<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1996
REGISTRATION NO. 333-12193
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEOGEN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MICHIGAN 38-2367843
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
620 LESHER PLACE
LANSING, MICHIGAN 48912
(517) 372-9200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES L. HERBERT, PRESIDENT
NEOGEN CORPORATION
620 LESHER PLACE
LANSING, MICHIGAN 48912
(517) 372-9200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
RICHARD C. LOWE DONALD J. KUNZ
FRASER TREBILCOCK DAVIS & FOSTER, P.C. HONIGMAN MILLER SCHWARTZ & COHN
1000 MICHIGAN NATIONAL TOWER 2290 FIRST NATIONAL BUILDING
LANSING, MI 48933 DETROIT, MICHIGAN 48226
(517) 482-5800 (313) 256-7800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED PROPOSED AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED SHARE(1) PRICE FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............ 1,725,000(2) $8.1875 $14,123,437.50 $4,870.15
- --------------------------------------------------------------------------------------------------
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</TABLE>
(1) Pursuant to Rule 457(c), based on the average of the high and low selling
prices as reported by the Nasdaq National Market on September 11, 1996.
(2) Includes 225,000 shares subject to the underwriters' over-allotment option.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
NEOGEN CORPORATION
CROSS REFERENCE SHEET
FORM S-2
<TABLE>
<CAPTION>
ITEM
NUMBER REGISTRATION STATEMENT HEADING LOCATION; CAPTION IN PROSPECTUS
- ------ ----------------------------------------- -----------------------------------------
<S> <C> <C>
1 Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Front cover page
2 Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside front page; outside back page;
Available Information and Incorporation
of Certain Documents by Reference
3 Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Summary; The Offering; Risk Factors; and
The Company
4 Use of Proceeds.......................... Use of Proceeds
5 Determination of Offering Price.......... Not applicable
6 Dilution................................. Not applicable
7 Selling Security Holders................. Not applicable
8 Plan of Distribution..................... Underwriting
9 Description of Securities to be
Registered............................... Description of Capital Stock
10 Interests of Named Experts and Counsel... Not applicable
11 Information with Respect to the
Registrant............................... The Company; Financial Statements;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operation; and Business
12 Incorporation of Certain Information by
Reference................................ Incorporation of Certain Documents by
Reference
13 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not applicable
</TABLE>
i
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 18, 1996
1,500,000 SHARES
NEOGEN LOGO
COMMON STOCK
-------------------------
All of the 1,500,000 shares of Common Stock offered hereby are being sold
by Neogen Corporation (the "Company"). The Company's Common Stock is quoted on
the Nasdaq National Market under the symbol "NEOG". The last reported sale price
of the Common Stock on October 17, 1996 was $7.50 per share. See "Price Range of
Common Stock."
-------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
- ---------------------------------------------------------------------------------------------------
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated offering expenses of $ , payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase an
additional 225,000 shares of Common Stock at the Price to Public, less
underwriting discounts and commissions, solely to cover over-allotments, if
any. If this option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will total
$ , $ and $ , respectively. See "Underwriting."
-------------------------
The Common Stock offered by this Prospectus is offered by the several
Underwriters named herein when, as and if issued to and accepted by them, and
subject to their right to reject orders in whole or in part and subject to
certain other conditions. It is expected that delivery of certificates
representing the shares of Common Stock will be made at the offices of Roney &
Co., One Griswold, Detroit, Michigan 48226 on or about , 1996.
-------------------------
RONEY & CO. LOGO THE OHIO COMPANY
The date of this Prospectus is , 1996.
<PAGE> 4
- ------------------------------------------------------
- -------------------------------------
The Company's Veratox(R) and
Agri-Screen(R) test kits are used
by the grain, nut and spice
processing industries to detect the
presence of harmful natural toxins.
Some
of these toxins are federally
[Photo 1] regulated.
The Company's one-step Reveal(R) [Photo 2]
tests are used by
processors to detect the presence of
foodborne
bacteria, such as the potentially
deadly
E. coli 0157:H7 in hamburger.
[Photo] The Company's Alert(R) test detects
the presence of potentially deadly
toxins, like histamine in certain
fish species.
------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS AND THE SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
The Company owns the following trademarks: Veratox(R), Agri-Screen(R),
Agri-Screen Ticket(R), Reveal(R), Insight(R), Alert(R), Ideal(R), Bot Tox B(R),
Gold Nugget(R), ELISA Technologies(R), K-Gold(TM), K-Blue Substrate(R), and
AMPCOR(R).
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. As used in this Prospectus, the terms
the "Company" and "Neogen" refer to Neogen Corporation and its wholly-owned
subsidiaries unless the context otherwise requires. Unless otherwise indicated,
information in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised. The Company's fiscal year ends on May 31.
THE COMPANY
Neogen Corporation develops, manufactures, and markets a diverse line of
products used to detect residues and improve quality for the agriculture, food,
pharmacologics and environmental industries. The Company's products are grouped
into two areas, diagnostic test kits and veterinary instruments. The Company's
diagnostic test kits aid in the detection of foodborne bacteria, natural toxins,
drug residues, pesticide residues, disease infections and quality aspects. These
diagnostic test kits are less expensive, easier to use, and provide greater
accuracy and speed than many of the conventional diagnostic methods currently
being used. The Company's veterinary instrument product line assists in the
promotion of animal health principally through the delivery of more precise drug
treatments such as antibiotics and vaccines.
The market for diagnostic products for food and environmental safety has
been estimated to be approximately $500 million by the year 2000. The Company
estimates that currently only 12% of the food safety and environmental testing
is done by diagnostic test kits such as those manufactured by the Company.
Approximately 88% of the total potential market is either not testing or is
still using older, traditional methods that are generally slower, more difficult
to use and more expensive. In July 1996, the U.S. Department of Agriculture's
Food Safety Inspection Service adopted a final rule governing (i) federally
inspected meat and poultry processing plants and (ii) businesses outside the
U.S. which export meat and poultry into the U.S. In December 1995, the U.S. Food
and Drug Administration issued a final rule, scheduled to become effective
January 1998, concerning the procedures required for the safe and sanitary
processing and importing of fish and fishery products. As a result of increased
public concern over food quality and the aforementioned governmental regulations
concerning food inspection, a significant portion of this untapped market
represents testing that is not being conducted today and testing that will occur
over the next few years.
The Company has developed and markets over 140 diagnostic test kits used in
food safety, plant diseases, animal health, pharmacologic research and a limited
number of products for human clinical use. These tests are generally immunoassay
products that rely on the Company's proprietary antibodies capable of the
detection of residues allowing for rapid and accurate test results. All of the
Company's diagnostic test kits are disposable, single use products. The Company
has developed its diagnostic test kits so they can be utilized across multiple
market segments. The Company's Ideal Instruments subsidiary manufactures and
markets over 250 different veterinary instrument products used in obstetrics and
surgery and to administer animal health.
The Company's marketing strategy has been to expand its product offerings
through multiple market segments. The Company has focused on selling its
products into seven market segments: grain, nut and spice processors; meat,
poultry and egg processors; seafood processors; animal producers; fruit and
vegetable producer/processors; human clinical and pharmacologic research; and
private and public laboratories. This strategy has allowed the Company to become
the market leader in diagnostic products for the grain, nut and spice processor
industry and to become the dominant producer of diagnostic tests for the
detection of drugs in animals. Further, the Company has devoted significant
resources to take advantage of recent changes in testing requirements for the
meat, poultry and egg processor and seafood processor industries.
The Company's vision is to become a world leader in diagnostic development
and marketing. The Company has developed a growth strategy to achieve this
vision consisting of the following elements: (i) increasing sales of existing
products; (ii) introducing new products and product lines; (iii) expanding
international sales; and (iv) acquiring businesses and forming strategic
alliances.
3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.......................... 1,500,000 shares
Common Stock to be Outstanding After
The Offering................................ 6,099,142 shares(1)
Use Of Proceeds............................... For general corporate purposes, including potential
acquisitions and working capital. See "Use Of
Proceeds."
Nasdaq National Market Symbol................. NEOG
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED MAY 31, ENDED AUGUST 31,
----------------------------- ------------------
1994(2) 1995(2) 1996(2) 1995(2) 1996(2)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $10,735 $11,726 $12,490 $2,926 $4,035
Income (loss) from operations.................... 922 630 (240) 132 416
Net income (loss)................................ 856 679 (244) 131 401
Net income (loss) per share...................... $.19 $.15 $(.05) $.03 $.08
Weighted average number of common shares
outstanding.................................... 4,521 4,675 4,514 4,695 4,770
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 5,659 $
Total assets.......................................................... 12,324
Long-term debt, excluding current portion............................. 261 261
Stockholders' equity.................................................. 9,355
</TABLE>
- -------------------------
(1) Does not include 580,792 shares reserved for issuance upon exercise of stock
options and warrants outstanding as of August 31, 1996.
(2) The periods presented in the Statement of Operations Data are not comparable
due to a restructuring charge in fiscal 1996 and acquisitions in each
fiscal year. See Notes 2 and 3 of the Notes to Consolidated Financial
Statements.
(3) Adjusted to reflect the sale of the 1,500,000 shares of Common Stock offered
hereby at $ , and the application of the net proceeds of this
offering, after deducting the underwriting discounts and commissions and
estimated offering expenses.
4
<PAGE> 7
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as other information included elsewhere herein or incorporated by
reference, prior to purchasing the shares of Common Stock offered hereby:
IDENTIFICATION AND INTEGRATION OF ACQUISITIONS
The Company's business has grown significantly over the past several years
as a result of both internal growth and acquisitions of products and businesses.
The Company plans to use a portion of the proceeds of this offering to make
additional acquisitions. See "Use of Proceeds." The Company has no agreements or
commitments in place with respect to, and is not currently engaged in any
negotiations for, any acquisition. Identifying and pursuing acquisition
opportunities, integrating these acquisitions into the Company's business, and
managing their growth require a significant amount of management time and skill.
There can be no assurance that the Company will be effective in identifying,
integrating or managing any acquisition target in the future. The failure to
successfully integrate and manage any future acquisition may have a material
adverse effect on the Company's operating results and financial condition.
NEW PRODUCT DEVELOPMENT RISKS
The Company is continually developing new products for which it believes
there should be significant market demand. There can be no assurance that the
Company will successfully develop these products, that the products will be
developed on a timely basis to meet market demand, or that the relevant market
will be properly identified. If the Company expends substantial resources in
developing an unsuccessful product, operating results will be adversely
affected.
INTERNATIONAL SALES
In fiscal 1996, international sales accounted for 21% of the Company's
total revenue. The Company expects that its international business will continue
to account for a significant portion of its total revenue. Foreign regulatory
bodies may establish product standards different from those in the U.S. and with
which the Company's current products do not comply. The inability of the Company
to design products to comply with foreign standards could have a material
adverse effect on the Company's future growth. Other risks related to
international sales include the possible disruption in transportation,
difficulties in building and managing foreign distribution, fluctuation in the
value of foreign currencies, import duties and quotas, and unexpected economic
and political changes in foreign markets. There can be no assurance that these
factors will not adversely affect international sales and the Company's overall
financial performance.
COMPETITION
The markets in which the Company competes are subject to rapid and
substantial changes in technology. The Company encounters, and expects to
continue to encounter, competition in the sale of its products. There can be no
assurance that new technology or products developed by the Company's competition
will not render the Company's products or technologies obsolete or
noncompetitive. Many of the Company's competitors and potential competitors have
greater capital, manufacturing, marketing, and research resources than the
Company. See "Business -- Competition."
DEPENDENCE ON AGRICULTURAL MARKETS
The Company's primary markets relate to agricultural and food production.
The agricultural marketplace is cyclical and is dependent upon many factors
outside the Company's control including weather conditions. A downturn in the
agriculture marketplace could adversely affect the Company's sales.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced, and may experience in the future, significant
fluctuations in its quarterly operating results. Factors such as the mix of
products sold, and the acceptance of new products, could contribute to this
quarterly variability. The Company operates with relatively little backlog and
has few
5
<PAGE> 8
long-term customer contracts. Substantially all of its product revenue in each
quarter results from orders received in that quarter. In addition, the Company's
expense levels are based, in part, on expectation of future revenue levels. A
shortfall in expected revenue could, therefore, result in a disproportionate
decrease in net income.
PATENTS, TRADE SECRETS AND LICENSES
The Company relies on a combination of patent, trade secret and trademark
law to protect its proprietary rights. There can be no assurance that patent
applications filed by the Company will result in the issuance of patents. There
can also be no assurance that the Company's nondisclosure agreements, together
with trade secrets and other common law rights, will provide meaningful
protection for the Company's trade secrets and other proprietary information. In
the absence of these assurances, the Company's business may be adversely
affected by competitors. From time to time, the Company has received notices
alleging that the Company's products infringe third party proprietary rights,
though no material legal action in this regard is currently pending. If the
Company is precluded from selling its products or is required to pay damages
with respect to such sales, the Company's business and results of operation
could be adversely affected. See "Business -- Proprietary Protection and
Approvals."
REGULATION BY GOVERNMENT AGENCIES
A significant portion of the Company's products are affected by the
regulations of various domestic and foreign government agencies, including the
U.S. Department of Agriculture and the U.S. Food and Drug Administration. Though
less than 10% of the Company's revenues is currently derived from products
requiring government approval prior to sale, a significant portion of its
revenues is derived from products used to monitor and detect the presence of
residues that are regulated by various government agencies. Furthermore, a
significant portion of the Company's growth may be affected by the
implementation of new regulations such as the U.S. Food and Drug
Administration's final rule, Procedures For The Safe And Sanitary Processing And
Importing Of Fish And Fishery Products, and the final rule of the U.S.
Department of Agriculture, Pathogen Reduction; Hazard Analysis And Critical
Control Point Systems. If, for some reason, these rules are overturned or
significantly modified, there would be a significant adverse affect on the
Company's future growth strategies. See "Business -- Governmental Regulation."
DEPENDENCE ON KEY EMPLOYEES
The Company's success depends, in large part, on its president and on other
members of its management team. The loss of services of these key employees
could have a material adverse effect on the Company. The Company maintains
certain incentive plans for its key employees and most of these employees have
been with the Company in excess of three years. However, the Company has not
executed long-term employment agreements with any of these employees and does
not expect to do so in the foreseeable future. The Company's success also
depends, significantly, on its ability to continue to attract such personnel.
There can be no assurance that the Company will be able to retain or attract
such personnel.
PRODUCT LIABILITY AND INSURANCE
The manufacturing and distribution of the Company's products involve an
inherent risk of product liability claims and the adverse publicity that may be
associated with such claims. Although the Company currently maintains liability
insurance, there can be no assurance the Company will be able to continue to
obtain such insurance on acceptable terms, or that such insurance will provide
adequate coverage against all potential claims. See "Business -- Insurance."
POSSIBLE VOLATILITY OF STOCK PRICE
The market prices for securities of technology companies have been volatile
in the past and could continue to be volatile in the future. Fluctuations in
financial performance from period to period may occur and could have a
significant impact on the market price of the Company's stock.
6
<PAGE> 9
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1996 and as adjusted to give effect to the issuance and sale by the
Company of the 1,500,000 shares of Common Stock offered hereby, after deducting
the underwriting discounts and commissions, and estimated offering expenses. The
table should be read in conjunction with the Company's Consolidated Financial
Statements and related notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1996
------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt....................................................... $ 1,100 $ 71
====== =======
Long-term debt........................................................ $ 261 $ 261
------ -------
Stockholders' equity:
Common stock:
$.16 par value; 10,000,000 shares authorized;
4,599,142 shares issued and outstanding, actual;
6,099,142 shares issued and outstanding, as adjusted(1).......... 736 976
Additional paid-in capital.......................................... 13,932
Retained earnings (deficit)......................................... (5,313) (5,313)
------ -------
Total Stockholders' equity....................................... 9,355
------ -------
Total Capitalization........................................... $ 9,616 $
====== =======
</TABLE>
- -------------------------
(1) Does not include 580,792 shares reserved for issuance upon the exercise of
stock options and warrants outstanding as of August 31, 1996.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered hereby are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting discounts and commissions and estimated offering expenses.
The Company intends to use the net proceeds primarily for general corporate
purposes, including potential acquisitions of businesses or products, licenses
of technologies and working capital needs. The Company expects to devote a
portion of the net proceeds to fund such acquisitions or licenses. The Company
expects that it may effect acquisitions to expand its product and service
offerings within its current markets, although the Company may also seek to
effect acquisitions to extend its business into complementary markets. While the
Company has made such acquisitions in the past, the Company has no agreements or
commitments with respect to, and is not currently engaged in any negotiations
for, any acquisition. The amount of the net proceeds actually expended for
acquisitions, licenses or working capital purposes will depend upon a number of
factors, including the Company's ability to identify and effect attractive
acquisitions and licenses, and the amount of cash generated by the Company's
operations.
Pending the uses described above, the net proceeds will be used to reduce
short-term bank borrowings and will be placed in short-term, interest bearing,
investment grade securities, certificates of deposit or direct or guaranteed
obligations of the United States of America.
7
<PAGE> 10
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"NEOG". The following table sets forth, for the fiscal periods indicated, the
high and low sales prices for the Common Stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL YEAR ENDED MAY 31, 1995
First Quarter............................................................... $8.50 $6.63
Second Quarter.............................................................. 9.63 7.38
Third Quarter............................................................... 8.25 5.88
Fourth Quarter.............................................................. 7.63 6.13
FISCAL YEAR ENDED MAY 31, 1996
First Quarter............................................................... 8.00 5.88
Second Quarter.............................................................. 8.25 5.88
Third Quarter............................................................... 6.25 4.63
Fourth Quarter.............................................................. 8.25 5.13
FISCAL YEAR ENDED MAY 31, 1997
First Quarter............................................................... 9.00 6.38
Second Quarter (through October 17, 1996)................................... 9.38 7.25
</TABLE>
As of August 31, 1996, there were approximately 500 stockholders of record
of Common Stock which the Company believes represents a total of approximately
4,000 beneficial holders.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings to fund the development and growth
of its business. Any future distributions will be made at the discretion of the
Board of Directors of the Company and will depend upon the Company's operating
results, financial condition, capital requirements, general business conditions
and such other factors as the Board of Directors deems relevant. The Company is
currently prohibited from paying dividends or making other distributions to its
shareholders under a loan agreement with one of its lenders as long as there is
any outstanding indebtedness under such loan agreement. The Company's
subsidiaries are also prohibited from paying dividends or making other
distributions to the Company under such subsidiaries' loan agreements with their
lenders.
8
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the fiscal years ended 1992 through 1996 and for the three
months ended August 31, 1995 and 1996. The selected consolidated financial data
for the five fiscal years in the period ended May 31, 1992 through 1996 are
derived from the Company's audited Consolidated Financial Statements. The
selected consolidated financial data for the three months ended August 31, 1995
and 1996 are derived from the Company's unaudited quarterly financial
statements. In the opinion of management, the three month financial data reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such data. The results for the first three months of
fiscal 1997 are not necessarily indicative of the results to be expected for the
full year. The information below should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED MAY 31, ENDED AUGUST 31,
--------------------------------------------------- ------------------
1992(1) 1993(1) 1994(1) 1995(1) 1996(1) 1995(1) 1996(1)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Diagnostic products......... $2,511 $3,592 $ 6,804 $ 7,687 $ 8,921 $2,265 $3,405
Veterinary instruments...... 3,890 4,037 3,931 4,039 3,569 661 630
------- ------- -------- -------- -------- ------- -------
Total revenues......... 6,401 7,629 10,735 11,726 12,490 2,926 4,035
Cost of goods sold............... 3,681 3,793 4,704 5,152 5,484 1,182 1,546
Selling, general and
administrative expenses........ 2,879 3,441 4,253 4,808 5,312 1,291 1,725
Research and development
expense........................ 768 1,028 856 1,136 1,238 321 348
Restructuring charges............ -- -- -- -- 696 -- --
------- ------- -------- -------- -------- ------- -------
Income (loss) from operations.... (927) (633) 922 630 (240) 132 416
Other income (expense)........... 108 94 (40) 73 3 6 (3)
------- ------- -------- -------- -------- ------- -------
Net income (loss) before
provision for income tax....... (819) (539) 882 703 (237) 138 413
Provision for income tax......... -- -- (26) (24) (7) (7) (12)
------- ------- -------- -------- -------- ------- -------
Net income (loss)........... $ (819) $ (539) $ 856 $ 679 $ (244) $ 131 $ 401
======= ======= ======== ======== ======== ======= =======
Net income (loss) per common
share.......................... $ (.21) $ (.13) $ .19 $ .15 $ (.05) $ .03 $ .08
======= ======= ======== ======== ======== ======= =======
Weighted average common shares
outstanding.................... 3,881 4,041 4,521 4,675 4,514 4,695 4,770
</TABLE>
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
--------------------------------------------------- ------------------
1992(1) 1993(1) 1994(1) 1995(1) 1996(1) 1995(1) 1996(1)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $5,242 $4,454 $5,452 $ 5,789 $ 5,235 $ 5,201 $ 5,659
Total assets.................... 7,559 7,304 9,133 11,539 11,531 11,612 12,324
Long term debt, excluding
current portion............... 53 111 15 351 279 332 261
Stockholders' equity............ 6,369 6,069 7,653 8,836 8,858 8,974 9,355
</TABLE>
- -------------------------
(1) The periods presented in the Selected Consolidated Financial Data are not
comparable due to a restructuring charge in fiscal 1996 and several
acquisitions. See Notes 2 and 3 of the Notes to Consolidated Financial
Statements.
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto appearing
elsewhere in this Prospectus.
RESULTS OF OPERATIONS
Comparison of Three Months Ended August 31, 1996 and 1995
Total revenues for the quarter ended August 31, 1996 were $1,109,000 or 38%
higher than the same quarter in 1995. Sales of diagnostic products were up
$1,213,500 in the first quarter representing an increase of 55% while sales of
veterinary instruments declined $31,000 or 5%. Contract revenues in the first
quarter decreased $73,500 or 94%.
The significant increase in diagnostic product sales was primarily due to a
$684,000 or 120% increase in sales of the Company's diagnostic test kits for the
detection of vomitoxin. In early July 1996, a large portion of midwest winter
wheat was found to contain high levels of vomitoxin due to cool, rainy weather
conditions during the flowering stages of the grain. Although sales of vomitoxin
test kits should continue to run higher than the prior year for the remainder of
fiscal 1997, it is unlikely that sales will continue at the pace experienced in
the first quarter.
The Company also experienced an increase in sales of $122,000 or 220% for
test systems to detect E. coli O157:H7 and salmonella. Approximately $37,000 of
this increase was due to international sales of E. coli test kits shipped to
Japan. The remaining increase is the result of a growing demand for test kits to
detect micro-organisms. Management believes that the July 1996 announcement of
new inspection and safety regulations for the meat and poultry industry
scheduled to begin implementation in January 1997, will have a positive effect
on future sales.
The decline in veterinary instrument sales was due to depressed cattle
prices resulting in lower overall demand for durable veterinary instruments. In
management's opinion, the current down cycle in cattle prices should improve
over the remainder of this fiscal year. In addition, the Company has reorganized
its sales and marketing efforts for veterinary instruments which management
believes will favorably impact future sales for this segment.
The decline in contract revenues for the first quarter of this year was
primarily due to scheduled completion in the second quarter of last year of two
contracts with the United States Department of Agriculture. It is common for
contract revenues to fluctuate from quarter to quarter and year to year
depending on timing and terms of the contracts.
Cost of goods sold increased 31% as a direct result of the overall increase
in product sales. Expressed as a percentage of sales, cost of goods sold was 38%
in the first quarter of fiscal 1997 compared to 42% in the first quarter of
fiscal 1996. This improvement was due to a higher sales mix of diagnostic test
kits, increased labor productivity and better utilization of fixed overhead
costs for diagnostic products.
Sales and marketing expenses increased $311,000 in the first quarter
compared to the prior year. Commissions and royalties expense increased $133,000
in the first quarter due to increased sales volume. Expenses for printing,
advertising and promotions related to sales activities for diagnostic products
increased $64,000 compared to the prior year. A total of $37,000 was due to
higher salaries, fringe benefits and travel costs associated with the hiring of
new salesmen and technical support personnel. The remaining increase is
primarily due to an increase in the provision for doubtful accounts.
General and administrative expenses were $124,000 higher in the quarter
ended August 31, 1996 than the quarter ended August 31, 1995. Bonus accruals
increased $75,000 in the first quarter compared to last year based on improved
operating performance. Michigan Single Business Tax was $16,000 higher than the
prior
10
<PAGE> 13
year due to increased profitability at the Company's Lansing, Michigan
operations. Salaries for clerical and accounting personnel increased $12,000 due
to higher sales volume. As a percentage of total revenues, general and
administrative expense declined to 14% in the first quarter compared to 15% last
year.
Although research and development expense increased less than 10% in the
first quarter this year compared to the first quarter last year, management
believes that research and development is critical to the Company's future.
Accordingly, the Company expects its annual research and development expense for
the current fiscal year to approximate the same levels, expressed as a
percentage of revenue, as experienced in prior years.
Other income (expense) was lower in the first quarter than last year
primarily due to the timing of recognition of the Company's share of royalties
paid to an affiliated partnership.
Due to the substantial increase in sales volume for diagnostic products in
the first quarter, the Company posted net income of $.08 per share compared to
$.03 per share in the same period last year.
Comparison of Fiscal Years Ended May 31, 1996 and 1995
Total revenues for the year increased 7% due to a strong 20% increase in
sales of diagnostic products. Of the $1,429,000 increase in diagnostic product
sales, $608,000 was the result of a 15% increase in sales of test kits to detect
harmful mycotoxin residues in the feed, grain, and nut markets. Another $621,000
of the increase was due to 30% higher sales of test kits and reagents sold into
the pharmacologics and equine markets. The remainder of the increase was due to
a 164% increase in test kits to detect microorganisms in the meat and poultry
market.
The increase in sales of diagnostic products was partially offset by a
decline in veterinary instruments sales. The decline in sales in this segment
was partially due to depressed cattle prices resulting in lower demand for
durable veterinary instruments. Sales representation that management believed
was unsatisfactory also contributed to the decline in sales causing the Company
to restructure its sales organization for veterinary instruments.
Contract revenues decreased significantly in 1996 due to scheduled
completion of two contracts awarded to the Company in September 1994 by the
United States Department of Agriculture. It is common for contract revenues to
fluctuate from year to year depending on terms and timing of the contracts.
However, contract revenues in total are not significant to total revenues for
the Company.
Expressed as a percentage of product sales, cost of goods sold was 44% in
1996 compared to 45% in 1995.
The increase in sales and marketing expenses is principally due to higher
costs in two areas. Entry into the meat and poultry market resulted in
approximately $130,000 of increased expense spread across a number of categories
including salary, fringe, travel, printing, advertising, and trade shows.
