<PAGE>
As filed with the Securities and Exchange Commission on August 16, 1996
Registration No. 333-____________
=================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------------
SYNBIOTICS CORPORATION
(Exact name of Registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
CALIFORNIA 283 95-3737816
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
- ------------------------------- ---------------------------- ------------------
</TABLE>
11011 VIA FRONTERA
SAN DIEGO, CALIFORNIA 92127
(619) 451-3771
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Kenneth M. Cohen, Chief Executive Officer
Synbiotics Corporation
11011 Via Frontera
San Diego, California 92121
(619) 451-3771
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
HAYDEN J. TRUBITT
BROBECK, PHLEGER & HARRISON LLP
550 W. C Street, Suite 1300
San Diego, CA 92101
(619) 234-1966
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
UPON CONSUMMATION OF THE ACQUISITION DESCRIBED HEREIN AND AFTER THE EFFECTIVE
DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
--------------------------
CALCULATION OF REGISTRATION FEE/1/
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===============================================================================================================================
Title of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered Registered Offering Price per Security Aggregate Offering Price Registration Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct Shares: Common Stock..... 1,244,444 $3.9375 $4,899,998.25 $1,689.65
Warrant Shares: Common Stock... 467,698 $ 2.86 $1,337,616.28 $ 461.25
- -------------------------------------------------------------------------------------------------------------------------------
Totals: 1,712,142 $6,237,614.53 $2,150.90
==============================================================================================================================
</TABLE>
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.
================================================================================
- ---------------------------
/1/ Calculated pursuant to Rule 457(c) of the Securities Act of 1933, as
amended (pursuant to specified date of August 12, 1996).
1
<PAGE>
SYNBIOTICS CORPORATION
----------------------
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
------------------------------------------------ ----------------------
(Information About the Transaction)
<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................................... Facing Page; Cross-Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................................... Inside Front and Outside Back Cover Pages
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................................ Summary; Risk Factors
4. Terms of the Transaction......................................... The Acquisition
5. Pro Forma Financial Information.................................. Pro Forma Condensed Financial Statements
6. Material Contacts with the Company Being Acquired................ The Acquisition
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.................... *
8. Interests of Named Experts and Counsel........................... Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities................................... *
(Information about the Registrant)
10. Information with Respect to S-3 Registrants..................... *
11. Incorporation of Certain Information by Reference............... *
12. Information with Respect to S-2 or S-3 Registrants.............. *
13. Incorporation of Certain Information by Reference............... *
14. Information with Respect to Registrants other than Outside Front Cover Page; Summary;
S-2 or S-3 Registrants.......................................... Introduction; Risk Factors; The
Acquisition; Pro Forma Condensed
Financial Statements; Market Price of
Synbiotics Common Stock; Synbiotics
Management's Discussion and Analysis or
Plan of Operation; Financial Statements
(Information about the Company being Acquired)
15. Information with Respect to S-3 Companies....................... *
16. Information with Respect to S-2 or S-3 Companies................ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
------------------------------------------------ ----------------------
<S> <C>
17. Information with Respect to Companies other than Outside Front Cover Page; Summary;
S-2 or S-3 Companies............................................. Introduction; Risk Factors; The
Acquisition; Pro Forma Condensed
Financial Statements; Business (ICG);
Market Price of ICG Common Stock;
Dividends; ICG Management's Discussion
and Analysis or Plan of Operation;
Financial Statements
(Voting and Management Information)
18. Information if Proxies, Consents or Authorizations are Summary; Election of Synbiotics Directors;
to be Solicited.................................................. Amendment of Synbiotics Restated Articles
of Incorporation; Shareholder Proposals for
1997 Synbiotics Proxy Statement; Executive
Officers and Certain Other Significant
Employees; Executive Compensation and
Other Employment Matters
19. Information if Proxies, Consents or Authorizations are
Not to be Solicited or in an Exchange Offer...................... *
_________________________
* Not Applicable.
</TABLE>
<PAGE>
SYNBIOTICS CORPORATION
11011 VIA FRONTERA
SAN DIEGO, CALIFORNIA 92127
Dear Shareholder: ________ __, 1996
An Annual Meeting of Shareholders of Synbiotics Corporation will be held on
October 17, 1996, at 10:00 a.m., local time, at the Radisson Suite Hotel (Rancho
Bernardo), 11520 West Bernardo Court, San Diego, California 92127 (the
"Synbiotics Meeting").
At this Synbiotics Meeting, you will be asked to consider and vote (i) to
approve Synbiotics' acquisition of substantially all the assets of International
Canine Genetics, Inc., a Delaware corporation ("ICG") pursuant to a Purchase
Agreement dated July 23, 1996 (the "Acquisition"), (ii) to elect a Board of
Directors for the following year, (iii) to consider a proposal to amend Article
Fourth of the Restated Articles of Incorporation, and (iv) to transact such
other business as may properly come before the meeting or any postponements or
adjournment thereof.
Synbiotics will own substantially all the assets of ICG upon the effectiveness
of the Acquisition (which will occur as soon as possible after obtaining all
necessary shareholder approvals, and satisfaction of certain other conditions)
(the "Acquisition Date"). On the Acquisition Date, ICG shall receive Synbiotics
Common Stock (collectively, the "Acquisition Shares"), the number of which shall
be 1,400,000, provided that the average closing sales price of the Common Stock
of Synbiotics as quoted on the Nasdaq National Market for the five (5) trading
days ending one business day prior to the Acquisition Date (the "Average Closing
Sales Price") is not greater than $3.50 per share or less than $2.50 per share.
If the Average Closing Sales Price is greater than $3.50 per share, the number
of Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction, the
numerator of which shall be $3.50 and the denominator of which shall be the
Average Closing Sales Price. If the Average Closing Sales Price is less than
$2.50 per share, the number of Acquisition Shares shall be equal to 1,400,000
multiplied by a fraction, the numerator of which shall be $2.50 and the
denominator of which shall be the Average Closing Sales Price. In addition, all
outstanding options to purchase ICG Common Stock under ICG's 1992 Stock Option
Plan and all outstanding warrants to purchase ICG Common Stock will be assumed
and will become exercisable for shares of Synbiotics Common Stock as of the
Acquisition Date. On the Acquisition Date, ICG will own approximately 18% of
the then-outstanding Synbiotics Common Stock (assuming the Average Closing Sales
Price is between $2.50 and $3.50). Each of these aspects of the Acquisition is
more fully described in the enclosed Joint Proxy Statement/Prospectus.
Synbiotics is registering the issuance of the Acquisition Shares and the
shares of Synbiotics Common Stock to be issued upon exercise of the ICG Warrants
(the "Warrant Shares") under the Securities Act of 1933, as amended. Synbiotics
will cause the shares of Synbiotics Common Stock to be issued upon exercise of
the ICG Options to be registered under the Securities Act of 1933, as amended on
Form S-8 at or promptly after the Acquisition Date.
THE SYNBIOTICS BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PURCHASE
AGREEMENT AND THE ACQUISITION DESCRIBED IN THE ATTACHED MATERIAL AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE ACQUISITION IS IN
THE BEST INTERESTS OF SYNBIOTICS AND THE SYNBIOTICS SHAREHOLDERS. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE SYNBIOTICS SHAREHOLDERS APPROVE THE MATTERS
DESCRIBED IN THE ACCOMPANYING MATERIAL.
In the material accompanying this letter, you will find a Notice of Annual
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to, among
other things, the actions to be taken by Synbiotics shareholders at the
Synbiotics Meeting and a proxy card. The Joint Proxy Statement/Prospectus more
fully describes the proposed Acquisition and the other matters to be considered
by Synbiotics shareholders at the Synbiotics Meeting and includes important
information about Synbiotics and ICG. It also serves as a Prospectus for
Synbiotics describing the investment in Synbiotics that ICG will receive upon
consummation of the Acquisition.
All shareholders are cordially invited to attend the Synbiotics Meeting in
person. However, whether or not you plan to attend the Synbiotics Meeting,
please complete, sign, date and return your proxy in the enclosed postage-paid
envelope. If you attend the Synbiotics Meeting, you may vote in person if you
wish, even though you have previously returned your proxy.
Sincerely,
Kenneth M. Cohen
President and Chief Executive Officer
<PAGE>
SYNBIOTICS CORPORATION
11011 VIA FRONTERA
SAN DIEGO, CALIFORNIA 92127
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 17, 1996
NOTICE IS HEREBY GIVEN that an Annual Meeting of Shareholders of Synbiotics
Corporation, a California corporation ("Synbiotics"), will be held on October
17, 1996, at 10:00 a.m., local time, at the Radisson Suite Hotel (Rancho
Bernardo), 11520 West Bernardo Court, San Diego, California 92127, to consider
and vote upon the following matters, which are more fully described in the
accompanying Joint Proxy Statement/Prospectus:
1. To approve the principal terms of the acquisition by Synbiotics of
substantially all of the assets of International Canine Genetics, Inc., a
Delaware corporation ("ICG") (the "Acquisition") pursuant to a Purchase
Agreement dated July 23, 1996. On the Acquisition Date, ICG shall receive
Synbiotics Common Stock (collectively, the "Acquisition Shares"), the
number of which shall be 1,400,000, provided that the average closing sales
price of the Common Stock of Synbiotics as quoted on the Nasdaq National
Market for the five (5) trading days ending one business day prior to the
Acquisition Date (the "Average Closing Sales Price") is not greater than
$3.50 per share or less than $2.50 per share. If the Average Closing Sales
Price is greater than $3.50 per share, the number of Acquisition Shares
shall be equal to 1,400,000 multiplied by a fraction, the numerator of
which shall be $3.50 and the denominator of which shall be the Average
Closing Sales Price. If the Average Closing Sales Price is less than $2.50
per share, the number of Acquisition Shares shall be equal to 1,400,000
multiplied by a fraction, the numerator of which shall be $2.50 and the
denominator of which shall be the Average Closing Sales Price. In
addition, all outstanding options to purchase ICG Common Stock under ICG's
1992 Stock Option Plan and all outstanding warrants to purchase ICG Common
Stock will be assumed and will become exercisable for shares of Synbiotics
Common Stock as of the Acquisition Date. Each of these aspects of the
Acquisition is more fully described in the enclosed Joint Proxy
Statement/Prospectus.
2. To elect a Board of Directors for the following year. Management has
nominated the following persons for election at the Synbiotics Meeting:
Kenneth M. Cohen, James C. DeCesare, Brenda D. Gavin, DVM, M. Blake Ingle,
Ph.D., and Donald E. Phillips.
3. To consider a proposal to amend Article Fourth of the Restated Articles of
Incorporation.
4. To transact such other business as may properly come before the meeting or
any postponements or adjournment thereof.
Only shareholders of record at the close of business on September 6, 1996 are
entitled to notice of, and to vote at the Synbiotics Meeting, or at any
adjournment or postponement thereof.
By Order of the Board of Directors,
Michael K. Green
Secretary
APPROVAL OF THE PRINCIPAL TERMS OF THE ACQUISITION REQUIRES THE AFFIRMATIVE VOTE
OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF SYNBIOTICS COMMON
STOCK. ABSTENTIONS WILL BE COUNTED FOR PURPOSES OF DETERMINING WHETHER A QUORUM
IS PRESENT AT THE SYNBIOTICS MEETING AND WILL HAVE THE EFFECT OF NEGATIVE VOTES.
WHETHER OR NOT YOU PLAN TO ATTEND THE SYNBIOTICS MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY
REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON, IF YOU
WISH TO DO SO, EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY.
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
271 GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
Dear Stockholder:
A Special Meeting of Stockholders of International Canine Genetics, Inc. will
be held on October 15, 1996, at 10:00 a.m., local time, at the Desmond Hotel,
One Liberty Boulevard, Malvern, Pennsylvania 19355 (the "ICG Meeting").
At this ICG Meeting, you will be asked to consider and vote (i) to approve
ICG's sale of substantially all of its assets to Synbiotics Corporation, a
California corporation ("Synbiotics"), pursuant to a Purchase Agreement dated
July 23, 1996 (the "Acquisition"), and (ii) to transact such other business as
may properly come before the meeting or any postponements or adjournment
thereof.
ICG will sell substantially all of its assets to Synbiotics upon the
effectiveness of the Acquisition (which will occur as soon as possible after
obtaining all necessary stockholder approvals, and satisfaction of certain other
conditions)(the "Acquisition Date"). On the Acquisition Date, ICG shall receive
Synbiotics Common Stock (collectively, the "Acquisition Shares"), the number of
which shall be 1,400,000, provided that the average closing sales price of the
Common Stock of Synbiotics as quoted on the NASDAQ National market for the five
(5) trading days ending one business day prior to the Acquisition Date (the
"Average Closing Sales Price") is not greater than $3.50 per share or less than
$2.50 per share. If the Average Closing Sales Price is greater than $3.50 per
share, the number of Acquisition Shares shall be equal to 1,400,000 multiplied
by a fraction, the numerator of which shall be $3.50 and the denominator of
which shall be the Average Closing Sales Price. If the Average Closing Sales
Price is less than $2.50 per share, the number of Acquisition Shares shall be
equal to 1,400,000 multiplied by a fraction, the numerator of which shall be
$2.50 and the denominator of which shall be the Average Closing Sales Price. In
addition, all outstanding options to purchase ICG Common Stock under ICG's 1992
Stock Option Plan and all outstanding warrants to purchase ICG Common Stock will
be assumed and will become exercisable for shares of Synbiotics Common Stock as
of the Acquisition Date. On the Acquisition Date, ICG will own approximately
18% of the then-outstanding Synbiotics common Stock (assuming the Average
Closing Sales Price is between $2.50 and $3.50). Each of these aspects of the
Acquisition is more fully described in the enclosed Joint Proxy
Statement/Prospectus.
Synbiotics is registering the issuance of the Acquisition Shares and the
shares of Synbiotics Common Stock to be issued upon exercise of the ICG Warrants
(the "Warrant Shares") under the Securities Act of 1933, as amended. Synbiotics
will cause the shares of Synbiotics Common Stock to be issued upon exercise of
the ICG Options to be registered under the Securities Act of 1933, as amended,
on Form S-8 at or promptly after the Acquisition Date.
The ICG Board of Directors has unanimously approved the Purchase Agreement and
the Acquisition described in the attached material and the transactions
contemplated thereby and has determined that the Acquisition is in the best
interests of ICG and the ICG stockholders. The Board of Directors recommends
that the ICG stockholders approve the Acquisition pursuant to the Purchase
Agreement, as more fully described in the accompanying material.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to, among
other things, the actions to be taken by ICG stockholders at the ICG Meeting and
a proxy card. The Joint Proxy Statement/Prospectus more fully describes the
proposed Acquisition of Synbiotics and includes important information about ICG
and Synbiotics. It also serves as a Prospectus for Synbiotics describing the
investment in Synbiotics that ICG will receive upon consummation of the
Acquisition.
All Stockholders are cordially invited to attend the ICG Meeting in person.
However, whether or not you plan to attend the ICG Meeting, please complete,
sign, date and return your proxy in the enclosed postage-paid envelope. If you
attend the ICG Meeting, you may vote in person if you wish, even though you have
previously returned your proxy.
Sincerely,
Paul A. Rosinack, President and Chief Executive Officer
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
271 GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders of International
Canine Genetics, Inc., a Delaware corporation ("ICG"), will be held on October
15, 1996, at 10:00, a.m., local time, at the Desmond Hotel, One Liberty
Boulevard, Malvern, Pennsylvania 19355, to consider and vote upon the following
matters, which are more fully described in the accompanying Joint Proxy
Statement/Prospectus:
1. To approve the principal terms of the sale of substantially all of the
assets of ICG to Synbiotics Corporation, a California corporation
("Synbiotics")(the "Acquisition") pursuant to a Purchase Agreement dated
July 23, 1996. On the Acquisition Date, ICG shall receive Synbiotics
Common Stock (collectively, the "Acquisition Shares"), the number of which
shall be 1,400,000, provided that the average closing sales price of the
Common Stock of Synbiotics as quoted on the NASDAQ National Market for the
five (5) trading days ending one business day prior to the Acquisition Date
(the "Average Closing Sales Price") is not greater than $3.50 per share or
less than $2.50 per share. If the Average Closing Sales Price is greater
than $3.50 per share, the number of Acquisition Shares shall be equal to
1,400,000 multiplied by a fraction, the numerator of which shall be $3.50
and the denominator of which shall be the Average closing Sales Price. If
the Average Closing Sales Price is less than $2.50 per share, the number of
Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction,
the numerator of which shall be $2.50 and the denominator of which shall be
the Average Closing Sales Price. In addition, all outstanding options to
purchase ICG Common Stock under ICG's 1992 Stock Option Plan and all
outstanding warrants to purchase ICG Common Stock will be assumed and will
become exercisable for shares of Synbiotics Common Stock as of the
Acquisition Date. On the Acquisition Date, ICG will own approximately 18%
of the then-outstanding Synbiotics Common Stock (assuming the Average
Closing Sales Price is between $2.50 and $3.50). Each of these aspects of
the Acquisition is more fully described in the enclosed Joint Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the meeting or
any postponements or adjournment thereof.
Only stockholders of record at the close of business on September 4, 1996 are
entitled to notice of, and to vote at the ICG Meeting, or at any adjournment or
postponement thereof.
By Order of the Board of Directors
John R. Bauer, Secretary
APPROVAL OF THE PRINCIPAL TERMS OF THE ACQUISITION REQUIRES THE AFFIRMATIVE VOTE
OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF ICG COMMON STOCK.
ABSTENTIONS WILL BE COUNTED FOR PURPOSES OF DETERMINING WHETHER A QUORUM IS
PRESENT AT THE ICG MEETING AND WILL HAVE THE EFFECT OF NEGATIVE VOTES. WHETHER
OR NOT YOU PLAN TO ATTEND THE ICG MEETING, PLEASE COMPLETE, SIGN AND DATE THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR PROXY
IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT /PROSPECTUS.
IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON, IF YOU WISH TO DO SO, EVEN IF
YOU HAVE PREVIOUSLY SENT IN YOUR PROXY.
<PAGE>
SYNBIOTICS CORPORATION
PROSPECTUS
(1,712,142 shares of Synbiotics Common Stock)
and
INTERNATIONAL CANINE GENETICS, INC.
JOINT PROXY STATEMENT FOR THEIR ANNUAL AND SPECIAL MEETINGS
OF STOCKHOLDERS, RESPECTIVELY, TO BE HELD OCTOBER 17, 1996
AND OCTOBER 15, 1996, RESPECTIVELY
This Joint Proxy Statement/Prospectus is being furnished to holders of
common stock of Synbiotics Corporation, a California corporation ("Synbiotics"),
and common stock of International Canine Genetics, Inc., a Delaware corporation
("ICG"), in connection with the solicitation by their Boards of Directors for
use at their Annual Meeting of Shareholders and Special Meeting of Stockholders,
respectively, and at any adjournment or postponement thereof for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders and Notice of Special Meeting of Stockholders. Synbiotics' meeting
will be held on October 17, 1996 at the Radisson Suite Hotel (Rancho Bernardo),
11520 West Bernardo Court, San Diego, California 92127, commencing at 10:00 a.m.
(the "Synbiotics Meeting"). ICG's meeting will be held on October 15, 1996 at
the Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355 at 10:00
a.m. (the "ICG Meeting"). This Joint Proxy Statement/Prospectus is first being
mailed to the shareholders of Synbiotics and the stockholders of ICG on or about
September 20, 1996.
AT THE SYNBIOTICS MEETING, SHAREHOLDERS ARE BEING ASKED TO VOTE ON EACH OF
THE FOLLOWING SEPARATE PROPOSALS (COLLECTIVELY, THE "SYNBIOTICS PROPOSALS"):
(A) To approve the principal terms of the acquisition by Synbiotics of
substantially all the assets of ICG (the "Acquisition") pursuant to
the Purchase Agreement dated July 23, 1996 (the "Purchase Agreement").
On the Acquisition Date (as defined below), ICG shall receive
Synbiotics Common Stock (collectively, the "Acquisition Shares"), the
number of which shall be 1,400,000, provided that the average closing
sales price of the Common Stock of Synbiotics as quoted on the Nasdaq
National Market for the five (5) trading days ending one business day
prior to the Acquisition Date (the "Average Closing Sales Price") is
not greater than $3.50 per share or less than $2.50 per share. If the
Average Closing Sales Price is greater than $3.50 per share, the
number of Acquisition Shares shall be equal to 1,400,000 multiplied by
a fraction, the numerator of which shall be $3.50 and the denominator
of which shall be the Average Closing Sales Price. If the Average
Closing Sales Price is less than $2.50 per share, the number of
Acquisition Shares shall be equal to 1,400,000 multiplied by a
fraction, the numerator of which shall be $2.50 and the denominator of
which shall be the Average Closing Sales Price. In addition, all
outstanding options to purchase ICG Common Stock under ICG's 1992
Stock Option Plan (the "ICG Options") and all outstanding warrants to
purchase ICG Common Stock (the "ICG Warrants") will be assumed and
will become exercisable for shares of Synbiotics Common Stock as of
the Acquisition Date. Each of these aspects of the Acquisition is
more fully described in this Joint Proxy Statement/Prospectus.
(B) To elect a Board of Directors for the following year.
(C) To consider a proposal to amend Article Fourth of the Restated
Articles of Incorporation (the "Synbiotics Charter Amendment").
AT THE ICG MEETING, ICG STOCKHOLDERS WILL BE ASKED TO VOTE TO APPROVE THE
SALE OF SUBSTANTIALLY ALL OF ITS ASSETS TO SYNBIOTICS PURSUANT TO THE PURCHASE
AGREEMENT, AS DESCRIBED IN PARAGRAPH (A) ABOVE (THE "ICG PROPOSAL").
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Synbiotics filed as part of the Registration Statement on Form S-4 relating to
the Synbiotics Common Stock issuable (i) in exchange for substantially all the
assets of ICG in the Acquisition and (ii) upon exercise of the ICG Warrants.
All information herein with respect to Synbiotics has been furnished by
Synbiotics, and all information herein with respect to ICG has been furnished by
ICG.
SEE "RISK FACTORS" AT PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BEFORE VOTING.
-------------------------------
THE SHARES OF SYNBIOTICS COMMON STOCK TO BE ISSUED IN THE ACQUISITION 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.
