
(c) For purposes of this Section 3.12, the following terms will
have the following meanings: (i) "Tax" or "Taxes" shall mean any and all
federal, state, local, foreign, and other taxes, levies, fees, imposts,
duties and charges of whatever kind (including any interest, penalties or
additions to the tax imposed in connection therewith or with respect
thereto), whether imposed on the Company or any of its subsidiaries,
including, without limitation, taxes imposed on, or measured by, income,
franchise, profits, or gross receipts, and also ad valorem, value added,
sales, use, service, real or personal property, capital stock, license,
payroll, withholding, employment, social security, workers' compensation,
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premium, windfall profits, transfer, and gains taxes and
customs duties, and (ii) "Tax Return" shall mean returns, reports,
information statements, or other documentation (including any additional or
supporting material) filed or maintained, or required to be filed or
maintained in connection with the calculation, determination, assessment or
collection of any Tax.
3.13 ENVIRONMENTAL AND OCCUPATIONAL SAFETY AND HEALTH MATTERS.
(a) Except as disclosed in Section 3.13 (a) of the Disclosure Schedule, the
Company and its subsidiaries do not have any Environmental, Occupational
Safety and Health Liabilities (as defined below) that have a Material
Adverse Effect. Except as disclosed in Section 3.13 (a) of the Disclosure
Schedule, the Company does not know of any Environmental, Occupational
Safety and Health Liabilities of any of the Company's corporate
predecessors that have a Material Adverse Effect.
(b) As used in this Agreement, "Environmental, Occupational
Safety and Health Liabilities" with respect to any person means any and all
liabilities of or relating to such person or any of its subsidiaries
(including any entity which is, in whole or in part, a predecessor of such
person or any of its subsidiaries), whether vested or invested, contingent
or fixed, actual or potential, known or unknown, which (i)arise under or
are otherwise covered by Environmental Laws or Occupational Safety and
Health Laws and (ii)relate to actions occurring or conditions existing on
or prior to the date of this Agreement. "Environmental Laws" means any and
all applicable federal, state, local and foreign, international,
multinational or other administrative statutes, laws, regulations,
ordinances, rules, and, to the extent directed in writing to the Company,
any of its subsidiaries, or any corporate predecessor, judgments, orders,
decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions relating to
the environment or to emissions, discharges or releases of Hazardous
Materials into the environment, including without limitation ambient air,
indoor air, natural resource, surface water, ground water, drinking water
supply, sediments, wetlands, soil or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials or the clean-up or other
remediation thereof. "Hazardous Materials" means any (i) "hazardous
substance," "pollutant," or "contaminant" (as defined in Sections 101(14)
and (33) of the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended (42 U.S.C. Section 9601 et seq.) ("CERCLA") or
the regulations issued pursuant to Section 102 of CERCLA and found at 40
C.F.R. Section 302), including any element, compound, mixture, solution, or
substance that is designated pursuant to Section 102 of CERCLA; (ii)
substance that is designated pursuant to Section 311(b)(2)(A) of the
Federal Water Pollution Control Act, as amended (33 U.S.C. Sections 1251
and 1321(b)(2)(A)) ("FWPCA"); (iii) hazardous waste having the
characteristics identified under or listed pursuant to Section 3001 of the
Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901
and 6921) ("RCRA"); (iv) substance containing petroleum, as that term is
defined in Section 9001(8) of RCRA; (v) toxic pollutant that is listed
under Section 307(a) of the FWPCA; (vi) hazardous air pollutant that is
listed under Section 112 of the Clean Air Act, as amended (42 U.S.C.
Sections 7401 and 7412); (vii) imminently hazardous chemical substance or
mixture with respect to which action has been taken pursuant to Section 7
of the Toxic Substances Control Act, as amended (15 U.S.C. Sections 2601
and 2606); (viii) source, special nuclear, or by-product material as
defined by the Atomic Energy Act of 1954, as amended (42 U.S.C. Section
2011 et seq.); (ix) asbestos, asbestos-containing material, or urea
formaldehyde or material that contains urea formaldehyde; (x) waste oil and
other petroleum products; and (xi) any toxic materials, contaminants, or
hazardous substances or wastes regulated, listed, defined or classified
under or pursuant to any other Environmental Law. "Occupational Safety and
Health Laws" means any and all applicable federal, state, local and
foreign, international, multinational or other administrative statutes,
laws, regulations, ordinances, rules, and, to the extent directed in
writing to the Company, any of its subsidiaries, or any corporate
predecessor, judgments, orders, decrees, codes, plans, injunctions,
permits, concessions, grants, franchises, licenses, agreements and
governmental restrictions designed to provide or promote safe and healthful
working conditions and to reduce occupational safety and health hazards in
the workplace.
(c) Except as disclosed in Section 3.13 (c) of the Disclosure
Schedule, neither the Company nor any of its subsidiaries has violated, or
has received any actual or threatened claim, order, notice, inquiry,
inspection request or other written communication from anyone that alleges
that the Company or any of its subsidiaries is not in compliance with or is
otherwise liable under any Environmental Law or any Occupational Safety and
Health Law, except for violations, noncompliance or liability that would
not, individually or in the aggregate, have a Material Adverse Effect.
Except as disclosed in Section 3.13(c) of the Disclosure Schedule, the
Company does not know of any actual or threatened claim, order, notice,
inquiry, inspection request or other written communication from anyone that
alleges that any of the Company's corporate predecessors was not in
compliance with or is otherwise liable for noncompliance under any
Environmental Law or any Occupational Safety and Health Law, except for
noncompliance or liability that would not, individually or in the
aggregate, have a Material Adverse Effect.
(d) Except as disclosed in Section 3.13 (d) of the Disclosure
Schedule, and except as, individually or in the aggregate, would not have a
Material Adverse Effect, the Company and its subsidiaries have all permits,
licenses, consents, approvals, and other authorizations required under
Environmental Laws and Occupational Safety and Health Laws that are
necessary to the existing operations of the Company and its subsidiaries
("Authorizations"). Schedule 3.13 (d) of the Disclosure Schedule contains
a complete and accurate list of each material Authorization, and an
indication that it is valid and in full force and effect, its expiration
date, and any notice, transfer or other obligations triggered by this
proposed transaction.
(e) Notwithstanding any other provisions of this Agreement,
including, but not limited to, Sections 3.11 and 3.17, the sole and
exclusive representations and warranties of the Company with respect to
environmental matters and occupational safety and health matters
(including, without limitation, Environmental, Occupational Safety and
Health Liabilities) are set forth in this Section 3.13.
3.14 OPINION OF FINANCIAL ADVISOR. The Company has received the
written opinion of Cowen & Company, its financial advisor, to the effect
that the consideration to be received in the Merger by the Company's
shareholders is fair to the Company's shareholders, other than Biofin, from
a financial point of view, a copy of which opinion has been delivered to
Parent.
3.15 CERTAIN ANTI-TAKEOVER PROVISIONS NOT APPLICABLE. The Board
of Directors and the Special Committee have each approved the Merger and
this Agreement, such Special Committee has been duly constituted pursuant
to Section 302A.673 of the MBCA and consists only of, and includes all,
disinterested directors as defined therein and such approval by the Special
Committee is sufficient to render inapplicable to this Agreement and the
Merger the restrictions on business combinations (as defined in Section
302A.011 of the MBCA) contained in Section 302A.673 of the MBCA. The
Merger does not constitute a "control share acquisition" subject to the
provisions of Section 302A.671 of the MBCA, by virtue of Section 302A.011,
Subd. 38(d) of the MBCA. Except for any state takeover statutes (of a
state or states other than Minnesota), the purported application of which
would not reasonably be expected to prevent or materially delay the Merger,
no other state takeover statute or similar statute or regulation in any
jurisdiction in which the Company or any of its subsidiaries does business,
applies or purports to apply to the Merger or to this Agreement, or any of
the transactions contemplated hereby. The representations and warranties
contained in this Section 3.15 are based upon the assumption of the
accuracy of the representations contained in Section 4.8 hereof.