Increases in cost for the same categories totaled $110,000 related to the
introduction of new products for the seafood and equine markets. Increases in
sales and marketing expenses for the feed, grain, and nut markets, primarily in
the areas of royalties, shipping expense, and special promotions, were almost
completely offset by lower commissions related to veterinary instruments sales.
The Company expects to continue to expand sales and marketing activities
primarily in areas related to diagnostic products for food safety.
General and administrative expenses are higher as a result of several
items. A total of $55,000 of the increase is due to two extra months of
operations in 1996 than 1995 for AMPCOR Diagnostics, Inc. (ADI). Salary and
fringe expenses were up $150,000 as a result of new secretarial, accounting, and
clerical personnel needed to handle increased business volume. Amortization
expense was $40,000 higher than last year due exclusively to the acquisition of
certain assets of International Diagnostic Systems, Corp. (See Note 3 of the
Notes to Consolidated Financial Statements).
The $102,000 increase in research and development cost is partially due to
$44,000 of added expense this year because of an extra two months of operations
at ADI compared to last year. The remainder of the increase is the result of
higher salaries, fringe, and supplies for research programs to develop new
diagnostic
11
<PAGE> 14
test kits for the equine and pharmacologic markets and for the detection of
harmful bacteria. The Company considers investment in research activities
critical to the long-term future of the business.
Restructuring charges recorded in the fourth quarter of 1996 pertain to
costs associated with discontinuance of the Company's electronic instrument
operations and reorganization of sales and marketing efforts for veterinary
instruments. (See Note 2 to Consolidated Financial Statements.) Liabilities
recorded at May 31, 1996 as a result of the restructuring program amounted to
$218,000 and are expected to be paid or settled during fiscal year 1997.
Management believes that the restructuring program places the Company in a
better competitive position to achieve future growth. The restructuring also
enables the Company to redirect manpower and financial resources to the more
profitable and faster-growing diagnostics business.
Other income declined during 1996 primarily due to higher interest expense
as a result of increased balances outstanding for bank borrowings.
The net loss for the year is primarily due to restructuring charges of
$695,000 recorded in the fourth quarter.
Comparison of Fiscal Years Ended May 31, 1995 and 1994
Diagnostic product sales increased $670,000 in 1995 compared to 1994. Sales
in this segment were up $797,000 due to the acquisition of AMPCOR Diagnostics,
Inc. (formerly AMPCOR, Inc.) effective August 1, 1994. In addition, sales for
the ELISA Technologies division consisting of pharmacological and animal drugs
of abuse diagnostic test kits increased $451,000 or 30% in 1995.
The positive increase in sales for these two are as was partially offset by
a $593,000 reduction during 1995 in sales of diagnostic test kits for the
detection of vomitoxin. Management anticipated a decline in sales for vomitoxin
test kits in the current year as indicated in its 1994 annual report to
shareholders.
The increase in veterinary instrument sales for 1995 compared to 1994 is
primarily due to a new customers who began ordering specialized needles and
punches in the first quarter of 1995.
Contract revenues increased significantly in 1995 due to two contracts
awarded to the Company in September 1994 by the United States Department of
Agriculture. It is common for contract revenues to fluctuate from year to year
depending on terms and timing of the contracts. However, contract revenues in
total are not significant to total revenues for the Company.
The increase in cost of goods sold for 1995 is the direct result of higher
sales volume, including acquisitions, compared to 1994.
Sales and marketing expenses increased $449,000 or 16% in 1995 compared to
1994. Of this amount, $217,000 was due to a new marketing agreement with an
independent third party firm for the veterinary instrument product line. Another
$146,000 of the increase was the direct result of the acquisition of AMPCOR. The
remaining difference is due to increases in salaries and wages, advertising,
royalties and distribution costs pertaining to increased sales volume, and new
marketing programs for products sold by the ELISA Technologies division. The
Company intends to expand its sales and marketing activities for predictive and
diagnostic products primarily in the meat and poultry and seafood markets.
The increase in general and administrative expenses is due to $223,000 of
costs generated by the operations of AMPCOR which was acquired effective August
1, 1994. This increase was partially offset by lower general and administrative
expenses at the Company's Lansing, Michigan-based operations due to lower
bonuses for employees in 1995 compared to 1994 and a reduction in legal and
professional fees.
Research and development expenses were up $280,000 or 33% in 1995 compared
to 1994. A total of $185,000 was the result of research projects being conducted
at AMPCOR. The remaining difference is primarily due to higher salaries and
wages, contract services, and supplies related to several research projects for
new diagnostic products. Three of these projects are being funded via contracts
with the United States Department of Agriculture. The Company intends to
continue to expand its research activities for new predictive and diagnostic
products.
12
<PAGE> 15
Other income (expense) is $113,000 higher in 1995 than in 1994. In 1994,
the Company recorded a one-time $75,000 write-down to an investment in an
affiliated partnership to reflect current market value. Interest income is
$26,000 higher in 1995 due primarily to higher rates on invested funds. The
Company also recorded $72,000 in 1995 as its share of earned royalties paid to
an affiliated partnership. The positive effect of these items was partially
offset by $66,000 of higher interest expense in 1995 due to increased borrowings
and higher rates.
Net income for the year ended May 31, 1995 declined by $177,000 compared to
1994 due primarily to increases in research and development expenditures.
FINANCIAL CONDITION AND LIQUIDITY
At August 31, 1996, the Company had $2,389,000 in cash and equivalents,
working capital of $5,659,000 and stockholders' equity of $9,355,000. In
addition, the Company has bank lines of credit totaling $2,500,000, with
$1,029,000 borrowed against these lines as of August 31, 1996.
Effective June 15, 1995, the Company acquired certain assets of
International Diagnostic Systems Corporation (IDS) of St. Joseph, Michigan (See
Note 3 of the Notes to Consolidated Financial Statements.) The purchase price
paid in fiscal year 1996 was approximately $680,000 in cash. A second and final
cash payment of approximately $53,000 was paid in July 1996.
On August 17, 1994, the Company purchased substantially all of the assets
of AMPCOR, Incorporated, a New Jersey-based diagnostics company. The total
initial purchase price paid was approximately $1,871,000 consisting of $813,000
in cash (including acquisition costs), assumption of liabilities totaling
$733,000, and issuance of 55,763 shares of the Company restricted common stock
valued at $325,000. In connection with the acquisition, the Company entered into
a $400,000 term loan agreement and $600,000 line of credit facility,
subsequently increased to $1,000,000, with Comerica Bank (See Note 3 of the
Notes to the Consolidated Financial Statements). Proceeds from the term loan,
together with $256,000 borrowed against this line of credit, were used to pay
off certain liabilities assumed in the purchase of AMPCOR, Incorporated's
assets.
The Company has no material commitments for capital expenditures at August
31, 1996. Inflation and changing prices are not expected to have a material
effect on the Company's operations.
Prior to its 1994 fiscal year, cash required to sustain operations, retire
long-term debt, pay for capital expenditures, and fund acquisitions had been
primarily generated by proceeds from stock offerings. However, the Company was
profitable and did experience positive cash flows from operations in fiscal year
1994, was profitable again in 1995, and generated positive cash flows from
operations again in fiscal year 1996. Management believes this shows significant
progress toward achieving consistently positive cash flows from operations on an
annual basis. Management also believes that the Company's existing cash and cash
equivalents at August 31, 1996, along with its available bank lines of credit,
and the proceeds of this offering will be sufficient to fund normal operations
for the foreseeable future. Such funds may not be sufficient to meet the
Company's longer term cash requirements to commercialize products currently
under development or its plans to acquire additional technology and products
that fit within the Company's mission statement. Accordingly, the Company may be
required to issue equity securities or enter into other financing arrangements
for a portion of the Company's future capital needs.
13
<PAGE> 16
BUSINESS
GENERAL
Neogen Corporation develops, manufactures, and markets a diverse line of
products used to detect residues and improve quality for the agriculture, food,
pharmacologics and environmental industries. The Company's products are grouped
into two areas, diagnostic test kits and veterinary instruments. The Company's
diagnostic test kits aid in the detection of foodborne bacteria, natural toxins,
drug residues, pesticide residues, disease infections and quality aspects. These
diagnostic test kits are less expensive, easier to use and provide greater
accuracy and speed than many of the conventional diagnostic methods currently
being used. The Company's veterinary instrument product line assists in the
promotion of animal health principally through the delivery of more precise drug
treatments such as antibiotics and vaccines.
The Company has developed and markets over 140 diagnostic test kits used in
food safety, plant diseases, animal health, pharmacologic research and a limited
number of products for human clinical use. These tests are generally immunoassay
products that rely on the Company's proprietary antibodies capable of the
detection of residues allowing for rapid and accurate test results. All of the
Company's diagnostic test kits are disposable, single use products. The Company
has developed its diagnostic test kits so they can be utilized across multiple
market segments. The Company's Ideal Instruments subsidiary manufactures and
markets over 250 different veterinary instrument products used to administer
animal health and in obstetrics and surgery.
The Company's vision is to become a world leader in diagnostic development
and marketing. To meet this vision, the Company has developed a growth strategy
consisting of the following elements: (i) increasing sales of existing products;
(ii) introducing new products and product lines; (iii) expanding international
sales; and (iv) acquiring business and forming strategic alliances.
The Company was formed as a Michigan corporation in June 1981 and actual
operations began in 1982. The Company's principal executive offices are located
at 620 Lesher Place, Lansing, Michigan 48912-1595 and its telephone number is
(517) 372-9200.
RECENT DEVELOPMENTS
First Quarter Results
The Company's revenues in its first quarter ended August 31, 1996 were 38%
greater than its revenues for the same quarter in the previous year. These sales
were led by an increase in the Company's diagnostic test kits for the detection
of vomitoxin in wheat, due to a major outbreak of this fungal-related, natural
toxin in the central and upper midwest states of Ohio, Indiana, Michigan,
Wisconsin, North and South Dakota and Minnesota. This toxin is not regulated as
a human pathogen, but its presence affects the quality of flour and feed
intended for animal use.
Japanese E. Coli Outbreak
The severe outbreak of infections from the bacteria E. coli O157:H7 in
Japan in July 1996 also had an impact on the Company's diagnostic sales. Company
management believes these sales opportunities will continue to grow as the
Japanese government now considers mandating E. coli O157:H7 testing in all of
its meat processing plants.
New U.S. Meat Regulations
Federal regulations concerning food safety and food adulteration have had a
favorable impact on the sales of several of the Company's diagnostic products,
and management believes this impact will be even greater in the future. In July
1996, the U.S. Department of Agriculture's Food Safety Inspection Service
adopted a final rule governing federally inspected meat and poultry processing
plants, and businesses outside the U.S. which export meat and poultry into the
U.S. This rule and accompanying regulations will require mandatory testing for a
number of hazardous adulterants that may affect the safety of meat and poultry.
Though these
14
<PAGE> 17
regulations do not begin to become effective until January 1997, management
expects them to have a positive impact on sales of several of the Company's
diagnostic test kits, such as the one to detect salmonella.
New U.S. Seafood Regulations Issued
In December 1995, the U.S. Food and Drug Administration issued a final rule
concerning the procedures required for safe and sanitary processing and
importing of fish and fishery products. This rule and accompanying regulations
have had no material effect on the Company's diagnostic revenues to this point,
since the rule does not become effective until January 1998. However, Company
management believes these regulations could have a positive impact on future
sales for its seafood marketing group, since the U.S. seafood industry has not
previously been subject to mandatory inspection.
Salmonella Test Approved
In September 1996, the Company was awarded an approval and certification
for its diagnostic test kit for the detection of salmonella by the Association
of Official Analytical Chemists -- Research Institute. This is a third party
test validation organization which is recognized on a worldwide basis.
Management believes this certification will further enhance sales of this
disposable diagnostic test kit.
New Distributorship Signed
In September 1996, the Company entered into a distribution agreement with
Merck KGaA to become the exclusive distributor to the U.S. food processing
industry for that company's test to determine the level of plant sanitation.
Marketed under the trade name Hy-Lite(R), the test detects the presence of any
living cells as an indication of whether processing equipment and other surfaces
have been properly cleaned and sanitized. The test requires less than 10 minutes
to conduct and is portable enough to be used at the site where cleaning is
taking place.
Restructuring Program Announced
In June 1996, the Company announced a restructuring program for certain
operating divisions. As part of the restructuring plan, the Company discontinued
its electronic instrument operations and implemented a reorganization of sales
and marketing activities related to veterinary instruments. The restructuring
program was designed to better position the Company over the long term to
compete more efficiently and increase market share. In connection with the
restructuring plan, the Company incurred a one-time charge of $696,000, or $.15
per share, in the fourth quarter of fiscal 1996. See Note 2 of the Notes to
Consolidated Financial Statements.
ACQUISITIONS
A part of the Company's growth strategy has been to acquire products and
businesses that provide the Company with access to technology or products with
which to expand its core business. Since 1982, the Company has made several such
acquisitions. The information below summarizes acquisitions completed in the
past three years.
International Diagnostic Systems Corporation
In June 1995, the Company acquired certain assets of International
Diagnostic Systems Corporation of St. Joseph, Michigan. The Company acquired
inventory and technology for 35 different diagnostic tests used to detect drugs
of abuse in animals. The business was moved to the Company's ELISA Technologies
division in Lexington, Kentucky.
AMPCOR, Incorporated
In August 1994, the Company, through its wholly owned subsidiary, AMPCOR
Diagnostics, Inc., acquired substantially all of the assets of AMPCOR,
Incorporated of Camden, New Jersey. The Company relocated the business to larger
facilities in Bridgeport, New Jersey and maintained most of the former company's
products and employees. The products and technologies allowed the Company to
make a strong entry into the market for the rapid detection of foodborne
bacteria.
15
<PAGE> 18
Enzytec, Incorporated
In October 1993, the Company acquired substantially all the assets of
Enzytec, Incorporated of Kansas City, Missouri. All acquired assets, consisting
of inventory, patent licenses and furniture and fixtures, were moved to the
Company's Lansing, Michigan operations and integrated with existing
manufacturing and marketing efforts. This acquisition provided the Company with
products and technology necessary to detect pesticides in food and in the
environment.
BUSINESS STRATEGY
The Company's vision is to become a worldwide leader in offering diagnostic
and detection products to the food, environmental and related markets. The
Company expects to expand its diagnostics and detection products and increase
its market penetration of veterinary instruments with a focus on new delivery
devices to minimize animal trauma and reduce the likelihood of drug residues in
meat and milk products. The Company's strategy to achieve these objectives
includes the following:
- Increased Sales Of Existing Products. The Company will continue to
expand its product offering in multiple market segments. The Company
focuses on selling its products into seven market segments: grain, nut and
spice processors; meat, poultry and egg processors; seafood processors;
animal producers; fruit and vegetable producers/processors; human clinical
and pharmacologic research; and private and public laboratories. The
Company has generally developed its diagnostic test kits so they can be
utilized across multiple market segments. This strategy has allowed the
Company to become the market leader in diagnostic products for the grain,
nut and spice processing industry and in diagnostic tests for the detection
of drugs in animals. Further, the Company has devoted significant resources
to take advantage of recent changes in testing requirements for the meat,
poultry and egg, and seafood processor markets.
- Introduction Of New Products. The Company has a continued commitment
to research and development programs and has invested approximately 10% of
revenues in this area over the past two years. The Company plans to
continue to leverage its own internal research and development efforts
through strategic relationships with other organizations and important
government contracts and grants. The majority of the Company's new product
development is focused on expanding disposable product offerings to the
Company's current markets, which offers the opportunity to generate repeat
sales. In fiscal 1996, approximately 70% of the Company's total revenue was
generated from sales of these disposable products. Further, the Company's
strategy is to develop new products that generally utilize the Company's
existing, proven technology base that is already well accepted by existing
customers.
- Expansion Of International Sales. The Company believes that the
demand outside the United States for disposable diagnostic test kits such
as those manufactured by the Company is at least equal to demand in the
United States. As such, the Company will continue to emphasize
international sales as an important factor in its growth. In fiscal 1996,
21% of the Company's total revenue was derived from international sales. A
majority of these sales came from South and Central America where the
Company has an established distribution system. While the Company expects
its business in the South and Central American markets to continue to grow,
it plans to devote additional resources to the Asian and European markets
as a new source of international sales. The Company is developing
distribution channels to take advantage of these markets where there is a
growing need for diagnostic test kits such as those manufactured by the
Company.
- Acquisitions And Strategic Alliances. In the past, the Company has
expanded its product offerings and technology base through several
acquisitions. It also seeks to expand its products through licensing and
distribution agreements demonstrated through its license with the U.S.
Department of Agriculture for specific antibodies and a recently completed
distribution agreement with Merck KGaA for U.S. distribution of its test
kit for the detection of proper sanitation. The Company plans to continue
to aggressively pursue strategic acquisitions, and licensing and
distribution agreements to enhance its position in its existing markets
where it is more cost effective to use these strategies rather than to rely
solely on internal development of new products.
16
<PAGE> 19
INDUSTRY OVERVIEW
Detection and diagnostic tests are used in a broad range of applications,
including food safety, environmental safety, plant health and animal health. In
the plant-related food area, tests are used to detect the presence of harmful
plant diseases, pesticide residues, naturally-occurring toxins, foodborne
bacteria and numerous general areas of quality such as fats, proteins and
vitamins. In the area of animal and seafood-related food products, detection and
diagnostic tests are used to detect the presence of diseases, harmful
contaminants in animal feeds, foodborne bacteria, natural toxins, drug residues
and a number of aspects of quality including proper cooking and protein
composition.
Industry consulting groups have estimated the total market for testing of
food and environmental safety will be in the range of $500 million by the year
2000. They estimate that a significant portion of this potential market is
represented by firms not testing and tests that are not currently being
conducted. Another significant portion of the market is represented by older,
traditional methods utilizing laborious microbiological techniques, or time
consuming, and expensive, chemical analysis. Management believes that a
significant portion of this market potential will shift to rapid, easy to use
and inexpensive, test systems such as those produced by the Company. These tests
allow the food and agricultural industries to conduct tests on-site with less
skilled technicians and a considerably reduced investment in laboratory
equipment. More importantly, the rapid test systems can provide results in hours
rather than days and reduce the likelihood of unsafe food reaching the food
distribution systems.
COMPANY MARKETS
The Company has focused its strategy on the food safety market with its
diagnostic products. The Company is marketing and developing several types of
diagnostic tests to aid each of the individual food market areas in detecting
natural toxins, drug residues, foodborne bacteria, pesticide residues, disease
infections and quality aspects. The Company's products are sold into the
following seven definable market segments:
Grain, nut and spice processors. These commodities generally serve as the
foundation of the food chain. Therefore, it is important to determine their
quality on a daily basis. Over 1.8 billion tons of grain are harvested and
stored each year throughout the world. Corn, wheat, barley, oats, milo, rice,
oil seeds and various other minor grain products become the principal ingredient
for a multitude of food industries. A large variety of nuts, along with spices,
chocolate, coffee and tea, are also almost universally consumed. The safety of
these ingredients is a significant source of concern for snack food producers,
pasta manufacturers, flour millers, bakeries, baby food producers, brewers,
distillers and cereal manufacturers, just to name a few of those whose
livelihood depends upon the abundance of safe ingredients. The world's
production of pork, chicken, turkey, eggs and a major portion of the beef supply
also depends on quality grains.
The Company's diagnostic tests are used throughout these industries to
monitor for the presence of harmful natural toxins, pesticides and foodborne
bacteria. The Company generally defines this market as being from the time the
products leave the farm gate until they reach the consumer's plate.
Residues of a number of these adulterants are controlled by regulatory
agencies such as the U.S. Department of Agriculture and the U.S. Food and Drug
Administration. The Company has an exclusive supply agreement with the Federal
Grain Inspection Service to supply aflatoxin test kits that are used to screen
for the presence of this natural toxin for most grain crops that are shipped
from the U.S. The Company's test kit for vomitoxin, another of the naturally
occurring toxins, is also widely used by regulatory agencies.
Management believes it is the leader in the sale of disposable diagnostic
tests to the grain, nut and spice industries and has a larger selection of
products available to these industries than any of its competitors.
Meat, Poultry and Egg Processors. People all over the world have become
increasingly aware of the dangers foodborne bacteria can cause in meat and
poultry products. These pathogens cause illness in over 6.5 million people,
resulting in over 9,000 deaths in the U.S. annually, according to the Centers
for Disease Control and Prevention.
17
<PAGE> 20
According to the U.S. Department of Agriculture, there are approximately
114 million cattle, hogs and lambs slaughtered in the U.S. each year and over
840 million chickens are processed in the U.S. annually. The principal concern
for meat, poultry and egg safety is contamination by foodborne bacteria. Meat
often moves through several processing operations before reaching the consumer.
In addition to the carcass conversion plants, meat is typically handled again in
further processing and by food service and retail establishments. Foodborne
bacteria can be introduced at any one of these processing operations.
Management believes that the meat and poultry group has the best
opportunity currently to contribute to the Company's growth. The Company offers
tests for the bacteria E. coli O157:H7, salmonella, and a test to determine the
general level of plant sanitation. Company scientists are developing additional
tests for the meat and poultry markets and expect to have two new foodborne
bacteria tests available before the end of the 1997 fiscal year. Some of the
Company's tests that were originally developed to detect drugs of abuse in
racing animals are also being used to detect the presence of these same drugs in
meat.
A major reorganization in testing procedures by the U.S. Department of
Agriculture's Food Safety Inspection Service was announced in July 1996.
Beginning in January 1997 these new regulations will begin to become mandatory
for all meat and poultry plants in the U.S. according to an adoption schedule
that will continue through January 2000. These new regulations will mandate
certain bacteria testing by all inspected plants, and the programs will
encourage the use of a number of other rapid tests, such as those produced by
the Company.
Seafood Processors. The U.S. seafood industry records sales in excess of
$29 billion each year. Seafood is known to cause foodborne illnesses as a result
of both natural toxins and bacteria. At present, the U.S. seafood industry does
not have mandatory inspection requirements before its products can be marketed.
However, in December 1995, the U. S. Food and Drug Administration issued final
rules that will establish mandatory inspection programs for this industry in the
U.S. Though the final rules will not be in full force until January 1998, the
industry is now beginning to implement quality control procedures that will
include the use of rapid diagnostic tests similar to those manufactured by the
Company. The tests include a general sanitation rapid test to help seafood
processors ensure that processing equipment is adequately cleaned on a daily
basis to prevent product contamination. Other tests are used to detect the
presence of salmonella and histamine, natural toxins that can result in serious
illness or death.
A significant portion of the world's seafood supply now comes from
aquaculture production rather than wild harvest. These producers and processors
must also be concerned about the possibilities of pesticide contamination from
runoff water into their production areas and residues of drugs that may have
been used to ensure fish health.
Animal Producers. The animal production industry promotes food safety even
while the animal is inside the farm gate. The Company's Ideal Instruments
subsidiary manufacturers and markets 250 different products that are used to
administer animal health. A number of these products have been developed to
provide more precise drug delivery. These instruments help minimize the presence
of animal health drugs that might find their way into the meat and milk supply.
Because the instruments are better engineered, they also minimize mechanical
injuries to muscle tissue which reduces the chance for infection.
The Company also markets a vaccine and a line of topical products that are
sold to the professional equine market. The Company's line of diagnostic tests
to detect drugs in animals are sold virtually throughout the world to detect the
presence of drugs of abuse in racing animals. Most racing jurisdictions perform
post-race tests on horses and greyhounds to make certain the animals'
performance was not altered intentionally by some drug.
Many integrated poultry and livestock producers also use the Company's
diagnostic tests to detect harmful residues in animal feeds. These residues can
affect overall production efficiencies.
Fruit and Vegetable Producers/Processors. The value of fruit and vegetable
production in the U.S. alone is estimated at $15 billion annually. As with
animals, significant portions of food safety begin inside the farm gate where
plant production takes place. The Company manufactures and markets a group of
diagnostic tests that are used by fruit and vegetable producers as well as
greenhouse and ornamental plant producers to detect
18
<PAGE> 21
the presence of certain infectious diseases. These diseases affect crop
production and can play a major role in the quality and safety of the final food
products. As an example, the Company markets a diagnostic test for the detection
of several fungal diseases, including the disease that causes black rot in
potatoes. These potatoes may appear perfectly healthy, but once they reach the
processor or consumer a tell-tale black spot will be found in the center of the
potato.
The Company's test kits help ensure the quality and safety of final plant
products and also help the producer limit the amount of pesticides applied
during the production cycle. This helps reduce the likelihood of pesticide
residues in final food products.
This industry's testing arises from the potential presence of harmful
residues that might affect the safety of its products. The residues that require
rapid and inexpensive test kits include foodborne bacteria, natural toxins, and
pesticides. Several of the Company's products meet these industry needs and
others are being developed. The Company began this year building the sales and
marketing organization to serve this industry and management expects product
demand will grow over the next several years.
Human Clinical and Pharmacologic Research. The Company sells a limited
number of products used in clinical medicine and by the pharmaceutical research
industry. Since these products can be manufactured in the same facilities,
utilizing the same equipment and personnel, the Company has continued to support
this market activity.
As the Company continues to develop diagnostic tests for the detection of
foodborne bacteria, it foresees an opportunity to introduce these products into
the human clinical market. For example, the same test used to detect the
presence of salmonella in a food product can also be used clinically to
determine if a patient is suffering from a salmonella infection. The market for
human clinical test products is well-established and is served by a number of
mature, well-capitalized firms. As a result, the Company does not intend to
enter into this market by itself, but expects to pursue opportunities in this
market only by means of strategic alliances and joint ventures with companies
presently in the market.
As a part of its immunoassay diagnostics test development programs, the
Company has discovered methods to manufacture unique, stable enzymes used in
test color development. The Company now markets these products to research
laboratories and other commercial diagnostic kit manufacturers around the world.
The Company does not anticipate being a major factor in these markets.
However, its current products are profitable and synergistic to the Company's
other manufacturing activities.
Private and Public Laboratories. Private laboratories purchase diagnostic
tests from the Company to provide testing services to most of the market areas
indicated in this section. These private laboratories perform tests for firms
which do not wish to do their own testing internally. Public laboratories
generally use the Company's test for regulatory purposes. As an example, the
U.S. Department of Agriculture uses several of the Company's natural toxin test
kits to determine the quality and safety of grain products. The Company's test
kit for the detection of E. coli O157:H7 is used by the Food Safety Inspection
Service to monitor for the presence of this harmful bacteria in a number of
laboratory locations. The Company's bacteria tests are used by government animal
pathology labs to aid in determining causes of animal health problems, and plant
tests are used in regulatory labs to aid in plant quarantine situations.
19
<PAGE> 22
PRODUCTS
The Company's products are grouped into two areas: disposable diagnostic
test kits and veterinary instruments. The test kit products are generally the
result of biotechnology discoveries that allow customers to detect natural
toxins, bacteria, drugs, pesticides and determine general quality
characteristics. These products are the result of efforts by chemists,
microbiologists and immunologists. The Company's veterinary instruments are the
result of engineering and manufacturing expertise to develop safe, unique and
durable metal instruments.
