SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended September 30, 1995 Commission File No. 0-6994
------
NEW BRUNSWICK SCIENTIFIC CO., INC.
State of Incorporation - New Jersey E. I. #22-1630072
-----------
44 Talmadge Road, Edison, N.J. 08818-4005
Registrant's Telephone Number: 908-287-1200
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve (12) months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
Yes X No .
------ ------
There are 3,588,932 Common shares outstanding as of November 10, 1995.
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC.
Index
PAGE NO.
--------
PART I. FINANCIAL INFORMATION:
Item 1:
Consolidated Condensed Balance Sheets -
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1995 and 1994 4
Consolidated Condensed Statements of
Cash Flows - Nine Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Condensed Financial
Statements 6
Item II:
Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II. OTHER INFORMATION 9
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except for share data)
<TABLE>
<CAPTION>
ASSETS
------
September 30, December 31,
1995 1994
-------- --------
(Unaudited)
<S> <C> <C>
Current Assets
- - --------------
Cash and cash equivalents $ 5,188 $ 7,142
Accounts receivable, net 7,318 7,700
Deferred income tax benefit 302 302
Inventories:
Raw materials and sub-assemblies 7,380 7,126
Work-in-process 2,505 1,826
Finished goods 4,422 3,757
-------- --------
Total inventories 14,307 12,709
Prepaid expenses and other current assets 1,343 1,218
-------- --------
Total current assets 28,458 29,071
-------- --------
Property, plant and equipment, net 5,058 4,922
Other assets 511 511
-------- --------
$ 34,027 $ 34,504
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
- - -------------------
Current installments of long-term debt $ 126 $ 176
Accounts payable and accrued expenses 5,272 5,928
-------- --------
Total current liabilities 5,398 6,104
-------- --------
Long-term debt, net of current installments 603 665
-------- --------
Shareholders' equity:
Common stock, $.0625 par, authorized 25,000,000
shares; shares issued and outstanding, 1995 -
3,588,932 and 1994 - 3,581,283 net of shares
held in treasury, 338,500 224 224
Capital in excess of par 19,246 19,213
Retained earnings 8,800 8,495
Currency translation adjustment (244) (197)
-------- --------
Total shareholders' equity 28,026 27,735
-------- --------
$ 34,027 $ 34,504
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 8,266 $ 9,436 $ 27,224 $ 28,666
Operating costs and expenses:
Cost of sales 4,973 5,868 16,431 17,881
Selling, general and
administrative expenses 2,754 2,768 8,797 8,594
Research, development and
engineering expenses 536 429 1,510 1,316
-------- -------- -------- --------
Total operating costs
and expenses 8,263 9,065 26,738 27,791
-------- -------- -------- --------
Income from operations 3 371 486 875
Other income (expense):
Interest income 52 39 172 94
Interest expense (12) (19) (44) (51)
Other income (expense), net (6) (3) (9) (7)
-------- -------- -------- --------
34 17 119 36
-------- -------- -------- --------
Income before income taxes 37 388 605 911
Income taxes 7 117 121 273
-------- -------- -------- --------
Net income $ 30 $ 271 $ 484 $ 638
-------- -------- -------- --------
Earnings per Common share $ .01 $ .08 $ .14 $ .18
-------- -------- -------- --------
Weighted average number of
shares outstanding 3,589 3,575 3,584 3,571
======== ======== ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 484 $ 638
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 404 481
Change in related balance sheet accounts:
Accounts receivable 354 (216)
Inventories (1,619) 1,201
Prepaid expenses and other current assets (130) (295)
Accounts payable and accrued expenses (1,299) 177
Advance payments from customers 579 (534)
------- -------
Net cash used by operating activities (1,227) 1,452
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (567) (412)
Sale of equipment 16 --
------- -------
Net cash used by investing activities (551) (412)
------- -------
Cash flows from financing activities:
Dividends (179) --
Repayment of long-term debt (107) (137)
Proceeds from issuance of Common stock
under Employee Stock Purchase Plan 33 24
Proceeds from issuance of Common stock under
Stock Option Plan for nonemployee directors -- 2
------- -------
Net cash used by financing activities (253) (111)
------- -------
Net effect of exchange rate changes on cash 77 108
------- -------
Net decrease in cash and cash equivalents (1,954) 1,037
Cash and cash equivalents at beginning of period 7,142 4,773
------- -------
Cash and cash equivalents at end of period $ 5,188 $ 5,810
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 49 $ 60
Income taxes 172 161
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Interim Results:
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly, its financial position as of
September 30, 1995 and the results of its operations and cash flows for the nine
months ended September 30, 1995 and 1994. Interim results may not be indicative
of the results that may be expected for the year.