-------------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS SEPTEMBER __, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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AVAILABLE INFORMATION.............................................................. 1
SUMMARY............................................................................ 2
INTRODUCTION....................................................................... 10
RISK FACTORS....................................................................... 14
THE ACQUISITION (PROPOSAL FOR BOTH SYNBIOTICS AND ICG MEETINGS).................... 19
BACKGROUND OF THE ACQUISITION................................................... 19
DESCRIPTION OF THE ACQUISITION.................................................. 21
General 21
Reasons of the Synbiotics and ICG Boards of Directors for the Acquisition... 21
Recommendation of the Synbiotics Board of Directors; Factors Considered..... 21
Recommendation of the ICG Board of Directors; Factors Considered............ 22
Federal Income Tax Consequences............................................. 23
Accounting Treatment......................................................... 23
ICG Redemptions.............................................................. 23
Resales of Synbiotics Common Stock; Affiliates............................... 24
Rosinack Employment Agreement................................................ 24
Regulatory Requirements...................................................... 24
Dissenters' Rights........................................................... 24
THE PURCHASE AGREEMENT........................................................... 27
General...................................................................... 27
The Acquisition.............................................................. 27
Acquisition Date............................................................. 27
Consideration for the Acquisition............................................ 27
S.R. One Closing............................................................. 27
Conditions................................................................... 27
Representations and Warranties............................................... 28
Termination.................................................................. 29
Treatment of Warrants........................................................ 29
Treatment of Stock Options................................................... 30
Expenses..................................................................... 30
Acquisition Proposals........................................................ 30
Standstill Provision......................................................... 30
Conduct of Business Pending Acquisition...................................... 31
Notification of Noncompliance................................................ 31
Best Efforts................................................................. 31
Meetings of Stockholders..................................................... 31
Rosinack Employment Agreement................................................ 32
Use of Name.................................................................. 32
ICG Liquidation.............................................................. 32
PRO FORMA CONDENSED FINANCIAL STATEMENTS............................................ 33
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ELECTION OF SYNBIOTICS DIRECTORS (PROPOSAL FOR THE SYNBIOTICS MEETING)............. 38
AMENDMENT OF SYNBIOTICS RESTATED ARTICLES OF INCORPORATION
(PROPOSAL FOR THE SYNBIOTICS MEETING)........................................... 41
BUSINESS (SYNBIOTICS).............................................................. 42
MARKET PRICE OF SYNBIOTICS COMMON STOCK............................................ 46
SYNBIOTICS MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.............. 47
EXECUTIVE OFFICERS AND CERTAIN OTHER SIGNIFICANT EMPLOYEES......................... 52
EXECUTIVE COMPENSATION AND OTHER EMPLOYMENT MATTERS................................ 53
SECURITY OWNERSHIP OF CERTAIN SYNBIOTICS BENEFICIAL
OWNERS AND MANAGEMENT........................................................... 56
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................................. 58
SHAREHOLDER PROPOSALS FOR 1997 SYNBIOTICS PROXY STATEMENT.......................... 58
SYNBIOTICS FORM 10-KSB............................................................. 58
BUSINESS (ICG)..................................................................... 59
MARKET PRICE OF ICG COMMON STOCK; DIVIDENDS........................................ 67
ICG MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...................... 68
DIRECTORS AND EXECUTIVE OFFICERS OF ICG............................................ 75
EXECUTIVE COMPENSATION AND CERTAIN OTHER EMPLOYMENT MATTERS OF ICG................. 75
SECURITY OWNERSHIP OF CERTAIN ICG BENEFICIAL OWNERS AND MANAGEMENT................. 76
CERTAIN TRANSACTIONS OF ICG........................................................ 78
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................................. 78
STOCKHOLDER PROPOSALS FOR ICG 1997 PROXY STATEMENT................................. 78
DESCRIPTION OF SYNBIOTICS CAPITAL STOCK............................................ 79
COMPARISON OF RIGHTS OF HOLDERS OF SYNBIOTICS AND ICG COMMON STOCK................. 80
INDEPENDENT ACCOUNTANTS............................................................ 86
LEGAL MATTERS...................................................................... 86
EXPERTS............................................................................ 86
OTHER MATTERS...................................................................... 87
INDEX TO FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
-ii-
<PAGE>
AVAILABLE INFORMATION
Synbiotics and ICG are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Synbiotics and ICG and the
Registration Statement and exhibits and schedules thereto can be inspected and
copied at the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. Such reports, proxy statements and other
information concerning Synbiotics can also be inspected at the offices of Nasdaq
Stock Market at 1735 K Street, N.W., Washington, D.C. 20006-1506.
Synbiotics has filed with the Commission a Registration Statement on Form S-4
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), with
respect to the shares of Synbiotics Common Stock offered hereby. This Joint
Proxy Statement/Prospectus omits certain information contained in the
Registration Statement and reference is made to the Registration Statement and
the exhibits and schedules thereto for further information with respect to
Synbiotics, ICG and the Acquisition. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or incorporated herein by reference. Each such statement
is qualified in its entirety by such reference.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS REFERENCES TO TRADEMARKS OF
SYNBIOTICS CORPORATION AND INTERNATIONAL CANINE GENETICS, INC. IN ADDITION TO
THE TRADEMARKS OF THIRD PARTIES.
1
<PAGE>
SUMMARY
The following is a summary of certain of the information contained in this
Joint Proxy Statement/Prospectus. The summary does not purport to be complete
and is qualified in its entirety by the more detailed information contained in
this Joint Proxy Statement/Prospectus, the appendices and the material
incorporated by reference, all of which should be carefully reviewed. Cross-
references in this Summary refer to indicated captions or portions of this Joint
Proxy Statement/Prospectus.
THE PARTIES
SYNBIOTICS
Synbiotics, incorporated in 1982, is an animal health business that develops,
manufactures and markets biological products and monoclonal antibody based
diagnostic products for use in the animal health care field. Synbiotics'
principal markets are veterinarians and veterinary clinical laboratories in the
United States and Europe. Synbiotics' products are sold primarily to wholesale
distributors.
The mailing address of Synbiotics' principal executive offices is 11011 Via
Frontera, San Diego, California 92127. Its telephone number at that address is
(619) 451-3771.
ICG
ICG, incorporated in 1986, develops, manufactures and markets products and
services that serve the needs of veterinary specialty markets for companion
animals. ICG is focused on developing new technology into high value-added
products and services for breeders and owners of purebred dogs and their
veterinarians. ICG currently sells products and services in the canine
reproduction, genetic disorders, nutritional supplements and grooming products
markets. ICG markets its products and services directly to breeders, through
mailings, advertisements and telemarketing, through distributors and through its
veterinarian referral networks.
The mailing address of ICG's principal executive offices is 271 Great Valley
Parkway, Malvern, Pennsylvania 19355. Its telephone number at that address is
(610) 640-1244.
2
<PAGE>
THE MEETINGS
INTRODUCTION
At the Synbiotics Meeting, Synbiotics shareholders will be asked to vote on
the Synbiotics Proposals:
(A) To approve the principal terms of the Acquisition pursuant to the Purchase
Agreement. On the Acquisition Date ICG shall receive the Acquisition
Shares, the number of which shall be 1,400,000, provided that the Average
Closing Sales Price is not greater than $3.50 per share or less than $2.50
per share. If the Average Closing Sales Price is greater than $3.50 per
share, the number of Acquisition Shares shall be equal to 1,400,000
multiplied by a fraction, the numerator of which shall be $3.50 and the
denominator of which shall be the Average Closing Sales Price. If the
Average Closing Sales Price is less than $2.50 per share, the number of
Acquisition Shares shall be equal to 1,400,000 multiplied by a fraction,
the numerator of which shall be $2.50 and the denominator of which shall be
the Average Closing Sales Price. In addition, ICG Options and the ICG
Warrants will be assumed and will become exercisable for shares of
Synbiotics Common Stock as of the Acquisition Date. Each of these aspects
of the Acquisition is more fully described in the enclosed Joint Proxy
Statement/Prospectus.
(B) To elect a Board of Directors for the following year.
(C) To consider a proposal to amend Article Fourth of the Restated Articles of
Incorporation.
At the ICG Meeting, ICG stockholders will be asked to vote to approve the sale
of substantially all of its assets to Synbiotics pursuant to the Purchase
Agreement, as described in paragraph (A) above.
See "Introduction--Voting and Proxies."
TIME, DATE AND PLACE
The Synbiotics Meeting will be held on October 17, 1996 at 10:00 a.m., Pacific
Time, at the Radisson Suite Hotel (Rancho Bernardo), 11520 West Bernardo Court,
San Diego, California 92127.
The ICG Meeting will be held on October 15, 1996 at 10:00 a.m., Eastern Time,
at the Desmond Hotel, One Liberty Boulevard, Malvern, Pennsylvania 19355.
RECORD DATE; SHARES ENTITLED TO VOTE
Holders of record of Synbiotics Common Stock at the close of business on
September 6, 1996 (the "Synbiotics Record Date") will be entitled to notice of
and to vote at the Synbiotics Meeting. At the close of business on September 6,
1996, 5,999,956 shares of Synbiotics Common Stock were issued and outstanding.
Each outstanding share of Synbiotics Common Stock is entitled to one vote at the
Synbiotics Meeting.
Holders of record of ICG Common Stock at the close of business on September 4,
1996 (the "ICG Record Date") will be entitled to notice of and to vote at the
ICG Meeting. At the close of business on September 4, 1996, 2,819,155 shares of
ICG Common Stock were issued and outstanding. Each outstanding share of ICG
Common Stock is entitled to one vote at the ICG Meeting.
See "Introduction--Voting and Proxies."
VOTE REQUIRED--SYNBIOTICS
The affirmative vote of the holders of a majority of the outstanding shares of
Synbiotics Common Stock is required for approval of the Synbiotics Charter
Amendment and may be required for approval of the principal terms of the
Acquisition.
3
<PAGE>
California General Corporation Law (the "California Law") requires Synbiotics
shareholder approval of the Acquisition if the Shares equal or exceed 20% of the
number of shares of Synbiotics common stock outstanding as of immediately before
the Acquisition. In addition, the NASD Bylaws require Synbiotics shareholder
approval of the Acquisition if the Shares plus the Option Shares plus the
Warrant Shares equal or exceed 20% of the number of shares of Synbiotics Common
Stock outstanding before the issuance of the Shares. Assuming the shares of
Synbiotics Common Stock to be purchased by S.R. One (the "S.R. One Purchase
Stock") is deemed outstanding before the issuance of the Shares, the California
Law will not require Synbiotics shareholder approval if the Average Closing
Sales Price is $3.92 or above and (assuming further that 3,000,000 shares of ICG
Common Stock are outstanding at the time of the Acquisition) the NASD Bylaws
will not require Synbiotics shareholder approval if the Average Closing Sales
Price is $5.16 or above.
If the NASD Bylaws require Synbiotics shareholder approval but the California
Law does not, Synbiotics will seek such shareholder approval at the Synbiotics
Meeting and the Acquisition will not occur unless such approval is obtained.
Nonetheless, if Synbiotics shareholder approval was obtained in those
circumstances (under the NASD Bylaws only), Synbiotics shareholders would not
have dissenters' rights under the California Law. See "Introduction" and
"Description of the Acquisition--Dissenters' Rights."
Under California Law, shareholders are permitted to cumulate votes for the
election of directors whose names have been placed in nomination. Therefore, in
voting for directors, each outstanding share of Common Stock would be entitled
to six votes which may be cast for one candidate or distributed in any manner
among the nominees for director. However, the right to cumulate votes in favor
of one or more candidates may not be exercised until the candidate or candidates
have been nominated and any shareholder has given notice at the Synbiotics
Meeting of the intention to cumulate votes.
The presence, either in person or by proxy, of the holders of at least a
majority of the outstanding shares of Synbiotics Common Stock entitled to vote
is necessary to constitute a quorum at the Synbiotics Meeting.
VOTE REQUIRED--ICG
The affirmative vote of the holders of a majority of the outstanding shares of
ICG Common Stock entitled to vote is required for approval of the Acquisition
and the Purchase Agreement. The presence, either in person or by proxy, of the
holders of at least a majority of the outstanding shares of ICG Common Stock
entitled to vote is necessary to constitute a quorum at the ICG Meeting.
S.R. One, Limited, a Pennsylvania business trust ("S.R. One") and directors
and executive officers of ICG as a group (seven persons) beneficially owned
2,571,781 shares of ICG Common Stock (including shares subject to options and
warrants exercisable within sixty days of the ICG Record Date), or 79% of the
total outstanding shares on the ICG Record Date. ICG has been advised that S.R.
One and all of ICG's directors and executive officers intend to vote in favor of
the Purchase Agreement.
THE ACQUISITION
GENERAL
On the Acquisition Date, Synbiotics will acquire substantially all the assets
of ICG in exchange for the Acquisition Shares. In addition, Synbiotics will
assume the ICG Options and ICG Warrants and certain ICG liabilities.
REASONS FOR THE ACQUISITION
The Board of Directors of Synbiotics and ICG believe the Acquisition will
strengthen the combined companies' product pipelines in the field of animal
health care. In addition, the Boards believe that the two companies complement
each other. By combining Synbiotics' financial strength, manufacturing capacity
and broad product lines with ICG's unique position in the canine reproduction
and canine genetic testing market and its direct sales channels to veterinarians
and breeders, the Boards believe the Acquisition will result in a strengthened
market position and an increase in shareholder value. See "Description of the
Acquisition--Reasons of the Synbiotics and ICG Boards of Directors for the
Acquisition."
4
<PAGE>
RECOMMENDATION OF THE SYNBIOTICS BOARD OF DIRECTORS
The Synbiotics Board of Directors unanimously approved the Acquisition and the
Purchase Agreement. The Synbiotics Board of Directors unanimously recommends
that Synbiotics shareholders vote FOR the Synbiotics Proposals, including a vote
to approve the principal terms of the Acquisition. See "The Acquisition-
Description of the Acquisition--Recommendation of the Synbiotics Board of
Directors; Factors Considered" for a discussion of the factors considered by the
Synbiotics Board of Directors.
RECOMMENDATION OF THE ICG BOARD OF DIRECTORS
The ICG Board of Directors unanimously approved the Acquisition and the
Purchase Agreement. The ICG Board of Directors unanimously recommends that ICG
stockholders vote FOR the proposal to approve the Acquisition pursuant to the
Purchase Agreement. See "The Acquisition-Description of the Acquisition--
Recommendation of the ICG Board of Directors; Factors Considered" for a
discussion of the factors considered by the ICG Board of Directors.
RISK FACTORS
In connection with a determination to approve the Purchase Agreement,
stockholders should evaluate the risk factors associated with Synbiotics, ICG
and the Acquisition. Stockholders should note that the market prices for
securities of biotechnology companies, including those of Synbiotics and ICG,
have been volatile. Factors such as competition from larger companies,
technological innovations, failure to obtain regulatory approval when expected,
general market conditions and other factors may impact the market price.
Potential fluctuations of the market price of Synbiotics Common Stock make it
impossible for stockholders to definitively calculate the value of the
consideration to be received by ICG in the Acquisition until the Acquisition
Date.
FOR A MORE DETAILED DESCRIPTION OF THE RISK FACTORS ASSOCIATED WITH THE
ACQUISITION AND THE BUSINESS OF SYNBIOTICS AND ICG, SEE "RISK FACTORS."
ACQUISITION DATE
The Acquisition will become effective when all conditions to consummation of
the Acquisition have been satisfied or waived. It is expected the Acquisition
Date will occur within two business days after the Synbiotics Meeting and the
ICG Meeting. See "The Acquisition--The Purchase Agreement--Acquisition Date."
ISSUANCE OF SHARES
On the Acquisition Date, ICG shall receive the Acquisition Shares, the number
of which shall be 1,400,000, provided that the Average Closing Sales Price is
not greater than $3.50 per share or less than $2.50 per share. If the Average
Closing Sales Price is greater than $3.50 per share, the number of Acquisition
Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of
which shall be $3.50 and the denominator of which shall be the Average Closing
Sales Price. If the Average Closing Sales Price is less than $2.50 per share,
the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a
fraction, the numerator of which shall be $2.50 and the denominator of which
shall be the Average Closing Sales Price.
TREATMENT OF ICG STOCK OPTIONS AND WARRANTS
With appropriate adjustments in exercise price and number of underlying shares
to reflect the Acquisition's effective valuation ratio, the ICG Options and the
ICG Warrants will be assumed by Synbiotics and will become exercisable for
shares of Synbiotics Common Stock as of the Acquisition Date.
S.R. ONE CASH INVESTMENT IN SYNBIOTICS
The Purchase Agreement provides that shortly before the closing of the
Acquisition, S.R. One shall purchase unregistered Synbiotics Common Stock from
Synbiotics for $1,000,000 cash. The number of such shares to be purchased by
S.R. One is the quotient of $1,000,000 divided by the Average Closing Sales
Price.
5
<PAGE>
ACQUISITION PROPOSALS; NO SOLICITATION
The Purchase Agreement provides that neither ICG nor any of its
representatives on its behalf, shall (i) directly or indirectly, through any
other party initiate, encourage or engage in any negotiations with or provide
any information to any other person, firm or corporation with respect to an
acquisition transaction involving ICG or the business of ICG, (ii) directly or
indirectly through any other party solicit any proposal relating to the
acquisition of, or other major transaction involving, the business of ICG. If
ICG or any such representatives receives any inquiries from any other party
relating to the proposed disposition of the business of ICG or the assets to be
acquired in the Acquisition, ICG will (i) promptly advise such party that ICG is
not entitled to enter into any discussions or negotiations and (ii) notify
Synbiotics in writing of such inquiry. See "The Acquisition--The Purchase
Agreement--Acquisition Proposals."
CONDITIONS TO THE ACQUISITION
The obligations of ICG and Synbiotics to consummate the Acquisition are each
subject to the satisfaction of the following conditions: (i) requisite approval
by their respective Board of Directors and stockholders of the transactions
contemplated in the Purchase Agreement; (ii) the effectiveness under the Act of
the Registration Statement on Form S-4 including a joint proxy statement
relating to stockholder approval and no stop order having been issued with
respect to the Form S-4 and (iii) there being no pending or threatened lawsuit
challenging the transaction by any body or agency of the federal, state, or
local government (or by any third party with respect to Synbiotics), and the
consummation of the transaction not having been enjoined by a court of competent
jurisdiction as of the Acquisition Date.
The obligations of Synbiotics to consummate the Acquisition are also subject
to the satisfaction of the following conditions: (i) the accuracy of the
representations and warranties of ICG contained in the Purchase Agreement in all
material respects at and as of the Acquisition Date; (ii) ICG having in all
material respects performed and complied with all of its covenants, conditions
and other obligations contained in the Purchase Agreement on or before the
Acquisition Date; (iii) any applicable waiting period under any applicable
federal law having expired and any and all filings under any applicable state
bulk transfer laws having been timely made and having been completed; (iv) a
certificate executed by the President of ICG certifying that the conditions set
forth above have been satisfied having been delivered to Synbiotics; (v) ICG
having provided to the satisfaction of Synbiotics termination statements of
security interests from all secured creditors and releases of related liens;
(vi) Synbiotics having received all licenses from all appropriate governmental
agencies or third parties to operate the business of ICG in the same manner as
ICG operated such business prior to the Closing Date; (vii) Synbiotics being
satisfied in its reasonable business judgment discretion with the results of its
due diligence investigation of ICG; (viii) the form and substance of all
certificates, instruments, opinions and other documents delivered or to be
delivered to Synbiotics pursuant to the Purchase Agreement being satisfactory to
Synbiotics and its counsel in all reasonable respects; (ix) Synbiotics having
received certain closing documents specified in the Purchase Agreement; and (x)
Synbiotics having received an opinion of McCausland, Keen & Buckman, counsel to
ICG. See "The Acquisition--The Purchase Agreement--Conditions."
The obligations of ICG to consummate the Acquisition are also subject to the
satisfaction of the following conditions: (i) the accuracy of the
representations and warranties of Synbiotics contained in the Purchase Agreement
in all material respects at and as of the Acquisition Date; (ii) Synbiotics
having performed and complied in all material respects with all of its
covenants, conditions and other obligations contained in the Purchase Agreement
on or before the Acquisition Date; (iii) the approval upon notice of issuance
for listing on the Nasdaq National Market of the shares of Synbiotics Common
Stock to be issued in the Acquisition; (iv) ICG having received a certificate of
the President of Synbiotics certifying that the conditions set forth in (i) and
(ii) have been satisfied; (v) a mutually agreeable designee of ICG having been
appointed to the Board of Directors of Synbiotics effective as of the
Acquisition Date; (vi) ICG having received the certain closing documents
specified in the Purchase Agreement; and (vii) ICG having received an opinion of
Brobeck, Phleger & Harrison LLP, counsel to Synbiotics. See "The Acquisition--
The Purchase Agreement--Conditions."
6
<PAGE>
TERMINATION
The Purchase Agreement is subject to termination by Synbiotics or ICG upon the
occurrence of certain events. See "The Acquisition--The Purchase Agreement--
Termination."
EXPENSES
Each side will bear its own expenses in connection with the Acquisition.
ACCOUNTING TREATMENT
Synbiotics will account for the Acquisition as a purchase. See "The
Acquisition--Description of the Acquisition--Accounting Treatment."
RESALES OF SYNBIOTICS COMMON STOCK; AFFILIATES
The Synbiotics Common Stock to be issued to ICG and subsequently distributed
to the ICG stockholders pursuant to the Purchase Agreement will be freely
transferable under the Act, except for shares in ICG's hands and shares
distributed by ICG to any person who as of the ICG Meeting may be deemed to be
an "affiliate" of ICG within the meaning of Rule 405 under the Act. With
respect to the Synbiotics Common Stock subsequently distributed to S.R. One, the
volume limitations on resale as set forth in the now-current Rule 144 and Rule
145 under the Act shall apply until the second anniversary of the Acquisition
Date. The certificates evidencing Synbiotics Common Stock issued upon the ICG
Share Redemption to affiliates of ICG as of the ICG Meeting will bear a legend
summarizing the restrictions on resale imposed on their Acquisition Shares under
Rule 145 of the Act. See "The Acquisition--Description of the Acquisition--
Resales of Synbiotics Common Stock; Affiliates."
DISSENTERS' RIGHTS
Pursuant to Chapter 13 of the California Law, if the Synbiotics shareholders
are required by California Law to and do approve the Acquisition at the
Synbiotics Meeting, holders of shares of Synbiotics Common Stock are entitled
under certain circumstances to dissenters' rights with respect to their shares
of Synbiotics Common Stock in connection with the Acquisition. The failure of a
dissenting shareholder to follow the appropriate procedures in connection with
the Acquisition may result in the termination or waiver of such dissenters'
rights. See "The Acquisition--Description of the Acquisition--Dissenters'
Rights."
If Synbiotics is not required either by the California Law or by the NASD
Bylaws to obtain Synbiotics shareholder approval of the principal terms of the
Acquisition, then that matter will not be presented at the Synbiotics Meeting.
If the NASD Bylaws require Synbiotics shareholder approval of the Acquisition
but the California Law does not, then the matter will be presented at the
Synbiotics Meeting. However, in such event, no Synbiotics shareholders will be
entitled to dissenters' rights. Whether a requirement exists under the
California Law and/or the NASD Bylaws depends on the number of Synbiotics shares
issuable in connection with the Acquisition, which in turn depends on the
Average Closing Sales Price. See "Description of the Acquisition--Dissenters'
Rights."
In no event will ICG stockholders have any dissenters' rights (or any
appraisal rights under the Delaware General Corporation Law) in connection with
the Acquisition.
TAX CONSEQUENCES
The Acquisition is intended to be a taxable exchange.
ICG STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION IN "THE
ACQUISITION--DESCRIPTION OF THE ACQUISITION--CERTAIN FEDERAL INCOME TAX
CONSEQUENCES." ICG STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC CONSEQUENCES TO THEM OF THE ACQUISITION AND ICG'S CONTEMPLATED
REDEMPTIONS OF SHARES UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
7
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Synbiotics
and ICG and combined per share data on an unaudited pro forma basis after giving
effect to the proposed Acquisition using the purchase method of accounting
assuming that 0.49 shares of Synbiotics Common Stock is issued in exchange for
each share of ICG in the Acquisition. This data should be read in conjunction
with the pro forma condensed financial statements and the separate historical
financial statements of Synbiotics and the notes thereto and the historical
financial statements of ICG and the notes thereto, incorporated in or included
elsewhere in this Joint Proxy Statement/Prospectus. The pro forma condensed
financial statements are not necessarily indicative of what actual results of
operations would have been for the periods had the transactions occurred on the
dates indicated and do not purport to indicate future financial position nor the
results of future operations.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1995 June 30, 1996
------------------ ----------------
Historical - Synbiotics:
<S> <C> <C>
Net Income per share................................ $ 0.09 $0.53
Cash dividends declared per share................... -- --
Book value per share (1)............................ 1.57 2.30
Year Ended
June 30, 1996
-----------------
Historical - ICG:
Net Income per share................................ $ (0.60)
Cash dividends per share............................ --
Book value per share (1)............................ (0.37)
Year Ended Six Months Ended
December 31, 1995 June 30, 1996
----------------- ----------------
Pro forma combined net income per share
Pro forma net income per Synbiotics share........... $ (0.22) $0.31
Equivalent pro forma net income per ICG share (3)... (0.11) 0.15
Pro forma combined cash dividends per share......... -- --
Six Months Ended
June 30, 1996
----------------
Pro forma book value per share.......................
Pro forma book value per Synbiotics share (2)....... $2.56
Equivalent pro forma book value per ICG share (3)... 1.26
</TABLE>
- ----------------------------
(1) The historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at the end of
each period.
(2) The pro forma book value per share is computed by dividing pro forma
combined shareholders' equity by the number of shares of common stock
outstanding after giving effect to the Acquisition.
(3) The ICG equivalent pro forma per share amounts are calculated by multiplying
the Synbiotics combined pro forma per share amounts by the exchange ratio of
0.49 shares of Synbiotics Common Stock for each share of ICG Common Stock.