3.16 INTELLECTUAL PROPERTY. (a) Section 3.16(a)-Part I of the
Disclosure Schedule sets forth an accurate list of all patents, patent
applications, registered trademarks, registered trade names, and other
material trademarks, registered service marks, registered trade names, and
registered copyrights which are owned by the Company and/or its
subsidiaries and used in the conduct of their business. Section 3.16(a)-
Part II of the Disclosure Schedule sets forth an accurate list of all
licenses to the Company and/or its subsidiaries licensing rights under
patents, patent applications and/or know-how used by the Company and/or its
subsidiaries in the conduct of their business. There are no patents, patent
applications, registered trademarks, registered service marks or registered
trade names or other material trademarks, registered service marks or
registered trade names used by the Company and/or its subsidiaries in the
conduct of their business which are not listed in Section 3.16(a) of the
Disclosure Schedule. To the knowledge of the Company, all the patents and
registered trademarks listed in Section 3.16(a) of the Disclosure Schedule
are valid. All patents, patent applications and registered trademarks
listed in Section 3.16(a) of the Disclosure Schedule are in good standing.
All fees (including annuity fees) due to applicable patent and trademark
offices in respect to such patents, patent applications, and registered
trademarks and payable by the Closing Date have been paid or will be paid
prior to the Closing Date. All renewals of registered trademarks listed in
Section 3.16(a) of the Disclosure Schedule have been effected in due time.
To the knowledge of the Company, no third party is infringing any patent,
trademark, trade name or service mark set forth in Section 3.16(a) of the
Disclosure Schedule.
(b) No claim has been made by any third party to the Company
and/or its subsidiaries that any patent, trademark, trade name or service
mark set forth in Section 3.16(a) of the Disclosure Schedule is invalid or
that the exercise of the rights thereto constitutes any form of unfair
competition.
(c) None of the Company nor any of its subsidiaries has done or
committed any act that to the knowledge of the Company has impaired or will
impair the validity of the patents, trademarks, service marks and trade
names set forth in Section 3.16(a) of the Disclosure Schedule so as to have
a Material Adverse Effect.
(d) Except as set forth in Section 3.16(d) of the Disclosure
Schedule, the Company and/or its subsidiaries have not granted any
license(s) under any of the patents, patent applications, trade marks,
service marks or trade names set forth in Section 3.16(a) of the Disclosure
Schedule. The Company and/or its subsidiaries own or have acquired a right
from third parties to use all know-how used by the Company and/or its
subsidiaries in the conduct of their business and such rights will not be
impaired by the Merger or the consummation of the other transactions
contemplated hereby.
(e) No claims for infringement of any patents, trademarks, trade
names or service marks are pending or known by the Company and/or its
subsidiaries to be threatened in writing (i) against the Company and/or its
subsidiaries, or (ii) to the knowledge of the Company, with respect to any
of the products of the Company and/or its subsidiaries (other than products
sold pursuant to the agreements listed in Section 3.16(a)-Part II(B)),
against any of their respective customers.
3.17 LICENSES AND PERMITS. (a) The Company and its subsidiaries
have all governmental licenses and permits necessary to conduct their
business as currently conducted and to own and operate their assets, and
such licenses and permits are valid and in full force and effect except
where the failure to have such governmental licenses and permits would not
have a Material Adverse Effect. No defaults or violations exist or have
been recorded in respect of any governmental license or permit of the
Company and its subsidiaries other than defaults or violations which would
not have a Material Adverse Effect. Except to the extent it would not
reasonably be expected to have a Material Adverse Effect, no proceeding is
pending or, to the knowledge of the Company, threatened looking toward the
revocation, limitation or non-renewal of any such governmental license or
permit.
(b) The Company has delivered or made available for inspection
to Parent a true and complete copy of each material governmental license
and permit, and each pending application for any material governmental
license or permit, including all amendments and supplements thereto and
modifications thereof, relating to the Company and its subsidiaries.
Except to the extent that they would not reasonably be expected to have a
Material Adverse Effect, (i) all of such pending applications are, to the
knowledge of the Company, in good standing and without challenge of any
kind; (ii) each statement, application and other document submitted or
filed by the Company or any subsidiary to or with any federal, state or
other governmental agency or authority, or to or with any other person or
entity, for purposes of obtaining a new or renewed lease, license or permit
of any type described in this subsection in connection with the
transactions contemplated hereby is complete and accurate; and (iii)
subject to the receipt of any consents specified in Section 3.4 of the
Disclosure Schedule, none of the rights of the Company or any subsidiary
under any governmental license or permit will be impaired by the
consummation of the Merger or the other transactions contemplated hereby.
3.18 INSURANCE. As of the date hereof, the Company and each of
its subsidiaries are insured by insurers, reasonably believed by the
Company to be of recognized financial responsibility and solvency, against
such losses and risks and in such amounts as are customary in the
businesses in which they are engaged. All material policies of insurance
and fidelity or surety bonds insuring the Company or any of its
subsidiaries or their respective business, assets, employees, officers and
directors have previously been made available for inspection by Parent and
are in full force and effect. As of the date hereof, there are no material
claims by the Company or any subsidiary under any such policy or instrument
as to which any insurance company is denying liability or defending under a
reservation of rights clause. All necessary notifications of claims have
been made to insurance carriers other than those which will not have a
Material Adverse Effect.
3.19 CONTRACTS. All contracts, agreements, commitments and other
documents to which the Company or any subsidiary is a party or by which the
Company, any subsidiary, or any of their assets is in any way affected or
subject, including all amendments and supplements thereto and modifications
thereof, of a nature specified in Exhibit C hereto (collectively, the
"Material Contracts"), are legally valid and binding and in full force and
effect except where failure to be legally valid and binding and in full
force and effect would not have a Material Adverse Effect, and there are no
defaults thereunder by the Company or its subsidiaries or, to the Company's
knowledge, by any other party thereto, except those defaults that would not
have a Material Adverse Effect. The Company has previously made available
for inspection by Parent all written Material Contracts (and, to the extent
a Material Contract is oral, a true and complete summary of all material
terms thereof).
3.20 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve the
Merger, this Agreement and the transactions contemplated hereby (assuming
for purposes of this representation, the accuracy of the representations
contained in Section 4.8 hereof).
3.21 FINDERS AND INVESTMENT BANKERS. All negotiations relating
to this Agreement and the transactions contemplated hereby have been
carried on without the intervention of any person acting on behalf of the
Company in such manner as to give rise to any valid claim against Parent,
Holdings, Mergeco or the Company for any broker's or finder's fee or
similar compensation, except for Cowen & Company, whose fees (which have
been described in a writing furnished by the Company to Parent) shall be
paid by the Company.
3.22 REAL PROPERTY AND LEASES. (a) Section 3.22(a) of the
Disclosure Schedule lists and describes briefly all real property owned by
the Company or any of its subsidiaries. With respect to each such parcel
of owned real property and except as noted in Section 3.22(a) of the
Disclosure Schedule: (i) the identified owner has good and valid title to
the parcel of real property, free and clear of any lien, encumbrance,
easement, covenant, or other restriction, except for taxes not yet
delinquent or special assessments and other governmental charges not yet
delinquent or which may thereafter be paid without penalty or which are
being contested in good faith by appropriate proceedings and for which
appropriate reserves have been taken (all of which are listed in Section
3.22(a)of the Disclosure Schedule), recorded easements, covenants, and
other restrictions, and utility easements, building restrictions, zoning
restrictions, inchoate mechanic's and workmen's and other similar liens
arising in the ordinary course of business and other easements,
restrictions, liens and encumbrances (other than purchase money liens and
liens for money borrowed) which do not affect materially and adversely the
current use, occupancy, or value, or the marketability of title, of the
property subject thereto, (ii) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting to any party or
parties the right of use or occupancy of any portion of the parcel of real
property that would materially interfere with the Company's use of such
property, and (iii) there are no outstanding options or rights of first
refusal to purchase, lease or occupy the parcel of real property, or any
portion thereof or interest therein which would materially interfere with
the Company's use of such property.