Note 2 - Earnings per share:
Earnings per Common share are based on the weighted average number of shares
outstanding. Stock options are not included in the calculation as they had no
significant dilutive effect on earnings per share.
Note 3 - Consolidated Condensed Statements of Shareholders' Equity:
Nine Months Ended
September 30,
1995 1994
------ ------
(In thousands)
Balance at beginning of period $27,735 $26,253
Net income 484 638
Currency translation adjustment (47) 472
Dividends ($.05 per share) (179) --
Issue of shares under
Employee Stock Purchase Plan 33 24
Issue of shares under Stock Option Plan
for nonemployee directors -- 2
------- -------
Balance at end of period $28,026 $27,389
======= =======
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following is Management's discussion and analysis of significant factors
that have affected the Company's operating results and financial condition
during the quarter and nine months ended September 30, 1995.
Results of Operations
----------------------
Quarter Ended September 30, 1995 vs. Quarter Ended September 30 1994.
- - ---------------------------------------------------------------------
For the quarter ended September 30, 1995, net sales were $8,266,000 compared
with net sales of $9,436,000 for the quarter ended September 30, 1994. Net
income for the 1995 quarter was $30,000 or $.01 per share compared with net
income of $271,000 or $.08 per share for the third quarter of 1994.
The decline in net sales resulted primarily from a decrease in domestic sales
due to soft market conditions in the United States, the traditionally weak
summer months and delays in some planned shipments which will not be made until
the fourth quarter. Income from operations decreased to $3,000 from $371,000 in
the 1994 quarter as a result of the sales decline, an increase in research,
development and engineering expenses due to the establishment late in 1994 of a
bioprocess equipment division and partially offset by an increase in the gross
profit percentage from 37.8 in 1994 to 39.8% in 1995 as a result of the
Company's continuing efforts to improve operating efficiencies and to control
costs as well as the positive effects of the weaker dollar on the product costs
of the Company's European subsidiaries. Interest income increased to $52,000
from $39,000 in the 1994 quarter due primarily to higher interest rates.
Interest expense declined to $12,000 from $19,000 in 1994 due to the continuing
amortization of the principal on the Company's long-term debt.
Provision for income taxes as a percentage of income before taxes decreased in
the 1995 period due to a larger proportion of the 1995 income coming from the
Company's foreign subsidiaries, a significant portion of which is not subject to
income taxes due to carryforward tax losses on which income tax benefits were
not previously recognized.
Nine Months Ended September 30, 1995 vs. Nine Months Ended September 30 1994.
- - -----------------------------------------------------------------------------
For the nine months ended September 30, 1995, net sales were $27,224,000
compared with net sales of $28,666,000 for the nine months ended September 30,
1994. Net income for the 1995 period was $484,000 or $.14 per share compared
with net income of $638,000 or $.18 per share for the first nine months of 1994.
The decline in net sales resulted primarily from a decrease in domestic sales
due to soft market conditions in the United States, the traditionally weak
summer months and delays in some planned shipments which will not be made until
the fourth quarter. The shortfall in domestic sales has been partially offset by
stronger export sales and higher sales by the Company's European subsidiaries.
Income from operations decreased to $486,000 from $875,000 in the 1994 period as
a result of the decline in sales, an increase in research, development and
engineering expenses due to the establishment late in 1994 of a bioprocess
equipment division and partially offset by an increase in the gross profit
percentage from 37.6% in 1994 to 39.6% in 1995 due to the Company's continuing
efforts to improve operating efficiencies and to control costs as well as the
positive effects of the weaker dollar on the product costs of the Company's
European subsidiaries. Interest income increased to $172,000 from $94,000 in the
1994 period due to higher average cash and cash equivalents and higher interest
rates. Provision for income taxes as a percentage of income before taxes
decreased in the 1995 period due to a larger proportion of the 1995 income
coming from the Company's foreign subsidiaries, a significant portion of which
is not subject to income taxes due to carryforward tax losses on which income
tax benefits were not previously recognized.