DIAGNOSTIC TEST KITS
The Company has developed and markets over 140 separate diagnostic test
kits used in food safety, plant diseases, animal health, pharmacologic research
and a limited number of products for human clinical use. These tests are
generally characterized as immunoassay products that rely on the Company's
proprietary antibodies capable of detecting these analytes at the parts per
billion levels. All the products are single use and allow customers to conduct
tests more rapidly than with older conventional testing methods. The test kits
are also less expensive, require less laboratory equipment and less technical
capabilities than conventional testing methods.
Food Safety. Several of the Company's food safety test kits are aimed at
the detection of harmful foodborne bacteria. By monitoring for these bacteria,
food processors can minimize their potential impact. These tests are marketed
under the Company's tradename, Reveal(R). Current tests in this one-step simple
format are used to detect the presence of salmonella and E. coli O157:H7.
Company scientists are also developing test kits for other harmful bacteria that
are expected to be completed during the current fiscal year. Through a marketing
agreement with Merck KGaA, the Company also has the distribution rights to the
U. S. food industry for Merck's product, HY-LITE(R), which is used to detect
general plant sanitation levels.
The Company's Veratox(R) and Agri-Screen(R) diagnostic tests are used by
the food industry to detect levels of naturally occurring toxins. These products
include both qualitative and quantitative tests for aflatoxin, vomitoxin, T-2
toxin, zerealenone, ochratoxin and fumonisin. Other natural toxin tests are
being developed to detect toxins of concern in fruits and vegetables.
The Company's Agri-Screen Ticket(R) test is used by the food industry to
detect harmful residues of a large number of plant pesticides.
Plant Diseases. Marketed under the tradename Alert(R), the Company has
several diagnostic tests that are used to detect plant diseases that affect crop
production as well as the quality and safety of the ensuing food products. These
quick 10 minute tests identify the presence of Pythium, Phytophthora,
Rhizoctonia, Xanthamonas and Sclerotina. The kits are used as an early detection
device, and as a tool to limit fungicide applications.
Animal Health. Under the ELISA Technologies(R) tradename, the Company
markets over 50 high sensitivity immunoassay tests for drugs of abuse in animals
and residues in meat. These include tests for narcotic analgesics, stimulants,
depressants, tranquilizers, anesthetics, steroids and diuretics.
The Company also has developed a test kit for the detection of a
proprietary drug used to control internal parasites. This test kit allows
poultry producers to monitor for the effective level of this drug as a feed
additive. The Company's tests for bacteria and natural toxins are also used by
producers to ensure animal health.
Other Diagnostic Tests. Marketed under the AMPCOR(R) label, the Company has
15 different diagnostic tests used by the human clinical market for the
detection of serology disorders and a sexually transmitted disease.
Sold under its ELISA Technologies tradename, the Company has several
products used for the detection of biologically active substances in humans by
researchers and pharmaceutical companies for biomedical research purposes. These
tests are used to detect cyclic nucleotides, hormones, leukotrienes,
prostaglandins and steroids. Under the trademarks K-Blue and K-Gold, the Company
sells reagents used by others in diagnostic test kit manufacturing.
Sales of this class of products accounted for approximately 62%, 63% and
70% of the Company's total revenues for fiscal years 1994, 1995 and 1996,
respectively.
20
<PAGE> 23
VETERINARY INSTRUMENTS
Through its wholly-owned subsidiary Ideal Instruments, Inc. ("Ideal"), the
Company markets a complete line of veterinary instruments and animal health
delivery systems. Ideal offers approximately 250 different products, over half
of which are instruments used to deliver animal health products such as
antibiotics and vaccines. Most of the remaining instruments are used in
obstetrics and surgery. Included among these products is a line of disposable
syringes and needles presently custom manufactured and imported by Ideal.
The veterinary instruments product line is designed to provide better
control of animal health products, thereby reducing the likelihood of antibiotic
and pharmaceutical residues contaminating meat or milk products. At the same
time, the use of quality, high precision delivery instruments helps producers
improve efficiency.
In fiscal years ended May 31, 1994, 1995 and 1996, sales of veterinary
instruments as a percentage of total revenues were 37%, 34% and 29%,
respectively.
21
<PAGE> 24
Please refer to the following table for a summary of the Company's
principal products and tradenames available for the various markets.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
MARKETS PRINCIPAL PRODUCTS TRADENAMES
- ------------------------------------- --------------------------------- ---------------------
Grain, Nut, Spice Processors Natural Toxins -- Quantitative -- Veratox(R)
6 Agri-Screen(R)
Natural Toxins -- Qualitative -- Agri-Screen Ticket(R)
6 HY-LITE(R)(1)
Pesticide Test Reveal(R)
General Sanitation Test
Bacteria Tests -- 2 bacteria
- -----------------------------------------------------------------------------------------------
Meat, Poultry, Egg Processors Bacteria Tests -- 2 bacteria Reveal(R)
Animal Drug Tests -- 5 drugs Agri-Screen(R)
General Sanitation Test HY-LITE(R)(1)
- -----------------------------------------------------------------------------------------------
Seafood Processors Bacteria Tests -- 2 bacteria Reveal(R)
Drug Test Insight(R)
General Sanitation Test HY-LITE(R)(1)
Natural Toxin Alert(R)
- -----------------------------------------------------------------------------------------------
Animal Producers Veterinary Instruments -- 250 Ideal(R)
Feed Additive Test Coxistat(R)-Elisa(2)
Mycotoxin Tests -- 6 Agri-Screen(R)
Equine Vaccine Bot Tox B(R)
Bacteria Tests -- 2 Reveal(R)
Topical Compounds -- 6 Gold Nugget(R)
Animal Drugs Tests -- 55 ELISA Technologies(R)
- -----------------------------------------------------------------------------------------------
Fruit--Vegetable Plant Disease-Qualitative -- 5 Alert(R)
Producers--Processors Plant Disease-Quantitative -- 4 Agri-Screen(R)
Bacteria Tests -- 2 Reveal(R)
Pesticide Test Agri-Screen Ticket(R)
General Sanitation Test HY-LITE(R)(1)
- -----------------------------------------------------------------------------------------------
Clinical and Pharmacologics Biologically Active Substances -- ELISA Technologies(R)
35 K-Gold(TM)
Substrate Reagents -- 2 K-Blue Substrate(R)
AMPCOR(R)
Serology Tests -- 5 Reveal(R)
Enteric Bacteria -- 2
- -----------------------------------------------------------------------------------------------
Private and Public Laboratories Natural Toxins -- 6 Veratox(R)
Bacteria Tests -- 2 Reveal(R)
Animal Drug Tests -- 55 ELISA Technologies(R)
Plant Disease -- 5 Alert(R)
Biologically Active Substances -- ELISA Technologies(R)
35 AMPCOR(R)
Serology Tests -- 5
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Registered trademark of Merck KGaA
(2) Registered trademark of Pfizer
22
<PAGE> 25
RESEARCH AND DEVELOPMENT
The Company maintains a strong commitment to research and development. The
Company's product development efforts are focused on the enhancement of existing
product lines in development of new products based on the Company's existing
technologies. The Company employs 17 individuals in its research and development
department, including immunologists, chemists, engineers and microbiologists.
Research and development expenditures were approximately $856,000, $1.1 million
and $1.2 million, representing 8%, 10% and 10% of total revenues in fiscal 1994,
1995 and 1996, respectively. The Company currently intends to maintain its
research and development expenditures at approximately 10% of total revenues.
The Company has ongoing development projects for new immunoassay diagnostic
tests for the food safety and pharmacologics markets, as well as development
projects for new and improved veterinary instruments. Current and ongoing
research and development projects include:
U.S. Department of Agriculture Grant. The Company continues to work on a
grant from the U.S. Department of Agriculture for the development of a
time-temperature test device. This simple device, if perfected, could be used
for accurate assessment or monitoring of a fast-food restaurant's cooking
process and equipment. Research on this project is expected to continue
throughout fiscal 1997. There can be no assurance that this product will
ultimately be successfully developed or marketed.
Collaboration with Academic Institutions. Since its inception, the Company
has identified a substantial amount of applied research in its area of interest
at universities that has been developed by researchers. The Company has worked
with over 45 scientific collaborators associated with 17 academic institutions.
The Company utilizes these relationships in three strategic ways: (i) the
technology is transferred from the scientist or university to the Company for
the completion of development from the precursor findings or laboratory
prototypes; (ii) the Company seeks out and contracts with university researchers
to aid its own staff in a part of the development activities for products
previously identified by the Company; and (iii) new products developed by the
Company are tested in laboratories on a widespread geographic basis prior to the
products' market release. The Company believes its research strategy has enabled
it to produce better products, faster and more cost effectively than if the
research, development and testing were done exclusively by Company employees in
Company facilities.
Other Collaboration Efforts. Portions of certain technologies utilized in
some products marketed by the Company were acquired from or developed in
collaboration with affiliated partnerships, independent scientists, governmental
units, universities, and other third parties. The Company has entered into
agreements with these parties which provide for the payment of royalties based
upon sales of products which utilize the pertinent technology. For fiscal 1994,
1995 and 1996, royalty payments under these agreements amounted to $476,159,
$521,690 and $579,045, respectively.
SALES AND MARKETING
The Company has chosen to organize its sales efforts according to market
segments rather than by product or geographic orientation. Management believes
that this strategy has been partially responsible for its revenue growth and
market share increases. The Company's sales and technical service organizations
understand their customers' businesses and are knowledgeable on how the
Company's various products can be used within those industries. Close
relationships built with these individual customers also help the Company
identify new diagnostic test products that can be useful.
During the fiscal year ended May 31, 1996, the Company had in excess of
1,000 customers for its products. Since many of these customers are
distributors, the total number of end users of the Company's products is
considerably larger. Sales to international markets in fiscal 1996 accounted for
21% of the Company's consolidated revenues. See Note 9 of the Notes to the
Company's Consolidated Financial Statements. No single distributor or customer
accounted for more than 10% of the Company's revenues in any of the past three
years.
The Company markets, sells and services its products in more than 70
countries through its own sales force, as well as through distributors in
certain geographic areas. Forty-nine people, or approximately 30% of
23
<PAGE> 26
the Company's total employees, are engaged in these sales and marketing
activities. The Company operates its sales and distribution organization
differently for given markets and products as summarized below:
Food Diagnostic Products. The Company has separately organized sales forces
that focus on the key industries in the food area. This group handles both sales
and technical services of the Company's disposable test kits. These products are
all sold directly to end-users in the U.S. Sales organizations are maintained
for: grain, nut and spices; meat, poultry and eggs; fruits and vegetables; and
seafood.
Veterinary Instruments. The animal health distribution market is well
organized in most countries of the world. Consequently, the Company markets
virtually all of its veterinary instruments through a network of domestic and
international distributors. These distributors typically market pharmaceutical
and biological products that are companions to veterinary instruments. The
Company has a sales force specifically dedicated to sales of this product line
through the distributor channels.
Clinical And Pharmacologic Biomedical Research. The Company does not
anticipate being a major factor in the marketing of products used in the human
clinical and pharmaceutical research areas. However, several products are
included in the Company's array of diagnostic tests as a result of acquisitions.
These products are profitable and synergistic to the Company's other
manufacturing activities. A separate sales organization is responsible for this
product group and sells through distributors and to large end users.
International Sales. Virtually all of the Company's sales to customers
outside of the U.S. and Canada are through well established distributors who
typically market the Company's products as well as other products that are used
by the same customer base. The Company's distribution organization is stronger
in the South and Central American countries than in Europe or Asia since this
geographic area was the Company's first focus. The Company is currently pursuing
distribution channels in Europe and Asia to increase sales. The Company does not
maintain sales offices outside the U.S.
PROPRIETARY PROTECTION AND APPROVALS
The Company applies for patents and trademarks whenever appropriate. Since
its inception, the Company has acquired and received 20 patents and 24
trademarks, and has several pending patents and trademarks. The patents expire
at various times over the next 20 years, beginning in 1997.
The Company has no material pending litigation as to proprietary rights to
its products which poses a significant threat to its operations, and management
believes that the Company has adequate protection as to proprietary rights for
its products. However, the Company is aware that substantial research in
agricultural biotechnology has taken place at universities, governmental
agencies and other companies throughout the world and that numerous patent
applications have been filed and that numerous patents have been issued. In
addition, patent litigation (none involving the Company or its products)
currently exists with respect to fundamental agricultural biotechnology and
biochemistry. Accordingly, there can be no assurance that the Company's existing
patents will be sufficient to protect completely the Company's proprietary
rights.
The Company uses trade secrets as proprietary protection in numerous of its
diagnostic products. In many cases, the Company has developed unique antibodies
capable of detecting residues in minute levels. The supply of these antibodies,
and the proprietary techniques utilized for their development, oftentimes offer
better protection than the filing of patents. Such proprietary reagents are kept
in secure facilities and stored in more than one location to circumvent their
destruction by natural disaster.
One of the major areas affecting the success of biotechnology development
involves the time, costs and uncertainty surrounding regulatory approvals.
Currently, the only Company products requiring regulatory approval are Bot
Tox-B(R) and serological test kits sold to human clinical laboratories (which
were acquired via the Company's acquisition of AMPCOR, Incorporated). On a
combined basis, sales for these products amounted to less than 10% of total
sales in fiscal year 1996. The Company's strategy is to select products on the
fringe of regulatory approval areas which do not require mandatory approval to
be marketed.
The Company does utilize third party validations on many of its disposable
test kits as a marketing tool to provide its customers with the proper
assurances. These include validation by the Association of Official Analytical
Chemists, independently administered third-party, multi-laboratory collaborative
studies and approvals by the U.S. Federal Grain Inspection Service and the U.S.
Food Safety Inspection Service for use of Company products in their own
laboratories.
24
<PAGE> 27
MANUFACTURING
The Company manufactures its products in Lansing, Michigan, Lexington,
Kentucky, Bridgeport, New Jersey, and Schiller Park, Illinois. There are
currently 73 full-time employees assigned to manufacturing in these four
locations. All locations generally operate on a one-shift basis, but could be
increased to a two-shift basis. The Company believes it could double its current
output of its two primary product lines using the current space available with
minimal amounts of additional capital equipment.
The Company's Schiller Park, Illinois facility, which is used primarily to
manufacture the Ideal veterinary instruments line, is a complete metal working
operation with equipment that allows Ideal to go from raw materials, such as
brass rod and tubing, to finished instruments with skin-wrapped merchandisable
packaging.
The Lexington, Kentucky facility is devoted exclusively to the manufacture
of pharmacological diagnostic test kits, test kits for drug residues and related
products marketed by ELISA Technologies. Proprietary antibodies for some of
these diagnostic kits were produced at the University of Kentucky under a
license and supply agreement. All other manufacturing operations, including
preparation of other reagents, quality assurance and final kit assembly, are
performed by ELISA Technologies personnel in the Lexington facilities.
The Bridgeport, New Jersey facility manufactures all of the Company's
one-step diagnostic tests for the detection of microorganisms as well as test
kits sold into the human clinical laboratory market. Proprietary monoclonal and
polyclonal antibodies are produced as needed in laboratories at the New Jersey
operations. Additional laboratory personnel prepare reagents and perform quality
assurance functions. Final kit assembly, packaging and shipping are all
performed in specific designated areas within the New Jersey facility. The
manufacture of the one-step diagnostic tests requires the use of several
custom-designed machines which enable manufacturing personnel to achieve
high-volume output on a per-hour basis.
Manufacturing diagnostic tests for natural toxins, pesticides and plant
disease diagnostic tests takes place at the Company's corporate headquarters in
Lansing, Michigan. Proprietary monoclonal and polyclonal antibodies for the
Company's diagnostic kits are produced on a regular schedule in the Company's
immunology laboratories in Lansing. Other reagents are similarly prepared by the
chemistry group. These component parts are then transferred to another section
in the same building, where final kit assembly and quality assurance are
conducted, and shipping takes place.
The Company purchases component parts and raw materials from over 200
suppliers. Though many of these supplies are purchased from a single source in
order to achieve the greatest volume discounts, the Company believes it has
identified acceptable alternative suppliers for all of its components and raw
materials.
Shipments of diagnostic test kits and veterinary instrument products are
generally accomplished within a 48-hour turnaround time. As a result of this
quick response time, the Company does not maintain a large backlog of unshipped
orders.
COMPETITION
The Company knows of no competitor that is pursuing its fundamental
strategy of developing a full line of products ranging from disposable tests to
veterinary instruments for a large number of food safety concerns. However, the
Company does have competitors for each of its primary product lines. The Company
competes with a large number of companies ranging from very small businesses to
divisions of large companies. Many of these firms have substantially greater
financial resources than the Company.
Academic institutions and other public and private research organizations
are also conducting research activities and may commercialize products on their
own or through joint ventures. The existence of competing products or procedures
that may be developed in future years may adversely affect the marketability of
the products developed by the Company.
The Company competes primarily on the basis of ease of use, speed,
accuracy, and other similar performance characteristics of its products. The
breadth of the Company's product line, the effectiveness of its sales and
customer service organizations and pricing are also components in the Company's
competitive plan.
25
<PAGE> 28
GOVERNMENTAL REGULATION
A significant portion of the Company's products are affected by the
regulations of various domestic and foreign government agencies, including the
U.S. Department of Agriculture and the U.S. Food and Drug Administration. Though
less than 10% of the Company's revenue is currently derived from products
requiring government approval prior to sale, a significant portion of its
revenue is derived from products used to monitor and detect the presence of
residues that are regulated by various government agencies. Furthermore, a
significant portion of the Company's growth may be affected by the
implementation of new regulations such as the U.S. Food and Drug
Administration's final rule, Procedures For The Safe And Sanitary Processing And
Importing Of Fish And Fishery Products, and the final rule of the U.S.
Department of Agriculture, Pathogen Reduction; Hazard Analysis And Critical
Control Point Systems.
EMPLOYEES
As of August 31, 1996, the Company employed approximately 160 full-time
persons. None of the employees are covered by collective bargaining agreements.
There have been no work stoppages or slow downs due to labor-related problems.
The Company believes that its relationship with its employees is good. All
employees having access to proprietary information have executed confidentiality
agreements with the Company.
PROPERTIES
The Company's corporate offices and Michigan-based manufacturing and
research facilities are maintained in a 25,000 square foot building located in
Lansing, Michigan. This facility was purchased by the Company on land contract
in August 1985 and is fully paid for. In fiscal 1996, the Company purchased
additional facilities comprising 1,100 square feet within one block of the
existing corporate headquarters. The new facility is used for offices to
accommodate eight persons employed in sales and marketing functions.
Veterinary instrument manufacturing operations are housed in a 34,000
square foot building located at 9355 West Byron Street in Schiller Park,
Illinois. The Company entered into a seven-year, non-cancelable operating lease
for this property effective August 1, 1993. The lease agreement provides for
annual lease payments of $100,300 for each of the first two years with annual
increases of approximately 3.5% thereafter for the remainder of the lease.
The ELISA Technologies operations are maintained in 9,000 square feet of
leased space on two floors of a three story building located at 628 East Third
Street in Lexington, Kentucky. The Company entered into a five-year,
non-cancelable operating lease for the space effective July 1, 1993. The lease
agreement provides for annual lease payments, including all utilities, of
$57,600 for the first year and increasing by $1,200 per year each year
thereafter.
The AMPCOR Diagnostics, Inc. operations are housed in 9,200 square feet of
leased space on one floor in a building located at 603 Heron Drive, Bridgeport,
New Jersey. The Company entered into a three-year three-month, non-cancelable
operating lease for the space effective February 1, 1995. The lease agreement
provides for annual lease payments of $37,585 plus additional rent equal to
$7,334 per year with the additional rent subject to annual increase based upon
actual increases to certain operating expenses.
Management believes that the Company's operating facilities are suitable
for conducting its current and anticipated business.
LEGAL PROCEEDINGS
Although the Company is a party to ordinary routine litigation incidental
to its business, there are no pending material adverse legal proceedings.
INSURANCE
The Company maintains product liability insurance on all products with a
coverage limit of $2 million per occurrence. In addition, the Company also
maintains insurance in amounts and types which the Company believes to be
customary in its industry.
26
<PAGE> 29
MANAGEMENT
The Company's Articles of Incorporation provide for a five to nine member
Board of Directors at the discretion of the then existing Board. Directors are
elected to one-year terms of office. The executive officers of the Company are
elected to serve until removed at the discretion of the Board. The Board of
Directors has also named a Scientific Review Council to serve at the pleasure of
the Board. The Scientific Review Council meets approximately 6 times annually to
review the research progress of the Company and to recommend or approve new
research and product development activities of the Company. The following table
sets forth certain information with respect to the directors, executive officers
and other key individuals of the Company as of the date of the Prospectus.
<TABLE>
<CAPTION>
YEAR JOINED
NAME POSITION WITH THE COMPANY THE COMPANY
- ------------------------------ ------------------------------------------------- -----------
<S> <C> <C>
Herbert D. Doan(1)(2)......... Chairman, Board of Directors..................... 1984
James L. Herbert.............. President, Chief Executive Officer, Director..... 1982
G. Bruce Papesh(3)............ Secretary, Director.............................. 1993
Gordon E. Guyer, Ph.D.(3)..... Director......................................... 1990
Robert M. Book(2)............. Director......................................... 1990
Leonard Heller, Ph.D.(3)...... Director......................................... 1992
Jack C. Parnell(1)............ Director......................................... 1993
Thomas H. Reed(2)............. Director......................................... 1995
Lon M. Bohannon............... Vice President, Chief Financial Officer, 1985
Director.........................................
Brinton M. Miller, Ph.D....... Vice President, Scientific Affairs............... 1984
Gerald S. Traynor............. Vice President................................... 1990
Donald W. Uglow............... Vice President................................... 1990
Terri A. Juricic.............. Vice President................................... 1992
Martin R. Gould............... Vice President, AMPCOR Diagnostics, Inc. ........ 1994
Sudhakar L. R. Vulimiri....... Vice President, AMPCOR Diagnostics, Inc. ........ 1994
David J. Ledden, Ph.D. ....... Vice President................................... 1994
Edward L. Bradley............. Vice President................................... 1994
John E. Cantlon, Ph.D. ....... Chairman, Scientific Review Council.............. 1990
N. Edward Tolbert, Ph.D. ..... Scientific Review Council........................ 1982
Robert Hollingworth, Ph.D. ... Scientific Review Council........................ 1991
Gavin L. Meerdink, DVM........ Scientific Review Council........................ 1992
Perry Gehring, Ph.D. ......... Scientific Review Council........................ 1994
</TABLE>
- -------------------------
(1) Member of Compensation Committee
(2) Member of Stock Option Committee
(3) Member of Audit Committee
There are no family relationships among directors, officers or key
individuals. Information concerning the Board of Directors, executive officers
and key individuals of the Company follows:
HERBERT D. DOAN, age 73, has been a director of the Company since September 1982
and the Company's Chairman of the Board of Directors since October 1984. Mr.
Doan has served as President of the Herbert H. and Grace A. Dow Foundation since
February 1996 and is chairman of the Michigan Molecular Institute, a position he
has held since 1964. He was formerly President and Chief Executive Officer of
Dow Chemical Company. He has been active as an independent venture capitalist
for the past five years.
JAMES L. HERBERT, age 56, has been President, Chief Executive Officer, and a
director of the Company since he joined the Company in June 1982. He previously
held the position of Corporate Vice President of DeKalb Ag Research, a major
agricultural genetics and energy company. He has management experience in animal
biologics, specialized chemical research, medical instruments, aquaculture,
animal nutrition, and poultry and livestock breeding and production.
27
<PAGE> 30
G. BRUCE PAPESH, age 49, was elected to the Board of Directors in October 1993
and was elected Secretary in October 1994. Mr. Papesh was co-founder of Dart,
Papesh & Co., a Lansing, Michigan based investment consulting and financial
services firm. He has served as President of Dart, Papesh and Co. Inc., since
1987. Mr. Papesh provides investment services to Dart Financial Corporation
which, as trustee of three trusts, owns 8.5% of the Company's Common Stock. Mr.
Papesh asserts that he has no investment power over the Company's common stock
owned by Dart Financial Corporation and its affiliates. Mr. Papesh also serves
on the Board of Directors of Immucor, Inc., a publicly traded immunodiagnostics
company that manufactures and market tests, reagents and instruments for the
human clinical blood bank industry.
DR. GORDON E. GUYER, age 70, joined the Board of Directors in January 1990. Dr.
Guyer recently retired as director for the Michigan Department of Agriculture, a
position he held since 1993. Dr. Guyer served as interim President of Michigan
State University and was Vice President of Governmental Affairs since 1988. From
1986 to 1988, he was Director of the Department of Natural Resources for the
State of Michigan.
ROBERT M. BOOK, age 66, was elected to the Board of Directors in November 1990.
Since January 1993, Mr. Book has served as President of AgriVista, Inc. a
company that provides agricultural consulting and marketing services. He served
as President of the Indiana Institute of Agriculture, Food and Nutrition, from
1983 through 1992. He was formerly Group Vice President of Agriculture Marketing
for Elanco Products Company. In January 1992, Mr. Book filed a petition for
relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court, Southern District of Indiana, Indianapolis Division. This petition was
discharged on February 24, 1994. The Company believes that the filing of this
petition has had no effect on Mr. Book's ability to serve as director.
DR. LEONARD E. HELLER, age 51, was elected to the Board of Directors in October
1992. He has been an independent consultant in the area of medical, biomedical,
and pharmaceutical information systems since 1993. From 1992 to 1993, he was
Secretary, Cabinet for Human Resources for the Commonwealth of Kentucky. From
1986 to 1993 he was part owner of O.J. Packaging Inc., a retail packaging
company, and a general partner in Illinois Diversatech, a real estate
development partnership located in Manteno, Illinois.
JACK C. PARNELL, age 61, was elected to the Board of Directors in October 1993.
Since 1991, he has held the position of Governmental Relations Advisor with the
law firm of Kahn, Soares and Conway. In 1989, Mr. Parnell was appointed by
President Bush to serve as Deputy Secretary for the U.S. Department of
Agriculture. From 1983 to 1989, he served in three different senior governmental
positions for the State of California, including Secretary for the California
Department of Food and Agriculture from 1987 to 1989. Prior to 1987, Mr. Parnell
was a private entrepreneur who owned and operated various businesses including
diversified cattle and farming operations. The firm of Kahn, Soares and Conway
currently acts as the Company's government relations advisor.
THOMAS H. REED, age 51, was elected to the Board of Directors in October 1995.
He currently serves as President and Chief Executive Officer for the Michigan
Livestock Exchange where he has worked since 1977. Mr. Reed is a member of the
Board of Directors of City Bank, St. Johns, Michigan and is a former chairman of
the Michigan State University Board of Trustees.