(b) Section 3.22(b) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to the Company or
any of its subsidiaries. With respect to each lease and sublease (i) the
lease or sublease is legal, valid, binding and enforceable by the Company
or such subsidiary, and in full force and effect in all material respects,
(ii) except as set forth in Section 3.22(b) of the Disclosure Schedule
neither the Company nor any of its subsidiaries, and, to the Company's
knowledge, no other party to the lease or sublease is in material breach or
default, and no event has occurred which, with notice or lapse of time,
would constitute a material breach or default or permit termination,
modification, or acceleration thereunder, (iii) neither of the Company nor
any of its subsidiaries and, to the knowledge of the Company, no other
party to the lease or sublease has repudiated any material provision
thereof, (iv) there are no material disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease, (v) neither the
Company nor any of its subsidiaries has assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold (except encumbrances of a nature described in clause (i) of
Section 3.22(a) hereof), and (vi) to the knowledge of Company, all
facilities leased or subleased thereunder have received all approvals of
governmental authorities (including material licenses and permits) legally
required, except where the failure to obtain such approvals would not have
a Material Adverse Effect.
3.23 NO OTHER REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants that it is not relying upon any representations and
warranties of Parent, Holdings or Mergeco that are not contained in this
Agreement or in the Exhibits hereto and agrees that there shall not be
deemed to be any other express or implied representations or warranties
made by or on behalf of Parent, Holdings or Mergeco in connection with the
Merger or the other transactions contemplated by this Agreement (which
includes the Exhibits hereto).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGECO
Parent and Mergeco each jointly and severally represent and
warrant to the Company as follows:
4.1 ORGANIZATION. Each of Parent, Holdings and Mergeco is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and each has all requisite
corporate power and corporate authority to own, lease and operate its
properties and to conduct its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have
such power and authority would not, individually or in the aggregate, have
a material adverse effect on the business or financial condition of Parent
and its subsidiaries taken as a whole. Each of Parent, Holdings and
Mergeco is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the properties owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified or licensed and in
good standing would not individually or in the aggregate have a material
adverse effect on the business or financial condition of Parent and its
subsidiaries taken as a whole. Holdings is a wholly owned subsidiary of
Parent, and Mergeco is a wholly-owned subsidiary of Holdings.
4.2 AUTHORIZATION OF THIS AGREEMENT. Each of Parent, Holdings
and Mergeco has all requisite corporate power and corporate authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by the Boards of Directors of Parent,
Holdings and Mergeco and by Holdings as the sole shareholder of Mergeco,
and no other corporate proceedings on the part of Parent, Holdings or
Mergeco are necessary to authorize this Agreement or consummate the
transactions contemplated hereby. No vote of Parent's shareholders is
required to approve this Agreement or the transactions contemplated
thereby. This Agreement has been duly and validly executed and delivered
by each of Parent, Holdings and Mergeco and, assuming the accuracy of the
representations and warranties set forth in Section 3.3, constitutes a
valid and binding agreement of Parent, Holdings and Mergeco enforceable
against each of Parent, Holdings and Mergeco in accordance with its terms.
4.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for (i)
compliance with any applicable requirements of the Exchange Act, (ii)
compliance with any applicable requirements of the HSR Act, (iii)the filing
and recordation of the Articles of Merger with the Minnesota Secretary of
State, (iv)filings under the securities or blue sky laws or takeover laws
of the various states (other than Minnesota), (v) filings required under
the listing requirements of the NASD and the Nasdaq National Market and
(vi)filings in connection with any applicable transfer or other taxes in
any applicable jurisdiction, no filing with, and no permit, authorization,
consent or approval of, any public body or other governmental authority is
necessary for the consummation by Parent, Holdings and Mergeco of the
transactions contemplated by this Agreement, the failure of which to obtain
is reasonably likely to impair the ability of Parent, Holdings or Mergeco
to perform their respective obligations hereunder or to consummate the
transactions contemplated hereby. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
nor compliance by Parent, Holdings or Mergeco with any of the provisions
hereof will (i)conflict with or result in any violation of any provision of
the Certificate or Articles of Incorporation or By-Laws of Parent, Holdings
or Mergeco, (ii)result in a violation or breach of, or constitute a default
(or give rise to any right of termination, cancellation or acceleration)
under, any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which Parent or any of its subsidiaries is a
party, or by which any of them or any of their respective properties or
assets is bound, or (iii)assuming the truth of the representations and
warranties of the Company hereunder and its compliance with all agreements
contained herein and assuming the due making or obtaining of all filings,
permits, authorizations, consents and approvals referred to in the
preceding sentence, violate any statute, rule, regulation, order,
injunction, writ or decree of any public body or authority by which Parent
or any of its subsidiaries or any of their respective properties or assets
is bound, excluding from the foregoing clauses(ii) and (iii) violations,
breaches or defaults which, either individually or in the aggregate, are
not reasonably likely to impair the ability of Parent, Holdings or Mergeco
to perform their respective obligations hereunder or to consummate the
Merger or the other transactions contemplated hereby.
4.4 PROXY STATEMENT. None of the information supplied or to be
supplied in writing by Parent, Holdings or Mergeco specifically for
inclusion in the Proxy Statement will, at the time the Proxy Statement is
mailed, contain any untrue statement of a material fact, or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading or, at the time of the meeting of shareholders to
which such Proxy Statement relates or at the Effective Time, as then
amended or supplemented, omit to state any material fact necessary to
correct any statement which has become false or misleading in any earlier
communication with respect to the solicitation of any proxy for such
meeting. If at any time prior to the Effective Time, any event relating to
Parent or any of its subsidiaries is discovered which should be set forth
in an amendment of, or a supplement to, such Proxy Statement, Parent shall
promptly so inform the Company and will furnish all necessary information
to the Company relating to such event.
4.5 FINANCIAL ABILITY TO PERFORM. Parent and Mergeco have cash
funds available sufficient to make all cash payments required to be made
hereby for Shares in the Merger and to pay all related fees and expenses.
4.6 FINDERS AND INVESTMENT BANKERS. All negotiations relating
to this Agreement and the transactions contemplated hereby have been
carried on without the intervention of any person acting on behalf of
Parent, Holdings or Mergeco in such manner as to give rise to any valid
claim against Parent, Holdings, Mergeco or the Company for any broker's or
finder's fee or similar compensation, except for Goldman, Sachs & Co.,
whose fees shall be paid by Parent.
4.7 LITIGATION. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of Parent,
threatened against, Parent, Holdings or Mergeco that, individually or in
the aggregate, would reasonably be expected to delay materially or prevent
the consummation of the Merger or the other transactions contemplated
hereby.
4.8 CERTAIN ANTI-TAKEOVER PROVISIONS NOT APPLICABLE. Neither
Parent, Holdings nor Mergeco nor any affiliate or associate of any of the
foregoing persons was an "interested shareholder" of the Company as defined
in Section 302A.011, Subd. 49(a) of the MBCA immediately prior to Parent's,
Holdings' and Mergeco's execution and delivery of this Agreement.
4.9 NO OTHER REPRESENTATIONS AND WARRANTIES. Parent, Holdings
and Mergeco represent and warrant that they are not relying upon any
representations and warranties of the Company that are not contained in
this Agreement or in the Exhibits hereto or in the Disclosure Schedule and
agree that there shall not be deemed to be any other express or implied
representations or warranties made or on behalf of the Company in
connection with the Merger or the other transactions contemplated by this
Agreement (which includes the Exhibits hereto and the Disclosure Schedule).
ARTICLE V
COVENANTS
5.1 CONDUCT OF THE BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Company and its subsidiaries will each
conduct its operations in all material respects according to its ordinary
course of business, and will use all reasonable efforts to preserve intact
its business organization and to maintain its relationships with suppliers,
distributors, customers and others having business relationships with it.
The Company will confer at Parent's request on a regular and frequent basis
with representatives of Parent to report upon the status of operations.