<PAGE>
Financial Condition
-------------------
Liquidity and Capital Resources
- - -------------------------------
During the period ended September 30, 1995, Cash and Cash Equivalents decreased
to $5,188,000 from $7,142,000 at December 31, 1994. The decrease in cash
resulted primarily from an increase in inventories from $12,709,000 at December
31, 1994 to $14,307,000 at September 30, 1995. Inventories increased primarily
as a result of the in-process construction of custom fermentation systems which
are expected to be shipped during the fourth quarter and to the need to be in a
stock position for many core products in anticipation of the traditionally
strong fourth quarter. Cash also decreased due to the reduction in Accounts
Payable and Accrued Expenses from $5,928,000 at December 31, 1994 to $5,272,000
at September 30, 1995 as a result of normal cyclical payments.
New Business Activity
- - ---------------------
On October 18, 1995, the Company announced that it was entering the drug lead
discovery business by forming a new company to develop a novel, small molecule
drug discovery platform. The company, called DGI BioTechnologies LLC (DGI), is
majority-owned and fully funded by the Company and will utilize specially
designed new laboratory space at the Company's headquarters facility in Edison,
New Jersey. DGI's operations are expected to have a significant negative impact
on the Company's earnings during its development phase, which is estimated at
between two and three years.
Cash Flows from Operating Activities
- - ------------------------------------
During the period ended September 30, 1995 net cash used by operating activities
amounted to $1,227,000 vs. net cash provided by operating activities of
$1,452,000 for the period ended September 30, 1994. The primary reasons for the
$2,679,000 decrease between the two periods were: (a) inventories increased
$1,619,000 vs. a decrease of $1,201,000 in 1994; (b) accounts payable and
accrued expenses decreased $1,299,000 vs. an increase of $177,000 in 1994 and
were offset by (a) a decrease in accounts receivable of $354,000 vs. an increase
of $216,000 in 1994 and (b) an increase in advance payments from customers of
$579,000 vs. a decrease of $534,000 in 1994.
Cash Flows from Investing Activities
- - ------------------------------------
Net cash used by investing activities amounted to $551,000 in 1995 vs. $412,000
in 1994, primarily as a result of additions to property, plant and equipment.
Cash Flows from Financing Activities
- - ------------------------------------
Net cash used by financing activities amounted to $253,000 in the 1995 period
vs. $111,000 in the 1994 period. The major reason for the difference resulted
from a Common stock dividend paid by the Company in the amount of $179,000 in
1995.
Management believes that the resources available to the Company, including its
line of credit which has been extended to May 1997, are sufficient to meet its
near and intermediate-term needs, including present funding commitments for DGI,
and its strong unleveraged balance sheet provides the basis for any long-term
financing if the need should arise.
<PAGE>
NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- - ------------------------------------------
(a)
(10.1) Termination Agreement with Samuel Eichenbaum.
(10.2) Organizational Structure and Development Agreement.
No reports on Form 8-K have been filed during the quarter ended September 30,
1995.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW BRUNSWICK SCIENTIFIC CO., INC.
-----------------------------------
(Registrant)
Date: November 13, 1995 /s/ Ezra Weisman
---------------------------------------
Ezra Weisman
President
(Chief Executive Officer)
/s/ Samuel Eichenbaum
---------------------------------------
Samuel Eichenbaum
Vice President - Finance
(Principal Accounting Officer)
<PAGE>
(EXHIBIT 10.1)
June 1, 1995
Mr. Samuel Eichenbaum
304 Lincoln Avenue
Highland Park, NJ 08904
Dear Mr. Eichenbaum:
In recognition of your services, New Brunswick Scientific Co., Inc. ("the
Company") shall, in the event that your employment with the Company shall be
involuntarily terminated for any reason after the occurrence of a Change in
Control (as defined below), pay to you an amount equal to 100% of your current
annual base salary at the time of such termination. The payment will be made in
a single sum within 30 days of your termination of employment. In addition, the
Company will continue to provide you with medical and dental insurance for
twelve (12) months following your termination to the same extent as such
insurance is provided to other executive employees of the Company.