LON M. BOHANNON, age 43, joined the Company in October 1985 as Vice President of
Finance, was promoted to Chief Financial Officer in June 1987, was promoted to
Vice President-Administration and Chief Financial Officer in November 1994, and
elected to the Board of Directors in October 1996. He is responsible for all
areas of accounting, finance, human resources, and investor relations. A CPA, he
was Administrative Controller for Federal Forge, Inc., a metal forging and
stamping firm, from March 1980 until October 1985, and a member of the public
accounting firm of Ernst & Young from June 1975 to March 1980.
DR. BRINTON M. MILLER, age 69, joined the Company in January 1984 as Vice
President of Research and Development. He presently serves as the Company's
chief scientific officer. Prior to joining the Company, Dr. Miller held numerous
research management positions during his 27 years with Merck, Sharp and Dohme
Laboratories.
28
<PAGE> 31
GERALD S. TRAYNOR, age 61, joined the Company in July 1990 as General Manager
for Ideal Instruments, Inc. He was promoted to Vice President of Instrument
Development and Manufacturing in January 1991 with responsibility for the
Company's veterinary instrument and electronic instrument manufacturing
operations. He was Vice President of Manufacturing for Martin Yale Industries
for three years before joining the Company and had served in the same position
with The Hedman Company from 1983-1987. Earlier, he served 16 years in various
manufacturing management positions at ITT.
DONALD W. UGLOW, age 55, joined the Company in October 1990 as Vice President of
Diagnostic Sales. He is responsible for sales activities for the Company's line
of diagnostic products for food safety to the grain, nut and spice, and the
fruit and vegetable markets. Prior to joining the Company, he served for four
years as Ag Chemical Sales and Marketing Manager for Great Lakes Chemical
Company. Prior to his experience at Great Lakes Chemical, he owned and operated
a farm implement business and served in sales and marketing management of
Ciba-Geigy.
TERRI A. JURICIC, age 31, joined the Company in September 1992 as part of the
Company's acquisition of WTT, Incorporated. She currently serves as Vice
President and General Manager of the Company's ELISA Technologies division. Ms.
Juricic graduated from Miami University in 1986. From 1986 to 1991, she was
Controller for Freeze Point Cold Storage Systems and concurrently served in the
same capacity for Powercore, Inc. In 1990, she joined WTT, Incorporated as
President, the position she held at the time the Company acquired the business.
MARTIN R. GOULD, age 45, joined the Company in August 1994 in connection with
the Company's acquisition of AMPCOR, Incorporated. He currently serves as Vice
President and General Manager for AMPCOR Diagnostics, Inc. From 1974 to 1986 he
served as manager of Research and Development and Production Manager for E.M.
Science, a division of Merck and Company. In 1987, he joined AMPCOR,
Incorporated, as President, a position he held at the time the Company acquired
the business.
SUDHAKAR L. R. VULIMIRI, age 41, joined the Company in August 1994 as part of
the Company's acquisition of AMPCOR, Incorporated. His current responsibilities
as Vice President of AMPCOR Diagnostics, Inc. include manufacturing,
engineering, and product development. From 1983 to 1987 he worked for E.M.
Diagnostic Systems, a division of Merck and Company, serving in the positions of
research scientist and research engineer. In 1987, he joined AMPCOR,
Incorporated as its firm's Executive Vice President.
DR. DAVID J. LEDDEN, age 44, joined the Company in December 1994 as Vice
President of Research and Development responsible for overseeing all of the
Company's research and development programs at all locations. From 1990 to 1994,
Dr. Ledden was Manager of Immunoreagents and Protein Chemistry at Boehringer
Mannheim in Indianapolis where he managed a 25 person R & D group. Dr. Ledden
has also held R & D management positions at 3M Corporation and the Ames Division
of Miles Laboratories. Dr. Ledden received his B.S. and M.S. degrees in
Biochemistry from Penn State University and his Ph.D. in Biochemistry from the
University of Louisville.
EDWARD L. BRADLEY, age 36, joined the Company in February 1995 as Vice President
of Sales and Marketing for AMPCOR Diagnostics, Inc. In June 1996, he also
assumed sales and marketing management responsibilities for Ideal Instruments.
From 1988 to 1995, Bradley served in several sales and marketing capacities for
Mallinckrodt Animal Health, most recently holding the position of National Sales
Manager responsible for the company's 40 employees in their Food Animal Products
Division. Prior to joining Mallinckrodt, Bradley held several sales and
marketing positions for Stauffer Chemical Company.
DR. JOHN E. CANTLON joined the Scientific Review Council in August 1990 and was
elected chairman in 1992. He was a member of the faculty of Michigan State
University from June 1954 until he retired in 1990. He served as Vice President
of Research and Graduate Studies for Michigan State University beginning in
1975.
DR. N. EDWARD TOLBERT has been a member of the Scientific Review Council since
February 1984. He has been a professor of biochemistry at Michigan State
University since June 1958, is the former president of the Society of Plant
Physiology and a member of the National Academy of Sciences.
29
<PAGE> 32
DR. ROBERT HOLLINGWORTH joined the Scientific Review Council in July 1991. Since
1987, he has served as director of the Pesticide Research Center and professor
at Michigan State University. Prior to joining Michigan State University, Dr.
Hollingworth was a professor in the Department of Entomology at Purdue
University for over 20 years.
DR. GAVIN L. MEERDINK joined the Scientific Review Council in October 1992. Dr.
Meerdink has a 20-year career as a diagnostician and toxicologist with special
interest in agricultural chemicals and mycotoxins. Since 1989, he has served as
Professor and Head of Clinical Toxicology in the College of Veterinary Medicine
at the University of Illinois. From 1983 to 1989 he was Chief Diagnostician and
Research Scientist at the University of Arizona and he has held associate
professorships at Michigan State University and Iowa State University. Early in
his career, Dr. Meerdink spent four years in private practice as a Doctor of
Veterinary Medicine.
DR. PERRY GEHRING joined the Scientific Review Council in April 1994. Dr.
Gehring has served as Vice President for Research and Development of Dow Elanco
since 1989. His career has focused primarily on the study of toxicity of
chemical substances. In addition to his current position, he has held various
senior research and development executive positions for the Dow Chemical
Company.
30
<PAGE> 33
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial ownership of
the Company's Common Stock as of October 11, 1996. Information is included for:
(i) each person or entity known by the Company to own beneficially more than 5%
of the Company's outstanding Common Stock prior to this offering; (ii) each of
the Company's directors who beneficially own the Company's Common Stock; and
(iii) all directors and officers as a group who beneficially own the Company's
Common Stock.
<TABLE>
<CAPTION>
PERCENT PERCENT OWNED
SHARES OWNED PRIOR AFTER
NAME AND ADDRESS OWNED TO OFFERING OFFERING(1)
- ------------------------------------------------------------------ ------- ----------- -------------
<S> <C> <C> <C>
Dart Financial Corporation, as trustee of the
Kenneth B. Dart Residual Trust, the Robert C. Dart Residual Trust
and the Thomas J. Dart Residual Trust
c/o First Interstate Bank of Nevada, N.A.
Trust Department
3800 Howard Hughes Parkway, Suite 200
Las Vegas, NV 89190............................................... 389,675 8.5% 6.4%
Herbert D. Doan(2)
P.O. Box 169
Midland, MI 48640................................................. 302,888 6.6% 5.0%
James L. Herbert(2)
Neogen Corporation
620 Lesher Place
Lansing, MI 48912................................................. 271,010 5.9% 4.4%
Gordon E. Guyer, Ph.D(2)
862 Whitman Dr.
East Lansing, MI 48823............................................ 17,999 * *
Robert M. Book(2)
c/o AgriVista
8440 Woodfield Crossing Blvd.
Suite 300
Indianapolis, IN 46240-3400....................................... 15,999 * *
Leonard E. Heller, Ph.D(2)
260 Mount Tabor Rd. #1
Lexington, KY 40502............................................... 56,766 1.2% *
G. Bruce Papesh(2)
c/o Dart Papesh and Co., Inc.
501 S. Capital Ave.
Suite 111
Lansing, MI 48933-2331............................................ 11,999 * *
Jack C. Parnell(2)
c/o Kahn, Soares and Conway
1112 "I" Street, Suite 200
Sacramento, CA 95814.............................................. 11,999 * *
Thomas H. Reed(2)
c/o Michigan Livestock Exchange
2651 Coolidge Rd.
East Lansing, MI 48823............................................ 1,866 * *
Lon M. Bohannon(2)
Neogen Corporation
620 Lesher Place
Lansing, MI 48912................................................. 82,837 1.8% 1.4%
All current directors and executive officers as a group (sixteen
persons)(2)....................................................... 872,383 18.3% 13.9%
</TABLE>
- -------------------------
* Less than 1%
(1) Assumes that these stockholders do not purchase any shares which are the
subject of this offering.
(2) Includes the following shares of Common Stock which directors and executive
officers have the right to acquire by exercise of options within 60 days of
October 11, 1996; Mr. Doan -- 19,999 shares; Mr. Herbert -- 28,000 shares;
Dr. Guyer -- 17,999 shares; Mr. Book -- 15,999 shares; Dr. Heller -- 13,999
shares; Mr. Papesh -- 11,999 shares; Mr. Parnell -- 11,999 shares; Mr.
Bohannon -- 9,400 shares; all current directors and executive officers as a
group -- 176,860.
31
<PAGE> 34
CERTAIN TRANSACTIONS
Dr. Leonard E. Heller, a member of the Board of Directors, and Terri A.
Juricic, a Vice President of the Company, owned 55% and 20%, respectively, of
WTT Incorporated, a Kentucky-based company which sold immunoassay diagnostics
for agricultural and research markets. In September 1992, the Company acquired
substantially all of the assets of WTT. The purchase price consisted of an
initial payment of cash and stock and a secondary payment of stock in October
1993, which resulted in total consideration of approximately $1,120,000. It is
estimated that Dr. Heller's share of this transaction, after deducting
liabilities of WTT not assumed by the Company, was approximately $313,000 in
cash and 42,767 shares of the Company's Common Stock. It is estimated that Ms.
Juricic's share of this transaction, after deducting liabilities of WTT not
assumed by the Company, was approximately $114,000 in cash and 15,552 shares of
the Company's Common Stock.
Martin R. Gould and Sudhakar L. R. Vulimiri, Vice Presidents of a
wholly-owned subsidiary of the Company, owned 32% and 20%, respectively, of
AMPCOR, Incorporated, a New Jersey-based company which sold diagnostic test kits
to detect microorganisms. In August 1994, the Company acquired substantially all
of the assets of AMPCOR, Incorporated. The initial purchase price consisted of a
payment of cash, stock, and assumption of certain liabilities which resulted in
total consideration of approximately $1,760,600 (See Note 3 of the Notes to the
Company's Consolidated Financial Statements). It is estimated that Mr. Gould's
share of this transaction, after deducting liabilities of AMPCOR, Incorporated
not assumed by the Company, was approximately $104,000 consisting of 17,800
shares of the Company's Common Stock. It is estimated that Mr. Vulimiri's share
of this transaction, after deducting liabilities of AMPCOR, Incorporated not
assumed by the Company, was approximately $65,000 consisting of 11,000 shares of
the Company's Common Stock.
Jack C. Parnell, a Company director, is a governmental relations advisor to
the law firm of Kahn, Soares & Conway. Kahn, Soares & Conway has been retained
by the Company to represent it in governmental relations matters. The Company
pays Kahn, Soares & Conway a monthly fee of $1,750 for ten hours of consulting.
The agreement with Kahn, Soares & Conway is terminable by either party at the
end of any month.
32
<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 10,000,000 shares of
common stock, $.16 par value. The following description of certain matters
relating to the capital stock of the Company is a summary and is qualified in
its entirety by the provisions of the Company's Articles of Incorporation.
COMMON STOCK
The Company had 4,599,142 shares issued and outstanding immediately prior
to the date of this Prospectus. Holders of Common Stock are entitled to one vote
for each share held on all matters submitted to a vote of stockholders and do
not have cumulative voting rights. Accordingly, holders of a majority of the
outstanding shares of Common Stock entitled to vote in any election of Directors
may elect all of the Directors standing for election.
Holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
therefor. Upon the liquidation, dissolution or winding-up of the Company,
holders of Common Stock are entitled to receive ratably the net assets of the
Company available for distribution after the payment of all debts and other
liabilities of the Company. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of Common
Stock are, and the shares offered hereby will be, when issued and paid for,
fully paid and nonassessable.
MICHIGAN LEGISLATION/CERTAIN PROVISIONS OF THE MICHIGAN BUSINESS CORPORATION ACT
The Company is subject to the provisions of Chapter 7A of the Michigan
Business Corporation Act ("MBCA") which applies to certain "Business
Combinations", defined to include a range of significant transactions such as
mergers, substantial sales of assets or securities issuances and liquidation,
recapitalization or reorganization plans. In general, Chapter 7A requires, for
any Business Combination with an "Interested Shareholder" (generally a
beneficial owner of 10% or more of the voting power of the Company's outstanding
voting stock), an advisory statement from the Board of Directors, the approval
of holders of at least 90% of the outstanding shares of each class of Company
voting stock and the approval of two-thirds of the holders of outstanding shares
of each such class, excluding those held by the Interested Shareholder, its
affiliates and associates. These requirements do not apply, however, where the
Interested Shareholder satisfies certain "fair price" form of consideration and
procedural requirements specified in the Chapter (including a requirement that
the Business Combination not occur within five years of attainment of Interested
Shareholder status) or where the Company's Board has approved the transaction
specifically, generally or generally by type prior to the Interested Shareholder
becoming an Interested Shareholder. Chapter 7A would cease to apply to the
Company if its Charter were amended to elect not to be covered by the Chapter,
but such an amendment would require the same votes for approval as the Chapter
requires for approval of a Business Combination with an Interested Shareholder.
The Company also is subject to Chapter 7B of the MBCA. Generally, Chapter
7B would divest of all voting rights any shares of the Common Stock acquired in
a "Control Share Acquisition", defined, subject to certain exclusions (including
an exclusion for a merger or consolidation to which the Company is a party), as
any acquisition of issued and outstanding "Control Shares", unless and until a
majority of all shares, and of all non-"Interested Shares", approve such voting
rights. In general, "Interested Shares" are shares owned or controlled as to
voting power by employee-directors of the Company, certain of its officers, the
entity making or proposing to make the Control Share Acquisition or its
affiliates. "Control Shares" are defined as shares that, when added to those
already owned or controlled as to voting power by an entity, would (if not for
the Chapter) give the entity voting power in the election of directors of the
Company within any of three thresholds: one-fifth, one-third and a majority. If
a Control Share Acquisition is approved as required by Chapter 7B, the Chapter
would afford special dissenters' rights to Company shareholders thereafter. By
an amendment to its Articles of Incorporation or Bylaws electing not to be
covered, either the Company's Board of Directors or its shareholders could cause
the Chapter to be inapplicable to Control Share Acquisitions
33
<PAGE> 36
occurring hereafter, for as long as such amendment continued in effect. The
Board currently has no plans to effect any such amendment, nor is it aware of
any other plans or proposals to do so.
The MBCA also contains certain "anti-greenmail" provisions, intended
generally to limit a covered corporation's ability to purchase shares from a 3%
or more shareholder at a premium over market price absent some form of prior
approval by the corporation's shareholders. These provisions are only triggered,
however, where the corporation has a class of securities listed on a national
securities exchange. Currently, the Company has no such class of listed stock
and no intention of effecting any such listing.
The foregoing discussion concerning the Common Stock and provisions of the
MBCA is qualified in its entirety by reference to pertinent sections of the
Company's Articles of Incorporation and to such MBCA provisions, respectively. A
copy of the Articles of Incorporation is on file with the Commission as an
exhibit to the Registration Statement. See "Additional Information."
Under Sections 561-571 of the MBCA, directors and officers of a Michigan
corporation may be entitled to indemnification by the corporation against
judgments, expenses, fines and amounts paid by the director or officer in
settlement of claims brought against them by third persons or by or in the right
of the corporation if those directors and officers acted in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the corporation or its shareholders.
The Company is obligated under its bylaws to indemnify any present or
former director, officer or employee of the Company to the fullest extent now or
hereafter permitted by law in connection with any actual or threatened civil,
criminal, administrative or investigative action, suit or proceeding arising out
of their past or future service to the Company or a subsidiary, or to another
organization at the request of the Company or a subsidiary.
In addition, the MBCA permits a Michigan corporation to limit the personal
liability of directors for breach of their fiduciary duty. The Company's
Articles of Incorporation so limit the liability of its directors to the maximum
extent permitted by Michigan law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer and Trust Company of New York.
34
<PAGE> 37
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms
and conditions contained in the Underwriting Agreement, to purchase from the
Company the aggregate number of shares of Common Stock (assuming the
Underwriters' over-allotment option is not exercised) set forth below opposite
their respective names.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Roney & Co.......................................................................
The Ohio Company.................................................................
---------
Total....................................................................... 1,500,000
=========
</TABLE>
The Underwriting Agreement provides that all of the Common Stock being
offered, excluding shares covered by the over-allotment option granted to the
Underwriters, must be purchased if any are purchased.
The Company has been advised that the several Underwriters propose to offer
the Common Stock to the public at the public offering price set forth on the
cover page of this Prospectus and may offer to selected dealers at such price
less a concession of not more than $ per share; that the Underwriters may
allow and such dealers may reallow a concession of $ per share on sales to
certain other dealers; and that the public offering price and concessions and
reallowances to dealers may be changed by the Underwriters.
The Company has granted to the Underwriters options to purchase up to an
additional 225,000 shares of Common Stock at the public offering price, less the
underwriting discounts and commissions, shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. The options may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent that such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth in the table above bears to the
total number of shares of Common Stock offered.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
All of the executive officers and directors of the Company have agreed not
to offer, sell, contract to sell, or grant any option to purchase or otherwise
dispose of any of the shares of Common Stock during the period of 90 days after
the date of this Prospectus without the prior written consent of Roney & Co. and
The Ohio Company ("Representatives"). The Company has further agreed not to
offer, sell, contract to sell, or otherwise dispose of any shares of Common
Stock or any securities convertible into shares of Common Stock (except pursuant
to employee and director stock plans or in consideration of acquisitions) for a
period of 90 days after the date of this Prospectus without the prior written
consent of the Representatives.
In connection with this offering, the Underwriters and selling group
members (if any) may engage in passive market making transactions in the shares
of Common Stock on the Nasdaq National Market immediately prior to the
commencement of sales in this offering, in accordance with Rule 10b-6A under the
Exchange Act. Passive market making consists of displaying bids on the Nasdaq
National Market limited by the bid prices of independent market makers and
purchases limited by such prices and effected in response to order flow. Net
purchases by a passive market maker on each day are limited to a specific
percentage of the
35
<PAGE> 38
passive market maker's average daily trading volume in the shares of Common
Stock during a specified prior period and must be discontinued when such limit
is reached. Passive market making may stabilize the market price of the shares
of Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Fraser Trebilcock Davis & Foster, P.C.,
Lansing, Michigan. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Honigman Miller Schwartz and Cohn, Detroit,
Michigan.
EXPERTS
The financial statements included and incorporated by reference in this
Prospectus and in the Registration Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the periods
set forth in their report appearing elsewhere herein and incorporated herein by
reference, and are included and incorporated herein in reliance upon such report
given upon the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington D.C., a Registration Statement under the Securities Act of 1933 with
respect to the Common Stock being offered by this Prospectus. This Prospectus
does not contain all of the information contained in the Registration Statement.
For further information about the Company and the Common Stock offered,
reference is made to the Registration Statement and its exhibits and schedules.
Statements contained in this Prospectus as to the contents of any contract or
any other documents are not necessarily complete. Where the contract or other
document is an exhibit to the Registration Statement, each statement is
qualified in all respects by the provisions of that agreement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy information and statements and
other information filed by the Company with the Commission can be inspected and
copies at the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at 7 World Trade Center, Suite 1300, New York,
New York. Copies may be obtained, at prescribed rates, by mail from the Public
Reference Section of the Commission at its Washington, D.C. address set forth
above. The Commission maintains a Web site that contains reports, proxy
information and statements, and other information regarding registrants that
file electronically with the Commission. The Web site address is
http://www.sec.gov. The Company files electronically.
36
<PAGE> 39
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission are incorporated herein by reference:
A. The Company's Annual Report on Form 10-KSB for the fiscal year
ended May 31, 1996;
B. The Company's Quarterly Report on Form 10-QSB for the quarter ended
August 31, 1996;
C. The Company's Registration Statement on Form 8-A registering the
Common Stock under Section 12(g) of the Exchange Act.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to September 13, 1996
and prior to the termination of the offering of the Common Stock registered
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modified or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). Requests for such copies should
be directed to the Investor Relations Department of the Company, 620 Lesher
Place, Lansing, Michigan 48912; (517) 372-9200.
37
<PAGE> 40
NEOGEN CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets as of May 31, 1995, May 31, 1996 and
August 31, 1996 (Unaudited)......................................................... F-3
Consolidated Statements of Operations for the Years Ended May 31, 1994, May 31, 1995
and May 31, 1996 and for the Three Months Ended August 31, 1995 (Unaudited) and
August 31, 1996 (Unaudited)......................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended May 31, 1994, May
31, 1995 and May 31, 1996 and for the Three Months Ended August 31, 1996
(Unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended May 31, 1994, May 31, 1995
and May 31, 1996 and for the Three Months Ended August 31, 1995 (Unaudited) and
August 31, 1996 (Unaudited)......................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Neogen Corporation
Lansing, Michigan
We have audited the accompanying consolidated balance sheets of Neogen
Corporation and subsidiaries as of May 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended May 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Neogen
Corporation and subsidiaries at May 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1996 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Troy, Michigan
July 18, 1996
F-2
<PAGE> 42
NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
------------------------- AUGUST 31,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (Note 4)
Current Assets
Cash and equivalents............................................ $ 2,237,979 $ 2,183,033 $ 2,389,129
Accounts receivable, less allowance for doubtful
accounts of $152,000, $185,000 and $260,000................... 1,681,200 1,643,181 2,127,922
Inventories (Notes 1 and 2)..................................... 3,806,872 3,378,671 3,387,907
Prepaid expenses and other current assets....................... 355,027 318,882 356,798
----------- ----------- -----------
Total Current Assets.............................................. 8,081,078 7,523,767 8,261,756
----------- ----------- -----------
Property and Equipment
Land and improvements........................................... 22,715 33,882 33,882
Buildings and improvements...................................... 394,551 440,532 446,573
Machinery and equipment......................................... 2,895,263 3,192,665 3,310,681
Furniture and fixtures.......................................... 363,764 305,139 315,695
----------- ----------- -----------
3,676,293 3,972,218 4,106,831
Less accumulated depreciation................................... 2,363,623 2,590,430 2,677,868
----------- ----------- -----------
Net Property and Equipment........................................ 1,312,670 1,381,788 1,428,963
----------- ----------- -----------
Intangible and Other Assets
Goodwill, net of accumulated amortization of
$109,441, $210,740 and $236,065 (Note 3)...................... 1,513,032 2,034,153 2,061,951
Other assets, net of accumulated amortization of
$241,971, $330,810 and $352,019............................... 631,826 591,436 571,373
----------- ----------- -----------
Total Intangible and Other Assets................................. 2,144,858 2,625,589 2,633,324
----------- ----------- -----------
$11,538,606 $11,531,144 $12,324,043
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable -- banks (Note 4)................................. $ 1,058,946 $ 1,043,946 $ 1,028,946
Accounts payable................................................ 742,652 497,502 651,913
Accruals
Compensation and benefits..................................... 338,407 369,788 506,590
Restructuring charges (Note 2)................................ -- 217,794 163,812
Other......................................................... 65,129 88,878 179,946
Current maturities of long-term debt (Note 4)................... 87,136 71,147 71,147
----------- ----------- -----------
Total Current Liabilities......................................... 2,292,270 2,289,055 2,602,354
Long-Term Debt, less current maturities (Note 4).................. 351,233 278,918 261,131
Other Long-Term Liabilities....................................... 58,671 105,467 105,467
----------- ----------- -----------
Total Liabilities................................................. 2,702,174 2,673,440 2,968,952
----------- ----------- -----------
Commitments (Notes 6 and 8)
Stockholders' Equity (Note 5)
Common stock, $.16 par value, shares authorized
10,000,000; issued and outstanding 4,460,027, 4,559,260
and 4,598,042................................................. 713,604 729,482 735,687
Additional paid-in capital...................................... 13,592,684 13,841,617 13,932,040
Retained earnings (deficit)..................................... (5,469,856) (5,713,395) (5,312,636)
----------- ----------- -----------
Total Stockholders' Equity........................................ 8,836,432 8,857,704 9,355,091
----------- ----------- -----------
$11,538,606 $11,531,144 $12,324,043
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 43
NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION> THREE MONTHS ENDED
YEAR ENDED MAY 31, AUGUST 31,
--------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Sales........................... $10,590,778 $11,368,672 $12,328,103 $ 2,847,579 $ 4,030,363
Contract revenues............... 144,185 357,583 162,308 78,065 4,560
----------- ----------- ----------- ---------- ----------
10,734,963 11,726,255 12,490,411 2,925,644 4,034,923
----------- ----------- ----------- ---------- ----------
Operating Expenses
Cost of goods sold.............. 4,704,315 5,151,957 5,484,524 1,182,238 1,546,190
Sales and marketing............. 2,834,964 3,284,420 3,538,876 858,554 1,169,641
General and administrative...... 1,417,280 1,523,883 1,773,966 431,297 555,046
Research and development........ 856,107 1,136,003 1,237,643 321,335 348,074
Restructuring charges (Note
2)........................... -- -- 695,500 -- --
----------- ----------- ----------- ---------- ----------
9,812,666 11,096,263 12,730,509 2,793,424 3,618,951
----------- ----------- ----------- ---------- ----------
Operating Income (Loss)........... 922,297 629,992 (240,098) 132,220 415,972
----------- ----------- ----------- ---------- ----------
Other Income (Expense)
Interest income................. 64,563 89,785 75,733 18,391 22,458
Interest expense................ (33,936) (99,898) (153,286) (36,376) (30,968)
Other........................... (71,120) 83,128 81,312 24,003 5,000
----------- ----------- ----------- ---------- ----------
(40,493) 73,015 3,759 6,018 (3,510)
----------- ----------- ----------- ---------- ----------
Income (Loss) Before Taxes On
Income.......................... 881,804 703,007 (236,339) 138,238 412,462
Taxes On Income (Note 7).......... (26,000) (24,300) (7,200) (7,200) (11,703)
----------- ----------- ----------- ---------- ----------
Net Income (Loss)................. $ 855,804 $ 678,707 $ (243,539) $ 131,038 $ 400,759
=========== =========== =========== ========== ==========
Net Income (Loss) Per Share (Note
1).............................. $.19 $.15 $(.05) $.03 $.08
=========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 44
NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1994, 1995 AND 1996
AND THREE MONTHS ENDED AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, June 1, 1993..................... 4,068,294 $650,927 $12,422,915 $(7,004,367)
Issuance of common shares in connection
with acquisitions (Note 3)........... 223,160 35,706 622,164 --
Exercise of options..................... 38,275 6,124 63,736 --
Net income for the year................. -- -- -- 855,804
--------- -------- ----------- -----------
Balance, May 31, 1994..................... 4,329,729 692,757 13,108,815 (6,148,563)
Issuance of common shares in connection
with acquisitions (Note 3)........... 55,753 8,920 316,080 --
Exercise of options..................... 34,525 5,524 46,343 --
Exercise of warrants.................... 40,020 6,403 121,446 --
Net income for the year................. -- -- -- 678,707
--------- -------- ----------- -----------
Balance, May 31, 1995..................... 4,460,027 713,604 13,592,684 (5,469,856)
Exercise of options..................... 59,300 9,489 130,332 --
Exercise of warrants.................... 39,933 6,389 118,601 --
Net loss for the year................... -- -- -- (243,539)
--------- -------- ----------- -----------
Balance, May 31, 1996..................... 4,559,260 729,482 13,841,617 (5,713,395)
Exercise of options (unaudited)......... 37,000 5,920 82,119 --
Exercise of warrants (unaudited)........ 1,782 285 8,304 --
Net income for the period (unaudited)... -- -- -- 400,759
--------- -------- ----------- -----------
Balance, August 31, 1996 (unaudited)...... 4,598,042 $735,687 $13,932,040 $(5,312,636)
========= ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 45
NEOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MAY 31, AUGUST 31,
-------------------------------------- --------------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities
Net income (loss)................ $ 855,804 $ 678,707 $ (243,539) $ 131,038 $ 400,759
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities
Depreciation and
amortization................ 354,564 488,590 537,232 131,213 139,202
Loss (gain) on sale of
property and equipment...... (334) (11,121) 2,489 -- --
Changes in operating assets
and liabilities
Accounts receivable......... (59,140) (400,322) 38,019 (229,173) (484,741)
Inventories................. 70,830 (844,783) 460,838 (129,517) (9,236)
Prepaid expenses and other
current assets........... (43,600) (86,571) 45,451 (32,710) (37,916)
Accounts payable............ 260,951 (72,244) (245,150) 42,190 154,411
Accrued liabilities......... 299,083 (229,756) 272,923 (84,472) 173,888
---------- ---------- ---------- ---------- ----------
Net Cash Provided By (Used In)
Operating Activities............. 1,738,158 (477,500) 868,263 (171,431) 336,367
---------- ---------- ---------- ---------- ----------
Cash Flows From Investing
Activities
Proceeds from sale of property
and equipment................. 6,699 161,236 7,863 -- --
Purchases of property, equipment
and other assets.............. (189,178) (551,972) (412,523) (189,497) (140,990)
Acquisitions of businesses....... (21,990) (812,957) (680,056) (680,056) (53,122)
---------- ---------- ---------- ---------- ----------
Net Cash Used In Investing
Activities....................... (204,469) (1,203,693) (1,084,716) (869,553) (194,112)
---------- ---------- ---------- ---------- ----------
Cash Flows From Financing
Activities
Net borrowing (payments) on notes
payable -- banks.............. (150,000) 871,945 (15,000) -- (15,000)
Proceeds from long-term
borrowings.................... -- 70,000 -- -- --
Payments on long-term
borrowings.................... (164,482) (209,430) (88,304) (22,052) (17,787)
Net proceeds from issuance of
common shares................. 69,860 179,716 264,811 6,285 96,628
---------- ---------- ---------- ---------- ----------
Net Cash Provided By (Used In)
Financing Activities............. (244,622) 912,231 161,507 (15,767) 63,841
---------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Cash and
Equivalents...................... 1,289,067 (768,962) (54,946) (1,056,751) 206,096
Cash and Equivalents, at beginning
of period........................ 1,717,874 3,006,941 2,237,979 2,237,979 2,183,033
---------- ---------- ---------- ---------- ----------
Cash and Equivalents, at end of
period........................... $3,006,941 $2,237,979 $2,183,033 $ 1,181,228 $ 2,389,129
========== ========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 46
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
Neogen Corporation and subsidiaries (the Company) develop, manufacture, and
sell products to control residues and improve quality for the agriculture,
pharmacologics, food and environmental industries. The Company's products are
currently used for animal health applications, food and environmental testing,
and in medical research.