Without limiting the generality of the foregoing, and except as otherwise
expressly contemplated by this Agreement, prior to the Effective Time,
neither the Company nor any of its subsidiaries will, without the prior
written consent of Parent:
(a) amend its Articles of Incorporation or Amended By-Laws (or
equivalent instruments);
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting
of additional options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any shares of capital stock of any class (including,
without limitation, the Shares) or any securities convertible into shares
of capital stock of any class, or designate any class or series of shares
of capital stock of the Company from the undesignated shares of capital
stock of the Company;
(c) split, combine or reclassify any shares of its capital stock
(including, without limitation, the Shares), declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem or
otherwise acquire any shares of its capital stock; provided, however, that
any of the Company's wholly-owned subsidiaries may declare, set aside or
pay any dividend or other distribution with respect to their capital stock;
(d) (i) create, incur or assume any indebtedness for money
borrowed (including obligations in respect of capital leases), except for
short-term borrowings incurred in the ordinary course of business and
prepayable at any time in accordance with their terms without penalty; (ii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
person other than any subsidiary of the Company; or (iii)make any loans,
advances or capital contributions to, or investments in, any person other
than any of the subsidiaries of the Company, except for customary loans or
advances to employees or trade credit in the ordinary course of business;
(e) except in the ordinary course of business, sell, transfer,
mortgage or otherwise dispose of or encumber, any business, subsidiary,
assets that are material to the Company and its subsidiaries taken as a
whole, or fixed assets that individually have a value on the Company's
books in excess of $25,000;
(f) settle or compromise any pending or threatened suit, action
or claim in which the amount involved is greater than $25,000 or which is
material to the Company and its subsidiaries taken as a whole or which
relates to the transactions contemplated hereby or modify, amend or
terminate any of its Material Contracts in any material respects or waive,
release or assign any material rights or claims;
(g) make any material tax election or any material accounting
charge or permit any insurance policy naming it as a beneficiary or a loss
payable payee to be canceled or terminated without notice to Parent;
(h) except for (A) increases in salaries, bonuses and severance
benefits as contemplated in Section 5.1(h) of the Disclosure Schedule, (B)
salary and wage increases and bonuses in the ordinary course of business
and (C) salary and wage increases that may be required by law, grant any
material increase in the compensation payable or to become payable to any
of its officers or employees or establish, adopt, enter into, make any new
grants or awards under, be obligated to grant any awards under, or amend,
any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option or other equity, pension, retirement, incentive or deferred
compensation, employment, retention, termination, severance, health, life
or other welfare, fringe or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees, or grant or pay any benefit not required by any existing plan or
arrangement;
(i) change any of the accounting principles used by it, unless
required by GAAP;
(j) acquire any business or stock, merge or consolidate with any
other person or sell, encumber or otherwise transfer any business or
material portion thereof;
(k) other than in the ordinary course of business, enter into
any Material Contracts; or
agree to do any of the foregoing.
5.2 ACCESS TO INFORMATION. From the date hereof to the
Effective Time, the Company shall, and shall cause its subsidiaries,
officers, directors, employees, auditors and other agents to, afford the
officers, employees, auditors and other agents of Parent, and to
representatives of and advisors to financing sources, complete access at
all reasonable times to its officers, employees, agents, properties,
offices, plants and other facilities and to all books, records and
contracts, and shall furnish Parent and such financing sources with all
financial, operating and other data and information as Parent, through its
officers, employees or agents, or such financing sources may from time to
time request. The Company will promptly furnish to Parent a copy of each
document filed or received by it pursuant to the Federal securities laws or
Federal or state tax laws or any Environmental Laws, and of such other
documents as Parent may reasonably request. All information obtained by
Parent pursuant to this Section 5.2 shall be kept confidential in
accordance with the confidentiality agreement dated as of November 1, 1996
(the "Confidentiality Agreement"), between Parent and the Company.
5.3 SHAREHOLDER APPROVAL. (a) As soon as practicable following
the execution of this Agreement, the Company, acting through its Board of
Directors, shall in accordance with applicable law, and subject to the
fiduciary duties of the Board of Directors under applicable law as advised
by outside counsel, take all steps necessary duly to call, set a record
date for, give notice of, convene and hold a meeting of its shareholders
for the purpose of voting upon the adoption and approval of this Agreement
and the Merger and the other transactions contemplated hereby.
(b) The Company will, as promptly as practicable, prepare and
file a Proxy Statement with the SEC, and shall use all reasonable efforts
to obtain and furnish the information required to be included by it in the
Proxy Statement and, after consultation with Parent, to respond promptly to
any comments made by the SEC with respect to the Proxy Statement and any
preliminary version thereof and cause the Proxy Statement to be mailed to
its shareholders in accordance with the provisions of the MBCA. Subject to
their fiduciary duties under applicable law as advised by outside counsel,
the Board of Directors and the Special Committee will (i) recommend to
shareholders of the Company the adoption and approval of this Agreement and
the transactions contemplated hereby and the other matters to be submitted
to such shareholders in connection therewith and (ii)solicit proxies for
the necessary approvals by such shareholders of this Agreement and the
Merger and the other transactions contemplated hereby.
5.4 ALL REASONABLE EFFORTS. Subject to the terms and conditions
herein provided and the fiduciary duties of the Board of Directors under
applicable law, as advised by outside counsel, each of the parties hereto
agrees to use all reasonable efforts consistent with applicable legal
requirements to take, or cause to be taken, all action, and to do, or cause
to be done, all things necessary or proper and advisable under applicable
laws and regulations to ensure that the conditions set forth in Article VI
hereof are satisfied and to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.
5.5 CONSENTS. Parent and the Company each shall use all
reasonable efforts to obtain all material consents of third parties and
governmental authorities, and to make all governmental filings, necessary
to the consummation of the transactions contemplated by this Agreement.
The Company, Parent and Mergeco shall as soon as practicable file Pre-
Merger Notification and Report Forms under the HSR Act with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department
of Justice (the "Antitrust Division") and shall use all reasonable efforts
to respond as promptly as practicable to all inquiries received from the
FTC or the Antitrust Division for additional information or documentation.
5.6 PUBLIC ANNOUNCEMENTS. Parent and the Company will consult
with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law or by obligations pursuant to any listing
agreement with any national securities exchange or automated interdealer
quotation system.
5.7 CONSENT OF HOLDINGS. Holdings, as the sole shareholder of
Mergeco, by executing this Agreement consents to the execution and delivery
of this Agreement by Mergeco and the consummation of the Merger and the
other transactions contemplated hereby and such consent shall be treated
for all purposes as a vote duly cast at a meeting of the shareholders of
Mergeco held for such purpose.
5.8 NO SOLICITATION. From and after the date hereof until the
earlier of the Effective Time or the termination of this Agreement, neither
the Company nor any of its subsidiaries nor any of their respective
officers, directors, employees, agents or representatives (including,
without limitation, investment bankers, attorneys and accountants) shall,
directly or indirectly, (i)solicit, initiate or encourage or (ii)enter into
any discussions or negotiations with, in any way continue any discussions
or negotiations commenced before the date of this Agreement with, or
disclose directly or indirectly any information not customarily disclosed
concerning its business and properties to, or afford any access to its
properties, books and records to, any corporation, partnership or other
person or group in connection with any possible proposal (an "Acquisition
Proposal") regarding a sale of all or any part of the Company's capital
stock or a merger, consolidation or statutory share exchange involving the
Company or any subsidiary of the Company or sale or spin-off of all or a
substantial portion of the assets of the Company or any subsidiary of the
Company which is material to the Company and its subsidiaries taken as a
whole, or a liquidation or a recapitalization of the Company, or any
similar transaction; provided that (x)in response to an Acquisition
Proposal made without such solicitation, initiation or encouragement, the
Company may (if the Board of Directors shall have concluded in good faith,
based on the advice of outside counsel that any action is required for the
Board of Directors to comply with its fiduciary duties under applicable
law) (i)furnish information with respect to the Company to any person
pursuant to a confidentiality agreement no more favorable to such person
than the Confidentiality Agreement is to Parent and (ii)participate in
negotiations regarding such Acquisition Proposal and (y)the Board of
Directors shall be free to take and disclose any position with respect to a
third party offer pursuant to Rules l4d-9 and l4e-2 under the Exchange Act
and make such disclosures to the Company's shareholders, which, upon the
advice of outside counsel, is required by applicable law. The Company will
notify Parent immediately, orally and in writing, if any discussions or
negotiations are sought to be initiated, any inquiry or proposal is made,
or any such information is requested, with respect to an Acquisition
Proposal or potential Acquisition Proposal or if any Acquisition Proposal
is received or indicated to be forthcoming, and will include in such
notification the identity of the other party or parties and the material
terms and conditions of any such request, inquiry or Acquisition Proposal.