8
<PAGE>
COMPARATIVE MARKET PRICES
The following table sets forth, for the calendar quarters indicated (ended
March 31, June 30, September 30 and December 31), the range of high and low sale
prices of Synbiotics Common Stock as reported by the Nasdaq National Market and
high and low closing bid prices of ICG Common Stock as reported by the National
Quotation Bureau, Inc.
On May 15, 1996, the last trading date prior to the joint public announcement
by Synbiotics and ICG of the announcement of the letter of intent between
Synbiotics and ICG concerning the Acquisition (the "Letter of Intent"), last
reported sale price for the closing bid for Synbiotics Common Stock on the
Nasdaq National Market was $3.50 per share and the ICG Common Stock on the over-
the counter market was $_______ per share. Potential fluctuations of the market
price of Synbiotics Common Stock make it impossible for stockholders to
definitively calculate the value of the consideration to be received by ICG in
the Acquisition until the Acquisition Date. See "Risk Factors."
<TABLE>
<CAPTION>
PERIOD SYNBIOTICS COMMON STOCK ICG COMMON STOCK
- ----------------------------------------- ----------------------- -------------------
HIGH LOW HIGH LOW
---------- ---------- ------- -------
Year Ended December 31, 1994
<S> <C> <C> <C> <C>
1st Quarter............................. $5.13 $3.13 $ 2 1/2 $2 1/2
2nd Quarter............................. 4.50 3.25 2 1/2 7/8
----- 2.38 7/8 1/2
3rd Quarter............................. 3.63 1.63 23/32 5/8
4th Quarter............................. 2.75
Year Ended December 31, 1995
1st Quarter............................. $3.13 $1.50 $ 5/8 $ 1/4
2nd Quarter............................. 3.25 2.38 5/16 1/4
3rd Quarter............................. 5.25 2.50 1/2 3/16
4th Quarter............................. 4.13 1.88 9/16 5/16
Year Ending December 31, 1996
1st Quarter............................. $3.13 $2.25 $ 5/16 $ 5/16
2nd Quarter............................. 5.50 2.38 1 3/16 5/16
3rd Quarter (through August 1, 1996)...
4.50 3.63 1 3/16 3/4
</TABLE>
Because the market price of Synbiotics Common Stock is subject to
fluctuation, the market value of the shares of Synbiotics Common Stock that ICG
will receive in the Acquisition may increase or decrease prior to the
Acquisition. Synbiotics and ICG stockholders are urged to obtain a current
market quotation for the Synbiotics Common Stock.
9
<PAGE>
INTRODUCTION
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of ICG in connection with the solicitation of proxies by the ICG
Board of Directors from the holders of outstanding shares of ICG Common Stock,
for use at the ICG Meeting. At the ICG Meeting, stockholders will be asked to
consider and vote upon the proposal to approve and adopt the Purchase Agreement.
This Joint Proxy Statement/Prospectus is also being furnished to the
shareholders of Synbiotics, in connection with the solicitation of proxies by
the Synbiotics Board from holders of outstanding shares of Synbiotics Common
Stock, for use at the Synbiotics Meeting. At the Synbiotics Meeting,
Synbiotics' shareholders will be asked to consider and vote upon the Synbiotics
Proposals which include proposals (i) to approve the principal terms of the
Acquisition, (ii) to elect a Board of Directors for the following year and (iii)
to approve the Synbiotics Charter Amendment.
This Joint Proxy Statement/Prospectus constitutes the Prospectus of
Synbiotics with respect to the shares of Synbiotics Common Stock to be issued in
the Acquisition. The information in this Joint Proxy Statement/Prospectus with
respect to Synbiotics has been supplied by Synbiotics and the information with
respect to ICG has been supplied by ICG.
The principal executive offices of Synbiotics are located at 11011 Via
Frontera, San Diego, California 92127 and its telephone number is (619) 451-
3771. The principal executive offices of ICG are located at 271 Great Valley
Parkway, Malvern, Pennsylvania 19355 and its telephone number is (610) 640-1244.
ACQUISITION--CONSIDERATION
Upon consummation of the Acquisition, Synbiotics will acquire substantially
all the assets of ICG in exchange for the Acquisition Shares, the number of
which shall be 1,400,000, provided that the Average Closing Sales Price is not
greater than $3.50 per share or less than $2.50 per share. If the Average
Closing Sales Price is greater than $3.50 per share, the number of Acquisition
Shares shall be equal to 1,400,000 multiplied by a fraction, the numerator of
which shall be $3.50 and the denominator of which shall be the Average Closing
Sales Price. If the Average Closing Sales Price is less than $2.50 per share,
the number of Acquisition Shares shall be equal to 1,400,000 multiplied by a
fraction, the numerator of which shall be $2.50 and the denominator of which
shall be the Average Closing Sales Price. In addition, the ICG Options and the
ICG Warrants will be assumed by Synbiotics and will become exercisable for
shares of Synbiotics Common Stock as of the Acquisition Date, with appropriate
adjustments in exercise price and number of underlying shares to reflect the
Acquisition's effective valuation ratio.
VOTING AND PROXIES
Synbiotics. Holders of record of shares of Synbiotics Common Stock at the
close of business on the Synbiotics Record Date will be entitled to vote at the
Synbiotics Meeting and at any adjournment or postponement thereof. At the close
of business on the Synbiotics Record Date, Synbiotics had 5,999,956 shares of
its Common Stock outstanding.
The affirmative vote of the holders of a majority of the outstanding shares
of Synbiotics Common Stock is required for approval of the Synbiotics Charter
Amendment and approval of the principal terms of the Acquisition.
The holder of each outstanding share of Synbiotics Common Stock is entitled
to one vote per share on the Synbiotics Proposals, other than the election of
directors. Under California Law, shareholders are permitted to cumulate votes
for the election of directors whose names have been placed in nomination.
Therefore, in voting for directors, each outstanding share of Common Stock would
be entitled to six votes which may be cast
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for one candidate or distributed in any manner among the nominees for director.
However, the right to cumulate votes in favor of one or more candidates may not
be exercised until the candidate or candidates have been nominated and any
shareholder has given notice at the Synbiotics Meeting of the intention to
cumulate votes.
The presence, either in person or by proxy, of the holders of at least a
majority of the outstanding shares of Synbiotics Common Stock entitled to vote
is necessary to constitute a quorum at the Synbiotics Meeting.
Depending on the Average Closing Sales Price (which determines the number
of Acquisition Shares, Warrant Shares and Option Shares), approval by Synbiotics
shareholders of the Acquisition may or may not be required under California Law
and/or under Part III, Section 5(i)(1)(c)(ii) of Schedule D to the Bylaws of the
NASD. Synbiotics is subject to the NASD rules by virtue of the designation of
Synbiotics Common Stock as a Nasdaq National Market security. Such provision
requires stockholder approval of the acquisition of the assets of another
company where the number of shares of common stock to be issued is or will be
equal to or in excess of 20% of the number of shares of common stock outstanding
before the issuance of such stock. California Law and the NASD Bylaws differ,
however, in whether derivative securities are included in the 20% calculation.
The California Law requires Synbiotics shareholder approval of the
Acquisition if the Shares equal or exceed 20% of the number of shares of
Synbiotics common stock outstanding as of immediately before the Acquisition.
In addition, the NASD Bylaws require Synbiotics shareholder approval of the
Acquisition if the Shares plus the Option Shares plus the Warrant Shares equal
or exceed 20% of the number of shares of Synbiotics Common Stock outstanding
before the issuance of the Shares. Assuming the S.R. One Purchase Stock is
deemed outstanding before the issuance of the Shares, the California Law will
not require Synbiotics shareholder approval if the Average Closing Sales Price
is $3.92 or above and (assuming further that 3,000,000 shares of ICG Common
Stock are outstanding at the time of the Acquisition) the NASD Bylaws will not
require Synbiotics shareholder approval if the Average Closing Sales Price is
$5.16 or above. See "Description of the Acquisition-Dissenters' Rights."
All shares of Synbiotics Common Stock represented by properly executed
proxies will be voted at the Synbiotics Meeting in accordance with the
directions indicated on the respective proxies unless the proxies have been
previously revoked. Unless contrary direction is given, all Synbiotics shares
represented by such proxies will be voted FOR the Synbiotics Proposals and in
the proxyholders' discretion as to such other matters incident to the conduct of
the Synbiotics Meeting as may properly come before shareholders at the
Synbiotics Meeting. Notwithstanding the foregoing, if Synbiotics shareholder
approval of the principal terms of the Acquisition is required neither by the
California Law nor by the NASD Bylaws, the proposal to approve the principal
terms of the Acquisition will not be presented at the Synbiotics Meeting and the
proxies will not be voted for approval of the principal terms of the
Acquisition.
THE SYNBIOTICS BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
SYNBIOTICS PROPOSALS (WHICH INCLUDE APPROVAL OF THE PRINCIPAL TERMS OF THE
ACQUISITION). See "The Acquisition," "Approval of the Synbiotics Charter
Amendment" and "Election of Directors." If any other matters are properly
presented at the Synbiotics Meeting for action, including a question of
adjourning the meeting from time to time, the persons named in the proxies and
acting thereunder will have discretion to vote on those matters in accordance
with their best judgment. The Synbiotics Meeting may be adjourned, and
additional proxies solicited, if at the time of the Synbiotics Meeting the vote
necessary to approve the Synbiotics Proposals has not been obtained. Any
adjournment of the Synbiotics Meeting will require the affirmative vote of the
holders of at least a majority of the shares of Synbiotics Common Stock
represented at the Synbiotics Meeting (regardless of whether those shares
constitute a quorum).
A Synbiotics shareholder executing and returning a proxy has the power to
revoke it at any time before it is voted. A shareholder who wishes to revoke a
proxy can do so by executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Synbiotics prior to the vote at the Synbiotics
Meeting, by written notice of revocation to the Secretary prior to the vote at
the Synbiotics Meeting or by appearing in person at the Synbiotics Meeting and
voting in person the shares to which the proxy relates. Any written notice
revoking
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a Synbiotics proxy should be sent to Synbiotics at 11011 Via Frontera, San
Diego, California 92127, Attention: Secretary.
The expenses of printing and mailing proxy materials to Synbiotics
shareholders will be borne by Synbiotics. In addition to the solicitation of
proxies by mail, solicitation may also be made by personal interview, telephone,
or facsimile transmission by certain directors, officers and employees of
Synbiotics. No additional compensation will be paid to directors, officers or
employees of Synbiotics for such services. Copies of solicitation materials
will be furnished to brokerage houses, fiduciaries and custodians to forward to
beneficial owners of shares held in their names. Those persons will be
reimbursed for their reasonable expenses in forwarding solicitation materials to
beneficial owners.
ICG. Holders of record of ICG Shares at the close of business on the ICG
Record Date will be entitled to vote at the ICG Meeting and any adjournment or
postponement. As of the close of business on that date, ICG had 2,819,155
shares of ICG Common Stock outstanding.
The affirmative vote of the holders of a majority of the outstanding shares
of ICG Common Stock entitled to vote is required for approval of the
Acquisition. The holder of each outstanding share of ICG Common Stock is
entitled to one vote per share.
The presence, either in person or by proxy, of the holders of at least a
majority of the outstanding shares of ICG Common Stock entitled to vote is
necessary to constitute a quorum at the ICG Meeting.
As of the ICG Record Date, S.R. One and directors and executive officers of
ICG as a group (seven persons) beneficially owned 2,571,781 shares of ICG Common
Stock or 79% of the total outstanding shares of ICG Common Stock. See "ICG--
Principal Stockholders of ICG." ICG has been advised that S.R. One and all of
ICG's directors and executive officers intend to vote in favor of the
Acquisition.
All shares of ICG Common Stock represented by properly executed proxies
will be voted at the ICG Meeting in accordance with the directions indicated on
the respective proxies unless the proxies previously have been revoked. Unless
contrary direction is given, the shares of ICG Common Stock will be voted FOR
the ICG Proposal.
THE ICG BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE PURCHASE AGREEMENT. See "The Acquisition--Description of the
Acquisition--Recommendation of the ICG Board of Directors; Factors Considered."
If any other matters are properly presented at the ICG Meeting for action,
including a question of adjourning the meeting from time to time, the proxy
holders will have discretion to vote on those matters in accordance with their
best judgment. The ICG Meeting may be adjourned, and additional proxies
solicited, if at the time of the ICG Meeting the vote necessary to approve the
ICG Proposal has not been obtained. Any adjournment of the ICG Meeting will
require the affirmative vote of the holders of at least a majority of the shares
of Common Stock of ICG represented at the ICG Meeting (regardless of whether
those shares constitute a quorum).
A stockholder executing and returning a proxy has the power to revoke it at
any time before it is voted. A stockholder who wishes to revoke a proxy can do
so by executing a later-dated proxy relating to the same shares and delivering
it to the Secretary of ICG prior to the vote at the ICG Meeting, by giving
written notice of revocation to the Secretary of ICG prior to the vote at the
ICG Meeting or by appearing in person at the ICG Meeting and voting in person
the shares to which the proxy relates. Any written notice revoking a ICG proxy
should be sent to ICG at 271 Great Valley Parkway, Malvern, Pennsylvania 19355,
Attention: Secretary.
Abstentions are counted as shares present for purposes of determining the
presence or absence of a quorum for the transaction of business. Brokers
holding shares for beneficial owners must vote their shares according to the
specific instructions they receive from the owners. If specific instructions
are not received,
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brokers may vote the shares in their discretion, except if they are precluded
from exercising their voting discretion on certain proposals pursuant to the
rules of the New York Stock Exchange. In such a case, the broker may not vote
on the proposal absent specific voting instructions. This results in what is
known as a "broker non-vote." A broker non-vote has the effect of a negative
vote when a majority of the shares issued and outstanding is required for
approval of the proposal. For purposes of the proposal to approve the
Acquisition, abstentions and broker non-votes will have the same effect as a
vote against the proposal. The New York Stock Exchange determines whether
brokers have discretionary authority to vote on a given proposal.
The expense of printing and mailing proxy materials to ICG stockholders
will be borne by ICG. In addition to the solicitation of proxies by mail,
solicitation may be made by personal interview, telephone, or facsimile
transmission by certain directors, officers and employees of ICG. No additional
compensation will be paid to directors, officers or employees of ICG for such
services. Copies of solicitation material will be furnished to brokerage
houses, fiduciaries and custodians to forward to beneficial owners of shares
held in their names. Those persons who will be reimbursed for their reasonable
expenses in forwarding solicitation material to beneficial owners.
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RISK FACTORS
The following are among the factors that should be considered carefully in
evaluating Synbiotics, ICG and the Acquisition.
INABILITY TO CALCULATE VALUE OF CONSIDERATION RECEIVED IN ACQUISITION
Potential fluctuations of the market price of Synbiotics Common Stock make
it impossible for stockholders to definitively calculate the value of the
consideration to be received by ICG in the Acquisition until the Acquisition
Date. As a result, neither at the time of executing a proxy nor at the time of
the Meetings will stockholders know such value.
COMPETITION; TECHNOLOGICAL CHANGE
Competition in the animal health care industry is intense. Many
competitors, such as Pfizer Animal Health, Mallinckrodt Veterinary and IDEXX
Laboratories, have substantially greater financial, manufacturing, marketing and
product research resources than Synbiotics. Large companies in particular have
extensive expertise in conducting pre-clinical and clinical testing of new
products and in obtaining the necessary regulatory approvals to market products.
Competition is based on test sensitivity, accuracy and speed; product price; and
similar factors. IDEXX Laboratories requires its distributors not to carry the
products of competitors such as Synbiotics. There can be no assurance that such
competition will not adversely affect Synbiotics' results of operation or
ability to maintain or increase sales and market share. See "Business
(Synbiotics)--Competition."
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT
Synbiotics has had a history of losses, and profitability in the six months
ended June 30, 1996 may not result in profit for the year ended December 31,
1996. See "Synbiotics Management's Discussion and Analysis or Plan of
Operations--Results of Operations." Synbiotics has incurred an accumulated
deficit of $16.0 million through June 30, 1996. Revenues have been generated
from product sales. However, there can be no assurance that Synbiotics can
generate sufficient product or contract revenue to sustain profitability. See
"Synbiotics Management's Discussion and Analysis or Plan of Operations."
NO ASSURANCE THAT BUSINESSES CAN BE SUCCESSFULLY COMBINED
There can be no assurance that the anticipated benefits of the Acquisition
will be realized. The Acquisition involves numerous risks, including
difficulties in the assimilation of the operations, technologies and products of
ICG, potentially dilutive issuances of equity securities, accounting charges,
operating companies in different geographic locations with different cultures,
the potential loss of key employees of ICG, the diversion of management's
attention from other business concerns and the risks of entering markets in
which Synbiotics has no or limited direct prior experience. In addition, there
can be no assurance that the Acquisition will not have a material adverse effect
upon Synbiotics' business, results of operations or financial condition,
particularly in the quarters immediately following the consummation of the
Acquisition due to operational disruptions, severance expenses, unexpected
expenses and accounting charges which may be associated with the integration of
ICG and Synbiotics.
SALES AND MARKETING
Synbiotics markets its products to veterinarians, primarily through
independent distributors. Synbiotics' United States distributors have
approximately 90 outlets and a total sales force of approximately 600 field
sales representatives and approximately 200 telemarketing sales representatives.
This allows Synbiotics to focus its major emphasis on developing and
manufacturing products. However, this strategy results in a large percentage of
sales being to only a few customers. Synbiotics currently does not maintain a
direct marketing sales force. Synbiotics markets its products outside of the
U.S. through distributors and on an OEM basis. There can be no assurance that
Synbiotics will be able to establish an adequate sales and marketing capability
in any or all targeted markets or that it will be successful in gaining market
acceptance for its products. To the extent
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Synbiotics enters into distributor arrangements any revenues received by
Synbiotics will be dependent on the efforts of third parties and there can be no
assurance that such efforts will be successful. See "Business (Synbiotics)--
Marketing."
ATTRACTION AND RETENTION OF KEY EMPLOYEES
The success of Synbiotics is highly dependent, in part, on its ability to
retain highly qualified personnel, including senior management and scientific
personnel. Competition for such personnel is intense and the inability to
retain additional key employees or the loss of one or more current key employees
could adversely affect Synbiotics. Although Synbiotics has been successful in
retaining required personnel to date, there can be no assurance that Synbiotics
will be successful in the future. In addition, there can be no assurance that
key employees of ICG will continue to be employees of Synbiotics.
EARLY STAGE OF DEVELOPMENT
Both ICG and Synbiotics rely on new and recently developed products. There
can be no assurance that Synbiotics will obtain and maintain market acceptance
of its products. With respect to future products, there can be no assurance
that such products will meet applicable regulatory standards, be capable of
being produced in commercial quantities at acceptable cost or be successfully
commercialized. See "--Government Regulation."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The development and commercialization of Synbiotics' products will require
substantial funds to conduct research and development and to manufacture and
commercialize any products that are approved for commercial sale. Synbiotics'
future capital requirements will depend on many factors, including continued
scientific progress in its products and proven development programs, progress
with product testing, the cost of manufacturing scale-up, the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims,
competing technological and market developments, and the cost of establishing
effective sales and marketing arrangements. Synbiotics anticipates that its
existing, available cash, cash equivalents and short-term investments will be
adequate to satisfy its capital requirements and fund operations at least
through 1996. In the event that such sources of funds are not adequate to
satisfy its capital requirements and fund its operations, Synbiotics will seek
additional funding through collaborative arrangements or through public or
private financings. There can be no assurance that additional financing will be
available on acceptable terms or at all. If additional funds are raised by
issuing equity securities, further dilution to then existing shareholders may
result. If adequate funds are not available, Synbiotics may be required to
delay, scale back or eliminate one or more of its research and development
programs or seek to obtain funds through arrangements with collaborative
partners or others even if the arrangements would require Synbiotics to
relinquish certain rights to certain of its technologies, product candidates or
products that Synbiotics would not otherwise relinquish. See "Synbiotics
Management's Discussion and Analysis or Plan of Operations -- Liquidity and
Capital Resources."
RELIANCE ON THIRD PARTY MANUFACTURERS
Certain of Synbiotics' products are manufactured by third parties under the
terms of distribution and/or manufacturing agreements. In the event that these
third parties are unable to supply Synbiotics with sufficient finished products,
Synbiotics has the right, under certain circumstances, pursuant to the
agreements to use alternate manufacturing sources. See "Business (Synbiotics)--
Raw Materials."
There can be no assurance that new products can be manufactured at a cost
or in quantities necessary to make them commercially viable. If Synbiotics were
unable to produce internally, or to contract for, a sufficient supply of its
products on acceptable terms, or if it should encounter delays or difficulties
in its relationships with manufacturers, the introduction of new products and
shipment of current products would be delayed, which could have a material
adverse effect on Synbiotics.
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PATENTS AND PROPRIETARY TECHNOLOGY
ICG has been issued two patents from the U.S. Patent and Trademark Office
("PTO") relating to certain aspects of its canine pregnancy and ovulation timing
testing. ICG has chosen not to obtain patent protection in foreign countries
and has foregone the option to do so. ICG has elected to maintain its formulas
for semen freezing and chilling medias (buffers) and nutritional supplements as
trade secrets, and has not sought patent protection for those technologies. ICG
has registered two trademarks with the United States Patent and Trademark
Office. ICG currently uses seven trademarks in connection with its products and
intends to file applications to register these marks with the PTO. ICG has
obtained the rights to several trademarks through various license and
distribution agreements. ICG also holds the exclusive licenses for a
proprietary patented product and for the patented technology used in a canine
pregnancy test. See "Business (Synbiotics)--Patents and Trade Secrets." See
"Business (ICG)--Patents, Trademarks and Licenses."
Synbiotics generally has sought and will continue to seek to protect its
interests by treating its particular variations in the production of monoclonal
antibodies as trade secrets. Synbiotics also has pursued and intends to
continue aggressively to pursue protection for new products, new methodological
concepts, and compositions of matter through the use of patents and trademarks
where obtainable. At present, Synbiotics has been granted nine U.S. patents.
There can be no assurance that Synbiotics will be issued any additional
patents or that, if any patents are issued, they will provide Synbiotics with
significant protection or will not be challenged. Even if such patents are
enforceable, Synbiotics anticipates that any attempt to enforce its patents
would be time consuming and costly. Moreover, the laws of some foreign
countries do not protect Synbiotics' proprietary rights in the products to the
same extent as do the laws of the United States.
The patent positions of biotechnology companies, including Synbiotics and
ICG, are uncertain and involve complex legal and factual issues. Additionally,
the coverage claimed in a patent application can be significantly reduced before
the patent is issued. As a consequence, there can be no assurance that any of
Synbiotics' future patent applications will result in the issuance of patents
or, if any patents issue, that they will provide significant proprietary
protection or will not be circumvented or invalidated. Because patent
applications in the United States are maintained in secrecy until patents issue
and publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, Synbiotics cannot be certain that it was the first
inventor of inventions covered by its pending patent applications or that it was
the first to file patent applications for such inventions. Moreover, Synbiotics
may have to participate in interference proceedings declared by the PTO to
determine priority of invention that could result in substantial cost to
Synbiotics, even if the eventual outcome is favorable to Synbiotics. There can
be no assurance that Synbiotics' patents, if issued, would be held valid by a
court of competent jurisdiction. An adverse outcome of any patent litigation
could subject Synbiotics to significant liabilities to third parties, require
disputed rights to be licensed from or to third parties or require Synbiotics to
cease using the technology in dispute.
There can be no assurance that third parties will not assert infringement
claims against Synbiotics in the future or that any such assertions will not
result in costly litigation or require Synbiotics to obtain a license to
intellectual property rights of such parties. There can be no assurance that
any such licenses would be available on terms acceptable to Synbiotics, if at
all. Furthermore, parties making such claims may be able to obtain injunctive
or other equitable relief that could effectively block Synbiotics' ability to
further develop or commercialize its products in the United States and abroad
and could result in the award of substantial damages. Defense of any lawsuit or
failure to obtain any such license could have a material adverse affect on
Synbiotics. Finally, litigation, regardless of outcome, could result in
substantial cost to and a diversion of efforts by Synbiotics.
GOVERNMENT REGULATION
ICG's semen freezing products, diagnostic ovulation timing products and
pregnancy testing services for dogs fall within the definition of devices as
that term is defined in the Federal Food, Drugs, and Cosmetic Act ("FFDCA") and,
therefore, may be subject to regulation by the United States Food and Drug
Administration (the
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"FDA"). ICG is also subject to additional regulation in connection with its pet
food products. See "Business (ICG)--Government Regulation."