Basis of Consolidation
The consolidated financial statements include the accounts of Neogen
Corporation, Ideal Instruments, Inc. (Ideal), AMPCOR Diagnostics, Inc. (AMPCOR)
and several majority owned companies which are general partners for research
limited partnerships. The investments in partnerships are not significant to the
consolidated financial statements.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect (1) the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the date of the financial
statements, and (2) revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company attempts to minimize credit risk by reviewing all customers' credit
history before extending credit and by monitoring customers' credit exposure on
a continuing basis. The Company establishes an allowance for possible losses on
accounts receivable based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
Fair Values of Financial Instruments
The carrying amounts of cash and equivalents, accounts receivable, accounts
payable, and accrued expenses approximate fair value because of the short
maturity of these items.
The carrying amounts of the notes payable and long-term debt issued
pursuant to the Company's bank credit agreements approximate fair value because
the interest rates on these instruments change with market rates.
Cash Equivalents
Cash equivalents are short-term, highly liquid investments consisting of
primarily money market funds, certificates of deposit and commercial paper.
F-7
<PAGE> 47
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
Inventories
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market. The components of inventories are as follows:
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
------------------------- ----------
1995 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
Raw material......................... $1,624,271 $1,468,316 $1,366,068
Work-in-process...................... 778,831 889,110 837,490
Finished goods....................... 1,403,770 1,021,245 1,184,349
---------- ---------- ----------
$3,806,872 $3,378,671 $3,387,907
========== ========== ==========
</TABLE>
Property and Equipment
Property and equipment is stated at cost. Expenditures for major
improvements are capitalized while repairs and maintenance are charged to
expense. Depreciation is provided on the straight-line method over the estimated
useful lives of the respective assets, generally twenty to thirty-one years for
buildings and improvements and three to ten years for furniture, machinery and
equipment. Depreciation expense was $258,644, $336,204 and $320,869 for the
years ended May 31, 1994, 1995 and 1996, and $92,234 and $96,384 for the three
months ended August 31, 1995 and 1996, respectively.
Intangible Assets
Goodwill represents the excess of acquisition costs over the estimated fair
value of net assets acquired. Goodwill is amortized on a straight-line basis
over periods ranging from fifteen to twenty-five years. The Company reviews
goodwill for impairment based upon undiscounted cash flows over the remaining
lives of the goodwill. If necessary, impairment will be measured based on the
difference between undiscounted future cash flows and the net book value of the
related goodwill.
Other intangible assets, consisting primarily of covenants not to compete,
licenses and patents, are recorded at fair value at the date of acquisition.
These intangible assets are amortized on a straight-line basis over periods
ranging from five to seventeen years.
Revenue Recognition
The Company recognizes product sales at the time of shipment. Contract
revenues are recognized as services are performed using the percentage of
completion method and/or upon achievement of certain levels of performance as
specified in the contracts.
Net Income (Loss) Per Share
Net income (loss) per share amounts are computed based on the weighted
average number of common shares outstanding, adjusted to reflect the assumed
exercise of outstanding stock options and warrants, to the extent these items
had a dilutive effect on the computations. Shares used in the computation were
4,520,743, 4,674,792 and 4,513,817 for the years ended May 31, 1994, 1995 and
1996, and 4,695,271 and 4,770,283 for the three months ended August 31, 1995 and
1996, respectively.
F-8
<PAGE> 48
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets Being Disposed Of," which provides
guidance on how and when impairment losses are recognized on long-lived assets.
This statement was adopted June 1, 1996 and did not have a material impact on
the Company.
The FASB has issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting for
stock-based compensation plans. This statement provides a choice to either adopt
the fair value based method of accounting or continue to apply APB Opinion No.
25, which would require only disclosure of the proforma net income and earnings
per share, determined as if the fair value based method had been applied. The
Company adopted this statement June 1, 1996 and continues to apply APB Opinion
No. 25.
Unaudited Interim Financial Information
The unaudited interim consolidated financial statements for the three
months ended August 31, 1995 and 1996 include all adjustments, consisting of
normal recurring accruals, which the Company considers necessary for a fair
presentation of the consolidated financial position and the consolidated results
of operations for the periods presented. The interim period results are not
necessarily indicative of the results of operations for a full fiscal year.
2. RESTRUCTURING CHARGES
In May 1996, the Company recorded charges of $695,500 related to a
restructuring program for certain of its operations. The restructuring charges
include $437,700 related to inventory valuation adjustments and writedowns to
exit its electronic instruments operations, $205,300 related to veterinary
instrument sales group reorganization and $52,500 of other costs. The
restructuring program resulted in liabilities of $217,794 at May 31, 1996. The
majority of these liabilities are expected to be paid or settled during the 1997
fiscal year.
3. ACQUISITIONS
Effective June 15, 1995, Neogen acquired certain assets of International
Diagnostic Systems Corp. (IDS) of St. Joseph, Michigan. The acquisition was
accounted for by the purchase method and all acquired assets, consisting of
inventory and technology for 35 different diagnostic tests used to detect drugs
of abuse in animals, were moved to the Company's ELISA Technologies division in
Lexington, Kentucky.
The purchase price consisted of initial consideration of approximately
$680,000 paid in cash at closing resulting in goodwill of approximately
$622,000. The Company made a second and final cash payment of approximately
$53,000 in July 1996 based upon sales performance for the twelve month period
ended June 14, 1996.
Proforma results of operations are not presented as the effect of the IDS
acquisition was not material to the consolidated results of operations of the
Company for the year ended May 31, 1996.
On August 17, 1994, Neogen Corporation, through its wholly-owned subsidiary
AMPCOR Diagnostics, Inc., acquired substantially all of the assets of AMPCOR,
Inc., a New Jersey-based company that develops and manufactures diagnostic test
kits to detect the presence of harmful microorganisms.
The initial purchase price for the assets of AMPCOR was $1,760,610, which
consisted of $702,957 paid in cash, assumption of liabilities totaling $732,653,
and issuance of 55,753 shares of Neogen restricted
F-9
<PAGE> 49
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
common stock valued at $325,000. In addition, Neogen incurred $110,000 of
acquisition costs and organization expense in connection with this asset
purchase.
The acquisition was effective August 1, 1994, and has been accounted for
using the purchase method of accounting. Accordingly, the results of operations
of AMPCOR have been included with those of Neogen for periods beginning August
1, 1994. The excess acquisition cost over the fair value of the acquired net
assets approximated $730,000.
The purchase agreement provided for the payment of additional
consideration, contingent upon the sales and profit performance of AMPCOR for
two consecutive twelve month periods ending July 31, 1995 and 1996. The Company
did not pay any additional consideration on the basis of AMPCOR's performance
for the first twelve month period ended July 31, 1995. Management expects any
second year payment to be minimal.
Effective October 1, 1993, Neogen acquired substantially all of the assets
of Enzytec, Incorporated of Kansas City, Missouri. Enzytec marketed rapid
diagnostic screening tests for the detection of insecticide residues in food and
the environment. The acquisition was accounted for by the purchase method and
the results of operations have been included in the accompanying consolidated
financial statements from the date of the acquisition. All the acquired assets
were moved to Neogen's headquarters in Lansing, Michigan.
The initial purchase price of $226,000 consisted of $21,000 paid in cash,
issuance of 74,626 shares of Neogen common stock, and issuance of warrants to
purchase 50,374 shares of Neogen common stock after October 31, 1994 at an
exercise price of $4.82 per share. The purchase price in excess of the fair
value of the acquired net assets was $197,922.
During fiscal 1994, the Company issued 148,534 shares of its common stock
as final consideration for acquisitions made in prior years.
4. NOTES PAYABLE AND LONG-TERM DEBT
The Company and its subsidiaries have available lines-of-credit and
borrowing arrangements with banks totalling $2,500,000. At May 31, 1995 and 1996
and August 31, 1996, there were $1,058,946, $1,043,946 and $1,028,946,
respectively, of borrowings outstanding. These borrowings bear interest at .75%
over the prime rate (9.00% at August 31, 1996), and are collateralized by
substantially all assets of the Company and its subsidiaries.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AUGUST
MAY 31, 31,
--------------------- --------
1995 1996 1996
-------- -------- --------
<S> <C> <C> <C>
Term note payable to bank.................. $352,380 $295,236 $280,950
Installment note payable................... 70,000 54,829 51,328
Other notes and contracts payable.......... 15,989 -- --
------- ------- -------
438,369 350,065 332,278
Less current maturities.................... 87,136 71,147 71,147
------- ------- -------
Total Long-Term Debt....................... $351,233 $278,918 $261,131
======= ======= =======
</TABLE>
The term note is payable in eighty-four monthly installments of $4,762 plus
interest at .75% over the prime rate (9.00% at August 31, 1996), and is
collateralized by substantially all the assets of Neogen and AMPCOR.
F-10
<PAGE> 50
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
The installment note is payable in sixty monthly installments of $1,167
plus interest at .75% over prime rate (9.00% at August 31, 1996) and is
collateralized by substantially all the assets of AMPCOR.
The terms of certain financing agreements contain, among other provisions,
the requirements to meet certain financial ratios and levels of working capital
and tangible net worth, and restrict the payment of dividends.
Maturities of long-term debt at May 31, are: 1997 - $71,147;
1998 - $71,148; 1999 - $71,148; 2000 - $69,961; 2001 - $57,144; and
2002 - $9,517.
5. STOCK OPTIONS AND STOCK WARRANTS
The Company has a Stock Option Plan (the Plan) under which qualified and
non-qualified options to purchase shares of common stock may be granted to
eligible directors, members of the Scientific Review Council, officers, or
employees of the Company at an exercise price of not less than the fair market
value of the stock on the date of grant. The Plan was adopted in 1987, and the
number of shares authorized for issuance under this Plan is 1,059,375. Options
have been granted with three to five year vesting schedules. At August 31, 1996,
99,866 shares were available for future grants under the Plan.
The following table summarizes option activity for the years ended May 31,
1994, 1995 and 1996 and the three months ended August 31, 1996:
<TABLE>
<CAPTION>
OPTION
SHARES PRICE
------- -------------
<S> <C> <C>
Outstanding options at June 1, 1993 (110,379 exercisable)... 249,400 $ .32 to 3.25
Options granted during the year........................ 124,000 2.44 to 6.63
Options exercised during the year...................... (38,275) .32 to 2.88
Options expired or cancelled during the year........... (12,000) 2.50 to 3.25
------- -------------
Outstanding options at May 31, 1994 (108,234 exercisable)... 323,125 .32 to 6.63
Options granted during the year........................ 119,000 6.63 to 9.25
Options exercised during the year...................... (34,525) .32 to 2.50
Options expired or cancelled during the year........... (3,000) 2.25 to 7.25
------- -------------
Outstanding options at May 31, 1995 (140,472 exercisable)... 404,600 1.38 to 9.25
Options granted during the year........................ 99,500 6.50 to 7.13
Options exercised during the year...................... (59,300) 1.38 to 6.50
Options expired or cancelled during the year........... (2,000) 8.00
------- -------------
Outstanding options at May 31, 1996 (172,156 exercisable)... 442,800 $1.88 to 9.25
Options granted during the period...................... 101,000 7.50
Options exercised during the period.................... (37,000) 2.25 to 7.25
Options expired or cancelled during the period......... (4,600) 3.25 to 7.25
------- -------------
Outstanding options at August 31, 1996 (196,556
exercisable).............................................. 502,200 $1.88 to 9.25
======= =============
</TABLE>
F-11
<PAGE> 51
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
The following table summarizes warrant activity for the years ended May 31,
1994, 1995 and 1996 and the three months ended August 31, 1996. All warrants are
exercisable for unregistered common stock of the Company and expire between 1997
and 1999.
<TABLE>
<CAPTION>
WARRANT
SHARES PRICE
------- -------------
<S> <C> <C>
Outstanding warrants at June 1, 1993........................ 109,953 $2.63 to 3.90
Warrants granted during the year (Note 3).............. 50,374 4.82
------- -------------
Outstanding warrants at May 31, 1994........................ 160,327 2.63 to 4.82
Warrants exercised during the year..................... (40,020) 3.90
------- -------------
Outstanding warrants at May 31, 1995........................ 120,307 2.63 to 4.82
Warrants exercised during the year..................... (39,933) 3.13
------- -------------
Outstanding warrants at May 31, 1996........................ 80,374 $2.63 to 4.82
Warrants exercised during the period................... (1,782) 4.82
------- -------------
Outstanding warrants at August 31, 1996..................... 78,592 $2.63 to 4.82
======= =============
</TABLE>
6. COMMITMENTS
The Company has agreements with related research limited partnerships and
third parties which provide for the payment of royalties on the sale of certain
products. Royalty expense, primarily to related research limited partnerships,
under the terms of these agreements for the years ended May 31, 1994, 1995 and
1996 was $476,159, $521,690 and $579,045, respectively. Royalty expense was
$153,781 and $240,533 for the three months ended August 31, 1995 and 1996,
respectively.
The Company leases office and manufacturing facilities under noncancelable
operating leases. Rent expense for the years ended May 31, 1994, 1995 and 1996
was $149,000, $202,000 and $221,000, respectively. Rent expense was $42,000 and
$57,000 for the three months ended August 31, 1995 and 1996, respectively.
Future minimum rental payments at May 31, for these leases are as follows:
1997 - $211,000; 1998 - $201,000; 1999 - $119,000; 2000 - $118,000; and
2001 - $30,000.
7. TAXES ON INCOME
Income taxes are calculated using the liability method specified by SFAS
No. 109 "Accounting for Income Taxes."
As of May 31, 1996, the Company has net operating loss carryforwards of
approximately $4,400,000 for income tax purposes which expire between 2002 and
2008. Due to changes in ownership of the Company, utilization of $2,017,000 of
the tax net operating loss carryforward is limited to approximately $730,000 per
year. The remaining $2,383,000 may be utilized without limitation. In addition,
the Company has approximately $250,000 of tax credit carryforwards, the majority
of which expire between 1998 and 2010. Approximately $21,000 of the tax credit
carryforwards have no expiration.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
F-12
<PAGE> 52
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation and amortization........................... $ 43,000 $ 57,000
Losses of affiliated partnerships....................... 45,000 47,000
----------- -----------
Total Deferred Tax Liabilities............................ 88,000 104,000
----------- -----------
Deferred Tax Assets:
Net operating loss carryforwards........................ 1,594,000 1,496,000
Tax credit carryforwards................................ 204,000 250,000
Inventory reserves...................................... 83,000 216,000
Other................................................... 120,000 140,000
----------- -----------
2,001,000 2,102,000
Valuation Allowance for Deferred Tax Assets (1,913,000) (1,998,000)
----------- -----------
Net Deferred Tax Assets................................... 88,000 104,000
----------- -----------
Net Deferred Tax.......................................... $ -- $ --
=========== ===========
</TABLE>
SFAS No. 109 requires that a valuation allowance be recorded against tax
assets which are not likely to be realized. The Company's carryforwards expire
at specific future dates and utilization of certain carryforwards is limited to
specific amounts each year. Due to the uncertain nature of their ultimate
realization based upon past performance and the difficulty predicting future
results, the Company has established a full valuation allowance against these
carryforward benefits and is recognizing the benefits only as reassessment
demonstrates they are realizable. The need for this valuation allowance is
subject to periodic review. If the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of the
Company's income tax expense.
The reconciliation of income taxes computed at the U.S. federal statutory
tax rates to income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Tax at U.S. statutory rates...................... $ 300,000 $ 239,000 $(80,000)
Adjustment of valuation allowance.............. (310,000) (221,000) 85,000
Alternative minimum tax........................ 20,000 8,000 2,000
State income taxes, net of tax effect.......... 4,000 14,000 4,800
Other.......................................... 12,000 (15,700) (4,600)
------- ------- -------
$ 26,000 $ 24,300 $ 7,200
======= ======= =======
</TABLE>
8. DEFINED CONTRIBUTION BENEFIT PLAN
The Company maintains a defined contribution 401(k) benefit plan covering
substantially all employees. Employees are permitted to defer up to 15% of
compensation, with the Company matching 40% (20% for fiscal 1994) of the first
5% deferred. The Company's expense under this plan was $18,573, $38,722 and
$45,402 for the years ended May 31, 1994, 1995 and 1996, and $9,395 and $12,575
for the three months ended August 31, 1995 and 1996, respectively.
F-13
<PAGE> 53
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
9. INDUSTRY SEGMENT INFORMATION
The Company has two industry segments through which it conducts its
business - diagnostic products and veterinary instruments. The diagnostic
products segment includes test kits to detect harmful, natural toxins,
pesticides, and microorganisms. These products also include test kits for the
detection of drugs of abuse in race horses, test kits used in research by
universities and pharmaceutical companies, and test kits to detect plant
diseases in ornamental plants, turf grasses, and horticulture crops. In
addition, this segment includes electronic instruments which are primarily used
to monitor environmental conditions and predict the onset of diseases or
emergence of insects. In May 1996, the Company decided to exit its electronic
instruments operations (Note 2).
The veterinary instrument segment includes veterinary instruments to
provide more precise and accurate delivery of animal health products.
The following table summarizes Neogen's industry segment information:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Diagnostic products
Sales of products............................ $ 6,660,039 $ 7,329,962 $ 8,758,920
Other revenues............................... 144,185 357,583 162,308
---------- ---------- ----------
6,804,224 7,687,545 8,921,228
Veterinary instruments.......................... 3,930,739 4,038,710 3,569,183
---------- ---------- ----------
$10,734,963 $11,726,255 $12,490,411
========== ========== ==========
Operating Income (Loss)
Diagnostic products............................. $ 785,775 $ 553,925 $ 23,876
Veterinary instruments.......................... 136,522 76,067 (263,974)
---------- ---------- ----------
$ 922,297 $ 629,992 $ (240,098)
========== ========== ==========
Identifiable Assets
Diagnostic products............................. $ 3,953,017 $ 7,185,958 $ 7,202,571
Veterinary instruments.......................... 2,710,417 3,106,950 2,771,532
Corporate....................................... 2,469,910 1,245,698 1,557,041
---------- ---------- ----------
$ 9,133,344 $11,538,606 $11,531,144
========== ========== ==========
Depreciation and Amortization Expense
Diagnostic products............................. $ 193,820 $ 307,840 $ 437,030
Veterinary instruments.......................... 160,744 180,750 100,202
---------- ---------- ----------
$ 354,564 $ 488,590 $ 537,232
========== ========== ==========
Capital Expenditures
Diagnostic products............................. $ 52,971 $ 314,334 $ 274,496
Veterinary instruments.......................... 136,207 237,638 138,027
---------- ---------- ----------
$ 189,178 $ 551,972 $ 412,523
========== ========== ==========
</TABLE>
F-14
<PAGE> 54
NEOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
Neogen has no significant foreign operations. Export sales amounted to
$2,232,907 or 21% of consolidated sales in fiscal 1994, $2,851,780 or 25% of
consolidated sales in fiscal 1995 and $2,580,128 or 21% of consolidated sales in
fiscal 1996. These sales were derived primarily in the geographic areas of South
and Latin America, Canada, Europe, and the Far East. No export sales to any
single geographic area exceeded 10% of consolidated sales.
10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MAY 31, AUGUST 31,
-------------------------------- -------------------
1994 1995 1996 1995 1996
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash Paid During the Period For
Interest........................ $27,489 $90,823 $153,212 $36,627 $38,455
Taxes on income................. 11,295 30,777 14,000 -- --
</TABLE>
F-15
<PAGE> 55
- ----------------------------------------------------------------
- -------------------------------------
The Company markets diagnostic
tests for the detection of drug
residues in both food animals and
racing animals under the trade name
[Photo 4] ELISA Technologies(R).
Special delivery [Photo 5]
instruments
made by the Company's
subsidiary, Ideal
Instruments,
are used by animal
producers
to more precisely deliver
health products and thereby
help reduce drug residues
in meat and milk.
[Photo 6] The Company's phytophthora test
kit detects the presence of
harmful fungal diseases that
affect crop production and the
quality of the resulting fruits
and vegetables.
<PAGE> 56
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Capitalization........................ 7
Use of Proceeds....................... 7
Price Range of Common Stock........... 8
Dividend Policy....................... 8
Selected Consolidated Financial
Data................................ 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 10
Business.............................. 14
Management............................ 27
Principal Shareholders................ 31
Certain Transactions.................. 32
Description of Capital Stock.......... 33
Underwriting.......................... 35
Legal Matters......................... 36
Experts............................... 36
Additional Information................ 36
Available Information................. 36
Incorporation of Certain Documents by
Reference........................... 37
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER
THE EFFECTIVE DATE OF THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITER AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,500,000 SHARES
NEOGEN LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
(RONEY & COMPANY LOGO)/----
THE OHIO COMPANY
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 57
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered, other than underwriting
discounts and commissions are estimated to be as follows:
<TABLE>
<S> <C>
Registration Fee................................................... $ 4,870
National Association of Securities Dealer's Filing fee............. 1,912
Nasdaq, Inc. Listing Fee........................................... 17,500
Printing and Engraving............................................. 50,000
Legal Fees and Expenses............................................ 35,000
Blue Sky Fees and Expenses......................................... 10,000
Transfer Agent's Fees and Expenses................................. 3,500
Accountant's Fees and Expenses..................................... 30,000
Miscellaneous...................................................... 17,218
--------
Total......................................................... $170,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Neogen's Bylaws permit indemnification of officers and directors to the
fullest extent allowed by law. Under Michigan's Business Corporation Act, a
corporation may indemnify its officers and directors against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by the officer or director by virtue of his
position as an officer or director of the corporation in connection with any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative and whether formal or informal, other
than an action by or in the right of the corporation. To be eligible for
indemnification, the officer or director must have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or its shareholders, and with respect to a criminal action or
proceeding, the officer or director must have had no reasonable cause to believe
his conduct was unlawful. Indemnification for expenses if the officer or
director is successful on the merits in defending the action is mandatory. In
other situations, the corporation must determine eligibility based on one of
five alternative methods established in the statute. A court may order
indemnification if it determines that the person is fairly and reasonably
entitled to indemnification in view of all relevant circumstances, even if the
statutory eligibility standards are not otherwise met.
II-1
<PAGE> 58
ITEM 16. EXHIBITS.
The following exhibits are separately bound, except those incorporated by
reference to an earlier filing with the Commission.
<TABLE>
<S> <C>
Exhibit 1 Proposed form of Underwriting Agreement.*
Exhibit 3(i) Articles of Incorporation, as restated.
Exhibit 3(ii) Bylaws, as amended -- Incorporated by reference to exhibit 3(b)(1) filed
with Registrant's Annual Report on Form 10-KSB for the year ended May 31,
1996.