The Company will keep Parent fully informed of the status and details
(including amendments or proposed amendments) of any such request, inquiry
or Acquisition Proposal.
(b) If the Board of Directors, after consultation with and based
upon the advice of outside counsel, determines in good faith that it is
necessary to do so in order to comply with its fiduciary duties under
applicable law, the Board of Directors, (i) may modify or amend its
approval or recommendation of this Agreement or Merger, (ii) approve or
recommend any Superior Proposal (as hereinafter defined) or (iii) following
the termination of this Agreement in accordance with its terms, enter into
an agreement with respect to a Superior Proposal; provided, however, in
case of clauses (ii) and (iii) only at a time after the second business day
after Parent's receipt of written notice from the Company advising Parent
of the Company's receipt of a Superior Proposal, specifying the material
terms and conditions of such Superior Proposal and identifying the person
making such Superior Proposal. For purposes of this Agreement, a "Superior
Proposal" means a proposal to acquire, directly or indirectly, more than
50% of the Shares or all or any substantial portion of the consolidated
assets of the Company and its subsidiaries and otherwise on terms that the
Board of Directors determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation) to be
more favorable to the Company's shareholders than the Merger.
5.9 INDEMNIFICATION. (a) For a period of six years after the
Effective Time, the Surviving Corporation shall indemnify, defend and hold
harmless the present and former officers, directors, employees and
committee members of the Company and its subsidiaries (collectively, the
"Indemnified Parties") from and against, and pay or reimburse the
Indemnified Parties for judgments, penalties, fines, settlements and
expenses, including attorneys fees and disbursements resulting from or
arising out of actions or omissions occurring at or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement) by such persons in their capacities as officers, directors,
employees or committee members of the Company or any of its subsidiaries to
the full extent permitted or required under applicable law and to the
extent permitted under the provisions of the Articles of Incorporation and
the Amended By-Laws of the Company in effect at the date hereof (which
provisions shall not be amended in any manner which adversely affects any
Indemnified Party, for a period of six years), including provisions
relating to advances of expenses incurred in the defense of any proceeding;
provided that in the event any claim or claims are asserted or made within
such six-year period, all rights to indemnification in respect of each such
claim shall continue until final disposition of such claim.
(b) Any Indemnified Party wishing to claim indemnification under
Section 5.9(a) shall provide notice to the Surviving Corporation promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and the Indemnified Party shall permit the
Surviving Corporation (at the Surviving Corporation's expense) to assume
the defense of any claim or any litigation resulting therefrom; provided
that (i)counsel for the Surviving Corporation who shall conduct the defense
of such claim or litigation shall be reasonably satisfactory to the
Indemnified Party, and the Indemnified Party may participate in such
defense at such Indemnified Party's expense, and (ii)the omission by any
Indemnified Party to give notice as provided herein shall not relieve the
Surviving Corporation of its indemnification obligation under this
Agreement except to the extent that such omission results in a failure of
actual notice to the Surviving Corporation and the Surviving Corporation is
materially damaged as a result of such failure to give notice. The
Surviving Corporation shall not, in the defense of any such claim or
litigation, except with the consent of the Indemnified Party, consent to
entry of any judgment or enter into any settlement that provides for
injunctive or other nonmonetary relief affecting the Indemnified Party or
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability with respect to such claim or litigation. In the event that the
Surviving Corporation does not accept the defense of any matter as above
provided, or counsel for the Indemnified Parties advises that there are
issues which raise conflicts of interest between the Surviving Corporation
and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided that the Surviving
Corporation shall not be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld,
provided that such settlement does not in any way require the Surviving
Corporation to make any admission of liability with respect to such claim
or litigation). In any event, the Surviving Corporation and the
Indemnified Parties shall cooperate in the defense of any action or claim
subject to this Section5.9 and the records of each shall be available to
the other with respect to such defense.
(c) For a period of six years after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect either (i) the
current policy of directors' and officers' liability insurance maintained
by the Company (provided that Parent or the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous in any
material respects to the Indemnified Parties) with respect to claims
arising from facts or events which occurred before the Effective Time;
provided, however, that in no event shall the Surviving Corporation be
required to expend pursuant to this Section 5.9(c)(i) more than an amount
per year equal to 150% of the current annual premium (which current annual
premium for the policy year ending September 1, 1997 the Company represents
and warrants to be approximately $47,355 in the aggregate) paid by the
Company for such existing insurance coverage (the "Cap"); and provided,
further, that if equivalent coverage cannot be obtained, or can be obtained
only by paying an annual premium in excess of the Cap, the Surviving
Corporation shall only be required to obtain as much coverage as can be
obtained by paying an annual premium equal to the Cap, or (ii) a run-off
(i.e., "tail") policy or endorsement with respect to the current policy of
directors' and officers' liability insurance covering claims asserted
within six years after the Effective Time arising from facts or events
which occurred before the Effective Time.
(d) The provisions of this Section 5.9 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and his or her personal representatives and shall be binding on
all successors and assigns of the Surviving Corporation.
5.10 TRANSFER TAXES. The Surviving Corporation shall pay any
transfer Taxes payable in connection with the Merger and shall be
responsible for the preparation and filing of any required Tax Returns with
respect to such Taxes.
5.11 ANTI-TAKEOVER STATUTES. If any "fair price", "moratorium",
"control share acquisition" or other form of anti-takeover statute is or
shall become applicable to the Merger or the other transactions
contemplated hereby, the Company and the members of the Board of Directors
and the Special Committee shall, subject to their fiduciary duties under
applicable law as advised by outside counsel, grant such approvals and take
such actions as are necessary so that the Merger and the other transactions
contemplated hereby may be consummated as promptly as practicable on the
terms contemplated hereby and otherwise act to eliminate or minimize the
effects of any such anti-takeover statute on the transactions contemplated
hereby.
5.12 NOTIFICATION OF CERTAIN MATTERS. The Company will give
prompt notice to Parent and Mergeco, and Parent and Mergeco will give
prompt notice to the Company, of the occurrence or non-occurrence of any
event (i) which has had a Material Adverse Effect, (ii) which has caused
any representation or warranty contained in this Agreement to be untrue or
inaccurate or (iii) which has caused any failure of the Company, or of
Parent or Mergeco, as the case may be, to in all material respects comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied under this Agreement; provided, however, that the delivery of any
notice pursuant to this Section 5.12 will not limit or otherwise affect the
remedies available under this Agreement to the party receiving such notice.
5.13 CERTAIN RESIGNATIONS. The Company will use all reasonable
efforts to assist Parent in procuring the resignation of all of the members
of the Board of Directors and the directors of all of the Company's
subsidiaries effective as of the Effective Time.
5.14 EMPLOYEE MATTERS. (a) For a period of two years after the
Effective Time, Parent shall cause the Surviving Corporation (i) to
continue to maintain the Company's individual base salaries (as in effect
immediately prior to the Effective Time) for each employee residing in the
United States and actively employed full-time by the Company immediately
prior to the Effective Time as long as that employee continues to be
actively employed full-time by the Surviving Corporation in the same
capacity as such employee was actively employed full-time by the Company
immediately prior to the Effective Time and (ii) to maintain welfare and
pension benefit plans, programs and arrangements (other than stock based
plans, programs and arrangements) which, in the aggregate, for the
employees as a whole who were active full-time employees of the Company
immediately prior to the Effective Time and continue to be active full-time
employees of the Surviving Corporation, are no less favorable than those
provided by the Company immediately prior to the Effective Time, provided
that nothing herein shall obligate Parent or the Surviving Corporation to
provide such employees with any stock based compensation (including,
without limitation, stock options or stock appreciation rights).