Most diagnostic test kits for animal health applications, such as those
sold by Synbiotics, require approval by the United States Department of
Agriculture ("USDA"). In addition, Synbiotics manufactures and sells one
product which does not require USDA licensing but has been registered with the
Center for Veterinary Medicine of the FDA.
Synbiotics' manufacturing facility has been registered with the FDA and is
licensed by the USDA. Synbiotics adheres to Good Manufacturing Practices (GMP)
standards. In addition, Synbiotics' operations may be subject to future
legislation and/or rules issued by domestic or foreign governmental agencies
with regulatory authority relating to Synbiotics' business. There can be no
assurance that Synbiotics will be found in compliance with any of the various
regulations to which it is subject. See "Business (Synbiotics)--Government
Regulation."
For marketing outside the United States, Synbiotics will be subject to
foreign regulatory requirements in such foreign jurisdictions, which vary widely
from country to country and there can be no assurance that Synbiotics will meet
and sustain any such requirements.
PRODUCT LIABILITY AND INSURANCE
The design, development and manufacture of both Synbiotics' and ICG's
products involve an inherent risk of product liability claims and associated
adverse publicity. Synbiotics and ICG obtained liability insurance for
potential product liability associated with the commercial sale of their
products. There can be no assurance, however, that Synbiotics will be able to
obtain or maintain insurance for any of its commercial products. Although
Synbiotics and ICG currently maintain general liability insurance, there can be
no assurance that the coverage limits of Synbiotics' or ICG's insurance policies
will be adequate. Product liability insurance is expensive, difficult to obtain
and may not be available in the future on acceptable terms or at all. A
successful claim brought against Synbiotics or ICG in excess of Synbiotics' or
ICG's insurance coverage would have a material adverse effect upon Synbiotics.
See "Business (ICG)--Manufacturing and Operations."
HAZARDOUS MATERIALS
Synbiotics' research and development involves the controlled use of
hazardous materials, chemicals and various radioactive compounds. Although
Synbiotics believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by local, state and federal
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, Synbiotics
could be held liable for any damages that result and any such liability could
exceed the resources of Synbiotics. Synbiotics may incur substantial costs to
comply with environmental regulations.
VOLATILITY OF STOCK PRICE; ABSENCE OF DIVIDENDS
The market prices for securities of biotechnology companies, including
Synbiotics and ICG, have historically been highly volatile. Future
announcements concerning Synbiotics or its competitors may have a significant
impact on the market price of the Synbiotics Common Stock. Such announcements
might include the results of research, development, testing, technological
innovations, new commercial products, government regulations, developments
concerning proprietary rights or litigation. No cash dividends have been paid
on Synbiotics Common Stock to date, and Synbiotics does not anticipate paying
cash dividends in the foreseeable future. See "Summary--Comparative Market
Prices."
CONCENTRATION OF OWNERSHIP
Upon completion of this Acquisition, Synbiotics' executive officers,
directors and affiliated entities together will beneficially own approximately
37.6% of the outstanding shares of Common Stock, assuming an Average Closing
Sales Price of $3.50 per share. As a result, these stockholders, acting
together, will be able to influence significantly and possibly control most
matters requiring approval by the stockholders of Synbiotics,
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including the election of directors. Such a concentration of ownership may have
the effect of delaying or preventing a change in control of Synbiotics,
including a transaction in which stockholders might otherwise receive a premium
for their shares over the current market prices. See "Security Ownership of
Certain Synbiotics Beneficial Owners and Management."
SEASONALITY
Synbiotics has experienced some seasonality in its business, with sales
highest in December to April, the time period in which distributors purchase
canine heartworm diagnostic products to sell to veterinarians for the heartworm
season. There can be no assurance that such seasonality will not have a
material adverse impact on Synbiotics' operations. See "Business (Synbiotics)--
Market and Product Overview" and "Synbiotics Management's Discussion and
Analysis or Plan of Operation--Results of Operations."
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THE ACQUISITION
(PROPOSAL FOR BOTH SYNBIOTICS AND ICG MEETINGS)
BACKGROUND OF THE ACQUISITION
The history of events resulting in the Acquisition are as follows:
On January 25, 1996, during a business trip to the West Coast, Paul
Rosinack, President and CEO of ICG, met with Robert Widerkehr, then President
and CEO, and Michael Green, CFO, of Synbiotics to discuss mutual business
opportunities. On January 29, 1996, Synbiotics and ICG entered into a
confidentiality agreement to exchange information and agreed to explore the
possibility of a business combination.
During February and March, 1996, the companies exchanged information about
their respective businesses. ICG's and Synbiotics' senior executives met on
several occasions to discuss the strategy of combining the two companies and to
develop a synergistic plan that would strengthen the combined companies' market
position and increase shareholder value. Financial terms were also discussed.
On April 25, 1996, at a regular meeting of the Synbiotics Board of
Directors, Synbiotics' management presented a proposal for Synbiotics to enter
into a nonbinding letter of intent to acquire substantially all of ICG's assets
and certain liabilities. Management presented a strategic overview of the
acquisition and its analysis of the perceived complementary strengths of
Synbiotics and ICG: Synbiotics' strategy to grow through acquisition, ICG's
unique position in the canine reproduction and canine genetic testing market,
ICG's diagnostic product line which could be transferred to Synbiotics and
utilize Synbiotics' excess manufacturing capacity, ICG's breeder and
veterinarian networks which could be utilized to expand the sales of Synbiotics'
products. The Synbiotics Board authorized management to enter into a nonbinding
letter of intent to acquire interest of Synbiotics' shareholders.
On April 25, 1996, at a regular meeting of the ICG Board of Directors, ICG
management presented a proposal for ICG to enter into a nonbinding letter of
intent to sell substantially all of its assets and certain liabilities to
Synbiotics. Management presented a strategic overview of the transaction and
its analysis of the perceived complementary strengths of ICG and Synbiotics
including Synbiotics' financial position, expanded distribution for ICG products
in the U.S. and International markets, manufacturing capacity and broad product
lines. The ICG Board of Directors authorized ICG management to enter into a
nonbinding letter of intent to sell substantially all of its assets and certain
liabilities to Synbiotics as the transaction was determined to be in the best
interest of ICG's stockholders.
On May 14, 1996, management of Synbiotics and ICG entered into a nonbinding
letter of intent and made a joint public announcement with respect thereto on
May 16, 1996.
In the weeks that followed, additional confidential information was
exchanged between the two companies. Synbiotics management visited the offices
to conduct a review of ICG's business. ICG's management visited Synbiotics'
offices to conduct a review of Synbiotics' business. Discussions between senior
executives and their legal advisors also commenced regarding the terms of the
definitive purchase agreement, including, but not limited to, financial
structure, treatment of common stock warrants and stock options, certain
employee benefits and management compensation.
On June 27, 1996, at a regular meeting of the Synbiotics Board of
Directors, Synbiotics' management reported on the progress of negotiations.
Following discussion, the Synbiotics Board of Directors determined that the
acquisition of substantially all of ICG's assets and certain liabilities was in
the best interest of the Synbiotics shareholders, customers and employees and
authorized management to conclude negotiations and finalize a Purchase
Agreement.
On June 28, 1996, at a regular meeting of the ICG Board of Directors,
management reported on the progress of negotiations. Following a discussion of
financing alternatives, ICG's Board of Directors determined
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that the proposed transaction with Synbiotics was in the best interest of ICG's
stockholders, customers and employees and authorized management to conclude
negotiations and finalize a Purchase Agreement.
On July 19, 1996, at a special telephone meeting of the ICG Board of
Directors, ICG management and legal counsel, the ICG Board of Directors approved
the transaction and authorized management to execute the Purchase Agreement.
On July 22, 1996, at a special telephone meeting of the Synbiotics Board of
Directors, Synbiotics management and legal counsel, the Synbiotics Board of
Directors approved the transaction and authorized management to execute the
Purchase Agreement.
On July 23, 1996, Synbiotics and ICG entered into the Purchase Agreement
and made a public announcement with respect thereto on July 25, 1996.
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DESCRIPTION OF THE ACQUISITION
GENERAL
If the Acquisition is consummated, Synbiotics will acquire substantially
all of the assets of ICG. ICG will receive the Acquisition Shares (and $1.00
cash) in exchange for the Assets. The Acquisition will be effective after
satisfaction (absent waiver) of all conditions, including the approval of the
Purchase Agreement by the stockholders of Synbiotics and ICG.
All shares of Synbiotics Common Stock to be issued to ICG will be
registered under the Act. After the Acquisition (and assuming both an Average
Closing Sales Price of $3.50 and consummation of the S.R. One Cash Purchase),
approximately 7.7 million shares of Synbiotics Common Stock will be outstanding.
REASONS OF THE SYNBIOTICS AND ICG BOARDS OF DIRECTORS FOR THE ACQUISITION
The Board of Directors of Synbiotics and ICG believe the Acquisition will
strengthen the combined companies' product pipelines in the field of animal
health care. In addition, the Boards believe that the two companies complement
each other. By combining Synbiotics' financial strength, manufacturing capacity
and broad product lines with ICG's unique position in the canine reproduction
and canine genetic testing market and its direct sales channels to veterinarians
and breeders, the Boards believe the Acquisition will result in a strengthened
market position and an increase in shareholder value.
RECOMMENDATION OF THE SYNBIOTICS BOARD OF DIRECTORS; FACTORS CONSIDERED
The Synbiotics Board of Directors unanimously approved the Purchase
Agreement as fair to and in the best interests of the stockholders of
Synbiotics. The Synbiotics Board of Directors unanimously recommends that
Synbiotics shareholders vote FOR the proposal to approve the principal terms of
the Acquisition. See "The Acquisition--Description of the Acquisition--Reasons
of the Synbiotics and ICG Boards of Directors for the Acquisition." In reaching
this conclusion, the Synbiotics Board of Directors considered a number of
factors, including the following:
1. The Synbiotics Board considered the benefits which the Synbiotics
Board believed could be achieved from the combination of Synbiotics' business
with ICG. The Synbiotics Board considered Synbiotics' strategy to grow through
acquisition, as well as the perceived complementary strengths of Synbiotics and
ICG. In particular, the Synbiotics Board considered ICG's unique position in
the canine reproduction and canine genetic testing market and its synergies with
Synbiotics. In addition, the Synbiotics Board considered the effects of
transferring ICG's diagnostic product line to Synbiotics and utilizing
Synbiotics' excess manufacturing capacity. The Synbiotics Board considered the
marketing potential which could result from utilizing ICG's breeder and
veterinarian networks to market Synbiotics' products. Accordingly, the
Synbiotics Board believed that with ICG's and Synbiotics' complementary products
and services, the Acquisition could provide for expanded sales opportunities at
little additional expense.
2. The Synbiotics Board considered the increase in shareholder value that
could result from the strength of the combined companies' market position.
3. The Synbiotics Board also considered potential disadvantages to
Synbiotics and its shareholders which could result from the Acquisition,
including (i) the possibility that Synbiotics could be unsuccessful in
assimilating the operations, technologies and products of ICG; and (ii) the
dilutive effect upon its shareholders resulting from the issuance of additional
equity securities. The Synbiotics Board concluded, without reliance on any
single factor, but based instead upon an evaluation of all pertinent
considerations, that the advantages inherent in the Acquisition would outweigh
the potential disadvantages, and that principal among the benefits would be the
ability to acquire a product line which would complement its own and strengthen
its market position.
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In view of the variety of factors considered by the Synbiotics Board of
Directors in connection with its evaluation of the Acquisition, the Synbiotics
Board of Directors did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determination.
RECOMMENDATION OF THE ICG BOARD OF DIRECTORS; FACTORS CONSIDERED
The ICG Board of Directors unanimously approved the Purchase Agreement as
fair to and in the best interests of the stockholders of ICG. The ICG Board of
Directors unanimously recommends that shareholders vote FOR the Purchase
Agreement. The ICG Board of Directors believes that the Acquisition represents
an attractive opportunity that will enable shareholders of ICG to participate in
the enhanced value of the combined technology base, increased scientific and
management skills resulting from the Acquisition. See "--Reasons of the
Synbiotics and ICG Boards of Directors for the Acquisition." In reaching this
conclusion, the ICG Board of Directors considered a number of factors, including
the following:
1. The Board considered the benefits which the ICG Board believed could
be achieved from the combination of ICG's business with Synbiotics. The Board
considered the opportunity for ICG to become part of a larger organization which
has greater distribution channels, additional manufacturing capacities and
greater financial resources than those of ICG. The ICG Board also took into
consideration various synergies between Synbiotics' and ICG's businesses that
might result from the Acquisition. Accordingly, the ICG Board believed that
with ICG's and Synbiotics' complementary products and services, the Acquisition
could provide for expanded sales opportunities at little additional expense.
Further, Synbiotics' presence on the West coast provides greater access and
exposure to potential customers for ICG's products on the West Coast. ICG
believed that the enhanced profile of being part of a larger company would
provide ICG's customers and vendors with greater confidence in ICG's products
and services, which the Board believed could facilitate customer sales and more
favorable vendor relations.
2. The ICG Board considered the increased liquidity for its stockholders
because of the trading of Synbiotics' Common Stock on the NASDAQ National Market
and alternative opportunities for increasing its liquidity. The ICG Board
considered the fact that ICG's stock was no longer trading on the NASDAQ Small
Cap market and that it would be difficult for ICG to satisfy the requirements
for inclusion in either the Small Cap or the National Market.
3. The ICG Board considered alternative opportunities for growth and
financing that might be available to ICG and its stockholders. In determining
whether to approve the Acquisition, the ICG Board considered the following
alternatives: (i) selling substantially all of ICG's assets for cash or
entering into a stock transaction with an acquiror other than Synbiotics; (ii)
seeking to obtain financing from other sources; and (iii) reducing the size of
its operations. The ICG Board rejected the first alternative because Synbiotics
presented the only firm proposal to ICG and ICG was not able to identify any
other potential partners. The ICG Board rejected the second alternative because
of the substantial dilution it anticipated would result in connection with
obtaining adequate financing to support its growth and operations. In addition,
there was no assurance that ICG would be able to obtain the necessary financing.
The ICG Board rejected the third alternative because it did not believe that ICG
could improve its financial condition or results of operations by scaling down
its operations.
4. Certain potential disadvantages to ICG and its stockholders resulting
from the Acquisition were also considered, including (i) the concentration of
the value of ICG in the shares of a single publicly-held entity, with the
resulting market value fluctuation risks inherent in the public equity markets;
and (ii) the loss of control by ICG's management and Board of Directors over the
operation of ICG's business. The ICG Board concluded, without reliance on any
single factor, but based instead upon an evaluation of all pertinent
considerations, that the advantages inherent in the Acquisition would outweigh
the potential disadvantages, and that principal among the benefits would be the
ability to obtain adequate capitalization for ICG's business and to preserve for
its stockholders the opportunity to participate in the future growth of
Synbiotics.
In reaching these conclusions, the ICG Board considered a number of
factors, including, among other things, the terms and conditions of the Purchase
Agreement, information with respect to the financial condition, business
operations and prospects of both ICG and Synbiotics on both a historical and
prospective basis,
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including information reflecting the two companies on a pro forma combined
basis, and the views and opinions of ICG's management.
After taking into consideration all the factors set forth above, the ICG
Board determined that the Acquisition was in the best interests of the
stockholders of ICG. In view of the various factors considered in connection
with its evaluation of the Acquisition, the ICG Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its decision.
The amount of consideration to be paid in the Acquisition and the final
determination of the form and amount of consideration, was made pursuant to
arm's-length negotiations between ICG and Synbiotics.
THE ICG BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ICG STOCKHOLDERS
VOTE TO APPROVE THE ACQUISITION AND THE PURCHASE AGREEMENT.
FEDERAL INCOME TAX CONSEQUENCES
This transaction will result in taxable income to ICG. However, ICG does
not expect to pay any material income tax because it can use prior net operating
losses to offset the gain.
Following the Acquisition, ICG intends to redeem its stock from certain
participating stockholders (the "Redeeming Stockholders") (see "--ICG
Redemptions"). If the redemption constitutes a complete termination of a
Redeeming Stockholder's interest in ICG which had been held for investment, the
Redeeming Stockholder should recognize a capital gain or loss (depending upon
such stockholder's basis in the redeemed ICG stock) upon receipt of Acquisition
Shares and any other ICG property. If the Redeeming Stockholder has held his or
her ICG stock for more than one year, the receipt of acquisition Shares and any
other ICG property in exchange for ICG stock should constitute a long-term
capital gain or loss; otherwise, the redemption will be treated as a short-term
capital gain and loss.
The same capital gain or loss treatment should be available to any
Redeeming Stockholder who redeems less than all of his or her shares of ICG
stock, provided that immediately after the redemption of his or her shares, (i)
the Redeeming Stockholder owns less than 50% of the remaining outstanding shares
of ICG common stock and (ii) the number of shares of ICG common stock held by
the Redeeming Stockholder immediately after the redemption is less than 80% of
the number of shares of ICG common stock held by the same Redeeming Stockholder
immediately before the redemption.
ACCOUNTING TREATMENT
The Acquisition will be accounted for by Synbiotics as a purchase.
ICG Redemptions
Under ICG's plan to redeem its stock from the Redeeming Stockholders, ICG
will distribute to each of the Redeeming Stockholders a substantial portion of
the Acquisition Shares received in the Acquisition and such other property of
ICG as its Board of Directors deems appropriate.
The actual number of shares of Acquisition Shares distributed to the
Redeeming Stockholders will depend upon the amount of the ICG liabilities not
assumed in the Acquisition since ICG intends to satisfy its remaining unassumed
liabilities from the proceeds of sale of some number of Acquisition Shares in
the marketplace. ICG will distribute to each of the Redeeming Stockholders non-
liquidated Acquisition Shares in the same proportion as the number of shares of
ICG stock tendered by each Redeeming Stockholder bears to the total number of
shares of ICG stock held by all ICG stockholders immediately prior to the
redemption.
Following the redemption, it is anticipated that there will be two
remaining stockholders. One stockholder will be Paul A. Rosinack, the President
and Chief Executive Officer of ICG, who will own a majority
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of the remaining outstanding shares of ICG common stock. The other stockholder
will be S.R. One, which will own the balance of the ICG common stock.
RESALES OF SYNBIOTICS COMMON STOCK; AFFILIATES
The Synbiotics Common Stock to be issued to ICG and subsequently
distributed to the ICG stockholders pursuant to the Redemptions will be freely
transferable under the Act, except for shares issued to any person who may be
deemed as of the ICG Meeting to be an "affiliate" of ICG within the meaning of
Rule 405 under the Act. Persons who may be deemed to be affiliates of ICG
generally include individuals or entities that, directly or indirectly through
one or more intermediaries, control, are controlled by or are under common
control with ICG and may include certain officers, directors and principal
stockholders of ICG. Affiliates of ICG will not be able to sell, pledge or
otherwise transfer any Synbiotics Common Stock issued pursuant to the Purchase
Agreement, except pursuant to an effective registration statement or in
compliance with Rule 145 or another exemption from the registration requirements
of the Act. With respect to the Synbiotics Common Stock subsequently
distributed to any forty percent or greater stockholder of ICG (i.e., S.R. One),
the volume limitations on resale as set forth in the now-current Rule 144 and
Rule 145 under the Act shall apply until the second anniversary of the
Acquisition Date. The certificates evidencing Synbiotics Common Stock issued to
affiliates pursuant to the Redemptions will bear a legend summarizing the
restrictions on resale imposed on their Acquisition Shares under Rule 145 of the
Act.
ROSINACK EMPLOYMENT AGREEMENT
Pursuant to the Purchase Agreement, upon the Acquisition Date Paul A.
Rosinack, now the Chief Executive Officer and President of ICG, will become Vice
President and General Manager, Animal Health of Synbiotics at an annual salary
of $160,000. In addition, he will receive stock options to purchase 25,000
shares of Synbiotics Common Stock and an interest-free loan of up to $50,000 to
cover relocation expenses. The loan will be forgiven over time if Mr. Rosinack
continues as a Synbiotics employee.
REGULATORY REQUIREMENTS
Other than the effectiveness of this Registration Statement, ICG and
Synbiotics are not aware of any federal, state or foreign governmental or
regulatory approval that is required in order to consummate the Acquisition.
Should any such approval be required, it is currently contemplated that such
approval would be sought.
DISSENTERS' RIGHTS
Holders of shares of ICG Common Stock are not entitled to dissenters'
rights or to Delaware General Corporation Law "appraisal" rights.
The California Law requires Synbiotics shareholder approval of the
Acquisition if the Shares equal or exceed 20% of the number of shares of
Synbiotics common stock outstanding as of immediately before the Acquisition.
Assuming the S.R. One Purchase Stock, which will be purchased one hour before
the Acquisition, is deemed outstanding as of immediately before the Acquisition,
the California Law will not require Synbiotics shareholder approval if the
Average Closing Sales Price is $3.92 or above.
The NASD Bylaws require Synbiotics shareholder approval of the Acquisition
if the Acquisition Shares plus the Option Shares plus the Warrant Shares equal
or exceed 20% of the number of shares of Synbiotics common stock outstanding
before the issuance of the Shares. Assuming the S.R. One Purchase Stock is
deemed outstanding before the issuance of the Shares, and assuming 3,000,000
shares of ICG Common Stock outstanding at the Time of Closing, the NASD Bylaws
will not require Synbiotics shareholder approval if the Average Closing Sales
Price is $5.16 or above.
If the NASD Bylaws require Synbiotics shareholder approval but the
California Law does not, Synbiotics will seek such shareholder approval at the
Synbiotics Meeting and the Acquisition will not occur unless such
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approval is obtained. Nonetheless, if Synbiotics shareholder approval was
obtained in those circumstances (under the NASD Bylaws only), Synbiotics
shareholders would not have dissenters' rights under the California Law.
As stated above, pursuant to Chapter 13 of the California Law, holders of
shares of Synbiotics Common Stock may be entitled to dissenters' rights in
connection with the Acquisition. The failure of a dissenting shareholder to
follow the appropriate procedures may result in the termination or waiver of
such dissenters' rights. In addition, such dissenters' rights shall not apply
if the Synbiotics shareholders do not in fact approve the principal terms of the
Acquisition at the Synbiotics Meeting. If it appears at the Synbiotics Meeting
that Synbiotics shareholder approval of the Acquisition is required neither by
California Law nor by the NASD Bylaws, the question of Synbiotics shareholder
approval of the principal terms of the Acquisition will not be presented to the
Synbiotics Meeting and dissenters' rights will be entirely inapplicable. The
following discussion assumes the Acquisition is indeed presented to and approved
by the Synbiotics shareholders at the Synbiotics Meeting.
The following summary of the provisions of Chapter 13 of the California Law
is not intended to be a complete statement of such provisions and is qualified
in its entirety by the full text of Chapter 13.
If the Acquisition is approved by the required vote of the Synbiotics
shareholders and is not abandoned or terminated and if holders of five percent
or more of the outstanding shares of Synbiotics Common Stock demand purchase
prior to the commencement of the Synbiotics Meeting (the "5% Demand
Requirement"), each holder of shares of Common Stock of Synbiotics who has voted
against the Acquisition and who follows the procedures set forth in Chapter 13
will be entitled to have his or her shares of Synbiotics Common Stock purchased
by Synbiotics for cash at their fair market value. The fair market value of
shares of Synbiotics Common Stock will be determined as of the day before the
first announcement of the terms of the proposed Acquisition, excluding any
appreciation or depreciation in consequence of the proposed Acquisition. The
last sales price of Synbiotics Common Stock on the last trading day prior to the
announcement of the Letter of Intent was $3.50 per share as quoted on the Nasdaq
National Market. Assuming the 5% Demand Requirement is satisfied, the shares of
Synbiotics Common Stock with respect to which holders have perfected their
purchase demand in accordance with Chapter 13 and have not effectively withdrawn
or lost such dissenters' rights are referred to in this Joint Proxy
Statement/Prospectus as the "Dissenting Shares."