Exhibit 5 Opinion of Fraser Trebilcock Davis & Foster, P.C.*
Exhibit 10(a) Neogen Amended and Restated Incentive Stock Option Plan II and Sample
Individual Investment Stock Option Agreement -- Incorporated by reference to
exhibit 10(l)(3) filed with Registrant's Annual Report on Form 10-KSB for
the year ended May 31, 1996.
Exhibit 10(b) Neogen Corporation/Merck KGaA Distribution Agreement.*
Exhibit 10(c) Neogen Corporation/International Diagnostics Systems Corporation Asset
Purchase Agreement dated June 27, 1995 -- Incorporated by reference to
exhibit 10(m) filed with the Registrant's Annual Report on Form 10-KSB for
the year ended May 31, 1995.
Exhibit 10(d) Neogen Corporation AMPCOR, Incorporated Asset Purchase Agreement dated
August 1, 1994 -- Incorporated by reference to exhibit 10(q) filed with the
Registrant's Annual Report on Form 10-KSB for the year ended May 31, 1995.
Exhibit 10(e) Neogen Corporation/Enzytec, Incorporated Asset Purchase Agreement dated
October 1, 1993 -- Incorporated by reference to exhibit 10(k) filed with the
Registrant's Annual Report on Form 10-KSB for the year ended May 31, 1994.
Exhibit 10(f) Neogen Corporation/United States Department of Agriculture License Agreement
dated June 29, 1994.
Exhibit 10(g) Neogen Corporation/United States Department of Agriculture SBIR Phase II
Grant Award dated November 30, 1993 -- Incorporated by reference to exhibit
10(j)(6)filed with the Registrant's Annual Report on Form 10-KSB for the
year ended May 31, 1995.
Exhibit 10(h) Neogen Corporation/United States Department of Agriculture Grants --
Incorporated by reference to exhibits 10(c) and (e) filed with the
Registrant's Annual Report on Form 10-KSB for the year ended May 31, 1995.
Exhibit 10(i) Ideal Instruments, Inc. Lease Agreement for 9355 West Byron Street, Schiller
Park, Illinois, dated June 29, 1993 -- Incorporated by reference to exhibit
10(f)(5) filed with the Registrant's Annual Report on Form 10-KSB for the
year ended May 31, 1994.
Exhibit 10(j) Neogen Corporation/ELISA Technologies Division Lease Agreement for space at
628 East Third Street, Lexington, Kentucky, dated May 19, 1993 --
Incorporated by reference to exhibit 10(m)(5) filed with the Registrant's
Annual Report on Form 10-KSB for the year ended May 31, 1995.
Exhibit 10(k) AMPCOR Diagnostics, Inc. Lease Agreement for space at 603 Huron Drive,
Bridgeport, New Jersey, dated as of January 26, 1995.
Exhibit 10(l) Neogen Corporation/Kahn, Soares and Conway Contract.
Exhibit 10(m) NBD Bank Loan Documents -- Incorporated by reference to exhibit 10(s) filed
with the Registrant's Annual Report on Form 10-KSB for the year ended May
31, 1995.
Exhibit 10(n) Comerica Bank Loan Documents -- Incorporated by reference to exhibit 10(t)
filed with the Registrant's Annual Report on Form 10-KSB for the year ended
May 31, 1995.
Exhibit 10(o) NBD Bank Amendment dated September 11, 1996.
Exhibit 10(p) Comerica Bank Amendments dated August 29, 1995 and September 12, 1996.
</TABLE>
II-2
<PAGE> 59
<TABLE>
<S> <C>
Exhibit 10(q) Neogen Research Limited Partnership II, First Amended and Restated
Partnership Agreement dated December 30, 1985 -- Incorporated by reference
to exhibit 10(g)(1) filed with the Registrant's Annual Report on Form 10-KSB
for the year ended May 31, 1996.
Exhibit 10(r) Neogen Corporation/Agri-Sales Associates Marketing Agency Agreement dated
May 10, 1994 -- Incorporated by reference to exhibit 10(o)(5) filed with the
Registrant's Annual Report on Form 10-KSB for the year ended May 31, 1996.
Exhibit 10(s) Amendment to the Neogen Corporation/Agri-Sales Associates Marketing Agency
Agreement dated June 25, 1995 -- Incorporated by reference to exhibit
10(p)(6) filed with the Registrant's Annual Report on Form 10-KSB for the
year ended May 31, 1996.
Exhibit 11 Statement regarding computation of per-share earnings -- Incorporated by
reference to exhibit (11) filed with the Registrant's Quarterly Report on
Form 10-QSB for the three month period ended August 31, 1996.
Exhibit 21 List of Subsidiaries -- Incorporated by reference to exhibit 21 filed with
the Registrant's Annual Report on Form 10-KSB for the year ended May 31,
1996.
Exhibit 23(a) Consent of Fraser Trebilcock Davis & Foster, P.C. (furnished as part of
counsel's opinion)*
Exhibit 23(b) Consent of BDO Seidman, LLP
Exhibit 23(c) Consent of Lon M. Bohannon.
Exhibit 24 Power of Attorney.
Exhibit 27 Financial Data Schedule -- Incorporated by reference to exhibit (27) filed
with the Registrant's Quarterly Report on Form 10-QSB for the three month
period ended August 31, 1996.
</TABLE>
- -------------------------
* Filed with this Amendment No. 1.
II-3
<PAGE> 60
ITEM 17 UNDERTAKINGS.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 1 to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lansing, State of Michigan, on October 18, 1996.
NEOGEN CORPORATION
By: /s/ JAMES L. HERBERT, JR.
------------------------------------
James L. Herbert, Jr.,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ -----------------
<C> <S> <C>
/s/ JAMES L. HERBERT, JR. President, Chief Executive Officer October 18, 1996
- ------------------------------------- and Director (Principal Executive
James L. Herbert, Jr. Officer)
/s/ LON M. BOHANNON Vice President and Chief Financial October 18, 1996
- ------------------------------------- Officer (Principal Financial and
Lon M. Bohannon Accounting Officer)
* Chairman, Board of Directors October 18, 1996
- -------------------------------------
Herbert D. Doan
* Director October 18, 1996
- -------------------------------------
Roland M. Hendrickson
* Director October 18, 1996
- -------------------------------------
Robert M. Book
* Director October 18, 1996
- -------------------------------------
Jack C. Parnell
* Secretary and Director October 18, 1996
- -------------------------------------
G. Bruce Papesh
* Director October 18, 1996
- -------------------------------------
Dr. Gordon E. Guyer
* Director October 18, 1996
- -------------------------------------
Dr. Leonard E. Heller
* Director October 18, 1996
- -------------------------------------
Thomas H. Reed
By: /s/ JAMES L. HERBERT, JR. October 18, 1996
---------------------------------
James L. Herbert, Jr.
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 62
EXHIBIT INDEX
NEOGEN CORPORATION
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- --------------- --------------------------------------------------------------------- ------
<S> <C> <C>
Exhibit 1 Proposed form of Underwriting Agreement.*
Exhibit 3(i) Articles of Incorporation, as restated.
Exhibit 3(ii) Bylaws, as amended -- Incorporated by reference to exhibit 3(b)(1)
filed with Registrant's Annual Report on Form 10-KSB for the year
ended May 31, 1996.
Exhibit 5 Opinion of Fraser Trebilcock Davis & Foster, P.C.*
Exhibit 10(a) Neogen Amended and Restated Incentive Stock Option Plan II and Sample
Individual Investment Stock Option Agreement -- Incorporated by
reference to exhibit 10(l)(3) filed with Registrant's Annual Report
on Form 10-KSB for the year ended May 31, 1996.
Exhibit 10(b) Neogen Corporation/Merck KGaA Distribution Agreement.*
Exhibit 10(c) Neogen Corporation/International Diagnostics Systems Corporation
Asset Purchase Agreement dated June 27, 1995 -- Incorporated by
reference to exhibit 10(m) filed with the Registrant's Annual Report
on Form 10-KSB for the year ended May 31, 1995.
Exhibit 10(d) Neogen Corporation AMPCOR, Incorporated Asset Purchase Agreement
dated August 1, 1994 -- Incorporated by reference to exhibit 10(q)
filed with the Registrant's Annual Report on Form 10-KSB for the year
ended May 31, 1995.
Exhibit 10(e) Neogen Corporation/Enzytec, Incorporated Asset Purchase Agreement
dated October 1, 1993 -- Incorporated by reference to exhibit 10(k)
filed with the Registrant's Annual Report on Form 10-KSB for the year
ended May 31, 1994.
Exhibit 10(f) Neogen Corporation/United States Department of Agriculture License
Agreement dated June 29, 1994.
Exhibit 10(g) Neogen Corporation/United States Department of Agriculture SBIR Phase
II Grant Award dated November 30, 1993 -- Incorporated by reference
to exhibit 10(j)(6)filed with the Registrant's Annual Report on Form
10-KSB for the year ended May 31, 1995.
Exhibit 10(h) Neogen Corporation/United States Department of Agriculture Grants --
Incorporated by reference to exhibits 10(c) and (e) filed with the
Registrant's Annual Report on Form 10-KSB for the year ended May 31,
1995.
Exhibit 10(i) Ideal Instruments, Inc. Lease Agreement for 9355 West Byron Street,
Schiller Park, Illinois, dated June 29, 1993 -- Incorporated by
reference to exhibit 10(f)(5) filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1994.
Exhibit 10(j) Neogen Corporation/ELISA Technologies Division Lease Agreement for
space at 628 East Third Street, Lexington, Kentucky, dated May 19,
1993 -- Incorporated by reference to exhibit 10(m)(5) filed with the
Registrant's Annual Report on Form 10-KSB for the year ended May 31,
1995.
Exhibit 10(k) AMPCOR Diagnostics, Inc. Lease Agreement for space at 603 Huron
Drive, Bridgeport, New Jersey, dated as of January 26, 1995.
Exhibit 10(l) Neogen Corporation/Kahn, Soares and Conway Contract.
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- --------------- --------------------------------------------------------------------- ------
<S> <C> <C>
Exhibit 10(m) NBD Bank Loan Documents -- Incorporated by reference to exhibit 10(s)
filed with the Registrant's Annual Report on Form 10-KSB for the year
ended May 31, 1995.
Exhibit 10(n) Comerica Bank Loan Documents -- Incorporated by reference to exhibit
10(t) filed with the Registrant's Annual Report on Form 10-KSB for
the year ended May 31, 1995.
Exhibit 10(o) NBD Bank Amendment dated September 11, 1996.
Exhibit 10(p) Comerica Bank Amendments dated August 29, 1995 and September 12,
1996.
Exhibit 10(q) Neogen Research Limited Partnership II, First Amended and Restated
Partnership Agreement dated December 30, 1985 -- Incorporated by
reference to exhibit 10(g)(1) filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1996.
Exhibit 10(r) Neogen Corporation/Agri-Sales Associates Marketing Agency Agreement
dated May 10, 1994 -- Incorporated by reference to exhibit 10(o)(5)
filed with the Registrant's Annual Report on Form 10-KSB for the year
ended May 31, 1996.
Exhibit 10(s) Amendment to the Neogen Corporation/Agri-Sales Associates Marketing
Agency Agreement dated June 25, 1995 -- Incorporated by reference to
exhibit 10(p)(6) filed with the Registrant's Annual Report on Form
10-KSB for the year ended May 31, 1996.
Exhibit 11 Statement regarding computation of per-share earnings -- Incorporated
by reference to exhibit (11) filed with the Registrant's Quarterly
Report on Form 10-QSB for the three month period ended August 31,
1996.
Exhibit 21 List of Subsidiaries -- Incorporated by reference to exhibit 21 filed
with the Registrant's Annual Report on Form 10-KSB for the year ended
May 31, 1996.
Exhibit 23(a) Consent of Fraser Trebilcock Davis & Foster, P.C. (furnished as part
of counsel's opinion)*
Exhibit 23(b) Consent of BDO Seidman, LLP
Exhibit 23(c) Consent of Lon M. Bohannon.
Exhibit 24 Power of Attorney.
Exhibit 27 Financial Data Schedule -- Incorporated by reference to exhibit (27)
filed with the Registrant's Quarterly Report on Form 10-QSB for the
three month period ended August 31, 1996.
</TABLE>
- -------------------------
* Filed with this Amendment No. 1.
<PAGE> 1
EXHIBIT 1
NEOGEN CORPORATION
1,500,000 Shares of Common Stock
UNDERWRITING AGREEMENT
October __, 1996
RONEY & CO., L.L.C.
THE OHIO COMPANY
As Representatives of the Several
Underwriters Named in Schedule 3
c/o Roney & Co., L.L.C.
One Griswold
Detroit, Michigan 48226
Ladies and Gentlemen:
Neogen Corporation, a Michigan corporation (the "Company"), hereby confirms
its agreement with Roney & Co., L.L.C., The Ohio Company (the "Representatives")
and the several Underwriters named in Schedule 3 (the "Underwriters") as set
forth below.
1. Securities. Subject to the terms and conditions herein contained, the
Company proposes to issue and sell to the Underwriters an aggregate of 1,500,000
shares (the "Firm Shares") of its Common Stock (the "Common Stock"). The Company
also proposes to issue and sell to the Underwriters not more than an aggregate
of 225,000 shares of additional Common Stock if requested by the Underwriters as
provided in Section 3 of this Agreement. Any and all Common Stock to be
purchased by the Underwriters pursuant to such option are referred to in this
Agreement as the "Option Shares," and the Firm Shares and any Option Shares are
collectively referred to in this Agreement as the "Shares."
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters that:
(a) The Company meets the requirements for use of Form S-2 under the
Securities Act of 1933, as amended, and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder (collectively,
the "Act"). A registration statement on such Form (File No. 333-12193) with
respect to the Shares of the Company, including a prospectus subject to
completion, has been prepared and filed by the Company with the Commission in
accordance with the provisions of the Act, and one or more amendments to such
registration statement may have been so filed. As soon as practicable after the
execution of this Agreement, the Company will file with the Commission either
(1) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the
<PAGE> 2
Act, a prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by the Underwriters prior to the execution of
this Agreement, or (2) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the Act,
an amendment to such registration statement, including a form of prospectus, a
copy of which amendment has been furnished to and approved by the Underwriters
prior to the execution of this Agreement. As used in this Agreement, the term
"Registration Statement" means such registration statement, as amended at the
time when it was or is declared effective, and, in the event of any amendment
to such registration statement after the effective date and before the Firm
Closing Date and any Option Closing Date (as defined in Sections 3(a) and 3(b),
respectively), such registration statement as so amended, but only from and
after the effectiveness of such amendment, including (1) all financial
statements, schedules and exhibits thereto, (2) all documents (or portions
thereof) incorporated by reference therein filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and (3) any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus
(as hereinafter defined). As used in this Agreement, the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective), including all
documents (or portions thereof) incorporated by reference therein filed under
the Exchange Act. As used in this Agreement, the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no prospectus is required to be filed pursuant to said Rule 424(b),
such term means the prospectus included in the Registration Statement, at the
time the Registration Statement or any amendment thereto became effective, and,
in the event of any supplement or amendment to such prospectus before the Firm
Closing Date and any Option Closing Date, such prospectus as so supplemented or
amended but only from and after the filing with the Commission of such
supplement or the effectiveness of such amendment, in any case including all
documents (or portions thereof) incorporated by reference therein filed under
the Exchange Act.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When any Preliminary Prospectus was
filed with the Commission, it (1) contained all statements required to be stated
therein in accordance with, and complied in all material respects with the
requirements of, the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder and (2) did not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective and at all times subsequent
thereto up to and including the Firm Closing Date and any Option Closing Date,
it (1) contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder and (2) did not or will not include any
untrue statement of a material fact or omit to state any material fact required
to
2
<PAGE> 3
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. When the Prospectus
or any amendment or supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or is
declared effective), on the date when the Prospectus is otherwise amended or
supplemented and at all times subsequent thereto up to and including the Firm
Closing Date and any Option Closing Date (as defined in Sections 3(a) and 3(b),
respectively), the Prospectus, as amended or supplemented at any such time, (1)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act, the Exchange Act and the respective rules and
regulations of the Commission thereunder and (2) did not or will not include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made
in any Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
you specifically for use therein.
(c) The Company's only subsidiaries are listed on Schedule 1 to this
Agreement. The Company and each of its subsidiaries are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation and are duly qualified to transact business as foreign
corporations and are in good standing under the laws of all other jurisdictions
where the ownership or leasing of their respective properties or the nature or
conduct of their respective businesses requires such qualification, except where
the failure to be so qualified would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(d) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and provisions of this
Agreement to be carried out by it.
(e) The authorized, issued and outstanding shares of capital stock of
each of the Company's subsidiaries are set forth on Schedule 2 to this
Agreement. Such issued and outstanding shares have been duly authorized and
validly issued, are fully paid and nonassessable and are all owned beneficially
by the Company free and clear of all restrictions on transfer (other than those
imposed by the Act and the securities or Blue Sky laws of various jurisdictions)
and any security interests, liens, encumbrances, equities and claims.
3
<PAGE> 4
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus, under the caption
"Capitalization". All of the issued and outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights and contractual rights to purchase
(to the extent the Company or any of its subsidiaries is a party to such
contract). No holder of outstanding shares of capital stock of the Company is
entitled as such to any preemptive or other rights to subscribe for any of the
Shares, and no holder of securities of the Company has any right which has not
been fully exercised or waived to require the Company to register the offer or
sale of any securities owned by such holder under the Act in the public offering
contemplated by this Agreement.
(g) The capital stock of the Company conforms to the description
thereof contained in the Registration Statement and the Prospectus or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus.
(h) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial condition of the Company
and its consolidated subsidiaries and the results of operations and cash flows
as of the dates and periods therein specified. Such financial statements and
schedules have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise noted therein). The selected financial data set forth under the
caption "Selected Consolidated Financial Data" in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present, on the basis stated in the Prospectus (or such Preliminary Prospectus),
the information included therein.
(i) BDO Seidman, L.L.P., which have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered their
report with respect to the audited consolidated financial statements and
schedules included in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), are
independent public accountants as required by the Act, the Exchange Act and the
related published rules and regulations thereunder.
(j) The execution and delivery of this Agreement have been duly
authorized by the Company. This Agreement has been duly executed and delivered
by the Company, and assuming due execution by the other parties to this
Agreement, is the legal, valid and binding agreement of the Company, enforceable
by any such party against the Company in accordance with its terms, except as
(i) enforcement thereof may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting enforcement of creditors' rights generally, (ii)
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), and
(iii) rights to indemnification may be limited by applicable law.
4
<PAGE> 5
(k) No legal or governmental proceedings are pending or, to the
best of the Company's knowledge, threatened, to which the Company or any of its
subsidiaries is a party or to which the property of the Company or any of its
subsidiaries is subject that are required to be described in the Registration
Statement or the Prospectus and are not described therein (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus). No contract or
other document is required to be described in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required.
(l) The execution and delivery of this Agreement, the issuance,
offering and sale of the Shares to the Underwriters by the Company pursuant to
this Agreement, the compliance by the Company with the other provisions of this
Agreement and the consummation of the other transactions contemplated by this
Agreement do not (1) require the consent, approval, authorization, registration
or qualification of or with any governmental authority, except such as have been
obtained, such as may be required under state securities or blue sky laws and,
if the Registration Statement (as amended) filed with respect to the Shares is
not effective under the Act as of the time of execution of this Agreement, such
as may be required (and shall be obtained as provided in this Agreement) under
the Act, or (2) conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, lease or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties are bound, or the Articles of
Incorporation or other charter documents, Code of Regulations or by-laws of the
Company or any of its subsidiaries, or any statute or any judgment, decree,
order, rule or regulation of any court or other governmental authority or any
arbitrator or any other laws applicable to the Company, any of its subsidiaries
or any of their respective properties.
(m) The Company has not, directly or indirectly, (1) taken any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares or (2) since the filing of the registration statement originally filed
with respect to the Shares (A) sold (except for sales of Common Stock upon
exercise of stock options or warrants), bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Shares or (B) paid or agreed to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), (1) the Company and
its subsidiaries have not incurred any material liability or obligation, direct
or contingent, nor entered into any material transaction not in the ordinary
course of business; (2) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or distribution
of any kind on its capital stock; and (3) there has not been any change in the
capital stock (except for sales of Common Stock upon exercise of stock options
or warrants), short-term debt (other than as
5
<PAGE> 6
incurred or repaid in the ordinary course of business) or long-term debt of the
Company and its consolidated subsidiaries or any material loss or damage to the
property of the Company or any of its subsidiaries, any material adverse change
in the condition (financial or otherwise), business, results of operations,
cash flows or prospects of the Company and its subsidiaries, taken as a whole,
except in each case as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(o) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and good and
marketable title to all personal property owned by each of them or described in
the Prospectus as owned by them, in each case free and clear of any security
interests, liens, encumbrances, equities, claims, charges, restrictions and
other defects, except for those security interests, liens or encumbrances that
exist in connection with loans made by NBD Bank or Comerica Bank and reflected
on the Company's financial statements included in the Prospectus, and except
such as do not, singly or in the aggregate, materially and adversely affect the
condition (financial or otherwise), business, prospects, net worth, results of
operations or cash flows of the Company and its subsidiaries or the value of
such property and do not interfere with the use made or proposed to be made of
such property by the Company or such subsidiary, and any real and personal
property and buildings held under lease by the Company or any such subsidiary
are held under valid, subsisting and enforceable leases, with such exceptions as
are not material and do not interfere with the use made or proposed to be made
of such property and buildings by the Company or such subsidiary, in each case
mentioned in this paragraph except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Company and its subsidiaries own or lease all
properties as are necessary to their respective operations as now conducted and,
except as otherwise stated in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), as proposed to be conducted
as set forth in the Prospectus.
(p) No labor dispute with the employees of the Company or any of
its subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth, results of operations or cash flows of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(q) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent applications, trademarks,
service marks, trade names, licenses, copyrights and proprietary or other
confidential information currently employed by them in connection with their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of infringement of or conflict with asserted rights of any
third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, is
expected to result in a material adverse change in the condition (financial or
otherwise), business prospects, net worth, results of operations or cash flows
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The expiration of any
6
<PAGE> 7
trademarks, copyrights or patents held or used by the Company or any of its
subsidiaries would not materially adversely affect the condition (financial or
otherwise), business prospects, net worth, results of operations or cash flows
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(r) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for, and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth, results of operations
or cash flows of the Company and its subsidiaries, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(s) Except as provided in loan agreements with the Company's
lenders, no subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(t) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities which are material to the conduct of their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth, results of operations or cash flows of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(u) The Company will conduct its operations in a manner that will
not subject it to registration as an investment company under the Investment
Company Act of 1940, as amended, and this transaction will not cause the Company
to become an investment company subject to registration under such Act.
(v) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse effect on the Company and its subsidiaries)
7
<PAGE> 8
and has paid all taxes required to be paid by it and any other assessment, fine
or penalty levied against it, to the extent that any of the foregoing is due
and payable, except for any such assessment, fine or penalty that is currently
being contested in good faith or as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(w) Neither the Company nor any of its subsidiaries is in material
violation of any federal, state or foreign law or regulation relating to
occupational safety and health or to the storage, handling or transportation of
hazardous or toxic materials, and the Company and its subsidiaries have received
all permits, licenses or other approvals required of them under applicable
federal, state and foreign occupational safety and health and environmental laws
and regulations to conduct their respective businesses, and the Company and each
such subsidiary is in compliance with all terms and conditions of any such
permit, license or approval, except any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
which would not, singly or in the aggregate, result in a material adverse change
in the condition (financial or otherwise), business prospects, net worth,
results of operations or cash flows of the Company and its subsidiaries, except
as described in or contemplated by the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(x) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
(y) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the Company nor
any such subsidiary owns any shares of stock or any other equity securities of
any corporation or has any equity interest in any firm, partnership, association
or other entity, except as described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus).
(z) There is no holder of securities of the Company, who, by reason
of the filing of the Registration Statement, has the right to request the
Company to register under the Act, or to include in the Registration Statement,
securities held by such holder, except to the extent such holder has waived such
rights in writing.
(aa) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
8
<PAGE> 9
(bb) Except as disclosed in the Registration Statement, no default
exists, and no event has occurred which, with notice or lapse of time or both,
would constitute a default (i) in the due performance and observance of any
term, covenant or condition of any bond, debenture, indenture, note, evidence of
indebtedness, mortgage, deed of trust, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of their respective properties is bound or may
be affected in any material adverse respect with regard to property, business or
operations of the Company and its subsidiaries, and (ii) which has or would have
a material adverse effect on the business, operations or property of the Company
or its subsidiaries, taken as a whole. Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation or bylaws.
(cc) None of the Company, its subsidiaries or any employee of the
Company or its subsidiaries has made any payment of funds of the Company or its
subsidiaries prohibited by law and no funds of the Company or its subsidiaries
have been set aside to be used for any payment prohibited by law.
3. Purchase, Sale and Delivery of the Shares
(a) On the basis of the representations, warranties, agreements and
covenants contained in this Agreement and subject to the terms and conditions
set forth in this Agreement, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters, individually and not jointly, agrees
to purchase from the Company, at a purchase price of $______ per Share, the
respective amount of Firm Shares set forth opposite the name of such Underwriter
in Schedule 3 to this Agreement. One or more certificates in definitive form
for the Firm Shares that the several Underwriters have agreed to purchase under
this Agreement, and registered in such name or names as you request upon notice
to the Company at least 48 hours prior to the Firm Closing Date, shall be
delivered by or on behalf of the Company to you on the Closing Date for the
respective accounts of the several Underwriters, against payment by or on behalf
of the Underwriters of the purchase price therefor by certified or official bank
checks drawn upon or by a New York Clearing House bank and payable in next-day
funds to the order of the Company or at the option of the Underwriters, by wire
transfer to the account of the Company in same-day funds. Such delivery of, and
payment for, the Firm Shares shall be made at the offices of Honigman Miller
Schwartz and Cohn, 2290 First National Building., Detroit, MI 48226, at 9:30
A.M., Detroit time, on ______________, 1996, or at such other place, time or
date as you and the Company may agree upon or as you may determine pursuant to
Section 9 of this Agreement, such time and date of delivery against payment
being referred to in this Agreement as the "Firm Closing Date". The Company
will make such certificate or certificates for the Firm Shares available to you
for inspection at the offices in Detroit, Michigan of the Company's transfer
agent or registrar or of Roney & Co., L.L.C., at least 24 hours prior to the
Firm Closing Date.