(b) From and after the Effective Time, for purposes of
determining eligibility and vesting (but not benefit accrual) for employees
residing in the United States and actively employed full-time by the
Company immediately prior to the Effective Time, under any compensation,
severance, welfare, pension, benefit or savings plan of Parent or any of
its affiliates, in effect on the Effective Time or established within two
years after the Effective Time, in which active full-time employees of the
Company and its subsidiaries become eligible to participate (to the extent
required by clause (ii) of Section 5.14(a) above), service with the Company
or any of its subsidiaries (whether before or after the Effective Time)
shall be credited as if such services had been rendered to Parent or any of
its affiliates.
(c) No provision of this Section 5.14 shall create any third
party beneficiary rights in any employee of the Company or its subsidiaries
(including any beneficiary thereof).
5.15 EXTINGUISHMENT OF CREDIT LINE. Prior to the Effective Time,
the Company shall terminate its existing line or lines of credit with an
affiliate of Biofin, and there shall not have been any borrowings
thereunder by the Company or any of its subsidiaries from the date hereof
through and including the Effective Time.
ARTICLE VI
CLOSING CONDITIONS
6.1 CONDITIONS TO THE OBLIGATIONS OF PARENT, MERGECO AND THE
COMPANY. The respective obligations of each party hereto to effect the
Merger shall be subject to the fulfillment at or prior to the Effective
Time of the following conditions:
(a) There shall not be in effect any statute, rule or regulation
enacted, promulgated or deemed applicable by any governmental authority of
competent jurisdiction that makes consummation of the Merger illegal and no
temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be
in effect; provided, however, that each of the parties shall use all
reasonable efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as possible any injunction or other order
that may be entered.
(b) This Agreement shall have been approved and adopted by the
affirmative vote of the holders of a majority of the outstanding Shares in
accordance with the Articles of Incorporation and Amended By-Laws of the
Company and the MBCA.
(c) Each of Parent, the Company and any other person (as defined
in the HSR Act and the rules and regulations thereunder) required in
connection with the Merger to file a Pre-Merger Notification and Report
Form under the HSR Act with the FTC and the Antitrust Division shall have
made such filing and the applicable waiting period with respect to each
such filing (including any extension thereof by reason of a request for
additional information) shall have expired or been terminated.
(d) This Agreement shall not have been terminated in accordance
with its terms.
(e) All of the conditions set forth in that certain agreement,
dated as of the date hereof (the "European Agreement"), between Parent,
certain of its affiliates and Sorin Biomedica S.p.A. ("Sorin"), pertaining
to the acquisition of Sorin's European Diagnostics Division shall have been
satisfied or waived, and the Closing (as such term is defined in the
European Agreement) shall have occurred simultaneously with the Effective
Time.
6.2 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGECO. The
obligations of Parent and Mergeco pursuant to this Agreement to consummate
the Merger is also subject to the fulfillment at or prior to the Effective
Time of the following additional conditions:
(a) The representations and warranties of the Company contained
herein shall be true and correct in all material aspects as of the Closing
with the same effect as though all such representations and warranties had
been made as of the Closing, except for any such representations and
warranties made as of a specified date, which shall be true and correct as
of such date, and Parent shall have received from the Company's Chief
Executive Officer and its Chief Financial Officer an officers' certificate
to this effect.
(b) Each and all of the covenants and agreements of the Company
to be performed and complied with pursuant to this Agreement prior to the
Closing shall have been duly performed and complied with in all material
respects, and Parent shall have received from the Company's Chief Executive
Officer and its Chief Financial Officer an officers' certificate to this
effect.
(c) There shall not have occurred any event having, a Material
Adverse Effect (provided, however, that the items set forth in the
Disclosure Schedule shall not be deemed to have a Material Adverse Effect
for purposes of this Section 6.2(c)).
(d) Dissenting Shares shall constitute not more than 10% of the
Shares issued and outstanding immediately prior to the Effective Time.
(e) There shall have been received all governmental
authorizations listed in Section 6.2(e) of the Disclosure Schedule which
are required in connection with the consummation of the Merger and the
other transactions contemplated hereby and are required for the operation
of the Surviving Corporation following the Merger.
6.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company pursuant to this Agreement to consummate the
Merger is also subject to the fulfillment at or prior to the Effective Time
of the following additional conditions:
(a) The representations and warranties of Parent and Mergeco
contained herein shall be true and correct in all material respects as of
the Closing with the same effect as though all such representations and
warranties had been made as of the Closing, except for any such
representations and warranties made as of a specified date, which shall be
true and correct as of such date, and the Company shall have received from
Parent and Mergeco officers' certificates to this effect.
(b) Each and all of the covenants and agreements of Parent and
Mergeco to be performed and complied with pursuant to this Agreement prior
to the Closing shall have been duly performed and complied with in all
material respects, and the Company shall have received from Parent and
Mergeco officers' certificates to this effect.
ARTICLE VII
CLOSING
7.1 TIME AND PLACE. The closing of the Merger (the "Closing")
shall take place at the offices of Baker & McKenzie, 805Third Avenue, New
York, New York 10022, or at such other place as the parties may mutually
agree, as soon as practicable following satisfaction or waiver, if
permissible, of the conditions set forth in ArticleVI. The date on which
the Closing actually occurs is herein referred to as the "Closing Date."
7.2 FILING AT THE CLOSING. At the Closing, Parent, Mergeco and
the Company shall cause the Articles of Merger to be filed with the
Secretary of State of the State of Minnesota in accordance with the MBCA,
and shall take any and all other lawful actions and do any and all other
lawful things necessary to cause the Merger to become effective.
ARTICLE VIII
TERMINATION AND ABANDONMENT
8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of the Company by action taken or authorized by the Board of
Directors of the terminating party:
(a) by mutual written consent of Parent and the Company;
(b) without action needing to be taken by either Parent or the
Company, upon termination of the European Agreement;
(c) by either Parent or the Company:
if the Merger shall not have been consummated on or
before August 1, 1997, provided, however, that the right to terminate
this Agreement shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Merger to have occurred on or before
the aforesaid date;
if, at the meeting of the holders of the Shares duly
convened to vote to approve the Merger and adopt this Agreement or at
any adjournment or postponement thereof, said approval shall not have
been obtained from the holders of at least a majority of the Shares;
or
if any court or other governmental agency of competent
jurisdiction in the United States or elsewhere shall have issued an
order, decree or ruling or taken any other action permanently
restraining, enjoining, or otherwise prohibiting the Merger, and such
order, decree, ruling or other action shall have become final and non-
appealable; provided, however that the party seeking to terminate this
Agreement pursuant to this clause (c)(iii) shall have used all
reasonable efforts to prevent the entry of and to remove such
restraint or other action;
(d) by Parent, if the Company shall have breached in any
material respect or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in
this Agreement, including, without limitation, those set forth in Section
5.8, which breach or failure to perform (A) would give rise to the failure
of the conditions set forth in Section 6.2 (a) or (b), and (B) cannot be or
has not been cured within 30 days of the giving of written notice to the
Company of such breach;
(e) by Parent, if (i) the Board of Directors (or any independent
committee thereof including, without limitation, the Special Committee)
shall have withdrawn or modified in a manner adverse to Parent, Mergeco or
Holdings its approval or recommendation of the Merger or this Agreement, or
shall have approved or recommended any Acquisition Proposal (other than the
Merger), or (ii) the Board of Directors or any independent committee
thereof (including, without limitation, the Special Committee) shall have
resolved to take any of the foregoing actions;
(f) by the Company, if Parent, Mergeco or Holdings shall have
breached in any material respect or failed to perform in any material
respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of the conditions set forth in Sections
6.3(a) or (b), and (B) cannot be or has not been cured within 30 days of
the giving of written notice to Parent of such breach; or
(g) by the Company if prior to the Effective Time, and after the
Company's receipt of a Superior Proposal the Board of Directors or any
independent committee thereof (including, without limitation, the Special
Committee) in a manner consistent with Section 5.8 (b), (A) shall have
withdrawn or modified, in a manner adverse to Parent, Mergeco or Holdings,
its approval or recommendation of the Merger or this Agreement, (B) shall
have approved or recommended a Superior Proposal or (C) shall have resolved
to do any of the foregoing; provided, however, that such termination under
this paragraph (g) shall not be effective until the Company has made
payment to Parent of the Fee (as defined in Section 8.3(a)) required to be
paid pursuant to Section 8.3(a).