For the purposes of this agreement "Change of Control" generally is defined
to take place when disclosure of such a change would be required by rule(s)
promulgated by the Securities and Exchange Commission or when either (i) a
person (other than a current officer or director nominated, selected or elected
by the board) acquires beneficial ownership (as defined in SEC Rule 13d-3) of
25% or more of the combined voting power of the Company's voting securities,
(ii) less than a majority of the directors are persons who were either nominated
or selected by the current Board, (iii) a merger tender offer or sale or
exchange of securities involving the Company occurs which results in ownership
of more than 50% of the Company's voting stock by a holder or holders not
currently owning more than 10% of the outstanding shares of stock of the
Company, or (iv) a plan of liquidation or sale of substantially all the assets
of the Company occurs.
Following a Change in Control, in addition to actual termination of your
employment by the Company, you will be considered to have been involuntarily
terminated if you resign after any of the following occurs: a material reduction
in your responsibilities or authority which is expected to last or in fact
continues for more than one month; a reassignment to another geographic location
more than 50 miles from 44 Talmadge Road, Edison, New Jersey; a reduction of at
least 5% in your compensation; abusive or demeaning conduct toward you that
amounts to a constructive discharge under the common law of the State of New
Jersey; or failure by a successor employer following a sale, merger, exchange or
other disposition of the Company, or any subsidiary, facility, or operation at
which you are employed to assume the obligations of the Company under this
Agreement.
Nothing contained herein shall be construed as conferring upon you the
right to continue in the employ of the Company as an executive or in any other
capacity.
Any severance pay benefits payable under this letter shall not be deemed
salary or other compensation to you for the purpose of computing benefits to
which you may be entitled under any pension plan or other arrangement of the
Company for the benefit of its employees.
<PAGE>
Mr. Samuel Eichenbaum
June 1, 1995
Page 2
You shall be responsible for payment of any tax liability which results
from payment to you of any amount under this letter. Any payment(s) shall be
subject to Federal, State and local withholding rules in effect at the time a
payment is made.
The parties hereto agree that this Agreement shall supercede any and all
other agreements between the parties relating to severance pay except the
termination agreement between you and the Company dated March 15, 1985, a copy
of which is attached hereto as an Exhibit A.
Sincerely,
NEW BRUNSWICK SCIENTIFIC CO., INC.
ATTEST:
Ezra Weisman
President
- - ----------------------------------
Adele Lavender
Secretary
Acknowledged and Accepted as of the
day of
- - --------- -------------------
- - -----------------------------------
Samuel Eichenbaum
EW/SEVERANC
<PAGE>
bcc: Ernest Gross
David Freedman
Personnel File
<PAGE>
(EXHIBIT 10.2)
ORGANIZATIONAL STRUCTURE AND DEVELOPMENT AGREEMENT
THIS ORGANIZATIONAL STRUCTURE AND DEVELOPMENT AGREEMENT (the "OSD
Agreement") dated October 17, 1995 by and among DGI BIOTECHNOLOGIES, L.L.C., a
New Jersey limited liability company ("DGI"), New Brunswick Scientific Co.,
Inc., a New Jersey corporation ("NBS"), each of Richard J. Murphy, Arthur J.
Blume, Bill Kavanagh, Manus O'Donnell and Bernard Leon (collectively the
"Founders") and, to the extent it continues to exist, DGI TECHNOLOGIES INC., a
New Jersey corporation ("Inc.").
All capitalized terms not otherwise defined herein shall have that
meaning ascribed to them in the Acquisition Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, NBS, Founders and Inc. are parties to a certain Technology
Acquisition Agreement (the "Acquisition Agreement") dated October 17, 1995 under
which NBS will acquire the Technology from Inc.; and
WHEREAS, it is a condition to the obligation of Inc. and of the
Founders under the Acquisition Agreement, including the obligation of Inc. to
transfer the Technology to NBS, that this OSD Agreement be executed and
delivered by each party hereto; and
WHEREAS, NBS and the Founders have formed DGI to develop the
Technology; and
WHEREAS, NBS has entered into an Assignment Agreement pursuant to which
NBS shall assign all of its right, title and interest under the Acquisition
Agreement to DGI; and
WHEREAS, NBS has agreed to provide certain funds to DGI to exercise the
rights of NBS under the Acquisition Agreement as assigned to DGI, for
operations, to acquire and lease certain equipment to DGI and to provide
laboratory space to DGI, all on the terms and conditions set forth herein; and
WHEREAS, the Founders require and NBS and DGI agree to the
organizational structure of DGI as set forth in its Operating Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. Structure of DGI and Exercise of Assigned Rights.