(b) For the sole purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Shares as contemplated by
the Prospectus, the Company hereby grants to the Underwriters an option to
purchase, individually and not jointly, the Option
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<PAGE> 10
Shares. The purchase price to be paid for any Option Shares shall be the same
as the price for the Firm Shares set forth above in paragraph (a) of this
Section 3. The option granted hereby may be exercised as to all or any part of
the Option Shares from time to time within 30 days after the date of the
Prospectus (or, if such 30th day shall be a Saturday or a Sunday or a holiday,
on the next business day thereafter when The Nasdaq National Market is open for
trading). The Underwriters shall not be under any obligation to purchase any
of the Option Shares prior to the exercise of such option. The Underwriters
may from time to time exercise the option granted hereby by giving notice in
writing or by telephone (confirmed in writing) to the Company setting forth the
aggregate number of shares of Option Shares as to which the Underwriters are
then exercising the option and the date and time for delivery of and payment
for such Option Shares. Any such date of delivery shall be determined by the
Underwriters but shall not be earlier than two business days nor later than
seven business days after such exercise of the option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in such
notice, or such other time, date or both as the Underwriters and the Company
may agree upon or as the Underwriters may determine pursuant to Section 9 of
this Agreement, are called the "Option Closing Date" in this Agreement with
respect to such Option Shares. Upon exercise of the option as provided in this
Agreement, the Company shall become obligated to sell to each of the
Underwriters, and, on the basis of the representations and warranties contained
in this Agreement and subject to the terms and conditions set forth in this
Agreement, each of the Underwriters, individually and not jointly, shall become
obligated to purchase from the Company, the same percentage of the total number
of Option Shares as to which the Underwriters are then exercising the options
as such Underwriter is obligated to purchase of the aggregate number of Firm
Shares (subject to such adjustments to provide for purchases of integral
amounts of Shares as you may determine). If the options are exercised as to
all or any portion of the Option Shares, one or more certificates in definitive
form for such Option Shares, and payment therefor, shall be delivered on the
related Option Closing Date in the manner, and upon the terms and conditions,
set forth in paragraph (a) of this Section 3, except that reference therein to
the Firm Shares and the Firm Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Shares and Option Closing Date,
respectively.
(c) You have advised the Company that each Underwriter has
authorized you to accept delivery of its Firm Shares (and Option Shares, if the
option is exercised), to make payment and to give receipt therefor.
4. Offering by the Underwriters. Upon your authorization of the release
of the Firm Shares, the Underwriters propose to offer their respective portions
of the Firm Shares for sale to the public upon the terms set forth in the
Prospectus.
5. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto, to become effective as promptly as possible. If required,
the Company will file the Prospectus and
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any amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) under the Act. During any time
when a prospectus relating to the Shares is required to be delivered under the
Act (or until the Firm Closing Date and any Option Closing Date, if later), the
Company (1) will comply with all requirements imposed upon it by the Act, the
Exchange Act and the respective rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Shares in accordance with the provisions of this Agreement and
of the Prospectus, as then amended or supplemented, and (2) will not file with
the Commission the Prospectus or the amendment referred to in the third
sentence of Section 2(a) of this Agreement, any amendment or supplement to such
Prospectus or any amendment to the Registration Statement of which the
Underwriters shall not previously have been advised and furnished with a copy a
reasonable period of time prior to the proposed filing or as to which filing
you shall not have given your consent. The Company will prepare and file with
the Commission, in accordance with the Act and the rules and regulations on the
Commission, promptly upon request by the Underwriters or counsel for the
Underwriters, any amendments to the Registration Statement or amendments or
supplements to the Prospectus that may be necessary or advisable in connection
with the distribution of the Shares by the Underwriters, and will use its best
efforts to cause any such amendment to the Registration Statement to be
declared effective by the Commission as promptly as possible. The Company will
advise you, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to you of each such filing or
effectiveness.
(b) The Company will advise the Underwriters, promptly after
receiving notice or obtaining knowledge thereof, of (1) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or any order directed at any
document incorporated by reference in the Registration Statement or the
Prospectus or any amendment or supplement thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, (2) the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, (3) the institution,
threatening or contemplation of any proceeding for any such purpose or (4) any
request made by the Commission for amending the Registration Statement, for
amending or supplementing any Preliminary Prospectus or the Prospectus or for
additional information. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is issued, to obtain
the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the registration or qualification
of the Shares for offering and sale under the securities or blue sky laws of
such jurisdictions as you may designate and will continue such qualifications in
effect for as long as may be necessary to complete the distribution of the
Shares, provided, however, that in connection with such qualification the
Company shall not be required to qualify as a foreign corporation or to execute
a general consent to service of process in any jurisdiction.
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<PAGE> 12
(d) If, at any time prior to the later of (1) the final date when a
prospectus relating to the Shares is required to be delivered under the Act or
(2) the Firm Closing Date and any Option Closing Date, any event occurs as a
result of which the Prospectus, as then amended or supplemented, would include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Prospectus to comply with the
Act, the Exchange Act, the respective rules or regulations of the Commission
thereunder or any other law, the Company will promptly notify the Underwriters
thereof and, subject to Section 5(a) of this Agreement, will prepare and file
with the Commission, at the Company's expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus that corrects such
statement or omission or effects such compliance.
(e) The Company will, without charge, provide (1) to each of the
Underwriters and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Shares and each
amendment thereto (in each case including exhibits thereto), and a conformed
copy of such registration statement and each amendment thereto (in each case
without exhibits thereto) and (2) so long as a prospectus relating to the Shares
is required to be delivered under the Act, as many copies of each Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto as the
Underwriters, counsel for the Underwriters or any dealer may reasonably request.
(f) The Company, as soon as practicable and in any event not later
than 16 months after the effective date of the Registration Statement, will make
generally available to its security holders and to the Underwriters a
consolidated earnings statement of the Company and its subsidiaries that
satisfies the provisions of Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of the
Shares sold by the Company as set forth under "Use of Proceeds" in the
Prospectus.
(h) The Company will not, directly or indirectly, and will cause its
directors and executive officers, as shown on the attached Schedule 4, and its
affiliates (but not including Dart Financial Corporation, as trustee of the
Kenneth B. Dart Residual Trust, the Robert C. Dart Residual Trust and the Thomas
J. Dart Residual Trust, which the Company represents is not an affiliate of the
Company) which are shareholders of the Company, to agree not to, directly or
indirectly, without your prior written consent, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose of
(or announce any offer, sale, offer of sale, contract of sale, grant of any
option to purchase or other sale or other disposition of) any Common Stock or
any securities convertible into, or exchangeable or exercisable for, Common
Stock for a period of 90 days after the date of this Agreement except for (1)
issuances pursuant to the Company's employee stock purchase plan or the exercise
of warrants outstanding on the date of this Agreement or pursuant to the
exercise of employee stock options outstanding on the date of this Agreement
(including, without limitation, the use by the holder of any such warrants or
options of Common Stock (whether outstanding or withheld by the Company from the
total
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<PAGE> 13
amount issued) to pay the exercise price of such warrants or options), or (2)
the grant of employee stock options pursuant to the Company's stock option
plans in effect on the date of this Agreement, provided that any employee stock
options so granted after the date of this Agreement are not exercisable prior
to 90 days after the date of this Agreement, or (3) issuances and sales of the
Shares to the Underwriters pursuant to this Agreement.
(i) The Company will not, directly or indirectly, (1) take any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares or (2) (A) sell, bid for, purchase, attempt to induce any person to
purchase, or pay anyone any compensation for soliciting purchases of, the Shares
or (B) pay or agree to pay to any person any compensation for soliciting another
to purchase any other securities of the Company.
6. Expenses. The Company will pay all costs, expenses, fees and taxes
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated by this Agreement are consummated or this
Agreement is terminated pursuant to Section 11 of this Agreement, including all
costs, expenses fees and taxes incident to (1) the preparing, printing or other
production and filing of documents with respect to the transactions, including
any costs of printing the registration statement originally filed with respect
to the Shares and any amendment thereto (including, without limitation, the
Registration Statement), any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Underwriters' Questionnaire and
Power of Attorney, any blue sky memoranda and all other agreements, memoranda,
correspondence and other documents printed and delivered in connection with the
offering of the Shares, (2) all arrangements relating to the delivery to the
Underwriters of copies of the foregoing documents, (3) the fees and
disbursements of the counsel, the accountants and any other experts or advisors
retained by the Company, (4) preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Shares, including transfer
agent's and registrar's fees, (5) the registration or qualification of the
Shares under state securities and blue sky laws, including filing fees and the
reasonable legal fees and disbursements of counsel for the Underwriters relating
thereto or to the "Blue Sky" survey, (6) the filing fees of the Commission and
the National Association of Securities Dealers, Inc. relating to the Shares and
any listing fees relating to the Shares, and (7) advertising relating to the
offering of the Shares (other than as shall have been specifically approved by
the Underwriters to be paid for by the Underwriters). If the sale of the Shares
provided for in this Agreement is not consummated because any condition to the
obligations of the Underwriters set forth in Section 7 of this Agreement is not
satisfied, because this Agreement is terminated pursuant to Section 11 of this
Agreement, because of any failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on its or their
part to be performed or satisfied under this Agreement (other than by reason of
a default by any of the Underwriters) or for any other reason (other than
because of the Underwriters' refusal (except for bona fide reasons related to
the Company, its officers, directors, employees or agents or market conditions)
or inability to perform), the Company will reimburse the Underwriters
individually upon demand for all out-of-
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<PAGE> 14
pocket expenses (including counsel fees and disbursements of counsel) that
shall have been incurred by them in connection with the proposed purchase and
sale of the Shares. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
7. Conditions of the Underwriters' Obligations. The several obligations
of each of the Underwriters to purchase and pay for the Firm Shares shall be
subject, in the Underwriters' sole discretion, to the accuracy of the
representations and warranties of the Company contained in this Agreement as of
the date of this Agreement and as of the Firm Closing Date, as if made on and as
of the Firm Closing Date, to the accuracy of the statements of the Company's
officers made pursuant to the provisions of this Agreement, to the performance
by the Company of its covenants and agreements under this Agreement and to the
following additional conditions:
(a) If the Registration Statement or any amendment to the
Registration Statement filed prior to the Firm Closing Date has not been
declared effective as of the time of execution of this Agreement, the
Registration Statement or such amendment shall have been declared effective not
later than 11:00 A.M., New York City time, on the date on which an amendment to
the registration statement originally filed with respect to the Shares or to the
Registration Statement, as the case may be, containing information regarding the
offering price of the Shares has been filed with the Commission, or such later
time and date as shall have been consented to by you. If required, the
Prospectus and any amendment or supplement thereto shall have been filed with
the Commission in the manner and within the time period required by Rule 424(b)
under the Act. No stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment to the Registration Statement and no
order directed at any document incorporated by reference in the Registration
Statement or the Prospectus or any amendment or supplement thereto shall have
been issued and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Underwriters, shall be
contemplated by the Commission. The Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) You shall have received on the Firm Closing Date an opinion
addressed to the Underwriters (satisfactory to you and counsel for the
Underwriters), dated the Firm Closing Date, of Fraser Trebilcock Davis & Foster,
P.C., counsel for the Company, to the effect that:
(1) the Company and each of its subsidiaries listed in
Schedule 1 to this Agreement (the "Subsidiaries") are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation and are duly qualified to transact business as foreign
corporations and are in good standing under the laws of all other jurisdictions
where the ownership or leasing of their respective properties or the conduct of
their respective businesses requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole;
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<PAGE> 15
(2) the Company and each of the Subsidiaries have corporate
power to own or lease their respective properties and conduct their respective
businesses as described in the Registration Statement and the Prospectus, and
the Company has corporate power to enter into this Agreement and to carry out
all the terms and provisions of this Agreement to be carried out by it;
(3) the issued and outstanding shares of capital stock of each
of the Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned beneficially by the Company free and clear of
any adverse claim, as defined in the applicable Uniform Commercial Code, or, to
the best knowledge of such counsel, any other security interests, liens,
encumbrances, equities or claims;
(4) the authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization";
all of the issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all applicable federal and state securities
laws and were not issued in violation of any preemptive rights or other rights
to subscribe for or purchase securities; the certificates for such outstanding
capital stock are valid and in proper legal form; no holders of the outstanding
shares of capital stock of the Company are entitled as such to any preemptive or
other rights to subscribe for any of the Shares; and no holders of securities of
the Company are entitled to have such securities registered under the
Registration Statement;
(5) the statements set forth under the headings "Business" and
"Legal Proceedings" in the Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to under such
headings, provide a fair summary of such legal matters, documents and
proceedings discussed under such headings;
(6) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company and this Agreement
has been duly executed and delivered by the Company;
(7) after due inquiry and to the best knowledge of such
counsel, no legal or governmental proceedings are pending to which the Company
or any of the Subsidiaries is a party or to which the property of the Company or
any of the Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and that are not described therein,
and, to the best knowledge of such counsel, no such proceedings have been
threatened against the Company or any of the Subsidiaries or with respect to any
of their respective properties; and no contract or other document is required to
be described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement that is not described therein or filed
as required;
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<PAGE> 16
(8) the issuance, offering and sale of the Shares to the
Underwriters by the Company pursuant to this Agreement, the execution and
delivery of this Agreement, the compliance by the Company with the other
provisions of this Agreement and the consummation of the other transactions
contemplated by this Agreement do not (A) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained and such as may be required under
the Act and under state securities or blue sky laws, or (B) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument, known to such counsel, to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the charter
documents or bylaws of the Company or any of the Subsidiaries, or any statute or
any judgment, decree, order, rule, regulation or other law of any court or other
governmental authority or any arbitrator known to such counsel and applicable to
the Company or any of the Subsidiaries;
(9) the Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any post-effective
amendment to the Registration Statement and no order directed at any document
incorporated by reference in the Registration Statement or the Prospectus or any
amendment or supplement thereto has been issued, and no proceedings for that
purpose have been instituted or threatened or, to the best knowledge of such
counsel, are contemplated by the Commission;
(10) the registration statement originally filed with respect
to the Shares and each amendment thereto (including, without limitation, the
Registration Statement) and the Prospectus and any supplement or amendment
thereto (in each case, including the documents incorporated by reference therein
but not including the financial statements and other financial information
contained therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the applicable requirements of the Act,
the Exchange Act and the respective rules and regulations of the Commission
thereunder;
(11) the Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses; and
(12) this transaction will not cause the Company to become an
investment company subject to registration under the Investment Company Act of
1940.
Such counsel shall also state that, (y) in the course of preparation
of the Registration Statement and any amendment to the Registration Statement
and the Prospectus and any amendment or supplement thereto, such counsel had
conferences with officials of the Company and its independent auditors, and with
representatives of the Underwriters and their counsel at which the content of
the Registration Statement and any amendment to the Registration
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<PAGE> 17
Statement and the Prospectus and any amendment or supplement thereto and
related matters were discussed, and also had discussions with such officials of
the Company with a view toward a clear understanding on their part of the
requirements of the Act with reference to the preparation of registration
statements and prospectuses, although such counsel did not verify independently
the accuracy or completeness of the statements contained in the Registration
Statement and any amendment to the Registration Statement and the Prospectus
and any amendment or supplement thereto, and (z) based on such counsel's
examination of the Registration Statement and any amendment to the Registration
Statement and the Prospectus and any amendment or supplement thereto and on its
participation in the above-mentioned conferences, nothing has come to its
attention that gives it reason to believe that the Registration Statement or
any amendment to the Registration Statement, or the Prospectus or any amendment
or supplement thereto, at the time the Registration Statement became effective,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus or any amendment or supplement
thereto, as of the date of such opinion, contained any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading (except that such counsel need not express any
belief as to financial statements and notes, any related schedules and other
financial information contained in the Registration Statement or Prospectus).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems reasonable, on certificates of
responsible officers of the Company and public officials and, as to matters
involving the application of laws of any jurisdiction other than the State of
Michigan or the United States, to the extent satisfactory in form and scope to
counsel for the Underwriters, upon the opinions of local counsel reasonably
satisfactory to counsel for the Underwriters, and copies of such opinions shall
be delivered to the Underwriters and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) You shall have received on the Firm Closing Date an opinion
addressed to the Underwriters, dated the Firm Closing Date, of Honigman Miller
Schwartz and Cohn, counsel for the Underwriters, with respect to the issuance
and sale of the Firm Shares, the Registration Statement and the Prospectus, and
such other related matters as the Underwriters may reasonably require, and the
Company shall have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such matters.
In rendering such opinion, such counsel may rely as to all matters involving the
application of laws of any jurisdiction other than the State of Michigan or the
United States upon the opinion of Fraser Trebilcock Davis & Foster, P.C.
referred to in paragraph (b) above.
(d) You shall have received letters, on and as of the date of this
Agreement and on and as of the Firm Closing Date, from BDO Seidman, L.L.P.,
certified public accountants for the Company, in form and substance satisfactory
to the Underwriters, to the effect that:
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<PAGE> 18
(1) they are independent public accountants with respect to the
Company and its consolidated subsidiaries within the meaning of the Act,
the Exchange Act and the applicable rules and regulations thereunder;
(2) in their opinion, the consolidated financial statements and
schedules of the Company and its consolidated subsidiaries examined by them
and included or incorporated by reference in the Registration Statement and
the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act, the Exchange Act, the
related published rules and regulations thereunder and Staff Accounting
Bulletins with respect to registration statements on Form S-2 and the
Exchange Act documents and filings incorporated by reference therein;
(3) on the basis of a reading of the August 31, 1996 unaudited
consolidated financial statements and schedules of the Company and its
consolidated subsidiaries included or incorporated by reference in the
Registration Statement and the Prospectus, a reading of the latest interim
unaudited consolidated financial statements of the Company and its
consolidated subsidiaries, a reading of the minutes of the meetings of the
shareholders, the board of directors and any committees thereof of the
Company and each of its consolidated subsidiaries, inquiries of certain
officials of the Company and its consolidated subsidiaries who have
responsibility for financial and accounting matters, such limited review
and auditing procedures and inquiries as may be in accordance with
standards for such reviews promulgated by the American Institute of
Certified Public Accountants and other specific procedures and inquiries,
nothing came to their attention that caused them to believe that:
(A) the unaudited consolidated financial statements and
schedules of the Company and its consolidated subsidiaries included or
incorporated by reference in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act, the Exchange Act and
the related published rules and regulations thereunder and Staff
Accounting Bulletins with respect to registration statements on Form
S-2 and the Exchange Act documents and filings incorporated by
reference therein or such unaudited consolidated financial statements
are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with
that of the audited consolidated financial statements included or
incorporated by reference in the Registration Statement and the
Prospectus or such unaudited schedules, when considered in relation to
the unaudited financial statements included or incorporated by
reference in the Prospectus, do not present fairly in all material
respects the information shown therein;
(B) at the date of the latest balance sheet read by them and
at a subsequent specific date not more than five business days prior
to the date of such letter, there were any changes in the capital
stock or long-term debt of the
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<PAGE> 19
Company and its consolidated subsidiaries or any decreases in net
current assets or shareholders' equity of the Company and its
consolidated subsidiaries, in each case compared with amounts shown on
the August 31, 1996 unaudited consolidated balance sheet included or
incorporated by reference in the Registration Statement and the
Prospectus, except for changes which the Prospectus discloses have
occurred or may occur or which are described in the letter;
(C) at the date of the latest consolidated balance
sheet read by them and at a subsequent specific date not more than
five business days prior to the date of such letter there were any
decreases, as compared with amounts shown in the unaudited
consolidated balance sheet as of August 31, 1996 included or
incorporated by reference in the Prospectus, in consolidated total
assets, working capital, long-term debt or shareholders' equity of the
Company and its consolidated subsidiaries, except for decreases which
the Prospectus discloses have occurred or may occur or which are
described in such letter;
(D) for the period from August 31, 1996 to the date of
the latest consolidated income statement read by them, and for the
period from August 31, 1996 to a subsequent specified date not more
than five business days prior to the date of such letter, there were
any decreases, as compared with the corresponding period of the
preceding year in consolidated revenues, gross profit, operating
income, earnings before income taxes or the total or per share amounts
of income before extraordinary items or of net income of the Company
and its consolidated subsidiaries, except for decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter; and
(4) on the basis of their examinations referred to in their
report contained or incorporated by reference in the Prospectus, the
limited procedures referred to in (3) above and the carrying out of certain
other specified procedures, not constituting an audit, they have compared
certain specified amounts, percentages and financial information included
in the Registration Statement and the Prospectus, or in the Company's
Annual and Quarterly Reports on Forms 10-K and 10-Q, respectively, for the
fiscal year ended May 31, 1996 and the fiscal quarter ended August 31,
1996, incorporated by reference in the Registration Statement and
Prospectus with the underlying accounting records of the Company and its
consolidated subsidiaries and with information derived from such records
and have found them to be in agreement, excluding any questions of legal
interpretation.
(e) If the letters referred to in paragraph (d) above set forth any
such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (1) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Underwriters deem such explanation unnecessary, and (2) such changes, decreases
or increases do not, in the sole judgment of the Underwriters, make it
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<PAGE> 20
impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the Registration Statement. References to the
Registration Statement and the Prospectus in paragraph (d) and this paragraph
(e) with respect to the letters referred to above shall include any amendment
or supplement thereto at the date of such letter.
(f) You shall have received on the Firm Closing Date a certificate,
dated the Firm Closing Date, of the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that:
(1) the representations and warranties of the Company in
this Agreement are true and correct as if made on and as of the Firm
Closing Date; the Registration Statement, as amended as of the Firm
Closing Date, does not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and the Company has performed all covenants and
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Firm Closing Date;
(2) no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and no
order directed at any document incorporated by reference in the
Registration Statement or the Prospectus or any amendment or
supplement thereto has been issued, and no proceedings for that
purpose have been instituted or threatened or, to the best of the
Company's knowledge, are contemplated by the Commission; and
(3) subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (i) neither the Company nor any of its subsidiaries has
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding, and (ii) there has
not been any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or
otherwise), management, business, net worth, cash flows or results of
operations of the Company or any of its subsidiaries, except in each
case as described in or contemplated by the Prospectus, and (iii)
there has not been any change in the capital stock or a material
increase in the long-term debt of the Company and its subsidiaries,
except in each case as described in or contemplated by the Prospectus,
and (iv) the Company has not incurred any liability or obligation,
direct or contingent, which is material to the Company and its
subsidiaries taken as a whole, except in each case as described in or
contemplated by the Prospectus.
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(g) On or before the Firm Closing Date, the Underwriters and counsel
for the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions of this Agreement only if they
are reasonably satisfactory in all material respects to the Underwriters and
counsel for the Underwriters. The Company shall furnish to the Underwriters
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Underwriters and counsel for the Underwriters shall
reasonably request.
The several obligations of each of the Underwriters to purchase and
pay for any Option Shares shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Shares, except that all references to
the Firm Shares and the Firm Closing Date shall be deemed to refer to such
Option Shares and the related Option Closing Date, respectively.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, their respective directors, officers, partners, agents and
employees and each other person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act
(collectively, "Indemnitees") against any losses, claims, damages or
liabilities, joint or several, to which such Indemnitee may become subject under
the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of, relate to, or are
caused by or based upon:
(1) any untrue statement or alleged untrue statement made by the
Company in this Agreement,
(2) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto or any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Shares under the securities or blue
sky laws thereof or filed with the Commission or any securities association
or securities exchange (each an "Application"),
(3) any omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or any
Application a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, or
21
<PAGE> 22
(4) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in connection
with the marketing of the Shares, including, without limitation, slides,
videos, films, and tape recordings, except to the extent such materials
were prepared by the Underwriters,
and will reimburse, as incurred, each Indemnitee for any legal or other
expenses reasonably incurred by such Indemnitee in connection with
investigating, defending against, or appearing as a third-party witness in
connection with, any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of, is related to, or
is caused by or based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or any Application in reliance upon, and in conformity
with, written information furnished to the Company by any Underwriter expressly
for use therein; and provided, further, that the Company will not be liable to
any Indemnitee with respect to any such untrue statement or omission made in
any Preliminary Prospectus that is corrected in the Prospectus (or any
amendment or supplement thereto) if the person asserting any such loss, claim,
damage or liability purchased Shares from such Underwriter but was not sent or
given a copy of the Prospectus (as amended or supplemented), other than the
documents incorporated by reference therein, at or prior to the written
confirmation of the sale of such Shares to such person in any case where such
delivery of the Prospectus (as amended or supplemented) is required by the Act
and where delivery of such Prospectus (as amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage or liability, unless
such failure to deliver the Prospectus (as amended or supplemented) was a
result of noncompliance by the Company with Section 5(d) or 5(e) of this
Agreement. This indemnity agreement will be in addition to any liability which
the Company may otherwise have. The Company will not, without the prior
written consent of the Underwriters, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Indemnitee is a party to such claim, action, suit or
proceeding), unless (1) such settlement, compromise or consent includes an
unconditional release of all of the Indemnitees from all liability arising out
of such claim, action, suit or proceeding and (2) the entire settlement amount
and all costs of settlement and all related costs are borne by the Company.
(b) The Company hereby expressly and irrevocably waives any and all
rights and objections which it may have against any Indemnitee in respect of any
liabilities arising out of, or relating to, this Agreement or the offering
contemplated by this Agreement, except to the extent such liabilities are
determined, by a final order of a court of competent jurisdiction, to be the
direct and primary result of the Underwriters' gross negligence or willful
misconduct. Each Underwriter, individually and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company, any such director or officer of the Company, or any such controlling
person of the Company may become
22
<PAGE> 23
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) are determined,
by a final order of a court of competent jurisdiction, to be the direct and
primary result of (1) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application or (2) the omission or the alleged omission to
state therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission is determined by such court to have
been made in reliance upon, and in conformity with, written information
furnished to the Company by such Underwriter expressly for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in connection with
investigating or defending against any such loss, claim, damage, liability or
action. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action (including any governmental
investigation), such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 8, notify the
indemnifying party of the commencement of such action; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section 8 and will
not relieve it from any liability under this Section 8 except to the extent the
indemnifying party is actually prejudiced by the failure to give such notice. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
that if the parties to any such action (including any impleaded parties) include
both the indemnified party and the indemnifying party or any officers, directors
or controlling persons of such indemnifying party and the indemnified party
shall have reasonably concluded that there may be one or more legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (1) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with
23
<PAGE> 24
such action the indemnifying party shall not be liable for the expenses of more
than one separate counsel (in addition to local counsel) in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances, which counsel shall be
designated by you in the case of indemnification under paragraph (a) of this
Section 8, representing the indemnified parties under such paragraph (a) who
are parties to such action or actions) or (2) the indemnifying party does not
promptly retain counsel reasonably satisfactory to the indemnified party or (3)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. After such notice
from the indemnifying party to such indemnified party, the indemnifying party
will not be liable for the costs and expenses of any settlement of such action
effected by such indemnified party without the written consent of the
indemnifying party.