8.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of
termination and abandonment of the Merger by Parent or the Company pursuant
to Section8.1, written notice thereof shall forthwith be given to the
others, and this Agreement shall terminate and the Merger shall be
abandoned, without further action by any of the parties hereto. Each of
Holdings and Mergeco agrees that any termination by Parent shall be
conclusively binding upon it, whether given expressly on its behalf or not,
and the Company shall have no further obligation with respect to it. If
this Agreement is terminated as provided herein, no party hereto shall have
any liability or further obligation to any other party to this Agreement,
provided that any termination shall be without prejudice to the rights of
any party hereto arising out of the willful and material breach by any
other party of any covenant or agreement contained in this Agreement, and
provided, further, that provisions set forth in Sections 3.21, 4.6, 8.3 and
9.7 and the Confidentiality Agreement shall in any event survive any
termination (subject, in the case of the Confidentiality Agreement, to
Section 9.10 hereof) and that no party shall be liable to any other party
for consequential or special damages or loss of profits.
8.3 FEES AND EXPENSES. In the event that this Agreement is
terminated pursuant to Section 8.1(e) or as a precondition to a termination
by the Company pursuant to section 8.1(g), then in either event, the
Company shall pay Parent promptly (but in no event later than five business
days after the date of such termination) a fee of $2.5million (the "Fee"),
which amount shall be payable in immediately available funds. In the event
of a termination of this Agreement pursuant to Section 8.1 (other than a
termination pursuant to Section 8.1(f)), then, if a Third Party Acquisition
(as defined in Section 8.3(c)) shall have occurred within twelve (12)
months following the date of termination, within five business days of the
date such Third Party Acquisition is concluded, the Company shall pay
Parent the Fee (to the extent not previously paid), plus all Expenses (as
defined in Section 8.3(b)).
(b) "EXPENSES" means all documented out-of-pocket expenses and
fees up to $1.5million in the aggregate (including, without limitation,
fees and expenses payable to all banks, investment banking firms, other
financial institutions, consulting firms and other persons and their
respective agents and counsel for arranging, committing to provide or
providing any financing for the Merger and any transactions contemplated
thereby or structuring the transactions and all fees of counsel,
accountants, experts and consultants to Parent, Holdings and Mergeco, and
all printing and advertising expenses) actually incurred by any of them or
on their behalf in connection with the transactions, including, without
limitation, litigation related thereto and the financing thereof, and
actually incurred by banks, investment banking firms, other financial
institutions and other persons and assumed by Parent, Holdings or Mergeco
in connection with the negotiation, preparation, execution and performance
of this Agreement, the structuring and financing of the Merger and any
transactions contemplated thereby and any litigation and any financing
commitments or agreements relating thereto.
(c) "THIRD PARTY ACQUISITION" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger,
consolidation, statutory share exchange or other business combination
transaction by any person other than Parent, Mergeco or any affiliate
thereof (a "Third Party"), in which transaction the holders of Shares are
to receive a per Share consideration equal to, or in excess of, the Merger
Consideration, (ii) the acquisition by any Third Party of 50% or more (in
book value or market value) of the total assets of the Company and its
subsidiaries, taken as a whole, in a transaction or series of transactions
that indicates an enterprise value for the Company equal to or greater than
the product of the number of Shares outstanding at the Effective Time
multiplied by the Merger Consideration, (iii) the acquisition by a Third
Party of 50% or more of the outstanding Shares, whether by tender offer,
exchange offer or otherwise, for a per Share price equal to, or in excess
of, the Merger Consideration; (iv) the adoption by the Company of a plan of
liquidation or dissolution, or the declaration or payment of an
extraordinary dividend, the amount of which indicates an enterprise value
for the Company equal to or greater than the product of the number of
shares outstanding at the Effective Time multiplied by the Merger
Consideration; or (v) the repurchase by the Company or any of its
subsidiaries of 50% or more of the outstanding Shares for a per Share
consideration in excess of the Merger Consideration. In each case,
appropriate adjustments shall be made for any stock splits, reverse stock
splits, stock dividends or similar events affecting the number of Shares
outstanding, effected after the date hereof. For purposes of clauses (iii)
and (v) hereof, such Third Party Acquisition shall have been deemed to have
been concluded upon the acceptance of Shares for payment, exchange or
repurchase, for purposes of clause (i), such Third Party Acquisition shall
be deemed to have concluded at the effective time of such merger,
consolidation or other transaction, for purposes of clause (ii), such
acquisition shall have been deemed to have been concluded on its closing
date, and for purposes of clause (iv), such event shall have been deemed to
have been concluded on the date such plan of liquidation or dissolution is
adopted, or the record date for payment of such extraordinary dividend.
(d) Except as set forth in this Section 8.3, all costs and
expenses incurred in connection with this Agreement and the Merger and any
transactions contemplated thereby shall be paid by the party incurring such
expenses, whether or not any transaction is consummated.
(e) In the event that the Company shall fail to pay the Fee or
any expenses when due, the term "Expenses" shall be deemed to include the
costs and expenses actually incurred or accrued by Parent, Holdings and
Mergeco (including, without limitation, fees and expenses of counsel) in
connection with the collection under and enforcement of this Section 8.3,
together with interest on such unpaid Fee and Expenses, commencing on the
date that the Fee or such Expenses became due, at a rate equal to the rate
of interest publicly announced by The Chase Manhattan Bank, from time to
time, in the City of New York, as such bank's Prime Rate plus 1.00%.
ARTICLE IX
MISCELLANEOUS
9.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written
agreement of Parent, Holdings, Mergeco and the Company at any time prior to
the Effective Time with respect to any of the terms contained herein,
provided, that after this Agreement is adopted by the Company's
shareholders pursuant to Section5.3, no such amendment or modification
shall be made that reduces the amount or changes the form of the Merger
Consideration or otherwise materially and adversely affects the rights of
the Company's shareholders hereunder, without the further approval of such
shareholders.
9.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of the Parent,
Holdings or Mergeco, on the one hand, or the Company, on the other hand, to
comply with any obligation, covenant, agreement or condition herein may be
waived by the Company or Parent, respectively, only by a written instrument
signed by the party granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be
given in writing in a manner consistent with the requirements for a waiver
of compliance as set forth in this Section9.2. Each of Holdings and
Mergeco hereby agrees that any consent or waiver of compliance given by
Parent hereunder shall be conclusively binding upon it, whether given
expressly on its behalf or not.
9.3 SURVIVAL OF WARRANTIES. Each and every representation and
warranty made in this Agreement (including the Exhibits hereto and the
Disclosure Schedule) shall survive until the Effective Time of the Merger.
This Section9.3 shall have no effect upon any other obligation of the
parties hereto.
9.4 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if (a)delivered personally or
by overnight courier, (b)mailed by registered or certified mail, return
receipt requested, postage prepaid, or (c)transmitted by telecopy, and in
each case, addressed to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice; provided
that notices of a change of address shall be effective only upon receipt
thereof):
(a) if to Parent, Holdings or Mergeco, to:
American Standard Inc.
One Centennial Avenue
P.O. Box 6820
Piscataway, NJ 08855-6820
Telecopy: (908) 980-6118
Attention: Richard A. Kalaher, Esq.
Vice President and General Counsel
with copies to:
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Telecopy: (212) 759-9133
Attention: Richard L. Nevins, Esq.
Faegre & Benson
2200 Norwest Center, 90 South Seventh Street
Minneapolis, Minnesota 55402-3901
Telecopy: (612) 336-3026
Attention: Philip S. Garon, Esq.