If the 5% Demand Requirement is satisfied, within ten days after approval
of the Acquisition by the Synbiotics shareholders, Synbiotics must mail a notice
of such approval (the "Approval Notice") to all shareholders who have not voted
in favor of approval and adoption of the Purchase Agreement, together with a
statement of the price determined by Synbiotics to represent the fair market
value of the applicable Dissenting Shares (determined in accordance with the
immediately preceding paragraph), a brief description of the procedures to be
followed in order for the shareholder to pursue his or her dissenters' rights,
and a copy of Sections 1300-1304 of the California Law. The statement of price
by Synbiotics constitutes an offer by Synbiotics to purchase all Dissenting
Shares at the stated amount. Only a holder of record of shares of Common Stock
of Synbiotics on the Synbiotics Record Date (or his or her duly appointed
representative) is entitled to assert a purchase demand for the shares
registered in that holder's name.
A shareholder of Synbiotics electing to exercise dissenters' rights must
demand in writing from Synbiotics the purchase of his or her shares of
Synbiotics Common Stock and payment to the shareholder of their fair market
value and must submit the certificate representing the Dissenting Shares to
Synbiotics for endorsement as Dissenting Shares. A holder who elects to
exercise dissenters' rights should mail or deliver his or her written demand to
Synbiotics at 11011 Via Frontera, San Diego, California 92127, directed to the
attention of Michael K. Green, Secretary. The demand should specify the
holder's name and mailing address, the number of shares of Synbiotics common
stock owned by such shareholder and state that such holder is demanding purchase
of his or her shares and payment of their fair market value and must also
contain a statement as to what the shareholder claims to be the fair market
value of such shares, determined in accordance with the second preceding
paragraph. Such statement of the fair market value of the shares constitutes an
offer by the shareholder to sell the shares to Synbiotics at that price. The
demand must be received by Synbiotics not later than the date of the Synbiotics
Meeting. The certificate representing the Dissenting Shares must be submitted
for endorsement within 30 days after the date of the Approval Notice.
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If Synbiotics and the shareholder agree that the shares are Dissenting
Shares and agree upon the purchase price of the shares, the dissenting
shareholder is entitled to the agreed upon price with interest thereon at the
legal rate on judgments from the date of such agreement. Payment for the
Dissenting Shares must be made within 30 days after the later date of such
agreement or the date on which all statutory and contractual conditions to the
Acquisition are satisfied, and is subject to surrender to Synbiotics of the
certificates for the Dissenting Shares.
If Synbiotics denies that the shares are Dissenting Shares, or if
Synbiotics and the shareholder fail to agree upon the fair market value of the
shares, then within six months after the date of Approval Notice was mailed to
shareholders, any shareholder who has made a valid written purchase demand and
who has not voted in favor of approval of the principal terms of the Acquisition
may file a complaint in the Superior Court of San Diego County (the "Court")
requesting a determination as to whether the shares are Dissenting Shares or as
to the fair market value of such holder's shares of Synbiotics Common Stock, or
both, or may intervene in any pending action brought by any other Synbiotics
shareholder.
Any holder of Dissenting Shares who has duly demanded the purchase of his
or her shares under Chapter 13 of the California Law will not, after the
Acquisition Date of the Acquisition, be entitled to vote the shares subject to
such demand for any purpose or be entitled to the payment of dividends or other
distributions on such Dissenting Shares (except dividends or other distributions
payable to shareholders of record as of the date prior to the Acquisition Date
of the Acquisition).
If any holder of shares of Synbiotics Common Stock who demands the purchase
of his or her shares under Chapter 13 of the California Law fails to perfect, or
effectively withdraws or loses his or her right to such purchase, or if the 5%
Demand Requirement is not satisfied, such holder will not be entitled to have
his or her shares purchased by Synbiotics for cash at their fair market value.
Dissenting Shares lose their status as Dissenting Shares if (a) the Acquisition
is abandoned; (b) the shares are transferred prior to their submission for the
required endorsement; (c) the dissenting shareholder fails to make a timely
written demand for purchase, along with a statement of fair market value; (d)
the dissenting shareholder does not vote against the approval of the principal
terms of the Acquisition; (e) the dissenting shareholder and Synbiotics do not
agree upon the status of the shares as Dissenting Shares or do not agree on the
purchase price, but neither Synbiotics nor the shareholder files a complaint or
intervenes in a pending action within six months after mailing of the Approval
Notice; or (f) with Synbiotics's consent, the shareholder delivers to Synbiotics
a written withdrawal of such shareholder's demand for purchase of his or her
shares.
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THE PURCHASE AGREEMENT
GENERAL
The Purchase Agreement and certain related matters are summarized below.
The following summarizes the principal terms of the Acquisition. This summary
does not purport to be a complete statement of the terms and conditions of the
Acquisition and is qualified in its entirety by reference to the Purchase
Agreement, which is set forth as Appendix A and is incorporated by reference.
All capitalized terms set forth below in this section entitled "The Purchase
Agreement" not otherwise defined herein shall be defined as set forth in the
Purchase Agreement.
All ICG and Synbiotics stockholders are urged to read the Purchase
Agreement in its entirety.
THE ACQUISITION
The Purchase Agreement provides that, subject to the satisfaction or waiver
of the various conditions to the Acquisition, Synbiotics will acquire
substantially all of the assets of ICG. In addition, Synbiotics will assume
certain liabilities and obligations of ICG, not to exceed the sum of Time of
Closing cash, accounts receivable and inventory plus $95,000; provided that in
no event shall the aggregate amount of assumed liabilities exceed Time of
Closing accounts payable and accrued expenses (excluding all accounting and
legal fees and other costs related to the transactions contemplated by the
Purchase Agreement, and all payroll and payroll related items, unless the limit
is not reached when these items are excluded).
ACQUISITION DATE
The Acquisition will close promptly after all conditions set forth in the
Purchase Agreement have been satisfied or waived. See "--Termination."
CONSIDERATION FOR THE ACQUISITION
On the Acquisition Date, ICG shall receive $1.00 cash plus the Acquisition
Shares, the number of which shall be 1,400,000, provided that the Average
Closing Sales Price is not greater than $3.50 per share or less than $2.50 per
share. If the Average Closing Sales Price is greater than $3.50 per share, the
number of Acquisition Shares shall be equal to 1,400,000 multiplied by a
fraction, the numerator of which shall be $3.50 and the denominator of which
shall be the Average Closing Sales Price. If the Average Closing Sales Price is
less than $2.50 per share, the number of Acquisition Shares shall be equal to
1,400,000 multiplied by a fraction, the numerator of which shall be $2.50 and
the denominator of which shall be the Average Closing Sales Price. In addition,
the ICG Options and the ICG Warrants will be assumed by Synbiotics and will
become exercisable for shares of Synbiotics Common Stock as of the Acquisition
Date, with appropriate adjustments in exercise price and number of underlying
shares to reflect the Acquisition's effective valuation ratio.
S.R. ONE CLOSING
Pursuant to the terms of the Purchase Agreement, S.R. One has agreed to
purchase at the S.R. One Closing, which shall occur one hour before the Time of
Closing, the number of shares of Synbiotics Common Stock equal to $1,000,000
divided by the Average Closing Sales Price.
CONDITIONS
The obligations of ICG and Synbiotics to consummate the Acquisition are
each subject to the satisfaction of the following conditions: (i) requisite
approval by their respective Board of Directors and stockholders of the
transactions contemplated in the Purchase Agreement; (ii) the effectiveness
under the Act of the Registration Statement on Form S-4 including a joint proxy
statement relating to stockholder approval and no stop order shall have been
issued with respect to the Form S-4 and (iii) there being no pending or
threatened lawsuit challenging the transaction by any body or agency of the
federal, state, or local government (or by any third party with
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respect to Synbiotics), and the consummation of the transaction shall not have
been enjoined by a court of competent jurisdiction as of the Acquisition Date.
The obligations of Synbiotics to consummate the Acquisition are also
subject to the satisfaction of the following conditions: (i) the accuracy of
the representations and warranties of ICG contained in the Purchase Agreement in
all material respects at and as of the Acquisition Date; (ii) ICG having in all
material respects performed and complied with all of its covenants, conditions
and other obligations contained in the Purchase Agreement on or before the
Acquisition Date; (iii) any applicable waiting period under any applicable
federal law shall have expired and any and all filings under any applicable
state bulk transfer laws shall have been timely made and have been completed;
(iv) a certificate executed by the President of ICG shall have been delivered to
Synbiotics; (v) ICG shall have provided to the satisfaction of Synbiotics
termination statements of security interests from all secured creditors and
releases of related liens; (vi) Synbiotics shall have received all licenses from
all appropriate governmental agencies or third parties to operate the business
of ICG in the same manner as ICG operated such business prior to the Closing
Date; (vii) Synbiotics shall be satisfied in its reasonable business judgment
with the results of its due diligence investigation of ICG; (viii) the form and
substance of all certificates, instruments, opinions and other documents
delivered or to be delivered to Synbiotics pursuant to the Purchase Agreement
shall be satisfactory to Synbiotics and its counsel in all reasonable respects;
(ix) Synbiotics shall have received certain closing documents specified in the
Purchase Agreement; (x) the S.R. One Closing shall have occurred and (xi)
Synbiotics shall have received an opinion of McCausland, Keen & Buckman, counsel
to ICG.
The obligations of ICG to consummate the Acquisition are also subject to
the satisfaction of the following conditions: (i) the accuracy of the
representations and warranties of Synbiotics contained in the Purchase Agreement
in all material respects at and as of the Acquisition Date; (ii) Synbiotics
having in all material respects performed and complied with all of its
covenants, conditions and other obligations contained in the Purchase Agreement
on or before the Acquisition Date; (iii) the approval upon notice of issuance
for listing on the Nasdaq National Market of the shares of Synbiotics Common
Stock to be issued in the Acquisition; (iv) ICG shall have received a
certificate of the President of Synbiotics; (v) a mutually agreeable designee of
ICG (now identified as Brenda D. Gavin, DVM shall have been appointed to the
Board of Directors of Synbiotics effective as of the Acquisition Date; (vi) ICG
shall have received the certain closing documents specified in the Purchase
Agreement; and (vii) ICG having received an opinion of Brobeck, Phleger &
Harrison LLP, counsel to Synbiotics.
REPRESENTATIONS AND WARRANTIES
In the Purchase Agreement, ICG and Synbiotics have made certain
representations and warranties concerning corporate organization, good standing
and power, corporate authorization, litigation, governmental consents and
approvals, broker fees, information included in the Proxy Statement/Prospectus,
filings made with the SEC, complete disclosure, absence of certain changes,
information contained in the Form S-4 Registration Statement to be filed with
the SEC in connection with the Acquisition and no reliance on forecasts.
In addition, Synbiotics has made representations and warranties concerning
compliance with other instruments, the validity of the issuance of shares of
Common Stock of Synbiotics to ICG, and the capitalization of Synbiotics.
Additionally, ICG has made representations and warranties concerning its
conduct of business, no undisclosed liabilities, inventory, accounts and notes
receivable, properties, taxes, compliance with laws, products, proprietary
rights, restrictive documents or orders, contracts and commitments, assets,
insurance, product warranties and product liability, conflicts or defaults,
labor relations, employee benefit plans, interested party relationship,
environmental matters, certain payments, books and records and customers and
suppliers.
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TERMINATION
The Purchase Agreement may be terminated and the transactions therein
contemplated may be abandoned at any time notwithstanding any party's Board or
stockholder approval, but not later than the S.R. One Closing (as to S.R. One)
or the Time of Closing (as to Synbiotics and ICG) as follows:
1. by Synbiotics, if there has been a material breach by either of S.R.
One or ICG of its representations, warranties, covenants or agreements set forth
in the Purchase Agreement and S.R. One or ICG, as the case may be, fails to cure
within five (5) business days after notice thereof is given by Synbiotics
(except that no cure period shall be provided for a breach by S.R. One or ICG
which by its nature cannot be cured);
2. by S.R. One, if there has been a material breach by Synbiotics of the
representations, warranties, covenants or agreements set forth in this Agreement
as to S.R. One and Synbiotics fails to cure within five (5) business days after
notice thereof is given by S.R. One (except that no cure period shall be
provided for a breach by Synbiotics which by its nature cannot be cured);
3. by S.R. One (but only with respect to the Synbiotics/S.R. One
transaction), if S.R. One in its reasonable business judgment determines that
the ICG Closing is not going to occur;
4. by ICG, if there has been a material breach by Synbiotics of the
representations, warranties, covenants or agreements set forth in this Agreement
as to ICG and Synbiotics fails to cure within five (5) business days after
notice thereof is given by ICG (except that no cure period shall be provided for
a breach by Synbiotics which by its nature cannot be cured);
5. by Synbiotics, if the required approval of the stockholders of ICG
contemplated by the Purchase Agreement has not been obtained within thirty (30)
days from the solicitation of such consents or proxies;
6. by ICG, if the approval of the Purchase Agreement by the shareholders
of Synbiotics is required and such approval has not obtained within forty-five
(45) days from the solicitation of such consents or proxies;
7. by Synbiotics or ICG, if any permanent injunction or other order of a
court or other competent authority preventing the Acquisition shall have become
final and nonappealable; or
8. by Synbiotics or ICG, if any governmental or administrative agency
shall have issued a temporary restraining order, preliminary injunction or
permanent injunction or other order preventing the consummation of the
Acquisition or any litigation shall be pending, the ultimate resolution of which
is likely to (i) result in the issuance of such an order or injunction, or the
imposition against Synbiotics or ICG, of substantial damages if the Acquisition
is consummated, (ii) prohibit Synbiotics' ownership or operation of all or a
material portion of the business rights of ICG or Synbiotics taken as a whole,
or to compel Synbiotics or ICG to dispose of or hold separate all or a material
portion of the business or assets of Synbiotics or ICG as a result of the
Acquisition, (iii) materially limit or restrict Synbiotics's conduct or
operation of the business of ICG after the Acquisition Date, or (iv) render
Synbiotics or ICG unable to consummate the Acquisition. In the event any such
order or injunction shall have been issued, each party agrees to use its
reasonable efforts to have any such injunction lifted.
TREATMENT OF WARRANTS
All the ICG Warrants will be assumed by Synbiotics and will become
exercisable for shares of Synbiotics Common Stock as of the Acquisition Date,
with appropriate adjustments in exercise price and number of underlying shares
to reflect the Acquisition's effective valuation ratio. Synbiotics is
registering the issuance of the shares of Synbiotics Common Stock to be issued
upon exercise of the ICG Warrants (the "Warrant Shares") under the Act.
An ICG Warrant shall become exercisable for a number of Warrant Shares
equal to the number of shares of ICG Common Stock for which the Warrant was
exercisable, times the total number of Acquisition
29
<PAGE>
Shares, divided by the total number of outstanding shares of ICG Common Stock on
the Acquisition Date. The exercise price of the ICG Warrant shall be unchanged
in the aggregate, and per Warrant Share shall be the exercise price per share of
ICG Common Stock, times the total number of outstanding shares of ICG Common
Stock on the Acquisition Date, divided by the total number of Acquisition
shares. For example, assuming a $3.50 Average Closing Sales Price (for
1,400,000 Acquisition Shares) and 3,000,000 shares of ICG Common Stock
outstanding on the Acquisition Date, an ICG Warrant to purchase 1,000 shares of
ICG Common Stock at $1.25 per share shall become exercisable for 467 Warrant
Shares at $2.68 per Warrant Share.
TREATMENT OF STOCK OPTIONS
All the ICG Options will be assumed by Synbiotics and will become
exercisable for shares of Synbiotics Common Stock as of the Acquisition Date,
with appropriate adjustments in exercise price and number of underlying shares
to reflect the Acquisition's effective valuation ratio. Synbiotics will cause
the shares of Synbiotics Common Stock to be issued upon exercise of the ICG
Options (the "Option Shares") to be registered under the Act on Form S-8 at or
promptly after the Acquisition Date.
An ICG Option shall become exercisable for a number of Option Shares equal
to the number of shares of ICG Common Stock for which the Option was
exercisable, times the total number of Acquisition Shares, divided by the total
number of outstanding shares of ICG Common Stock on the Acquisition Date. The
exercise price of the ICG Option shall be unchanged in the aggregate, and per
Option Share shall be the exercise price per share of ICG Common Stock, times
the total number of outstanding shares of ICG Common Stock on the Acquisition
Date, divided by the total number of Acquisition shares. For example, assuming
a $3.50 Average Closing Sales Price (for 1,400,000 Acquisition Shares) and
3,000,000 shares of ICG Common Stock on the Acquisition Date, an ICG Option to
purchase 1,000 shares of ICG Common Stock at $7.00 per share shall become
exercisable for 467 Option Shares at $15.00 per Option Share.
EXPENSES
Each party will bear its own costs and expenses in connection with this
Purchase Agreement and the transactions contemplated thereby. Synbiotics and
ICG will bear the printing expenses of the Form S-4 and the Proxy Statement pro
rata based upon the size of their respective shareholder mailings. ICG shall
pay all applicable recording or filing fees or sales, use, excise, transfer,
documentary and any other similar taxes arising out of the Acquisition.
ACQUISITION PROPOSALS
The Purchase Agreement provides that neither ICG nor any of its
representatives on its behalf, shall (i) directly or indirectly, through any
other party initiate, encourage or engage in any negotiations with or provide
any information to any other person, firm or corporation with respect to an
acquisition transaction involving ICG or the business of ICG, (ii) directly or
indirectly, through any other party solicit any proposal relating to the
acquisition of, or other major transaction involving, the business of ICG. If
ICG or any such representatives receives any inquiries from any other party
relating to the proposed disposition of the business of ICG or the assets to be
acquired in the Acquisition, ICG will (i) promptly advise such party that ICG is
not entitled to enter into any discussions or negotiations and (ii) notify
Synbiotics in writing of such inquiry.
STANDSTILL PROVISION
Pursuant to the Purchase Agreement, S.R. One agrees during the time from
the date of the Purchase Agreement until the fifth anniversary of the S.R. One
Closing not to, without express written consent of the Board of Directors of
Synbiotics, acquire any equity securities of Synbiotics except (i) its pro rata
distribution of the Shares upon liquidation of ICG, (ii) the shares of common
stock of Synbiotics purchased pursuant to this Agreement, (iii) upon exercise of
any Warrants held by S.R. One or (iv) issuances of any securities upon stock
splits or stock dividends with respect to any equity securities of Synbiotics.
30
<PAGE>
CONDUCT OF BUSINESS PENDING ACQUISITION
ICG has agreed that, during the period from the date of the signing of the
Purchase Agreement and the Acquisition Date, it shall carry on and use its best
efforts to preserve the business of ICG, maintain all equipment and machinery in
good working order, discharge and maintain current obligations with respect to
any employee withholding taxes, comply with the Securities Act and Exchange Act,
preserve inventories of necessary supplies at proper levels, keep available the
services of present officers and key employees and preserve relationships with
customers, suppliers and others having dealings with ICG. ICG has agreed,
except as expressly permitted in the Purchase Agreement, not to (i) enter into
agreements or contracts of employment or terminate the employment of any
engineering or technical personnel or other key employees except for cause; (ii)
alter any employee or personnel benefits; (iii) dispose of any assets to be
acquired in the Acquisition (other than in the ordinary course and subject to
the obligation to maintain proper inventory levels) or acquire or lease any
assets in excess of $10,000 individually, or $20,000 in the aggregate; (iv) make
any capital improvements, additions or expenditures; (v) incur any liabilities
or obligations (other than in the ordinary course of business) except for ICG's
currently contemplated convertible note financing of up to $750,000; (vi)
declare any distribution or dividends of any kind, or (vii) repurchase or
otherwise acquire any shares of its capital stock. In addition, ICG agreed to
advise Synbiotics of any material operating decisions. In addition, certain
holders of private ICG warrants may exercise their warrants to provide
additional financing to ICG. ICG also agreed to assist Synbiotics in
determining which contracts are material to the operations of the business and
to assist Synbiotics in establishing separate agreements with the other parties
to such contracts.
Synbiotics and ICG have also agreed to give each other reasonable access to
their respective books and records. Each company has agreed to give the other
notice of specified material events and to use reasonable efforts to consult
with each other before making public announcements.
Both ICG and Synbiotics have agreed to use their best efforts to effectuate
their respective transactions contemplated by the Purchase Agreement and to
fulfill and cause to be fulfilled the conditions to the closing under the
Purchase Agreement.
NOTIFICATION OF NONCOMPLIANCE
Each of Synbiotics, ICG and S.R. One have agreed not to take any action
that would breach or cause to be inaccurate any of the representations and
warranties set forth in the Purchase Agreement, and each shall notify the other
parties after becoming aware of any occurrence of or the pending or threatened
occurrence of any event that would cause or constitute such a breach or
inaccuracy. In addition, each party shall notify the other parties of any
failure of such party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied under the Purchase Agreement.
BEST EFFORTS
Synbiotics, ICG and S.R. One have agreed to use their best efforts to
effectuate the terms of the Purchase Agreement. The parties will also use
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all other things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
the Purchase Agreement.
MEETINGS OF STOCKHOLDERS
In the Purchase Agreement, ICG agreed to use its best efforts to solicit
from stockholders of ICG proxies in favor of the Purchase Agreement.
Likewise, Synbiotics agreed to use its best efforts to solicit from
shareholders of Synbiotics proxies in favor of the Purchase Agreement.
31
<PAGE>
ROSINACK EMPLOYMENT AGREEMENT
Pursuant to the Purchase Agreement, upon the Acquisition Date Paul A.
Rosinack, now the Chief Executive Officer and President of ICG, will become Vice
President and General Manager, Animal Health of Synbiotics at an annual salary
of $160,000. In addition, he will receive stock options to purchase 25,000
shares of Synbiotics Common Stock and an interest-free loan of up to $50,000 to
cover relocation expenses. The loan will be forgiven over time if Mr. Rosinack
continues as a Synbiotics employee.
USE OF NAME
In the Purchase Agreement, ICG has agreed to change its corporate name
after the Acquisition Date and to thereafter refrain from any use of the words
"International Canine Genetics."
ICG LIQUIDATION
The Purchase Agreement provides that ICG may choose to liquidate and
dissolve and distribute to its stockholders the shares of Common Stock of
Synbiotics acquired pursuant to the Purchase Agreement; provided, however, that
ICG shall not do so at such time or in such a way as to render the purchase and
sale of the assets a tax-free reorganization within the meaning of Section
368(a)(1)(C) of the Internal Revenue Code.
32
<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed balance sheet as of June 30,
1996 and the unaudited proforma condensed statements of operations for the year
ended December 31, 1995 and the six months ended June 30, 1996 give effect to
the proposed Acquisition as of June 30, 1996 for the condensed balance sheet and
as of January 1, 1995 for the condensed statements of operations. The pro forma
condensed financial statements are based on historical financial statements of
Synbiotics and ICG, giving effect to the proposed Acquisition applying the
purchase method of accounting and the assumptions and adjustments as discussed
in the accompanying notes to the pro forma condensed financial statements. The
unaudited pro forma condensed financial statements do not include any
consolidation savings which Synbiotics may expect to achieve from Synbiotics'
acquisition of substantially all of the assets and certain liabilities of ICG as
any such savings are not estimable at this time.
These pro forma condensed financial statements have been prepared by the
management of Synbiotics Corporation based upon the audited statement of
operations of Synbiotics Corporation for the year ended December 31, 1995, the
unaudited condensed balance sheet as of June 30, 1996 and the related unaudited
condensed statement of operations for the six months then ended of Synbiotics,
the audited balance sheet of ICG as of June 30, 1996 and the unaudited condensed
statements of operations for the year ended December 31, 1995 and the six months
ended June 30, 1996 of ICG. The unaudited pro forma condensed financial
statements should be read in conjunction with the historical financial
statements and notes thereto and narrative sections included elsewhere herein.
The pro forma condensed financial statements are not necessarily indicative of
what actual results of operations would have been for the periods had the
transaction occurred on the dates indicated and do not purport to indicate
future financial position nor the results of future operations.