-------------------------------------------------
(a) DGI is organized as a New Jersey limited liability company and is
governed by its Operating Agreement, dated October 17, 1995, in substantially
the form set forth in Exhibit A attached hereto.
(b) DGI shall, under the Assignment Agreement, exercise the rights of
NBS under the Acquisition Agreement. To that end NBS shall contribute, as a
capital contribution, $113,000 to DGI contemporaneously with the execution of
this Agreement.
2. Equipment.
----------
Subject to Section 11 of this OSD Agreement, NBS shall acquire
laboratory equipment identified by the Founders as necessary to the development
of the Technology up to a maximum aggregate cost of $775,000. NBS shall lease
such equipment to DGI on reasonable terms or DGI shall directly lease such
equipment with an NBS guarantee. NBS shall disburse funds (advanced as capital
contributions) in amounts sufficient to enable DGI to make lease payments for
equipment leased by or on behalf of DGI. DGI shall assist NBS in acquiring
equipment at the lowest reasonable cost. The Founders shall, prior to the
execution hereof, have delivered to DGI and NBS a list of equipment together
with the time such equipment is necessary, indicating which equipment is
necessary for each milestone set forth in the Technology Plan attached hereto as
Exhibit B (the "Technology Plan").
3. Laboratory Space.
-----------------
Prior to the execution and delivery hereof, the Founders shall deliver
a written statement of laboratory requirements, indicating any special
requirements for the laboratory space and stating when the laboratory is
necessary in terms of achieving the milestones set forth in the Technology Plan.
Subject to Section 11 of this OSD Agreement, NBS will modify an area of its
existing facility in Edison, New Jersey reasonably necessary to serve as the
laboratory for DGI. NBS shall be responsible for all costs associated with such
modification, provided, however, that such costs shall not exceed $125,000. The
laboratory is intended to provide reasonably suitable facilities for DGI to
develop the Technology.
4. Operating Funds.
----------------
(a) Subject to Section 11(c) of this OSD Agreement, NBS shall provide
up to $2,825,000 (the "Maximum Amount") to DGI for operations, with such funds
to be advanced as capital contributed to DGI as required to fund budgeted
operating costs as certified by the Chief Operating Officer of DGI for the
ordinary business operations of DGI (including but not limited to salaries,
consulting fees and overhead). Funds under this Section shall be contributed by
NBS as follows:
<PAGE>
(i) Up to $1,000,000 shall be contributed to DGI (as required and
subject to this Section) within the nine months (Phase I) following
the Starting Date (as defined in Section 5 hereof) to be used for
the creation of a universal biological library of scanners of target
surfaces.
(ii) Additional funds up to the Maximum Amount shall be
contributed to DGI (as required and subject to this Section) during
the period from 9 to 24 months (Phase II) following the Starting
Date to be used for the development of I.D. Simple Target Active
Scanners, provided, however, that DGI shall first have completed
Phase I.
(iii) Remaining funds up to the Maximum Amount shall be
contributed to DGI (as required and subject to this Section) during
the period from 10 to 24 months (Phase III) following the Starting
Date to be used for I.D. Complex Target Active Scanners and Sequence
Related Scanners, provided, however, that DGI shall first have
completed Phase II.
In connection with the foregoing, the Chief Operating Officer of DGI
shall have submitted a budget for the twenty four month period next following
the month in which the Closing occurs to the Managers of DGI and to NBS prior to
the execution and delivery of this OSD Agreement. Thereafter, NBS shall monitor
the budget on a monthly basis to ensure adherence to the budgeted expenses and
compliance with progress in meeting the established milestones. Neither DGI nor
any Manager shall incur an unbudgeted expense and NBS shall have no obligation
to provide funds for the same, subject to the authority under the Operating
Agreement of any Class A Manager specifically to authorize an unbudgeted
expenditure.