(b) if to the Company, to
INCSTAR Corporation
1951 Northwestern Avenue
Stillwater, Minnesota 55082
Telecopy: (612) 773-1552
Attention: John Booth
with a copy to
Dorsey & Whitney LLP
220 South 6th Street
Minneapolis, Minnesota 55402
Telecopy: (612) 340-8738
Attention: Jonathan B. Abram, Esq.
Any notice so addressed shall be deemed to be given (x)three business days
after being mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid and (y)upon delivery, if transmitted by
hand delivery, overnight courier or telecopy.
9.5 ASSIGNMENT; PARTIES IN INTEREST. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties (except that Mergeco may assign to
Parent or any other direct or indirect wholly-owned subsidiary of Parent
any and all rights and obligations of Mergeco under this Agreement,
provided that any such assignment will not relieve Parent from any of its
obligations under this Agreement). Except for Section 5.9, which is
intended for the benefit of the Company's directors, officers, employees
and committee members, this Agreement is not intended to confer upon any
other person except the parties any rights or remedies under or by reason
of this Agreement.
9.6 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or
in equity.
9.7 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Minnesota (regardless of the laws that might otherwise
govern under applicable principles of conflicts of law) as to all matters,
including but not limited to matters of validity, construction, effect,
performance and remedies.
9.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.9 INTERPRETATION. The article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of
the agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (i)the term
"person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof; (ii)the terms "affiliate"
and "associate" shall have the meanings set forth in Rule l2b-2 of the
General Rules and Regulations promulgated under the Exchange Act;(iii)the
term "subsidiary" of any specified corporation shall mean any corporation
of which the outstanding securities having ordinary voting power to elect a
majority of the board of directors are directly or indirectly owned by such
specified corporation; and (iv) the term "knowledge" or any similar term
shall mean the actual knowledge of all of the directors and executive
officers of the Company and each of its subsidiaries.
9.10 ENTIRE AGREEMENT. This Agreement, including the exhibits
and schedules to this Agreement, and the Confidentiality Agreement, embody
the entire agreement and understanding of the parties hereto in respect of
the subject matter contained herein and supersede all prior agreements and
the understandings between the parties with respect to such subject matter.
The Confidentiality Agreement shall terminate and cease to have any effect
from and after the Effective Time.
[SIGNATURE PAGE FOLLOWS THIS PAGE]
IN WITNESS WHEREOF, Parent, Holdings, Mergeco and the Company
have caused this Agreement to be signed by their respective duly authorized
officers as of the date first above written.
AMERICAN STANDARD INC.
By_____________________________
Name:
Title:
AMERICAN STANDARD MEDICAL
SYSTEMS, INC.
By:_____________________________
Name:
Title:
ISTR MERGER CORPORATION
By_____________________________
Name:
Title:
INCSTAR CORPORATION
By_____________________________
Name:
Title:
Merger Agreement
Signature Page
EXHIBIT A
ARTICLES OF INCORPORATION
OF
ISTR MERGER CORPORATION
The undersigned incorporator, being a natural person 18 years of
age or older, in order to form a corporate entity under Minnesota Statutes,
Chapter 302A, hereby adopts the following Articles of Incorporation
ARTICLE I
The name of the Corporation is ISTR Merger Corporation.
ARTICLE II
The registered office of this Corporation is located at 1990
Industrial Boulevard, Stillwater, Minnesota 55082.
ARTICLE III
This Corporation is authorized to issue an aggregate total of
1,000,000 shares, all of which shall be designated Common Stock, having a
par value of $.01 per share.
ARTICLE IV
The name and address of the incorporator of this Corporation is
as follows:
Keith P. Radtke
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
ARTICLE V
No shareholder of this Corporation shall have any cumulative
voting rights.
ARTICLE VI
No shareholder of this Corporation shall have any preemptive
rights to subscribe for, purchase or acquire any shares of the Corporation
of any class, whether unissued or now or hereafter authorized, or any
obligations or other securities convertible into or exchangeable for any
such shares.
ARTICLE VII
The name of the first directors of this Corporation is Frederick
C. Paine.
ARTICLE VIII
Any action required or permitted to be taken at a meeting of the
Board of Directors of this Corporation not needing approval by the
shareholders under Minnesota Statutes, Chapter 302A, may be taken by
written action signed by the number of directors that would be required to
take such action at a meeting of the Board of Directors at which all
directors are present.
ARTICLE IX
No director of this Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of
fiduciary duty by such director as a director; provided, however. that this
Article shall not eliminate or limit the liability of a director to the
extent provided by applicable law (i) for any breach of the director's duty
of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 302A.599 or 80A.23 of the
Minnesota Statutes, (iv) for any transaction from which the director
derived an improper personal benefit or (v) for any act or omission
occurring prior to the effective date of this Article. No amendment to or
repeal of this Article shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect
to any acts or omissions of such director occurring prior to such amendment
or repeal.
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of
March, 1997.
___________________________
Keith P. Radtke, Incorporator
EXHIBIT C
Employment and consulting agreements
Pension, bonus, incentive, severance, income continuation or
retirement plans
Distribution and agency agreements
Contracts for the purchase of materials and supplies, the amount of
which exceeds $25,000
Sales agreements, the amount of which exceeds $25,000
Any contract providing for the rendering of services to or by the
Company or its subsidiaries, the amount of which exceeds $25,000
Subcontractor agreements, requiring payments in excess of $25,000
Contracts or agreements with any individual, firm or corporation,
requiring payments in excess of $25,000
Operating and product licenses
Lease or rental agreements, requiring payments in excess of $25,000
EXHIBIT 11
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
INCSTAR CORPORATION
Year Ended December 31,
1996 1995 1994
PRIMARY EARNINGS PER COMMON SHARE:
Average shares outstanding 16,480,920 16,362,916 16,322,301
Dilutive stock options and warrants--based
on the treasury stock method (1) 180,447 128,585 --
16,661,367 16,491,501 16,322,301
Net income (loss) $ 4,112,000 $ 4,263,000 $(4,505,000)
Net income (loss) per share $ 0.25 $ 0.26 $ (0.28)
(1) The effects of stock options and warrants were excluded from the
calculation of weighted average shares outstanding for 1994 because their
effects were antidilutive.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Atlantic Antibodies, Inc.
Incorporated in the State of Delaware
d.b.a. Atlantic Antibodies, Inc.
INCSTAR UK Ltd.
Incorporated in the United Kingdom
d.b.a. INCSTAR Limited
Immuno Nuclear Export, Limited
Incorporated in Jamaica
d.b.a. Immuno Nuclear Export Limited
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
INCSTAR Corporation:
We consent to incorporation by reference in the Registration Statements No.
33-34055, No. 33-84498, No. 33-32162, and No. 33-32736 on Form S-8 of
INCSTAR Corporation of our report dated January 24, 1997, relating to the
consolidated balance sheets of INCSTAR Corporation and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statement of
operations, shareholders' equity and cash flows and related schedule for
each of the years in the three-year period ended December 31, 1996, which
report appears in the 1996 Annual Report on Form10-K of INCSTAR
Corporation.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT 27
FINANCIAL DATA SCHEDULE
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet for the period ended December 31, 1996 and the
related statements of income, cash flows and retained earnings for the
period ended December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,554,000
<SECURITIES> 0
<RECEIVABLES> 7,763,000
<ALLOWANCES> 190,000
<INVENTORY> 14,302,000
<CURRENT-ASSETS> 24,721,000
<PP&E> 35,138,000
<DEPRECIATION> 20,032,000
<TOTAL-ASSETS> 41,958,000
<CURRENT-LIABILITIES> 5,532,000
<BONDS> 0
<COMMON> 165,000
0
0
<OTHER-SE> 32,976,000
<TOTAL-LIABILITY-AND-EQUITY> 41,958,000
<SALES> 44,304,000
<TOTAL-REVENUES> 44,304,000
<CGS> 21,599,000
<TOTAL-COSTS> 21,599,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 118,000
<INTEREST-EXPENSE> 17,000
<INCOME-PRETAX> 5,411,000
<INCOME-TAX> 1,299,000
<INCOME-CONTINUING> 4,112,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,112,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