33
<PAGE>
SYNBIOTICS CORPORATION
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------------------------------
International
Synbiotics Canine Pro Forma Pro Forma
Corporation Genetics, Inc. Adjustments Combined
------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................. $ 2,970,000 $ 26,000 $ 1,000,000 (1) $ 3,996,000
Securities available for sale......... 3,087,000 -- -- 3,087,000
Accounts receivable................... 2,124,000 94,000 -- 2,218,000
Inventories........................... 4,824,000 92,000 -- 4,916,000
Other current assets.................. 565,000 50,000 -- 615,000
------------ ------------ ------------- ------------
Total current assets................ 13,570,000 262,000 1,000,000 14,832,000
Property and equipment, net............ 715,000 236,000 -- 951,000
Other assets........................... 1,778,000 175,000 4,651,000 (2) 6,604,000
------------ ------------ ------------- ------------
$ 16,063,000 $ 673,000 $ 5,651,000 $ 22,387,000
============ ============ ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses....................... $ 1,590,000 $ 418,000 $ (135,000)(3) $ 1,873,000
Capital lease obligations............. 51,000 51,000
Other current liabilities............. 671,000 629,000 (629,000)(3) 671,000
------------ ------------ ------------- ------------
Total current liabilities 2,261,000 1,098,000 (764,000) 2,595,000
------------ ------------ ------------- ------------
Other liabilities...................... -- 620,000 (530,000)(3) 90,000
------------ ------------ ------------- ------------
Shareholders' equity:
Common stock.......................... 29,801,000 11,544,000 1,000,000 (1) 35,701,000
(11,544,000)(3)
4,900,000 (4)
Accumulated deficit................... (15,999,000) (12,589,000) 12,589,000 (3) (15,999,000)
------------ ------------ ------------- ------------
Total shareholders' equity.......... 13,802,000 (1,045,000) 6,945,000 19,702,000
------------ ------------ ------------- ------------
$ 16,063,000 $ 673,000 $ 5,651,000 $ 22,387,000
============ ============ ============= ============
</TABLE>
See accompanying notes to pro forma condensed financial statements.
34
<PAGE>
SYNBIOTICS CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Year ended December 31, 1995
--------------------------------------------------------------------
International
Synbiotics Canine Pro Forma Pro Forma
Corporation Genetics, Inc. Adjustments Combined
------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Product sales......................... $13,676,000 $ 751,000 $ (2,000)(5) $14,425,000
Service revenues...................... -- 815,000 (11,000)(5) 804,000
License fees and other................ 396,000 13,000 (13,000)(5) 396,000
Interest.............................. 46,000 16,000 -- 62,000
----------- ----------- ------------- -----------
14,118,000 1,595,000 (26,000) 15,687,000
----------- ----------- ------------- -----------
Cost and expenses:
Cost of sales......................... 8,009,000 859,000 (7,000)(5) 8,861,000
Research and development.............. 906,000 549,000 1,455,000
Selling and marketing................. 4,147,000 1,316,000 5,463,000
General and administrative............ 1,486,000 707,000 310,000 (6) 2,503,000
(34,000)(7)
----------- ----------- ------------- -----------
14,548,000 3,431,000 (269,000) 18,282,000
----------- ----------- ------------- -----------
Loss before gain on disposition of
investment in affiliated company..... (430,000) (1,836,000) (295,000) (2,595,000)
Gain on disposition of investment in
affiliate............................ 931,000 -- -- 931,000
----------- ----------- ------------- -----------
Net income (loss)...................... $ 501,000 $(1,836,000) $ (295,000) $(1,664,000)
=========== =========== ============= ===========
Net income (loss) per share............ $ .09 $ n/a $ n/a $ (.22)
=========== =========== ============= ===========
Weighted average shares $ 5,832,000 n/a $ 1,662,000 (9) $ 7,494,000
outstanding.......................... =========== =========== ============= ===========
</TABLE>
See accompanying notes to pro forma condensed financial statements.
35
<PAGE>
SYNBIOTICS CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
-----------------------------------------------------------------
International
Synbiotics Canine Pro Forma Pro Forma
Corporation Genetics, Inc. Adjustments Combined
------------ --------------- ----------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales......................... $10,851,000 $ 438,000 $ -- $11,289,000
Service revenues...................... -- 456,000 (1,000)(5) 455,000
License fees and other................ 230,000 -- -- 230,000
Interest.............................. 54,000 5,000 -- 59,000
----------- ---------- ------------- -----------
11,135,000 899,000 (1,000) 12,033,000
----------- ---------- ------------- -----------
Cost and expenses:
Cost of sales......................... 5,334,000 464,000 (1,000)(5) 5,797,000
Research and development.............. 461,000 282,000 -- 743,000
Selling and marketing................. 2,358,000 498,000 -- 2,856,000
General and administrative............ 854,000 340,000 155,000 (6) 1,310,000
(39,000)(7)
----------- ---------- ------------- -----------
9,007,000 1,584,000 (115,000) 10,706,000
----------- ---------- ------------- -----------
Income (loss) before gain on sale of
securities available for sale........ 2,128,000 (685,000) (116,000) 1,327,000
Gain on sale of securities available
for sale............................. 1,159,000 -- -- 1,159,000
----------- ---------- ------------- -----------
Income (loss) before income taxes...... 3,287,000 (685,000) (116,000) 2,486,000
Provision for income taxes............. 118,000 -- (28,000)(8) 90,000
----------- ---------- ------------- -----------
Net income (loss)...................... $ 3,169,000 $ (685,000) $ (88,000) $ 2,396,000
=========== ========== ============= ===========
Net income (loss) per share............ $ .53 $ n/a $ n/a $ .31
=========== ========== ============= ===========
Weighted average shares outstanding.... 5,968,000 n/a 1,686,000 (9) 7,654,000
=========== ========== ============= ===========
</TABLE>
See accompanying notes to pro forma condensed financial statements.
36
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1) Adjustment to record the sale of 286,000 shares of Synbiotics Corporation
common stock, at $3.50 per share, to S.R. One, the major shareholder of
International Canine Genetics, Inc., as a condition of the acquisition
agreement.
(2) Adjustment to record the fair value of patents, licenses, customer lists
and other intangible assets to be acquired from International Canine
Genetics, Inc., as well as the purchase price in excess of the fair values
assigned to the assets acquired and liabilities assumed from International
Canine Genetics, Inc.
(3) Adjustment to eliminate the assets, liabilities and shareholders' equity of
International Canine Genetics, Inc. not acquired or assumed by Synbiotics
Corporation.
(4) Adjustment to record the issuance of 1,400,000 shares of Synbiotics
Corporation common stock, at $3.50 per share, for certain of the assets and
assumption of certain of the liabilities of International Canine Genetics,
Inc. As described elsewhere herein, the actual number of shares to be
issued will vary depending on the average closing sales price of the
Synbiotics shares.
(5) Adjustment to eliminate product revenues and service revenues, and their
associated costs, related to certain discontinued products and services of
International Canine Genetics, Inc.
(6) Adjustment to record amortization of the fair value of intangibles acquired
from International Canine Genetics, Inc. based on a 15 year amortization
period.
(7) Adjustment to eliminate interest expense related to certain International
Canine Genetics, Inc. debt obligations not assumed by Synbiotics
Corporation.
(8) Adjustment to record reduced income tax provision due to pre-tax loss
sustained by International Canine Genetics, Inc.
(9) Adjustment to reflect increase in weighted average shares outstanding due
to the issuance of Synbiotics Corporation common stock (Notes (1) and (4)).
37
<PAGE>
ELECTION OF SYNBIOTICS DIRECTORS
(PROPOSAL FOR THE SYNBIOTICS MEETING)
Five directors are to be elected at the Annual Meeting to serve until the next
Annual Meeting and until their respective successors are elected or appointed.
Unless authority to vote for one or more nominees is withheld, it is intended
that the proxyholders will vote for the election of the nominees named below.
In the event any of them shall become unable or unwilling to accept nomination
or election, the shares represented by the enclosed proxy will be voted for the
election of such other person as the Synbiotics Board of Directors may recommend
in his place.
The following information is furnished regarding the nominees of Synbiotics.
<TABLE>
<CAPTION>
Name; Positions; Business Experience During the Director
Past Five Years; Directorships in Reporting Companies Since Age
- ----------------------------------------------------------------------------- -------- ----
<S> <C> <C>
Kenneth M. Cohen............................................................. 1996 41
Chief Executive Officer of the Company since May 1996; Executive Vice
President and Chief Operating Officer of Canji, Inc. from March 1995 to
February 1996; Vice President of Argus Pharmaceuticals, Inc. from May
1990 to March 1995.
James C. DeCesare............................................................ 1993 65
President and Chief Operating Officer of Boehringer Ingelheim Animal
Health from 1986 to 1992 when he retired; currently a consultant to the
animal health and pharmaceutical industries.
M. Blake Ingle, Ph.D......................................................... 1994 54
President and Chief Executive Officer of Canji, Inc. March 1993 to
February 1996; Acting President of Telios Pharmaceuticals, Inc. December
1994 to June 1995; President and Chief Executive Officer of IMCERA
Group, Inc. (now known as Mallinckrodt Group Inc.) from 1991 to 1993;
President and Chief Operating Officer of IMCERA Group, Inc. (now
known as Mallinckrodt Group Inc.) from 1990 to 1991; Director of Corvas
International, Inc.
Donald E. Phillips........................................................... 1987 63
Chairman of the Board of Directors of the Company since August 1994;
Vice Chairman of the Board of Directors of the Company from 1993 to
August 1994; a consultant to IMCERA Group, Inc. (now known as
Mallinckrodt Group Inc.) from 1988 to 1990, when he retired; Director of
Potash Corporation of Saskatchewan (Canada).
</TABLE>
In addition, pursuant to the Purchase Agreement, on the Acquisition Date,
Brenda D. Gavin, DVM, will be appointed as a Synbiotics director. Dr. Gavin is
48 years old, and has been a Vice President of S.R. One since 1989. Prior to
that, she served as Director of Business Development of SmithKline Beecham
Animal Health Products from 1986 to 1989. She also serves as a director of
INHALE Therapeutic Systems and N.P.S. Pharmaceuticals.
Dr. Gavin has advised Synbiotics that, in view of her connection with S.R. One
and ICG, she would, following her election as a Synbiotics director, resign
from the Synbiotics Board of Directors if the Acquisition is not promptly
completed.
38
<PAGE>
In addition, the following persons currently directors of Synbiotics will not
be standing for reelection:
<TABLE>
<S> <C> <C>
Patrick Owen Burns....................................................... 1988 59
Vice President of R&D Funding Corp, an affiliate of Prudential Securities
Inc., and Senior Vice President of Prudential Securities Inc. since 1986;
Director of Ecogen, Inc., Creative BioMolecules, Inc. and Texas
Biotechnology Corporation.
Robert J. Kunze.......................................................... 1995 61
General Partner, H&Q Life Science Ventures, a San Francisco based
investment banking and venture capital firm, since 1987; Director of
Intelligent Surgical Lasers, Inc. and Abaxis, Inc.
</TABLE>
The Board of Directors of Synbiotics held a total of ten meetings during the
fiscal year ended December 31, 1995. Except for Mr. Kunze, each director
attended more than seventy-five percent (75%) of the meetings of the Board of
Directors (and the Board committees of which he was a member) held during the
time he was a member of the Board.
Synbiotics currently has Compensation and Audit Committees of the Board of
Directors. Synbiotics does not have a Nominating Committee of the Board of
Directors. The current membership of each committee is as follows:
COMPENSATION COMMITTEE AUDIT COMMITTEE
James C. DeCesare Patrick Owen Burns, Chairman
M. Blake Ingle, Ph.D., Chairman Robert J. Kunze
Donald E. Phillips Donald E. Phillips
The function of the Compensation Committee is to review the Synbiotics
compensation policies. The Audit Committee oversees the Synbiotics accounting
and financial reporting policies, reviews with the independent accountants the
accounting principles and practices followed, reviews the annual audit and
financial results and makes recommendations to the Board regarding any of the
preceding. The Audit Committee met three times and the Compensation Committee
met once during the fiscal year ended December 31, 1995.
Dr. Ingle became an executive officer of Telios Pharmaceuticals, Inc. in
December 1994, shortly after that company's primary product failed a clinical
trial. In January 1995, Telios filed a voluntary bankruptcy petition. Telios
subsequently emerged from bankruptcy via the sale of the company to Integra Life
Sciences. Synbiotics believes these facts do not impugn Dr. Ingle's ability or
integrity in any way.
For their services as directors, each of the outside directors of Synbiotics
received fees of $1,000, plus $500 for travel, for each Board of Directors
meeting attended, except for Mr. Burns. Fees payable to Mr. Burns are paid
instead to R&D Funding Corp. Outside directors do not receive any fees for
committee meetings attended as committee members. Employee directors do not
receive any fees for attendance at meetings of the Board of Directors or
committee meetings. In addition, Mr. Phillips was paid fees of $24,996 during
the fiscal year ended December 31, 1995 pursuant to a consulting agreement with
Synbiotics. On July 12, 1995, pursuant to the Automatic Grant Program under
the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"), Mr. Burns, Mr.
DeCesare, Dr. Ingle and Mr. Phillips were each granted an option to purchase
7,000 shares of Common Stock at $2.75 per share. The options, which expire on
July 12, 2005, vest ratably over a one-year period following the grant date.
On November 2, 1995, pursuant to the Automatic Grant Program under the 1995
Plan, Mr. Kunze was granted an option to purchase 7,000 shares of Common Stock
at $3.25 per share. The option, which expires on November 2, 2005, vests
ratably over a one-year period following the grant date.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the nominees listed herein.
39
<PAGE>
AMENDMENT OF SYNBIOTICS
RESTATED ARTICLES OF INCORPORATION
(PROPOSAL FOR THE SYNBIOTICS MEETING)
Article Fourth of Synbiotics' Restated Articles of Incorporation currently
authorizes 24,800,000 shares of Common Stock and 200,000 shares of Series B
Common Stock. No Series B Common Stock is outstanding; all 2,000 outstanding
shares were automatically converted into an equal number of shares of Common
Stock, pursuant to the Articles of Incorporation, on March 31, 1994 when in the
12 months ended on that day Synbiotics achieved revenues of over $10,000,000.
Synbiotics believes it would be infeasible to issue any more shares of Series B
Common Stock because they would immediately and automatically be converted into
Common Stock. In any event, Synbiotics has no intention or desire to issue any
more shares of Series B Common Stock.
Synbiotics wishes to eliminate the Series B Common Stock authorization from
the Restated Articles of Incorporation in order to simplify the Restated
Articles of Incorporation and Synbiotics's (authorized) capital structure. The
California Secretary of State has advised Synbiotics that such elimination
requires shareholder approval.
Synbiotics proposes to amend Article Fourth to read in full as follows:
FOURTH:
The total number of shares which the corporation is authorized to issue is
24,800,000 shares of Common Stock.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the approval of the Amendment
of Article Fourth of the Restated Articles of Incorporation. Approval will
require the affirmative vote of a majority of Synbiotics outstanding shares.
Abstentions and broker non-votes will have the same effect as votes against
approval of the amendment.
40
<PAGE>
BUSINESS (SYNBIOTICS)
GENERAL
Founded in 1982, Synbiotics has evolved from a research and development
company into a developer, manufacturer and marketer of diagnostic products and
vaccines for use in the animal health care field. Synbiotics has substantially
increased its revenue base through the introduction of new products and
increasing sales of existing products. Synbiotics currently markets twenty
diagnostic test kits and devices for detection of infectious and other diseases
in animals, one veterinary immunotherapeutic product and ten vaccines.
BUSINESS STRATEGY
Synbiotics' near term strategy is to (i) offer complete veterinary patient
management for companion animals by broadening its product offerings; (ii)
innovate technologically while avoiding excess research risk by seeking
technologies that can be readily developed into products; and (iii) acquire,
license and collaborate to expand product offerings.
MARKET AND PRODUCT OVERVIEW
Synbiotics sells its products both in the United States and in foreign
countries. The total number of family owned dogs and cats is estimated to
exceed 100 million in the United States alone. Synbiotics believes that the
market for sales of diagnostic, therapeutic and vaccine products to United
States veterinarians for dogs and cats was approximately $160,000,000 in 1995.
Synbiotics believes that its current and intended future products will offer
veterinarians an opportunity to improve the quality and expand the scope of
veterinary health care services.
In March 1995, Synbiotics introduced ICT GOLD(TM), the first third-
generation diagnostic test format to be used in the animal health market. This
format is more convenient, easier to use and faster than the predominantly used
animal health diagnostic formats, while providing the same degree of accuracy.
The first test kit, ICT GOLD(TM) HW, which tests for canine heartworm, provides
Synbiotics with an opportunity to increase its modest penetration of the $16.5
million U.S. in-clinic stat canine heartworm market. Synbiotics' second ICT
GOLD(TM) product, utilizing the ICT GOLD(TM) format for feline leukemia, was
introduced in April 1996.
Synbiotics Products Marketed as of December 31, 1995:
- -----------------------------------------------------
<TABLE>
<CAPTION>
DIAGNOSTICS:
- ------------
<S> <C> <C>
ASSURE(R)/CH - Heartworm antigen test kit (canine and feline)
ASSURE(R)/FeLV - Feline leukemia virus antigen test kit
ASSURE(R)/Parvo - Canine parvo virus test kit
CRF(R) - Canine rheumatoid factor test kit
DiroCHEK(R) - Heartworm antigen test kit (canine and feline)
D-TEC(R) BRUCELLA A. - Brucella abortus antibody test kit (bovine and bison)
D-TEC(R) CB - Canine brucellosis antibody test kit
EstruCHEK(R) - Progesterone test kit (bovine, canine and equine)
FUNGASSAY(R) - Dermatophyte test medium
ICT GOLD(TM) HW - Canine heartworm antigen test kit
ICT GOLD(TM) FeLV - Feline leukemia virus antigen test kit
LAB-EZ(TM)EIA - Equine infectious anemia test kit
LEUKASSAY(R) B - Bovine leukemia virus antigen test kit
LymeCHEK(TM) - Canine borrelia burgdorferi antibody test kit
MIP(R) COLOR-CHEK - Pregnant mare gonadotropin test kit
OVASSAY(R) Plus - Fecal diagnostic system
TUBERCULIN(TM) OT - Mammalian intradermic skin test
TUBERCULIN(TM)PPD - Bovine intradermic skin test
UNI-TEC(R) CHW - Heartworm antibody test kit (canine and feline)
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
UNI-TEC(R) FeLV - Feline leukemia virus antigen test kit
ViraCHEK(R)/FeLV - Feline leukemia virus antigen test kit
ViraCHEK(R)/FIV - Feline immunodeficiency virus antigen test kit (not marketed in the
United States)
BIOLOGICALS:
- ------------
CL/MAb 231 - Canine lymphoma monoclonal antibody 231 therapeutic
VacSYN(TM)FeLV - Feline leukemia virus (killed) vaccine
PANACINE(R) RC - Feline rhinotracheitis (MLV), calicivirus (MLV), panleukopenia
(MLV) vaccine
PANACINE(R)-5 - Feline rhinotracheitis (MLV), calicivirus (MLV), panleukopenia
(MLV), chlamydia (MLV), leukemia (killed) vaccine
PANAVAC(R) RC - Feline rhinotracheitis (MLV), calicivirus (MLV), panleukopenia
(killed) vaccine
SENTRYRAB-1(TM) - Rabies (killed) vaccine (canine and feline)
SENTRYPAR(R) - Canine parvovirus (MLV) vaccine
SENTRYPAR(R) DHP - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV), parvovirus (MLV)
vaccine
SENTRYPAR(R) DHP/L - Canine distemper (MLV), hepatitis (MLV), parvovirus (MLV), lepto (killed) vaccine
SENTRYVAC(TM) DHP - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV) vaccine
SENTRYVAC(TM) DHP/L - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV), lepto (killed)
vaccine
</TABLE>
Currently, Synbiotics most commercially successful products are its canine
heartworm diagnostic products. See "Legal Proceedings" below. This has caused
some seasonality in Synbiotics business, with sales highest in the December to
April time period as distributors purchase these products to sell to
veterinarians for the heartworm season.
MARKETING
Synbiotics markets its products to veterinarians, primarily through
independent distributors. Synbiotics' United States distributors have
approximately 90 outlets and a total sales force of approximately 600 field
sales representatives and approximately 200 telemarketing sales representatives.
This allows Synbiotics to focus its major emphasis on developing and
manufacturing products. However, this strategy results in a large percentage of
sales being to only a few customers. During the year ended December 31, 1995,
sales to two distributors totalled 44% of Synbiotics gross revenues.
While Synbiotics currently does not maintain a direct marketing sales
force, its internal marketing staff and regional field representatives service
the external sales network by training distributor sales representatives,
responding to customer technical inquiries, advertising and promoting Synbiotics
products through journals, magazines and direct mail, and organizing training
workshops and symposia presentations at trade and professional association
meetings. Synbiotics has established its own telemarketing operation to sell
its products to domestic market segments not reached by its marketing partners
and to gather critical field marketing data.
Synbiotics markets its products outside of the U.S. through distributors
and on an OEM basis. Synbiotics is increasing its penetration in international
markets, primarily focusing on the European and Pacific Rim marketplaces. In
January 1996, Synbiotics signed an exclusive distribution agreement with Daiichi
Pharmaceutical Co., Ltd. for the distribution of Synbiotics vaccine and
diagnostic products in Japan. This arrangement is not expected to generate
significant revenues until 1998.
PATENTS AND TRADE SECRETS
Synbiotics believes that its proprietary technology is an important
competitive factor in its business, and that protection of its intellectual
property rights is a high priority. Despite the existence of patent litigation
in
42
<PAGE>
the monoclonal antibody industry, not involving Synbiotics, Synbiotics believes
that the basic hybridoma (the cell that produces the monoclonal antibody)
technology is in the public domain and is therefore not patentable. The complex
biological and chemical process, however, is subject to numerous improvements,
variations and applications of hybridoma technology which may prove to be
patentable. Considering the difficulty of enforcing any patent rights to such
improvements, and the rapid advancements in the field, Synbiotics generally has
sought and will continue to seek to protect its interests by treating its
particular variations in the production of monoclonal antibodies as trade
secrets. Synbiotics also has pursued and intends to continue aggressively to
pursue protection for new products, new methodological concepts, and
compositions of matter through the use of patents and trademarks where
obtainable. At present, Synbiotics has been granted nine U.S. patents.
GOVERNMENT REGULATION
Most diagnostic test kits for animal health applications require approval
by the United States Department of Agriculture ("USDA"). In addition,
Synbiotics manufactures and sells one product which does not require USDA
licensing but has been registered with the Center for Veterinary Medicine of the
FDA.
Synbiotics' manufacturing facility has been registered with the FDA and is
licensed by the USDA. Synbiotics adheres to Good Manufacturing Practices (GMP)
standards.
In addition to the foregoing, Synbiotics operations may be subject to
future legislation and/or rules issued by domestic or foreign governmental
agencies with regulatory authority relating to Synbiotics business. Synbiotics
has no reason to believe that any such future legislation and/or rules would be
materially adverse to its business.
COMPETITION
Competition in the animal health care industry is intense. Many
competitors, such as Pfizer Animal Health, Mallinckrodt Veterinary and IDEXX
Laboratories, have substantially greater financial, manufacturing, marketing and
product research resources than Synbiotics. Large companies in particular have
extensive expertise in conducting pre-clinical and clinical testing of new
products and in obtaining the necessary regulatory approvals to market products.
Competition is based on test sensitivity, accuracy and speed; product price; and
similar factors. IDEXX Laboratories requires its distributors not to carry the
products of competitors such as Synbiotics. Synbiotics believes that it is the
second-leading competitor in the dog and cat veterinary diagnostic market.
RESEARCH AND DEVELOPMENT
Synbiotics spent approximately $906,000 and $833,000 on research and
development activities during the year ended December 31, 1995 and the nine
months ended December 31, 1994, respectively. During the year ended December
31, 1995 and the nine months ended December 31, 1994, Synbiotics contracted for
research and development activities with outside parties relating to certain
companion animal diagnostic products which utilize licensed technology.
EMPLOYEES
As of December 31, 1995, Synbiotics had a total of 60 employees, 57 of whom
were full-time.
RAW MATERIALS
The manufacturing of diagnostics, therapeutics and vaccines requires raw
materials which are, and have been, readily available from several sources.
Certain of Synbiotics products are manufactured by third parties under the terms
of distribution and/or manufacturing agreements. In the event that these third
parties are unable to supply Synbiotics with sufficient finished products,
Synbiotics has the right, under certain circumstances, under the agreements to
use alternate manufacturing sources.