(b) NBS shall also provide funds to DGI as additional capital
contributions sufficient to pay the rental payments due on the leases of
equipment entered into consistent with Section 2 of this Agreement.
5. Establishment of Starting Date.
-------------------------------
For purposes of this OSD Agreement and particularly for the Technology
Plan and the milestones, the Starting Date shall be the date as promptly as
possible after the Closing when (i) DGI will have space at NBS' Edison facility
adequate to its immediate needs (which during Phase I need not include the
laboratory space NBS is to provide under Section 3 hereof); and (ii) the
equipment identified by the Founders on the equipment list (submitted to DGI
pursuant to Section 2 hereof) as necessary for Phase I shall be present and
operating at the DGI space at NBS' Edison facility. DGI shall certify the
Starting Date by a majority vote of its Board of Managers.
<PAGE>
6. Representations and Warranties of the Founders and Inc.
-------------------------------------------------------
(a) Inc. and each of the Founders hereby reaffirm the accuracy and
completeness of each representation and warranty set forth in Article 3 of the
Acquisition Agreement.
(b) To the best of the knowledge of Inc. and each Founder, the
development of the Technology as contemplated hereunder does not conflict with
or require licensure under any Federal or New Jersey statute or regulation or
any order or judgment of any court or other tribunal with jurisdiction over Inc.
or the Founders.
7. Representations and Warranties of DGI.
--------------------------------------
This OSD Agreement and the performance by DGI hereunder have been duly
authorized and do not conflict with its Operating Agreement or, to the best
knowledge of DGI, any Federal, New Jersey or local statute, regulation or
ordinance applicable to DGI or any order or judgment of any court or other
tribunal with jurisdiction over DGI.
8. Representations and Warranties of NBS.
--------------------------------------
This OSD Agreement and the performance by NBS hereunder have been duly
authorized and do not conflict with its Certificate of Incorporation or Bylaws
or, to the best knowledge of NBS, any Federal, New Jersey or local statute,
regulation or ordinance applicable to NBS or any order or judgment of any court
or other tribunal with jurisdiction over NBS.
9. Survival of Representations and Warranties and Indemnification.
---------------------------------------------------------------
The representations and warranties contained in Sections 6, 7 and 8
hereof shall continue during the term of this Agreement and survive termination
for a period of five (5) years from the Closing. Inc. and each of the Founders
hereby indemnifies and holds DGI and NBS harmless for any loss, liability,
damage or expense (including reasonable attorney's fees and other litigation
costs, regardless of outcome) resulting from any material breach, misstatement
or inaccuracy contained in Section 6 if, after receiving notice, such breach,
misstatement or inaccuracy is not cured or otherwise resolved within 45 days.
DGI and NBS hereby indemnify Inc. and hold each of the Founders harmless for any
loss, liability, damage or expense (including reasonable attorney's fees and
other litigation costs, regardless of outcome) resulting from any material
breach, misstatement or inaccuracy contained in Sections 7 and 8 if, after
receiving notice, such breach, misstatement or inaccuracy is not cured or
otherwise resolved within 45 days.
<PAGE>
10. Claim of Infringement.
----------------------
If any person at any time asserts any claim with respect to the
Technology either that such other person has any right, title or interest in or
to the Technology and its exploitation by DGI or that the exploitation of the
Technology by DGI infringes upon or conflicts with any legally protected right,
title or interest of any other person (any of the foregoing being a "Claim of
Infringement"), the party hereto receiving such Claim of Infringement shall
promptly notify all other parties hereto.
11. Term and Termination.
---------------------
(a) The term of this Agreement shall commence upon the date of the
Closing and shall continue for a period of five (5) years unless earlier
terminated in accordance with this Section, unless the term is extended by
written agreement of the parties.
(b) If NBS breaches in any material respect its obligations under
Sections 2, 3 or 4 hereof or if DGI, having received adequate funds from NBS,
fails in any material respect to disburse funds for budgeted expenses in a
timely manner, then the Founders may give notice to NBS and DGI of such breach.