(d) If the indemnity agreement provided for in the preceding
paragraphs of this Section 8 is unavailable or insufficient, for any reason, to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (1) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Shares or (2) if the allocation provided by the foregoing clause
(1) is not permitted by applicable law, not only such relative benefits but also
the relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth on the cover page of the
Prospectus. The relative fault of the parties shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters agree that
it would not be equitable if the amount of such contribution were determined by
pro rata or per capita allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to above in this paragraph
(d). Notwithstanding any other provision of this paragraph (d), no Underwriter
shall be obligated to make contributions under this paragraph (d) that in the
aggregate exceed the total public offering price of the securities purchased by
such Underwriter under this Agreement, less the aggregate amount of any damages
that such Underwriter has otherwise been required to pay in respect of such
untrue or alleged untrue statement or omission or alleged omission, and no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to
24
<PAGE> 25
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute under this
paragraph (d) are individual in proportion to their respective underwriting
obligations and not joint. For purposes of this paragraph (d), each person, if
any, who controls an Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, shall have the same rights to contribution as the Company.
9. Default of Underwriters. If any one or more of the Underwriters shall
fail or refuse to purchase the Firm Shares which it or they have agreed to
purchase under this Agreement and the aggregate number of shares of Firm Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the total number of shares of Firm
Shares, each non-defaulting Underwriter shall be obligated severally, in the
proportion which the number of shares of Firm Shares set forth opposite its name
in Schedule 3 bears to the total number of shares of Firm Shares which all
non-defaulting Underwriters have agreed to purchase, or in such other proportion
as you may specify, to purchase the Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase; provided,
however, that in no event shall the number of Firm Shares which any Underwriter
has agreed to purchase pursuant to Section 3 be increased pursuant to this
Section 9 by an amount in excess of 10% of such number of Firm Shares without
the written consent of such Underwriter. If any one or more of the Underwriters
shall fail or refuse to purchase Firm Shares or Option Shares under this
Agreement and the number of shares of Firm Shares with respect to which such
default occurs is more than 10% of the total amount of Firm Shares, and if
arrangements satisfactory to you are not made within 36 hours after such default
for the purchase by other persons (who may include the non-defaulting
Underwriters) of the Shares with respect to which such default occurs, this
Agreement will terminate without liability on the part of any non-defaulting
Underwriters or the Company other than as provided in Section 10 of this
Agreement. In any such case which does not result in the termination of this
Agreement, you shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 3 of
this Agreement for not more than seven business days in order that any necessary
changes may be made in the Registration Statement, the Prospectus, the other
documents and the arrangements for the purchase and delivery of the Firm Shares
or Option Shares, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties, agreements,
covenants, indemnities, contribution agreements and other statements of the
Company and the several Underwriters set forth in this Agreement or made by or
on behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (1) any investigation made by or on behalf of
the Company, any of its officers or directors, any Underwriter or any
controlling person referred to in Section 8 of this Agreement and (2) delivery
of and payment for
25
<PAGE> 26
the Shares. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 of this Agreement shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination.
(a) This Agreement may be terminated with respect to the Firm Shares
or any Option Shares in your sole discretion by notice to the Company given
prior to the Firm Closing Date or the related Option Closing Date, respectively,
if the Company shall have failed, refused or been unable to perform all
obligations on its part to be performed under this Agreement on or before the
Firm Closing Date or the Option Closing Date, as applicable, or if any of the
conditions in Section 7 shall not have been fulfilled when and as required by
this Agreement to be fulfilled, or if, at or prior to the Firm Closing Date or
such Option Closing Date, respectively:
(1) the Company or any of its subsidiaries shall have, in
your sole judgment, sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding or
there shall have been any material adverse change, or any development
involving a prospective material adverse change (including without
limitation a change in management or control of the Company), in the
condition (financial or otherwise), management, business, net worth,
cash flows or results of operations of the Company or any of its
subsidiaries, except in each case as described in or contemplated by
the Prospectus (exclusive of any amendment or supplement thereto);
(2) trading in the Common Stock shall have been suspended
by the Commission or The Nasdaq National Market or trading in
securities generally on the New York Stock Exchange or the Nasdaq
National Market shall have been suspended or minimum or maximum prices
shall have been established on such exchange or market system;
(3) a banking moratorium shall have been declared by
Michigan, New York or United States authorities;
(4) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in the general economic, political or
financial conditions having an effect on the U.S. financial markets
that, in your sole judgment, makes it impractical or inadvisable to
proceed with the public offering or the delivery of the Shares as
contemplated by the Registration Statement, as amended as of the date
of this Agreement;
26
<PAGE> 27
(5) there shall have been enacted, published, decreed or
promulgated any federal, state or local statute, regulation, rule or order
of any court or other governmental authority which in your opinion
materially and adversely affects or will materially and adversely affect
the business or operations of the Company; or
(6) any actions shall have been taken by any federal, state or
local government or agency in respect of its monetary or fiscal affairs
which in your opinion has a material adverse effect on the securities
markets in the United States.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
6 and Section 8 of this Agreement.
12. Information Supplied by Underwriters. The statements set forth in the
last paragraph on the front cover page and under the heading "Underwriting" in
any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter to the Company for the purposes of Section 8 of this Agreement. The
Underwriters confirm that such statements (to such extent) are correct.
13. Notices. All communications under this Agreement shall be in writing
and, if sent to you or the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission and confirmed in writing to Roney & Co., L.L.C.,
One Griswold, Detroit, Michigan 48226, Attention: Dan F. French, Jr.; and to The
Ohio Company, 155 East Broad Street 20th Columbus, Ohio 43215, Attention: Curtis
D. Milner; with a copy to Honigman Miller Schwartz and Cohn, 2290 First National
Building, Detroit, Michigan 48226, Attention: Donald J. Kunz; and if sent to the
Company, shall be delivered or sent by mail, telex or facsimile transmission and
confirmed in writing to the Company at 620 Lesher Place, Lansing, Michigan
48912-1509, Attention: Chief Executive Officer; with a copy to Fraser
Trebilcock Davis & Foster, P.C., 1000 Michigan National Tower, Lansing, Michigan
48393, Attention: Richard C. Lowe.
14. Successors. This Agreement shall inure to the benefit of and shall be
binding upon the Underwriters and the Company, and their respective successors,
assigns and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions contained in this Agreement, this Agreement and all conditions
and provisions of this Agreement being intended to be and being for the sole and
exclusive benefit of such persons and for the benefit of no other person except
that (i) the indemnities of the Company contained in Section 8 of this Agreement
shall also be for the benefit of the Indemnitees, including, without limitation,
any person or persons who control any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the
Underwriters contained in Section 8 of this Agreement shall also be for the
benefit of the directors of the Company, the officers of the Company who have
signed the Registration Statement and any person or persons who control the
Company within the
27
<PAGE> 28
meaning of Section 5 of the Act or Section 20 of the Exchange Act. No
purchaser of Shares from any Underwriter shall be deemed a successor because of
such purchase.
15. Applicable Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth in this Agreement, shall be governed by
and construed in accordance with the laws of the State of Michigan, without
giving effect to any provisions relating to conflicts of laws.
16. 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.
17. Entire Agreement. This Agreement is the parties' entire agreement
concerning its subject matter, and supersedes all prior undertakings and
agreements.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance of this Agreement in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company and each
of the Underwriters.
Very truly yours,
NEOGEN CORPORATION
By:
---------------------------------
James L. Herbert, Chief Executive
Officer
28
<PAGE> 29
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
RONEY & CO., L.L.C.
THE OHIO COMPANY,
As Representatives of the Several
Underwriters Named in Schedule 3
By: RONEY & CO., L.L.C.
By:
------------------
Name:
------------------
Title:
------------------
By: THE OHIO COMPANY
By:
------------------
Name:
------------------
Title:
------------------
29
<PAGE> 30
SCHEDULE 1
SUBSIDIARIES
Jurisdiction of
Name Incorporation
Neogen Research Corporation II Michigan
Neogen Research Corporation IV - 1985 Michigan
Ideal Instruments, Inc. Michigan
AMPCOR Diagnostics, Inc. Michigan
30
<PAGE> 31
SCHEDULE 2
SUBSIDIARY OWNERSHIP
<TABLE>
<CAPTION>
# Shares # Shares Percent
Name Authorized Outstanding Ownership
- ---- ---------- ----------- ---------
<S> <C> <C> <C>
Neogen Research Corporation II 250,000 128,000 90%
Neogen Research Corporation IV - 1985 50,000 500 100%
Ideal Instruments, Inc. 1,000,000 100,000 100%
AMPCOR Diagnostics, Inc. 60,000 60,000 100%
</TABLE>
31
<PAGE> 32
SCHEDULE 3
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter to be Purchased
- ------------ ---------------
<S> <C>
Roney & Co, L.L.C. ----------
The Ohio Company ----------
- -------------------------- ----------
- -------------------------- ----------
- -------------------------- ----------
- -------------------------- ----------
- -------------------------- ----------
- -------------------------- ----------
- -------------------------- ----------
- -------------------------- ----------
- -------------------------- ----------
- -------------------------- ----------
- -------------------------- ----------
1,500,000
=========
</TABLE>
32
<PAGE> 33
SCHEDULE 4
Herbert D. Doan, Chairman and a member of the Board of Directors
James L. Herbert, Chief Execute Officer and a member of the Board of Directors
G. Bruce Papesh, Secretary and a member of the Board of Directors
Gordon E. Guyer, Ph.D., member of the Board of Directors
Leonard Heller, Ph.D., member of the Board of Directors
Jack C. Parnell, member of the Board of Directors
Thomas H. Reed, member of the Board of Directors
Roland M. Hendrickson, member of the Board of Directors
Lon M. Bohannon, Vice President and Chief Financial Officer
Brinton M. Miller, Ph.D., Vice President, Scientific Affairs
Gerald S. Traynor, Vice President
Donald W. Uglow, Vice President
Terri A. Juricic, Vice President
Martin R. Gould, Vice President of AMPCOR Diagnostics, Inc.
David J. Ledden, Ph.D., Vice President
Edward L. Bradley, Vice President
33
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF FRASER TREBILCOCK DAVIS & FOSTER, P.C.]
October 18, 1996
Mr. James L. Herbert, Jr.
Neogen Corporation
620 Lesher Place
Lansing, MI 48912
Dear Mr. Herbert:
In connection with the proposed public offering of the common stock of
Neogen Corporation (the "Company), you have requested our opinion as to the
legality of the common stock being registered with the Securities and Exchange
Commission. In connection with the public offering covered by a Registration
Statement filed with the Securities and Exchange Commission on September 17,
1996, we have reviewed the following:
1. The Restated Articles of Incorporation currently on file with the State
of Michigan;
2. The Amended Bylaws of the Company, which are currently in effect;
3. The minute books of the Company; and
4. The Registration Statement filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, on September 17,
1996, as amended, including the form of Underwriting Agreement found at
Exhibit 1.
Based upon examination of these documents and all other instruments and
records which we deem necessary, it is our opinion that the common stock of the
Company which is the subject of the September 17, 1996 SEC Registration
Statement, as amended, when issued and sold in accordance with the Underwriting
Agreement, will be duly authorized, validly issued, fully paid, and
nonassessable.
<PAGE> 2
Mr. James L. Herbert, Jr.
October 18, 1996
Page 2
By this letter, we also consent to inclusion of this letter in the
Registration Statement, and to the reference to our firm in the Prospectus as
written.
Very truly yours,
FRASER TREBILCOCK DAVIS & FOSTER, P.C.
RCL/sas
cc: Richard C. Lowe
<PAGE> 1
EXHIBIT 10(b)
DISTRIBUTION AGREEMENT
Agreement ("Agreement") made and entered into as of this first (9th) day of
August, 1996 by and
between
Merck KGaA, a corporation with general partners, with principal office located
at Frankfurter Strasse 250, 64293 Darmstadt, Federal Republic of Germany
- hereinafter called MERCK -
and
Neogen Corporation, having principal office located at 620 Lesher Place,
Lansing, Michigan, 48912, U.S.A.
- hereinafter called Neogen -
WITNESSETH
WHEREAS, MERCK is engaged in the business of manufacturing and selling certain
products as listed in Schedule A.
WHEREAS, MERCK has the option to exercise the exporting, selling and invoicing
of the products as listed in Schedule "A" by Merck Ltd., Poole, Neogen on
behalf of Merck.
WHEREAS, Neogen is engaged in the business of selling products for the testing
of various substances to end users in the United States and is interested to
include the Products as listed in Schedule A into its product range.
NOW, THEREFORE, in consideration of the premises and of the mutual promises of
the parties hereinafter set forth, the parties agree upon the following:
<PAGE> 2
-2-
ARTICLE I - DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
(1) "Product(s)" shall mean certain laboratory chemical products, including
the HY-LiTE(TM) monitoring system as listed in Schedule A.
The Agreement may be changed by mutual consent to cover other Products,
to delete certain Products or to change the specifications of the
Products.
(2) "Customers" shall mean users or potential users of Products.
(3) "Territory" shall mean the United States of America.
ARTICLE 2 - APPOINTMENT
(1) MERCK hereby appoints Neogen a non-exclusive distributor of Products in
the territory. For the markets in which Neogen has verified distribution,
Merck will not assign additional distribution rights without the written
consent of Neogen, which will not be unreasonably withheld.
(2) Products will be sold and distributed by Neogen under Merck's and/or EM
Science's own name and under a make up as described in Article 6.2 hereto.
(3) Neogen shall purchase all of its requirements of Products from MERCK
through MERCK Ltd., Great Britain.
ARTICLE 3 - TERM AND TERMINATION
(1) This Agreement shall be for a term of two (2) years from the date hereof
and, unless sooner terminated as provided hereinafter, shall thereafter be
automatically renewed and continue in effect for additional renewal terms
of one (1) year, unless either party gives at least six (6) months notice
to terminate the Agreement before the then current period.
<PAGE> 3
-3-
(2) The right to terminate the Agreement for serious reasons is reserved. In
particular, serious reasons are constituted by a gross failure to fulfill
contractual obligations by either party.
However, notice of termination will be valid only if the defaulting party
fails to fulfill its contractual obligations
within thirty (30) days after receiving notification by the other party.
(3) Furthermore, this Agreement may be immediately terminated by either
party upon notice to the other party if any of the following events of
default occur:
(a) If there is a substantial change of management or
ownership of one party effected without prior written consent of
the other party;
(b) If any of the parties shall dissolve or become insolvent;
(c) If Neogen fails to achieve the annual minimum order
quantities according to Article 4.2 hereto.
(4) Upon termination of this Agreement for any reason, Neogen agrees to
discontinue the use of the name and trademarks of MERCK, except for the
sale of the Products bearing said name or trademarks still on Neogen's
stock at termination date.
ARTICLE 4 - FORECAST AND ORDERING PROCEDURE
(1) Neogen shall supply MERCK, before November 30 of each year, with a
forecast of the quantities of Products which will be required by Neogen
during each quarter of the subsequent year. Such forecast shall be
renewed at the end of February, May and August of each year, for the term
of April to end of March, July to end of June and October to end of
September respectively. The quantity for the first quarter notified in
the respective forecasts shall be deemed to be a binding order; the
quantities notified for the second, third and fourth quarter in the
respective forecasts shall be deemed to be unbinding estimates.
(2) The minimum order quantity is $5,000.00. The annual minimum quantity
should not fall short of the quantities as defined in Schedule B "Annual
Sales Plan" as will be revised annually.
(3) After receipt of a firm order, MERCK will supply the ordered quantities
of Products within four (4) weeks provided the ordered quantities will not
exceed the forecast by more than twenty (20) percent.
<PAGE> 4
-4-
If its requirements are unexpectedly greater, Neogen will inform MERCK
immediately and MERCK will endeavor to meet such requirements within the
limit of its production capacity.
ARTICLE 5 - TERMS OF SALE
(1) MERCK shall ship Products under original MERCK label appropriate for
North America to Neogen's regional distribution centers in the USA at
prices set forth in Schedule A.
(2) Prices established in Schedule A are valid until December 31, 1996.
Prices for the following years, if necessary, will be changed at least
three (3) months before the beginning of every new calendar year. If no
understanding on new prices is reached, both parties have the right to
terminate this Agreement upon six (6) months notice.
(3) MERCK shall send invoices to Neogen for Products ordered by Neogen.
Neogen shall pay MERCK invoices within forty (40) days after date of
invoice.
(4) MERCK shall directly, and/or through its affiliates in Canada/USA, aid
and assist Neogen in the sale of Products by providing Neogen with
literature and promotional material concerning the Products as the same
may be available; establish and maintain a technical consulting service to
support any user of or to answer any claim with respect to said Products;
and to support Neogen in the organization of any sales meeting.
(5) Freight charges will be prepaid by MERCK and added to Neogen invoices,
FOB MERCK Limited Great Britain.
(6) Payments shall be US dollars at the exchange rate range of 1.00 US Dollar
to 0.65 British Pounds Sterling. Currency fluctuations of greater than
ten percent (10% plus or minus) from this exchange rate will be evaluated
for stabilization within one hundred twenty days of the event. If
stabilization does not occur, the prices on Schedule A shall be either
increased or decreased by one-half of the fluctuation in excess of 10%.
(7) MERCK shall supply HY-LiTE(TM) Sampling Pens, whether included in the
Refill Pack 1-30101-0002, or alone in 1-30102-0002 Pen Refills Only, with
a minimum of twenty (20) weeks of remaining shelf life at date of receipt
at Neogen's distribution center.
ARTICLE 6 - DUTIES OF NEOGEN
(1) Neogen will maintain an adequate sales force commensurate with the need
for effective and competent market coverage and will make current market
information available, including sales activities, competitive
observations, exhibit and seminar opportunities. Neogen will not prevent
MERCK from contacting HY-LiTE(TM) users. Neogen also agrees to
<PAGE> 5
-5-
maintain appropriate inventory levels of all Products specified in
Schedule A in all warehouse locations, so that adequate Customer service
can be provided. Neogen will also provide an annual detailed Product sales
and marketing plan for MERCK's approval.
(2) Neogen shall resell the Products without any change whatsoever in the
original labeling and packaging as supplied by MERCK including covering,
removing, relabelling and repacking. Any reference by Neogen in
advertising, catalogues, texts, etc., to Products identified by a
registered trademark of MERCK or any of its affiliates shall include such
identification by use of registered trademark symbol and reference to the
owner thereof as designated by MERCK. Notwithstanding of the foregoing,
Neogen shall have the right to add its own identification label to the
Products, subject to approval by MERCK, which approval shall not be
unreasonably withheld.
(3) Neogen shall obtain necessary registrations and import licenses in its
own name and at its own cost as soon as this Agreement is effective.
(4) Neogen shall, at all times, comply with all applicable laws and with
regulations and order of the respective state authorities.
(5) During the term hereof, Neogen shall maintain product liability insurance
coverage in such amounts, with such terms and underwritten by such
insurers as may be reasonably acceptable to MERCK. If MERCK so requests,
Neogen will promptly furnish evidence of such insurance to MERCK.
ARTICLE 7 - INSPECTIONS AND DISPUTED SHIPMENTS
(1) It shall be Neogen's responsibility to inspect each shipment of Products
after delivery to Neogen and to make any claim for damage or breakage
directly with any carrier who delivers Products to Neogen.
(2) If, upon inspection of a shipment, Neogen believes that there are
shortages of Products ordered or that the shipment does not otherwise
comply with the order placed by Neogen, including quality defects, Neogen
must notify MERCK of the same, whether orally or in writing, with such
notification received by MERCK within thirty (30) days after arrival of
the Products at the premises of Neogen. Any oral notification shall be
promptly followed by a written notification by Neogen. Upon such
notification, MERCK will investigate its records or, in case of a quality
defect, its samples, and, if MERCK confirms that the shipment does not
conform to the order placed by Neogen, MERCK will correct the incorrect
shipment by authorizing return of items not ordered or items shipped in
excess of the amount ordered and will credit Neogen for such returned
items. If the shipment was incorrect in that items ordered were not
delivered or delivered with quality defects, MERCK will ship such items to
Neogen and make, if necessary,
<PAGE> 6
-6-
adjustment in its invoices to Neogen. MERCK will in no event honor any
request by Neogen for MERCK to accept a return of any items shipped to
Neogen unless such request is made under this ARTICLE 7 (2) and MERCK has
actually received notice from Neogen of an incorrect shipment of the same
within thirty (30) days after arrival of the Products at the premises of
Neogen. MERCK further agrees that all credits will be issued to Neogen
within forty-five (45) days from the date of notification of the incorrect
shipment or invoice.
ARTICLE 8 - LIMITED WARRANTY AND EXCLUSIVE REMEDY
(1) MERCK warrants that Products sold to Neogen by MERCK pursuant to this
agreement will conform to the performance specifications set forth on the
application notes which accompany such Products until the expiration date
printed on the container for such Products. MERCK's sole responsibility
under this warranty shall be limited to the replacement, at MERCK's
expense, of any Product not complying with this warranty. Product
replacement shall be at the sole discretion of MERCK. The foregoing
warranty shall apply only if MERCK is notified by Neogen of any such
alleged non-conformance therewith within thirty (30) days after Neogen
learns of the same and if the non-conformance could not have been found
during the inspection according to ARTICLE 7. The foregoing warranty is
expressly conditioned upon Products being used, operated, handled,
maintained and shipped by the Customer and/or by Neogen in accordance with
the application notes and is void as to any Product modified, altered or
damaged by any person other than MERCK (unless done with MERCK's prior
consent). This warranty shall not be applicable to any Products which
become defective through either Neogen's or a Customers' negligence or
through any intentional acts.
(2) EXCEPT FOR THE WARRANTY SET FORTH IN THIS ARTICLE 8, MERCK MAKES NO OTHER
WARRANTY OF ANY KIND WITH REGARD TO PRODUCTS WHETHER EXPRESS, ARISING BY
OPERATION OF LAW, OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. MERCK
SHALL NOT IN ANY CIRCUMSTANCE BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
(3) Merck will indemnify and hold Neogen harmless from any and all claims,
actions, costs, expenses, or damages, including attorneys fees and
expenses, resulting from any actual or alleged patent infringement in the
use or sales of the products." Please confirm that this wording can be
included.
<PAGE> 7
-7-
ARTICLE 9 - NONASSIGNABILITY
This Agreement may not be assigned by either party without prior written
consent of the other party thereto.
ARTICLE 10 - MISCELLANEOUS
(1) This Agreement shall be governed by and construed under the laws of the
state of New York, USA.
(2) Any dispute or controversy between the parties arising out of or relating
to this Agreement, including without limitation, a dispute or controversy
relating to the construction of any provision or the validity or
enforceability of any term or condition (including this paragraph) or of
the entire Agreement, or any claim that all or any part of this Agreement
(including this provision) is void or voidable, shall be submitted to
arbitration before a single arbitrator in accordance with the Commercial
Rules of Arbitration of the American Arbitration Association of New York,
New York, USA. The laws of the state of New Jersey shall apply without
reference to its choice of laws provisions. Each party shall bear his or
its own costs in any such proceeding. The decision of the arbitrator
shall be final and binding upon the parties and may be enforced in any
court of competent jurisdiction. To the fullest extent permitted by law,
the parties irrevocably submit to the jurisdiction of such forum and waive
any objection he or it may have to either the jurisdiction or venue of
such forum.
(3) In case of force majeure, official orders, strike or lockout or similar
hindrances which the parties are unable to avert, the parties shall be
released for the duration of such hindrance from the contractual
obligations which they are prevented from performing.
(4) This Agreement merges and supersedes all prior discussions and agreements,
written or oral, between the parties with respect to generally the same
subject matter. In any event, no other terms of delivery will apply on the
contractual relationship of the parties if not mutually agreed upon.
(5) Any waiver by either party of any of its rights under this Agreement may
be terminated at any time, and any waiver of default by a party shall not
constitute a waiver of any continuing or subsequent default by the other
party.
(6) Both MERCK and Neogen are independent contractors, and this Agreement
shall not constitute one party as an agent or legal representative of the
other for any purpose. Neither party shall have any right or authority to
assume or create any liability, express or implied, on behalf of the other
party or to bind the other party in any manner whatsoever.
<PAGE> 8
-8-
(7) Subject to the limitations of ARTICLE 9 hereof, this Agreement shall
inure to the benefit of, and shall be binding upon, the successors,
assigns and legal representatives of the parties hereto.
(8) This Agreement shall not be altered, amended or supplemented except by a
written instrument executed by both parties.
(9) Any notice required or permitted by this Agreement shall be in writing
and may be delivered personally or may be sent by telex, telefax or
certified mail, return receipt requested, addressed to:
Merck KGaA
Attn: Dr. B. Reckmann
64271 Darmstadt
Federal Republic of Germany
If to Neogen Corp.:
Attn: Mr. Jim Herbert
President
Neogen Corporation
620 Lesher Place
Lansing, MI 48912
USA
or such other address as either party may designate to the other. Any
notice shall be deemed to have been received as follows.
(a) Personal Delivery: Upon receipt.
(b) Telex or telefax: One (1) hour after dispatch by the operator.
(c) Certified Mail, Return Receipt Requested: Three (3) days after
delivery to the postal authorities by the party serving the notice.
If sent by telex, a confirming copy of such notice shall be sent by
certified mail, return receipt requested, to the other party.
<PAGE> 9
-9-
(10) The headings used herein are solely for the convenience of the parties
and shall not serve to modify or interpret the text of the ARTICLES or
paragraphs at the beginning of which they appear.
(11) This agreement may be executed in one or more counterparts, each of which
shall be deemed an original.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the day and year first above written.
Darmstadt, Lansing, MI
Federal Republic of Germany, United States of America
/s/ James L. Herbert, President
Merck KGaA Neogen Corp.
/s/ Bernd Reckman
<PAGE> 10
06/20/96
SCHEDULE A
HY-Lite(TM) Product and Price List for 1996
<TABLE>
<CAPTION> TRANSFER SUGGESTED
SYSTEMS PRICE LIST PRICE
ITEM NUMBER DESCRIPTION PER YEAR (US $) (US $)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
1.30100.2222 HY-Lite(TM) Compact Kit 0-50 Systems $1,300.00 $2,000.00
51-100 Systems $1,100.00 $2,000.00
101+ Systems $1,000.00 $2,000.00
- ------------------------------------------------------------------------------------------------------------------
1.30101.0002 HY-Lite(TM) Refill Pack (100
Tests) 100 Tests $ 170.00 $ 350.00
- ------------------------------------------------------------------------------------------------------------------
1.30102.0002 HY-Lite(TM) Sampling Pens 50 Pens $ 90.00 $ 180.00
- ------------------------------------------------------------------------------------------------------------------
1.30100.0002 HY-Lite(TM) Hygiene Monitoring All Purchases $2,100.00 $3,500.00
System - Complete System
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
08/09/96
SCHEDULE B
ANNUAL SALES PLAN
<TABLE>
<CAPTION>
ANNUAL PURCHASES ANNUAL PURCHASES
1996 1997
- -------------------------------------------------------------------------
<S> <C> <C>
HY-Lite(TM) Monitoring- 40 Units 150 Units
Basic Unit or Complete
System
- -------------------------------------------------------------------------
HY-Lite(TM) Pens 16,000 Tests 170,000 Tests
or Complete Refills
- -------------------------------------------------------------------------
</TABLE>