43
<PAGE>
OTHER
Synbiotics also founded two biotechnology companies, UniSyn Technologies,
Inc. (of which Synbiotics is now a less than 5% shareholder) and
ImmunoPharmaceutics, Inc. (which was acquired by Texas Biotechnology Corporation
during 1994).
ImmunoPharmaceutics, Inc. ("IPI") engaged in human drug discovery utilizing
proprietary rational drug design technology. On July 25, 1994, IPI, of which
Synbiotics was a 41% shareholder, was acquired by Texas Biotechnology
Corporation ("TBC") in a triangular merger transaction whereby unregistered
shares of TBC common stock were issued in exchange for all of the outstanding
stock of IPI. In 1996, Synbiotics sold all its TBC shares on the open market.
PROPERTIES
Synbiotics leases two buildings in San Diego, California. The buildings
contain approximately 49,000 square feet of space, and house Synbiotics
corporate and sales headquarters, executive offices, research and development
laboratories and manufacturing facilities. Synbiotics subleases approximately
19,000 square feet of this space to ImmunoPharmaceutics, Inc. Management
believes that the remaining 30,000 square feet are adequate for Synbiotics
current level of operations. Synbiotics also leases a telemarketing facility in
Kansas City, Missouri.
LEGAL PROCEEDINGS
The Jewish Hospital of St. Louis (the "Hospital") is the owner of a patent
which it believes covers Synbiotics canine heartworm diagnostic products.
Synbiotics is also the owner of several patents which cover its canine
diagnostic products. The Hospital has notified Synbiotics that it believes
Synbiotics canine heartworm diagnostic products infringe the Hospital's patent,
and has offered to license their patent to Synbiotics. Synbiotics believes that
it does not infringe the Hospital's patent.
The Hospital is currently suing IDEXX Laboratories, Inc., Synbiotics
primary competitor for canine heartworm diagnostics, for patent infringement
under the Hospital's patent; IDEXX's defense involves an assertion that the
patent is invalid. If the Hospital sues Synbiotics and if the Hospital is
successful, Synbiotics could be precluded from selling canine heartworm
diagnostic products or be required to pay damages or make additional royalty
payments with respect to such sales. Synbiotics' business and results of
operations could be materially adversely affected.
44
<PAGE>
MARKET PRICE OF SYNBIOTICS COMMON STOCK
Synbiotics' Common Stock is traded on the Nasdaq National Market under the
symbol SBIO. Price ranges reported are the high and low trade price information
as reported by the Nasdaq National Market. No cash dividends have ever been
paid, and Synbiotics does not currently anticipate paying cash dividends in the
foreseeable future. As of September 6, 1996, there were approximately 574
shareholders of record of Synbiotics Common Stock.
<TABLE>
<CAPTION>
Period Synbiotics Common Stock
- ---------------------------------------- -----------------------
High Low
---------- ----------
Year Ended December 31, 1994
<S> <C> <C>
1st Quarter............................ $5.13 $3.13
2nd Quarter............................ 4.50 3.25
3rd Quarter............................ 3.63 2.38
4th Quarter............................ 2.75 1.63
Year Ended December 31, 1995
1st Quarter............................ $3.13 $1.50
2nd Quarter............................ 3.25 2.38
3rd Quarter............................ 5.25 2.50
4th Quarter............................ 4.13 1.88
Year Ending December 31, 1996
1st Quarter............................ $3.13 $2.25
2nd Quarter............................ 5.50 2.38
3rd Quarter (through August 1, 1996)... 4.50 3.63
</TABLE>
45
<PAGE>
SYNBIOTICS MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
-------------------------------------------------------------------------
Total revenue for the second quarter of 1996 increased by $1,287,000 or 33%
over the quarter ended June 30, 1995, and increased for the six months ended
June 30, 1996 by $2,333,000 or 27% over the six months ended June 30, 1995. The
increases are primarily due to an increase in product sales of $1,290,000 or 34%
during the second quarter of 1996, and an increase in product sales of
$2,214,000 or 26% during the six months ended June 30, 1996, respectively.
The increase in product sales during the second quarter of 1996 comprises
an increase in diagnostic sales of $1,183,000 or 53% and a $107,000 or 7%
increase in the sales of vaccines. The increased diagnostic sales are primarily
due to increased average selling prices and the introduction of Assure(R)/Parvo,
for the detection of canine parvovirus, and ICT GOLD(TM) FeLV, Synbiotics' new
feline leukemia diagnostic. The increased average selling prices of Synbiotics'
existing diagnostic products resulted from a general price increase during the
second quarter of 1996, as well as the non-recurrence of promotional pricing
which was in effect during the second quarter of 1995. Vaccine sales increased
due to sales through new distribution channels, offset by decreased
international and domestic shipments of bulk feline leukemia vaccine. The six
months ended June 30, 1996 saw an increase in diagnostic sales of $1,463,000 or
26% and a $751,000 or 26% increase in vaccine sales, both explained by the
respective factors discussed above. Also, in 1996 Synbiotics was able to market
its ICT GOLD(TM) HW canine heartworm diagnostic for the full six months (the
product was introduced in March 1995).
The cost of sales as a percentage of product revenue decreased to 50%
during the second quarter of 1996 as compared to 60% for the quarter ended June
30, 1995. The decrease is due to the increase in average selling prices
discussed above, as well as decreased domestic shipments of bulk feline leukemia
vaccine to Rhone Merieux, Inc. (located in Athens, Georgia) during the second
quarter of 1996. Synbiotics has contracted to sell bulk vaccine to Rhone
Merieux, Inc. at cost because Synbiotics receives a royalty on Rhone Merieux,
Inc.'s resulting product sales in the United States. By contrast, Synbiotics'
international sales of bulk feline leukemia vaccine to Rhone-Merieux of France
are at a profit, not at cost. Cost of sales as a percentage of product revenue
would have been 47% and 55% during the quarters ended June 30, 1996 and 1995,
respectively, if the zero margin bulk sales were not taken into consideration.
The cost of sales as a percentage of product revenue decreased to 49% for the
six months ended June 30, 1996 as compared to 52% for the six months ended June
30, 1995. The increase is primarily due to factors similar to those discussed
in the quarterly comparison.
Research and development expenses during the second quarter of 1996
increased by $27,000 or 12% over the quarter ended June 30, 1995, and increased
during the six months ended June 30, 1996 by $43,000 or 10% over the six months
ended June 30, 1995. The increases are primarily due to amortization and
consulting expenses related to certain technologies licensed from third parties
in March 1996.
Selling and marketing expenses during the second quarter of 1996 increased
by $148,000 or 15% over the quarter ended June 30, 1995, and remained relatively
unchanged during the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995. The increase during the second quarter is due
primarily to advertising and sales promotion expenses related to the launch of
Synbiotics' new diagnostic products, Assure(R)/Parvo and ICT GOLD(TM) FeLV, as
well as continuing promotional expenses related to Synbiotics' existing
products.
General and administrative expenses during the second quarter of 1996
increased by $108,000 or 30% over the quarter ended June 30, 1995, and increased
during the six months ended June 30, 1996 by $142,000 or 20% over the six months
ended June 30, 1995. The increases are due to the addition of a new Chief
Executive Officer in May 1996 and an increase in certain patent-related legal
expenses.
46
<PAGE>
Synbiotics' business is seasonal, and is concentrated within the canine
heartworm selling season, which falls mainly in the quarters ending March 31 and
June 30 of each year. Sales and results from operations in the quarters ending
September 30 and December 31 of each year are expected to be less favorable than
in the heartworm selling season.
Year Ended December 31,1995 Compared to (Twelve-Month) Year Ended December
--------------------------------------------------------------------------
31, 1994
--------
Total revenue for the year ended December 31, 1995 increased $2,011,000 or
17% over the year ended December 31, 1994. The increase comprises a $1,958,000
or 17% increase in product sales and an increase in interest, license fees and
other revenue of $53,000 or 14%.
The increase in product sales was due primarily to ICT GOLD(TM) HW,
Synbiotics new canine heartworm diagnostic, which was introduced in March 1995
and generated $2,355,000 of sales during 1995 despite not becoming available
until midway into the 1995 heartworm selling season. These sales were partly
offset by declines in Synbiotics other canine heartworm diagnostic products,
which were caused (for microwell tests) by competition from a major competitor's
improved product and (for stat tests) by customer shifts to ICT GOLD(TM) HW.
Synbiotics has developed an improved DiroCHEK(R) canine heartworm diagnostic,
with greater ease-of-use to match the competitor's microwell product
modification. Intending to regain unit sales and price points in this important
product line, Synbiotics introduced its improved microwell product (called
DiroCHEK(R) TF) in January 1996.
In addition, in 1995 there was an increase in domestic shipments of bulk
feline leukemia vaccine to Rhone Merieux, Inc. (located in Athens, Georgia) of
$425,000.
License fees and other revenue increased $97,000 or 33% during the year
ended December 31, 1995 due to increased royalties earned on certain of
Synbiotics products which are licensed to Rhone Merieux, Inc.
The cost of sales as a percentage of product revenue increased to 59%
during the year ended December 31, 1995 as compared to 56% for the year ended
December 31, 1994. The increase is due primarily to increased unapplied
manufacturing overhead, resulting from a larger percentage of product sales
during 1995 being generated from products which are manufactured for Synbiotics
by third parties. Synbiotics' manufacturing costs are predominantly fixed
costs. Among Synbiotics major products, DiroCHEK(R) canine heartworm
diagnostic products are manufactured at Company facilities, whereas ICT GOLD(TM)
HW and all vaccines are manufactured by third parties. In addition to affecting
gross margins, this shift in product mix renders Synbiotics relatively more
dependent on the third-party manufacturers.
The cost of sales percentage was also negatively impacted by the increased
domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc. during
1995. Synbiotics has contracted to sell bulk vaccine to Rhone Merieux, Inc. at
cost because Synbiotics receives a royalty on Rhone Merieux, Inc.'s resulting
product sales in the United States. By contrast, Synbiotics international sales
of bulk feline leukemia vaccine to Rhone-Merieux of France are at a profit, not
at cost. Cost of sales as a percentage of product revenue would have been 53%
and 51% during the years ended December 31, 1995 and 1994, respectively, if the
zero margin bulk sales were not taken into consideration. Finally, the 1995
cost of sales percentage also increased as a result of reduced average selling
prices due to increased competition (as to DiroCHEK(R)) and promotional
programs accounted for as reductions in revenue; the cost of sales percentage
suffers when more units of product must be manufactured and sold to achieve the
same revenue. All of these factors outweighed the economies of scale associated
with Synbiotics increased 1995 product revenues. In fact, revenues from
products manufactured at Synbiotics facilities actually decreased slightly in
1995.
Research and development expenses decreased $185,000 or 17% from the year
ended December 31, 1994. The decrease is due primarily to a decrease in
contracted research and development resulting from the completion of the
development of Synbiotics ICT GOLD(TM) HW canine heartworm diagnostic test which
was introduced in March 1995. This factor was partly offset by additional
research programs with outside research
47
<PAGE>
and development contractors. In 1996 Synbiotics intends to introduce several
interesting new products, including DiroCHEK(R) TF.
Selling and marketing expenses decreased $609,000 or 13% from the year
ended December 31, 1994 due primarily to the non-recurrence of significant 1994
advertising and special sales promotion expenses related to the launch of
Synbiotics new vaccine product line.
General and administrative expenses decreased $929,000 or 39% from the year
ended December 31, 1994. The decrease is due to decreased legal expenses as a
result of the settlement of major litigation in December 1994.
On June 30, 1995, Synbiotics received 573,000 shares of Texas Biotechnology
Corporation ("TBC") common stock resulting from the satisfaction of a certain
contingency on May 31, 1995 related to the acquisition of ImmunoPharmaceutics,
Inc. ("IPI") by TBC in July 1994. Synbiotics had been a major shareholder of
IPI, and had previously recognized a $2,036,000 gain on the transaction for
financial reporting purposes. In the second quarter of 1995, Synbiotics
recognized an additional gain for financial reporting purposes in the amount of
$931,000. Synbiotics may receive an additional 409,000 shares of TBC common
stock pending the outcome of certain remaining contingencies. Synbiotics will
recognize additional income when, and if, these contingencies are satisfied.
Nine Months Ended December 31, 1994 Compared to Nine Months Ended December
--------------------------------------------------------------------------
31, 1993
--------
Total revenue for the nine months ended December 31, 1994 decreased
$2,525,000 or 28% from the nine months ended December 31, 1993. The decrease
comprises a $2,425,000 or 28% decrease in product sales and a decrease in
interest, license fees and other revenue of $100,000 or 24%. (The comparison in
this section is of the two respective nine-month periods because in 1994
Synbiotics changed its fiscal year-end from March 31 to December 31.)
The decrease in product sales was primarily the result of timing of
shipments to distributors. The timing of shipments to distributors is
dependent upon, among other things, distributor inventory levels, anticipated
seasonal inventory requirements and the timing of both Synbiotics and its
competitors' promotional programs. In the quarter ended March 31, 1993
Synbiotics manufacturing facility was on back order for several products
(particularly canine heartworm diagnostics) which resulted in those products
being shipped in the quarter ended June 30, 1993, whereas there was no back
order situation in the quarter ended March 31, 1994 and no corresponding benefit
to the quarter ended June 30, 1994. Also, Synbiotics strove to make all
possible shipments before the end of the March 31, 1994 fiscal year, even if
doing so reduced reportable sales for the quarter ended June 30, 1994.
Therefore, the period-to-period comparison favors the nine months ended December
31, 1993 over the nine months ended December 31, 1994. In addition, Synbiotics
believes that the December 1994 introduction by a competitor of a revised canine
heartworm diagnostic kit caused distributors to wait until January 1995 to
purchase Synbiotics heartworm diagnostic products, which they would ordinarily
have purchased in December 1994, in order to evaluate the new kit and evaluate
Synbiotics' response.
Also, international shipments of bulk feline leukemia vaccine to Rhone-
Merieux, which bottles and markets Synbiotics feline leukemia vaccine under its
own brand name in certain parts of Europe, decreased by $850,000 from the nine
months ended December 31, 1993. Rhone-Merieux had made unusually large
purchases in 1993 in anticipation of launching its product in the United
Kingdom, and that launch later was delayed.
Synbiotics' sales of its own feline leukemia virus products declined in the
1994 period, primarily because of product maturation and because Synbiotics was
preliminarily enjoined in 1993 from selling a feline immunodeficiency virus
diagnostic which had been sold in combination with the feline leukemia virus
diagnostic. That injunction has now become permanent.
As a partial counterpart to these decreases, there was an increase in
domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc.
(located in Athens, Georgia) of $454,000.
48
<PAGE>
The decrease in license fees and other revenue of $53,000 or 18% during the
nine months ended December 31, 1994 is primarily due to the receipt in the 1993
time period of a final license fee payment related to the Japanese distribution
agreement with Kyoritsu Shoji Co., Ltd., which was terminated in January 1994.
This factor was partially offset by an increase in royalties earned on certain
of Synbiotics products which were cross-licensed to Rhone Merieux, Inc. in
fiscal 1993.
Interest income decreased $47,000 or 39% from the nine months ended
December 31, 1993 due to less cash being available for investment as Synbiotics
made cash withdrawals to meet its operating cash flow requirements.
Cost of sales as a percentage of product revenue increased to 62% during
the nine months ending December 31, 1994 as compared to 45% for the nine months
ended December 31, 1993. The increase is primarily due to the decrease in
product sales, as Synbiotics manufacturing costs are predominantly fixed costs.
The increase is also due to the increase in domestic shipments of bulk feline
leukemia vaccine to Rhone Merieux, Inc. (located in Athens, Georgia) during the
nine months ended December 31, 1994. Synbiotics has contracted to sell bulk
vaccine to Rhone Merieux, Inc. at cost because Synbiotics receives a royalty on
Rhone Merieux, Inc.'s resulting product sales in the United States. By
contrast, Synbiotics international sales of bulk feline leukemia vaccine to
Rhone-Merieux of France are at a profit, not at cost. Cost of sales as a
percentage of product revenue would have been 54% and 43% during the nine months
ended December 31, 1994 and 1993, respectively, if the zero margin bulk sales
were not taken into consideration.
Research and development expenses increased $471,000 or 130% over the nine
months ended December 31, 1993. The increase is due primarily to the continuing
outsourced development of certain companion animal diagnostics utilizing
immunochromatographic technology ("ICT") licensed from Binax, Inc. ("Binax"),
which began in the quarter ended December 31, 1993, the addition of a research
and development manager during the quarter ended December 31, 1993 and increased
overhead related to moving the research and development group into larger
laboratory facilities.
Selling and marketing expenses increased $463,000 or 16% over the nine
months ended December 31, 1993 due primarily to sales promotional programs.
Marketing competition from large competitors in the biologicals area was
particularly heavy in 1994, and Synbiotics was forced to incur substantial
expenses to try to respond. Despite its response, Synbiotics experienced
disappointing sales of biologicals in the nine-month 1994 period.
General and administrative expenses decreased $344,000 or 17% from the nine
months ended December 31, 1993. The decrease is due primarily to a decrease in
legal expenses. Legal expenses were unusually high in both the 1994 and 1993
periods due to patent litigation brought by IDEXX Laboratories, Inc., Synbiotics
primary competitor, which was settled in December 1994.
On July 25, 1994, IPI, of which Synbiotics was a 41% shareholder, was
acquired by TBC in a triangular merger transaction whereby unregistered shares
of TBC common stock were issued in exchange for all of the outstanding stock of
IPI. Synbiotics received approximately 655,000 shares of TBC common stock. As
a result of the merger transaction, Synbiotics recognized during the nine months
ended December 31, 1994 a gain for financial reporting purposes of approximately
$2,036,000.
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources
-------------------------------
Cash provided by operations during the year ended December 31, 1995 was
$229,000 as compared to cash used by operations during the (twelve-month) year
ended December 31, 1994 of $2,000,000. The increase in cash is directly related
to the increase in revenues and decreased legal fees due to the settlement of
patent litigation in December 1994, and the resultant reduced net operating loss
during the year ended December 31, 1995. These factors were partly offset by
Synbiotics' decision to purchase in late 1995 substantial amounts of
49
<PAGE>
ICT GOLD(TM) HW inventory from Binax in advance of 1996 orders; as a result,
Synbiotics had relatively higher inventory and relatively lower cash at December
31, 1995.
As of December 31, 1995, Synbiotics held 7% of TBC's common stock. TBC
filed a Registration Statement on Form S-3, effective December 6, 1995, relating
to the shares issued to the former IPI shareholders. On February 27, 1996 and
February 28, 1996, Synbiotics sold a total of 614,000 shares of TBC common stock
on the American Stock Exchange at an average selling price of $3.573 per share.
As a result of the sale of the shares, Synbiotics recognized a gain of $385,000
during the first quarter of 1996. As a result of the sale of the shares,
Synbiotics' ownership of TBC was reduced to approximately 3%. During the period
April 25, 1996 to May 2, 1996, Synbiotics sold its remaining 614,000 shares of
TBC common stock on the American Stock Exchange at an average selling price of
$4.205 per share. As a result of the transactions, Synbiotics recognized a gain
of $774,000 during the second quarter of 1996. The net proceeds received from
the sales, which totalled $4,727,000, will be used primarily for working capital
requirements and to fund business opportunities such as acquisitions.
Management believes that the Synbiotics' present capital resources, which
included working capital of $11,309,000 at June 30, 1996, are sufficient to meet
its current working capital needs and also the working capital needs associated
with the Acquisition. ICG has had operating losses to date and Synbiotics
expects that business's losses to continue through at least 1997.
Capital Expenditures
--------------------
Capital expenditures for the year ended December 31, 1995 were not
significant. During the nine months ended December 31, 1994 capital
expenditures totalled $424,000, of which $242,000 was related to building
improvements in Synbiotics manufacturing facility for biological production
laboratories. Synbiotics has no material commitments for capital expenditures
in 1996.
50
<PAGE>
EXECUTIVE OFFICERS AND CERTAIN OTHER SIGNIFICANT EMPLOYEES OF SYNBIOTICS
The executive officers and key employees of Synbiotics as of August 1, 1996
are as follows:
<TABLE>
<CAPTION>
Name, Age, and Business Experience
Position During the Past Five Years
- ----------------------------- --------------------------------------
<S> <C>
EXECUTIVE OFFICERS
Chief Executive Officer - Kenneth M. Cohen (41)
since May 1996 Formerly, Executive Vice President
and Chief Operating Officer of Canji,
Inc. March 1995 -February 1996; Vice
President of Argus Pharmaceuticals,
Inc. May 1990 - March 1995
Vice President-Finance, Michael K. Green (40)
Chief Financial Officer and
Secretary - since May 1991
</TABLE>
<TABLE>
<CAPTION>
SIGNIFICANT EMPLOYEES
Name, Age, and Business Experience
Position During the Past Five Years
- ----------------------------- --------------------------------------
<S> <C>
Corporate Controller and Chief Keith A. Butler (34)
Accounting Officer -
since March 1991
Director of Research and Development - John A. Cutting (57)
since August 1995 Formerly, Senior Manager of Research
and Development for Synbiotics
November 1993 -August 1995; Director
of Research of AVID Therapeutics,
Inc., 1992 - November 1993; Senior
Scientist, Virology of Solvay Animal
Health, 1985 - 1992
Director of Operations - Clifford Frank (46)
since September 1992 Formerly, Manager of Manufacturing
for Synbiotics 1991 - 1992;
President of Akorn Pharmaceuticals
and President of Walnut
Pharmaceuticals, a division of Akorn
Pharmaceuticals, 1990 - 1991
Manager - Business Development and Gregory A. Soulds (49)
International Marketing - since Formerly, Vice President - Marketing
1992 (with Synbiotics since 1983) and Sales for Synbiotics 1989 - 1992
</TABLE>
51
<PAGE>
EXECUTIVE COMPENSATION AND OTHER EMPLOYMENT MATTERS OF SYNBIOTICS
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned by Synbiotics' Chief Executive Officer and each of the other
four most highly compensated executive officers of Synbiotics ("Named Executive
Officers") for services rendered in all capacities to Synbiotics for fiscal
years ended December 31, 1995, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards(3)
------------------------------------------------------
Securities
Other Annual Underlying All Other
Compensation Options/ Compensation
Name and Principal Position Year Salary($)/(1)/ Bonus($) ($)/(2)/ SARs(#) ($) /(2)/
- --------------------------- -------------- -------------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Widerkehr........... 1995 $179,375 - $2,188/(3)/ 30,000 $ 3,587
President and Chief 1994/(4)/ $131,250 - $8,750/(3)/ 22,000 $ 2,625
Executive Officer 1993 $135,000 $19,280 $8,750/(3)/ 78,000 $ 2,700
Michael K. Green.............. 1995 $101,853 - - 25,000 $ 2,213
Vice President 1994/(4)/ $ 73,805 - - 15,000 $ 1,476
1993 $ 93,721 $10,677 - - $ 1,874
</TABLE>
_____________________
(1) Includes amounts deferred under the 401(k) Compensation Deferral Savings
Plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended.
(2) Consists of matching contributions made by Synbiotics to Mr. Widerkehr's
401(k) account and Mr. Green's 401(k) account.
(3) Forgiveness of a loan made to Mr. Widerkehr to defray relocation expenses.
The loan was fully forgiven as of December 31, 1995.
(4) Information is for the nine month fiscal year ended December 31, 1994.
52
<PAGE>
Stock Options and Stock Appreciation Rights
The following table contains information concerning the grant of stock
options and tandem limited stock appreciation rights ("SARs") under Synbiotics'
1995 Stock Option/Stock Issuance Plan to the named executive officers during the
year ended December 31, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value At
Assumed Annual
Individual Grants Rates of Stock
----------------- Price Appreciation
for Option Term
Number of % of Total -----------------
Securities Options/SARs
Underlying Granted to Exercise or 5% 10%
Options/SARs Employees in Base Price Expiration ------ ------
Granted(#)(1)(2) Fiscal Year ($/Sh) (3) Date (S)(4) ($)(4)
------------ ------------ ------------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Widerkehr... 30,000 18.02% $2.63 04/27/05
Michael K. Green...... 25,000 15.02% $2.63 04/27/05
</TABLE>
________________
(1) The options become exercisable ratably over a two-year period following the
date of grant. The grant date for the options listed in the above table is
April 27, 1995. The option has a maximum term of 10 years, subject to
earlier termination in the event of optionee's cessation of service with
Synbiotics.