If such breach is not cured within 45 days, the Founders shall have the right,
upon tendering to DGI an amount in cash or cash equivalent, equal to the sum of
(x) all operating funds received by DGI from NBS and disbursed by DGI, and (y)
all funds advanced to DGI by NBS for all equipment lease payments, to reacquire
all right, title and interest in and to the Technology, as is, without any
express or implied warranty by DGI.
(c) If (i) any milestone specified in the Technology Plan is not timely
achieved in any material respect; or (ii) the Founders fail to perform under
this OSD Agreement in any material respect; or (iii) any Founder is in breach of
any of his confidentiality or non-competition obligations under Article 7 of the
Acquisition Agreement; or (iv) any representation of the Founders or Inc. in the
Acquisition Agreement or in this OSD Agreement is false or misleading in any
material respect; or (v) any Claim for Infringement is made, then DGI shall
promptly notify all parties to this OSD Agreement and if such non-achievement,
failure to perform, breach, falsehood or inaccuracy or Claim for Infringement is
not cured or otherwise resolved to the satisfaction of DGI (or in the case of a
Claim for Infringement, resolved pursuant to Section 11(g) of this Agreement),
NBS shall have the option to terminate its obligation to contribute funds, lease
equipment and provide space to DGI under Sections 2 or 4 of this OSD Agreement
or to expend funds to modify its Edison facility under Section 3 of this OSD
Agreement. In the case of (i), (ii) or (v) in the prior sentence, the Founders
may, thereafter, seek an alternative funding source if NBS chooses to terminate
its obligations hereunder. If such a source of funds is found and such source
and the terms of the alternative financing are reasonably acceptable to DGI, DGI
shall grant such source an interest in DGI.
<PAGE>
(d) If Dr. Blume is no longer employed as President and Chief Operating
Officer of DGI, NBS shall have the option of terminating its obligations to fund
DGI, to lease equipment and to provide space under this OSD Agreement. If NBS
chooses to terminate its obligations hereunder, the Founders may thereafter seek
an alternative funding source. If such a source of funds is found and such
source and the terms of the alternative financing are reasonably acceptable to
DGI, DGI shall grant such source an interest in DGI.
(e) In any case under Section 11(b), (c)(i), (c)(ii) or (c)(v) or (d),
NBS shall in any event and notwithstanding a decision by NBS to cease further
support of DGI, for a period of up to six (6) months (i) continue to lease the
equipment then being leased to DGI; and (ii) continue to provide space to DGI,
such space to be provided at no cost to DGI.
(f) The determination as to whether a breach in any material respect
has occurred under subsection (b) of this Section or whether any of (i), (ii),
(iii) or (iv) in the first sentence of subsection (c) has occurred shall be made
by the party giving notice. If within 45 days any party receiving notice gives
written notice of disagreement, in all instances except a Claim of Infringement,
the matter shall be submitted for mediation to a professor at Rutgers, the State
University of New Jersey, Princeton University or other major university (or
another recognized figure in the appropriate scientific discipline) as
recommended by DGI's Scientific Advisory Board and reasonably acceptable to the
parties hereto. If after one (1) month from submission the parties have not
reached an amicable written resolution, the matter shall be submitted for
binding determination by a retired jurist from a recognized alternative dispute
resolution agency. During the period of any such mediation and/or binding
determination, DGI shall continue development of the Technology in accordance
with the Technology Plan and this Agreement and NBS shall continue its funding
obligations hereunder. DGI shall be responsible for costs of the mediator or of
the person making the binding determination.
(g) Any Claim of Infringement must be resolved with the person or
entity asserting the Claim of Infringement to the reasonable satisfaction of NBS
and DGI within 45 days.
12. Founders' Representative.
-------------------------
The Founders hereby designate Richard J. Murphy as the Founders'
Representative to whom notices, reports or other correspondence to the Founders
under this OSD Agreement shall be sent. Further, the Founders' Representative is
expressly authorized by each of the Founders to execute and deliver any
modification, alteration, waiver or change to this OSD Agreement and to give any
consent or agreement permitted or required under this OSD Agreement, which if
executed and delivered or given, shall be binding upon and enforceable against
each of the Founders as though executed and delivered or given by him. This
authority given to the Founders' Representative to act as attorney in-fact for
each Founder is irrevocable and is coupled with an interest.
<PAGE>
13. Miscellaneous.
--------------
(a) This OSD Agreement shall be governed by and interpreted in
accordance with the laws of the State of New Jersey.
(b) Any notice report or other correspondence required or permitted to
be given hereunder shall be in writing and shall be sufficient if delivered
personally (including by means of recognized courier service for which a written
receipt is given) or by registered or certified mail, return receipt requested,
postage prepaid, as follows (or to such other address as shall be set forth in a
notice given in the same manner):
if to DGI:
DGI BioTechnologies, L.L.C.
40 Talmadge Road
Edison, New Jersey 08818
if to NBS:
New Brunswick Scientific Co., Inc.
44 Talmadge Road
Edison, New Jersey 08818
with a required copy to:
Peter D. Hutcheon, Esq.
Norris, McLaughlin & Marcus
721 Route 202-206
P.O. Box 1018
Somerville, New Jersey 08876-1018
if to Inc.:
DGI Technologies, Inc.
605 Valley Road
Upper Montclair, New Jersey 07042
if to Founders:
Dr. Arthur J. Blume
c/o DGI BioTechnologies, Inc.
40 Talmadge Road
Edison, New Jersey 08818
<PAGE>
Richard Murphy
344 Highland Avenue
Ridgewood, New Jersey 07450
Bernard Leon
30 Buckingham Circle
Pine Brook, New Jersey 07058
Bill Kavanagh
c/o Kavanagh Organizational Planning
2nd Floor
605 Valley Road
Upper Montclair, New Jersey 07043
Manus O'Donnell
11 Cedar Green Lane
Berkeley Heights, New Jersey 07922
with a required copy to:
Bernard Leon, Esq.
30 Buckingham Circle
Pine Brook, New Jersey 07058
Any party may change the address by notification to the other parties
as provided in this Section.
(c) The OSD Agreement, the Acquisition Agreement, the Operating
Agreement, the Blume Employment Agreement and the Assignment Agreement,
including Exhibits attached thereto and hereto represent the entire
understanding of the parties with respect to the subject matter hereof, and
supersedes all prior agreements, negotiations, understandings, letters of
intent, representations, statements and writings between the parties. No
modification, alteration, waiver or change in any of the terms of this Agreement
shall be valid or binding upon the parties hereto unless made in writing and
duly executed by the party or parties to be charged. In the case of the
milestones established under the Technology Plan, NBS and DGI may by written
agreement signed by each of NBS and DGI, and without the consent of the
Founders, extend the time for DGI to reach a milestone and/or increase the
amount of funds contributed by NBS or costs borne by NBS in modifying its Edison
facility.
<PAGE>
(d) The invalidity or unenforceability of any term, provision or clause
of this OSD Agreement shall not impair or affect the validity or enforceability
of any other provision of this OSD Agreement.
(e) This OSD Agreement shall be binding upon and inure to the benefit
of the successors and permitted assigns of the parties hereto. Without the prior
consent of DGI and NBS, neither any Founder nor Inc. may assign any of his or
its respective rights or obligations hereunder. Without the prior consent of the
Founders neither DGI nor NBS may assign any of its respective rights or
obligations hereunder. The foregoing shall not, however, have any impact upon
any change in ownership or control of NBS, which (should it occur) shall not
affect this OSD Agreement or the ownership of the Technology by DGI.
(f) This OSD Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one OSD Agreement. If this OSD Agreement is executed in counterparts, no party
shall be bound until all parties have duly executed and delivered a counterpart
of this OSD Agreement.
<PAGE>
IN WITNESS WHEREOF each of the parties hereto has signed or caused its
thereto duly authorized person to sign this OSD Agreement on and as of the date
first above written.
NEW BRUNSWICK SCIENTIFIC CO., INC.
By:
-----------------------------------------
David Freedman
Chairman of the Board
DGI TECHNOLOGIES, INC.
By:
-------------------------------------------
Richard J. Murphy
Chairman of the Board/CEO
DGI BIOTECHNOLOGIES, L.L.C.
By:
-------------------------------------------
David Freedman
Chairman of the Board of Managers
Founders
-------------------------------------------
Arthur J. Blume
-------------------------------------------
Richard J. Murphy
-------------------------------------------
Bill Kavanagh
-------------------------------------------
Manus O'Donnell
-------------------------------------------
Bernard Leon
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