Option/SAR Exercises and Holdings
The following table provides information, with respect to the named
executive officers, concerning the exercise of options and/or SARs during the
last fiscal year and unexercised options and SARs held as of the end of the
fiscal year:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Options/SARs at Value of Unexercised In-the-Money
December 31, 1995 Options/SARs at December 31, 1995
Shares -------------------------------------- --------------------------------------
Acquired on Value
Name Exercise(#) Realized ($) Exercisable (#) Unexercisable (#)(1) Exercisable($)(2) Unexercisable($)(2)
- ---------------------- ------------ ------------ --------------- -------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Widerkehr... 214,500 65,500 $ - $ -
Michael K. Green...... 25,937 24,063 $ - $ -
</TABLE>
_______________
(1) Value is defined as market price of the Synbiotics' Common Stock at fiscal
year end less exercise price. The closing sale price of the Synbiotics'
Common Stock at December 31, 1995 was $2.38.
53
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Synbiotics entered into an Employment Agreement dated May 7, 1996 with
Kenneth M. Cohen, its Chief Executive Officer and President. The Employment
Agreement provided for salary at an initial rate of $225,000 per annum, options
to purchase 225,000 shares of Synbiotics Common Stock (at $3.875 per share), and
a direct grant of 10,000 shares of unregistered Synbiotics common stock. In
addition, he will be eligible for a cash bonus of up to 30% of his annual
salary. If Mr. Cohen is terminated without cause, he will receive six months'
salary at his then base salary rate (provided, that if termination without cause
occurs before May 15, 1997, he will also receive salary at $225,000 per annum
through May 14, 1997).
In connection with the retirement of Robert L. Widerkehr, Synbiotics
entered into a General Release and Severance Agreement dated July 31, 1996 with
Mr. Widerkehr. Mr. Widerkehr was Synbiotics' Chief Executive Officer until May
1996 and its President until July 31, 1996. Under the Severance Agreement and
General Release, Mr. Widerkehr gave Synbiotics a general release and in return
(i) vesting of all his stock options was accelerated, (ii) his stock options
will remain exercisable until July 31, 1999, (iii) he will receive, under
Synbiotics' 1996 management cash bonus program, $42,875 times the percentage of
their maximum bonus which Synbiotics' other managers receive under such plan for
1996, (iv) he will receive an additional $30,000 and (v) he will receive an
additional $5,104.17 each month for 36 months beginning August 1996.
On June 27, 1996, the Synbiotics Board of Directors adopted an
executive protection plan pursuant to which, if any of Messrs. Cohen, Green,
Cutting or Frank were terminated in connection with an acquisition of
Synbiotics, they would receive severance pay equal to six months of salary. In
addition, their unvested stock options would fully vest. In the case of Mr.
Cohen, since his Employment Agreement already called for six months' severance,
he would receive twelve months' severance in such a situation.
54
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN SYNBIOTICS BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Synbiotics' Common
Stock as of August 1, 1996, of each of the Synbiotics' directors, director
nominees, 5% shareholders and the Named Executive Officers, and of the directors
and executive officers of Synbiotics as a group, both before and after the
Asset Purchase. Except as noted, each person has sole investment and voting
power over the shares shown. Percentages are calculated in accordance with the
method set forth in the Securities and Exchange Commission's rules.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND OF CLASS
NATURE OF PERCENT (PRO FORMA
BENEFICIAL OF CLASS FOR ASSET
NAME AND ADDRESS OF BENEFICIAL OWNER OWNER (ACTUAL) PURCHASE)
- ------------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
Patrick Owen Burns/(1) (3)/.................................. 503,503 8.4% 6.4%
c/o R&D Funding Corp
1 Seaport Plaza
16th Floor
New York, NY 10292
Kenneth M. Cohen/(3)/........................................ 10,000 * *
c/o Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
James C. DeCesare/(3)/....................................... 26,000 * *
5260 S. Landings Drive, #200
Ft. Myers, FL 33919
Brenda D. Gavin, DVM/(6)/.................................... -0- * 23.3%
c/o S.R. One, Limited
Bay Colony Executive Park
Suite 315
565 East Swedesford Road
Wayne, PA 19087
Michael K. Green/(3)/........................................ 35,937 * *
c/o Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
M. Blake Ingle, Ph.D./(3)/................................... 12,000 * *
Plaza Del Mar 300-6
12526 High Bluff Drive
San Diego, CA 92130
Robert J. Kunze/(2)(3)/...................................... 494,291 8.3% 6.3%
c/o H&Q Life Science Ventures
One Bush Street
San Francisco, CA 94104
Donald E. Phillips/(3)/...................................... 40,500 * *
372 Fannin Landing Circle
Brandon, MS 39042
Robert L. Widerkehr/(3)/..................................... 282,000 4.7% 3.6%
17523 Corte Lomas Verdes
Poway, CA 92064
Daniel F. Cain............................................... 350,000 5.9% 4.5%
1719 Centennial Road
Fort Collins, CO 80525
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND OF CLASS
NATURE OF PERCENT (PRO FORMA
BENEFICIAL OF CLASS FOR ASSET
NAME AND ADDRESS OF BENEFICIAL OWNER OWNER (ACTUAL) PURCHASE)
- ------------------------------------------------------------- ---------- --------- -----------
<S> <C> <C> <C>
Gruber & McBaine Capital Management/(4)/..................... 586,300 9.8% 7.5%
c/o John P. Broadhurst, Esq.
Shartsis, Friese & Ginsburg
One Maritime Plaza
18th Floor
San Francisco, CA 94111
H&Q Life Science Ventures.................................... 489,041 8.2% 6.2%
One Bush Street
San Francisco, CA 94104
International Canine Genetics, Inc./(6)/..................... -0- -0- 17.8%
271 Great Valley Parkway
Malvern, PA 19355
Mallinckrodt Group Inc....................................... 458,806 7.7% 5.8%
7733 Forsyth Boulevard
St. Louis, MO 63105
Edward T. Maggio, Ph.D./(5)/................................. 461,999 7.7% 5.9%
c/o Structural Bioinformatics, Inc.
11011 Via Frontera
San Diego, CA 92127
PruTech Research and Development Partnership II.............. 458,003 7.7% 5.8%
3945 Freedom Circle
Suite 800
Santa Clara, CA 95054
S.R. One, Limited/(6)/....................................... -0- -0- 23.3%
Bay Colony Executive Bank
Suite 315
565 East Swedesford Road
Wayne, PA 19087
All executive officers and directors as a group/(1)(2)(3)/ 1,122,231 18.8% 37.6%
(7 persons; 8 persons for pro forma purposes)
</TABLE>
- ---------------------------
* Less than one percent.
(1) Includes 458,003 shares of Common Stock held by PruTech Research and
Development Partnership II, which is a public research and development
partnership sponsored by R&D Funding Corp. Mr. Burns is a Vice President
of R&D Funding Corp, and disclaims any beneficial ownership of these
shares.
(2) Includes 489,041 shares of Common Stock held by H&Q Life Science Ventures,
a California limited partnership. Mr. Kunze is a general partner of H&Q
Life Science Ventures.
(3) Includes options to purchase shares of Common Stock, which are exercisable
on or before September 29, 1996, as follows: Mr. Burns - 45,500 shares; Mr.
DeCesare - 21,000 shares; Mr. Green - 35,937 shares; Dr. Ingle - 12,000
shares; Mr. Kunze - 5,250; Mr. Phillips - 40,500 shares; Mr. Widerkehr -
280,000 shares.
56
<PAGE>
(4) Owned by a group of six persons who granted their respective powers of
attorney to Gruber & McBaine Capital Management ("GMCM"), a California
corporation, to handle any and all necessary filings in connection with
these securities. The direct ownership of these shares is as follows:
GMCM - 29,500 shares; Jon D. Gruber ("Gruber") - 68,000 shares; J.
Patterson McBaine ("McBaine") - 55,400 shares; Lagunitas Partners
("Lagunitas") - 235,800; GMJ Investments, LP ("GMJ") - 6,500 shares;
Proactive Partners, a California Limited Partnership ("Proactive") -
191,100 shares. Gruber and McBaine are the sole directors and sole
executive officers of GMCM. GMCM, Gruber and McBaine are the general
partners of Lagunitas and GMJ. Gruber and McBaine are general partners in
the entity which is the general partner of Proactive. Gruber and McBaine
disclaim beneficial ownership of the shares held by GMCM, Lagunitas, GMJ
and Proactive except to the extent of their respective pecuniary interests.
GMCM disclaims beneficial ownership of the shares held by Gruber, McBaine,
Lagunitas and GMJ except to the extent of its pecuniary interest.
(5) Includes options to purchase 6,999 shares of Common Stock, which are
exercisable on or before September 29, 1996, held by Dr. Maggio.
(6) Assuming that the Average Closing Sales Price will be $3.50 per share,
International Canine Genetics, Inc. will own 1,400,000 shares of Common
Stock of Synbiotics directly; S.R. One, Limited will own 285,714 shares of
Common Stock of Synbiotics directly and 1,400,000 beneficially, as the
majority stockholder of ICG, and will own warrants to purchase 145,785
shares of Common Stock of Synbiotics; Dr. Gavin will own 1,685,714 shares
of Common Stock of Synbiotics beneficially, as Vice President of S.R. One.
Dr. Gavin disclaims beneficial ownership of such shares.
57
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Synbiotics' officers and directors, and persons who own more than 10% of a
registered class of Synbiotics' equity securities, to file reports of ownership
and changes in ownership with the SEC. Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish Synbiotics with copies of
all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to Synbiotics,
or written representations that no Forms 5 were required, ICG believes that,
during the fiscal year ended December 31, 1995, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with, with the following exception: On November
2, 1995 Mr. Kunze became a director of Synbiotics, at which time a Form 3 should
have been filed. However, due to an oversight by Synbiotics, the Form 3 was not
filed until March 22, 1996.
SHAREHOLDER PROPOSALS FOR 1997 SYNBIOTICS PROXY STATEMENT
Under the present rules of the Commission, the deadline for shareholders to
submit proposals to be considered for inclusion in Synbiotics' Proxy Statement
for next year's Annual Meeting of Shareholders is expected to be March 15, 1997.
Such proposals may be included in next year's Proxy Statement if they comply
with certain rules and regulations promulgated by the Commission.
SYNBIOTICS FORM 10-KSB
SYNBIOTICS WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
ANNUAL REPORT ON FORM 10-KSB, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO SYNBIOTICS CORPORATION, 1011 VIA
FRONTERA, SAN DIEGO, CALIFORNIA 92127, ATTENTION MICHAEL K. GREEN.
58
<PAGE>
BUSINESS (ICG)
GENERAL
ICG is engaged in the business of developing, manufacturing and marketing
products and services that serve the needs of veterinary specialty markets for
companion animals. Currently, ICG is focused on developing new technology into
high value-added products and services for breeders and owners of purebred dogs
and their veterinarians. ICG currently sells its products and services in four
specialized markets: canine reproduction, genetic disorders, nutritional
supplements and grooming products.
U.S. Government statistics state that approximately 36 million households
in the United States own 52.3 million dogs. According to the American Kennel
Club, there are 22 million purebred dogs in the U.S. Of the total 2.5 million
U.S. annual dog breedings, ICG estimates that one million breedings of purebred
dogs occur in the United States annually. Each year approximately 750,000
purebred dog litters are born (whelped) producing approximately 3,450,000
purebred puppies. This one million purebred dog breeding estimate includes show
dogs, sporting dogs, and special situation dogs (i.e. Seeing Eye, MWD, etc.).
The international market for ICG's products and services is comparable in size
to that of the United States. Europe, Japan, Canada, Australia and New Zealand
represent the vast majority of potential revenues.
The objective of most breeders of purebred dogs is to improve the breed
with each litter. Substantial time and attention is devoted to selecting the
correct breeding partner in order to avoid genetic disorders and other
undesirable traits. Frequent breeders, those involved with show or field trial
competition, study pedigrees and performance records of dogs to determine the
optimal breeding partner. Often the best stud dog for a bitch lives some
distance away and breeding requires traveling a substantial distance or shipping
the dog.
Most breedings are conducted by natural methods. The generally accepted
protocol requires the owners of female dogs to drive or ship their dogs to the
stud owner's kennel for one to three services over several days. If the owner
of a female dog wishes to breed it to a stud dog outside the immediate area, the
cost, time, stress and risk to the dog of injury or death increases
dramatically. International breedings are exceedingly rare due to these risk
factors, the significant expense of such breedings and quarantine requirements.
Even so, many breeders report that up to half of their breedings are conducted
over a long distance where a dog is shipped by air or driven many hours. Other
breeders, in order to avoid the inconvenience and risks associated with long
distance breedings, opt to breed their bitches to a stud dog that is locally
available. The locally available stud dog may be closely related to the bitch,
increasing the likelihood of promoting undesirable genetic traits due to
inbreeding.
Breeders are further limited by the lack of veterinary assistance and
support in the area of canine reproduction. Prior to the availability of ICG's
products and services, many veterinarians were unable to offer basic
reproductive diagnostic services such as ovulation timing and pregnancy testing
because diagnostic products were not available and because most veterinary
schools offer little or no training regarding canine reproduction. The
Veterinary Economics and Veterinary Medicine July 1995 data base stated that
38,230 veterinarians specialized in small animal practice at 20,803
clinic/hospital locations throughout the U.S. ICG currently sells its products
and services to 4,500 veterinary clinics/hospitals in the U.S. (approximately
22%). ICG's objective is to increase market penetration through expanded
product distribution and new product introduction.
ICG has begun to address the genetic disorder market with the introduction
of the PennHIP/(R)/ diagnostic service. More than 300 genetic defects have been
identified in dogs. Despite more than a quarter century of international efforts
at eradication, Canine Hip Dysplasia ("CHD") is the most common, heritable
orthopedic problem occurring in dogs. A degenerative joint disease, CHD is
painful and can be extremely debilitating. Though it affects virtually all
breeds of dogs, it is especially a problem in large and giant breeds, such as
Golden Retrievers, Labrador Retrievers, German Shepherds and St. Bernards. In
the United States alone, dogs affected number in the millions.
In the area of nutritional supplements, ICG has developed and is marketing
two life cycle nutritional supplements which address the nutritional
requirements of dogs during gestation and lactation and various stages
59
<PAGE>
of life and activity levels. ICG entered the grooming products market through
its agreement with the W. R. Van Wyck Group, Limited for the exclusive marketing
and distribution rights for the Duurstede/(R)/ line of premium coat and skin
care products.
EXISTING PRODUCTS AND SERVICES
Canine Reproduction
-------------------
OVULATION TIMING DIAGNOSTIC PRODUCTS. ICG's ovulation timing products
assist breeders in more accurately determining when the female dog is fertile.
Improper timing is a primary cause of missed breedings, a problem that can cut
conception rates in half.
A female dog comes into heat once every six to eight months with the heat
cycle lasting between 15 and 30 days. The fertile period during each heat cycle
lasts only two to three days and cannot be accurately determined without hormone
testing. Missed breedings require a six to eight month waiting period prior to
the next attempt and, therefore, can create a major problem in a breeding
program. The effective breeding life of most female dogs is only about four to
six years, or eight to twelve heat cycles.
In June of 1989, ICG introduced its first ovulation timing diagnostic test
for veterinarian use, ICAGEN(TM)Target, which was co-developed and is
manufactured by an unaffiliated company. In June 1992, ICG introduced an
internally developed ovulation timing test, Status-Pro(TM), which is superior to
the original test. Status-Pro(TM) is manufactured by ICG at its Malvern
facility. Because demand exists from customers unwilling to change practices
which have worked in the past, ICG continues to sell ICAGEN(TM) Target although
it believes Status-Pro(TM) to be simpler to use. Each product is sold in a kit
which provides enough tests to time two heat cycles. In April 1994, ICG
introduced a canine LH/Progesterone testing service to provide veterinarians
with quantitative test results for breedings using frozen semen or chilled semen
of poor quality. In February 1995, ICG introduced Status-LH(TM), the first in-
clinic diagnostic test to measure canine luteinizing hormone ("LH") for timing
ovulation. Developed and manufactured by ICG, the product enables veterinarians
to rapidly and accurately identify the actual hormonal event that triggers
ovulation in the dog with a simple one-step test procedure. This high degree of
precision in ovulation timing is useful in all breedings, but is especially
beneficial for artificial inseminations using chilled or frozen semen.
Although the initial market for these products and services has been
breeders with bitches which have had difficulty conceiving, breeders are
beginning to use these products and services routinely. The current products
require breeders to make several trips to their veterinarians for testing until
the fertility peak has been determined. Nevertheless, these products and
services have been well received by dog breeders despite the cost and
inconvenience involved in visiting veterinarians. Status-Pro(TM), Status-LH(TM)
and ICAGEN(TM)Target are sold directly by ICG and have been well received by
veterinarians who are now able to offer an additional service to dog breeders.
On October 19, 1995, ICG introduced OPTIMATE(TM), the first at-home canine
ovulation confirmation test available to dog breeders. OPTIMATE(TM)is an easy
to use, urine based test that allows dog breeders to confirm, at home, that
ovulation has occurred and that it is appropriate to proceed with their planned
natural breeding. Additionally, ICG believes that OPTIMATE(TM) will become an
important preliminary diagnostic tool to enable breeders to identify dogs
experiencing abnormal ovulation and encourage breeders to seek veterinary help
to isolate the underlying causes.
The target market for OPTIMATE(TM)is the estimated 850,000 U.S. purebred
dog breedings that occur every year without the benefit of technology or the
involvement of a veterinarian. OPTIMATE(TM) is available directly from ICG,
through veterinarians, and from a select number of dog show product distributors
throughout the United States. International product introduction is scheduled
to begin during the second quarter of 1996. With the release of OPTIMATE(TM),
ICG believes that it provides dog breeders and their veterinarians the most
comprehensive system of canine ovulation timing products in the world.
60
<PAGE>
PREGNANCY TESTING. ICG introduced what it believes to be the first canine
pregnancy testing service in the United States, the ICAGEN(TM) Pregnancy Test,
in July 1990. ICG's current pregnancy testing service is based upon technology
licensed to ICG. The license agreement provides ICG with the exclusive right to
use the pregnancy test in the United States for a period of five years beginning
July 13, 1990 and provides for an automatic five year renewal of the license.
Kits are sold to veterinarians who collect and ship a blood sample to ICG for
testing. The ICAGEN(TM) Pregnancy Test is 95% accurate and can detect pregnancy
during a window of 28 to 37 days after breeding (total gestation is 63 to 65
days). The initial market for ICG's existing pregnancy testing service has been
serious breeders who use this service to confirm the results of a palpation
examination or in lieu of an expensive ultrasound procedure.
On November 6, 1995, ICG concluded an agreement with the Cornell Research
Foundation, the University of Medicine and Dentistry of New Jersey-New Jersey
Medical School and New York University for the exclusive rights to a U.S. patent
entitled "Relaxin Testing for Early Detection of Pregnancy in Dogs." In
addition, ICG entered into a Sponsored Research Agreement with each of the
universities for the co-development of a canine pregnancy test kit based on the
underlying technology covered by the patent.
ICG believes that there are currently no inexpensive and reliable methods
available commercially for early detection of canine pregnancy for the estimated
one million purebred dog breedings in the U.S. as well as the millions of other
dog owners. In addition, a test to rule out pregnancy in dogs as a pre-surgical
screen is of high interest to veterinarians.
ICG's goal is to develop and validate a simple qualitative test for use in
the veterinary clinic that can reliably determine the success or failure of a
planned breeding, artificial insemination or the inadvertent exposure of
valuable females to unwanted males. This in-clinic product can also be used as
a pre-surgical screening test. Market introduction is targeted for the first
fiscal quarter of 1997.
A second product, an at-home pregnancy test is planned for introduction
approximately one year following the in-clinic test to compliment ICG's other
over the counter diagnostic product, OPTIMATE(TM), and to address the large
portion of the market that breeds their dogs without the involvement of a
veterinarian. In addition, there is evidence that Relaxin may be an early
indicator of feline pregnancy, a test which could provide a logical expansion of
activities into the broader companion animal market.
ARTIFICIAL INSEMINATION PRODUCTS AND SERVICES. ICG's artificial
insemination products and services, introduced in fiscal 1989, include semen
freezing and chilling systems which incorporate proprietary buffers designed
specifically for the dog. Buffers are chemical solutions added to semen which
minimize damage to sperm cell function during freezing, chilling and
transportation. These buffers are sold in kits for overnight shipping of semen
together with a variety of other supplies necessary for artificial insemination.
These products enable breeders to conduct long distance and international
breedings using chilled or frozen semen and artificial insemination thereby
eliminating the constraints of time, distance, shipping stress and risk to the
animals. Frozen semen can be shipped to most countries for breeding thereby
making stud dogs around the world available. Frozen semen also permits
breedings for years after the dog's natural life span.
ICG's Fresh Express(R) system for chilled semen shipping allows breeders
to ship semen overnight between veterinarians to conduct long distance breedings
without shipping dogs. The kit includes all of the supplies and instructional
materials necessary to collect and ship the semen and to document the breeding.
Kits for semen shipping are sold to the 894 veterinarians participating, under
contract, in ICG's veterinarian referral network ("ICG Network Veterinarians"),
as well as other veterinarians who then provide the total service for the
breeder. The total service includes the collection of semen from the stud,
shipment of the semen using the Fresh Express(R) kit to the bitch's
veterinarian, artificial insemination of the bitch by the bitch's veterinarian
and the completion by both veterinarians of the documentation contained in the
Fresh Express(R) kit necessary to register the puppies as purebred with the
American Kennel Club or other pedigree registering organization.
ICG also offers semen freezing services, breeding supplies and
instructional materials to breeders directly and through freezing centers and
ICG Network Veterinarians. Freezing services are performed at ICG's Malvern
facility and through 43 freezing centers located in North America, seven
freezing centers located in Australia and
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New Zealand, and one center in the United Kingdom. In addition, ICG has
assisted the Seeing Eye, Moorestown, NJ and the Military Working Dog Program,
Lackland AFB, TX establish semen freezing centers for their special breeding
requirements. Freezing centers are independently owned and operated by
veterinarians trained by ICG. Pursuant to contractual arrangements with ICG,
these freezing centers offer semen freezing services using ICG's proprietary
technology and products. In addition to training, the veterinarians operating
freezing centers receive technical and marketing support, and purchase the
equipment and supplies necessary to operate the freezing center from ICG.
Veterinarians operating freezing centers freeze semen as part of the
services offered in their practices. Several times each year the collected
frozen semen is shipped to ICG for long term storage at its Malvern facility.
Each year thereafter, ICG bills the stud owner for storage of the semen. At
present, ICG has frozen semen stored for over 2,700 dogs. ICG's long-term semen
storage facilities located in the United States meet the requirements of the
American Kennel Club including those relating to the maintenance of appropriate
security and records systems necessary to verify pedigree.
ANCILLARY PRODUCTS. ICG sells various breeding-related products such as
training videos, educational literature and seminars, laboratory supplies and
record keeping systems.
Canine Genetic Disorders
------------------------
CANINE HIP DYSPLASIA DIAGNOSIS. CHD is the most common, heritable
orthopedic problem occurring in dogs. It affects virtually all breeds of dogs
but it is especially a problem in large and giant breeds. Dogs affected number
in the millions in the United States alone. A degenerative joint disease, CHD
is painful and can be extremely debilitating.
In December 1993, ICG concluded an agreement with the University of
Pennsylvania for the exclusive worldwide rights to commercialize the
PennHIP(R) technology, a new scientific method for the early diagnosis and
screening of Canine Hip Dysplasia. The technology is being marketed under the
University of Pennsylvania registered trademark PennHIP(R) for which ICG also
obtained an exclusive worldwide license. The PennHIP(R) method for evaluating
dogs for CHD was developed during eleven years of intensive research involving
biomechanics, clinical medicine, radiology, population genetics and associated
statistical analysis by Dr. Gail K. Smith at the University of Pennsylvania. On
January 9, 1996, a U.S. patent was issued for the PennHIP(R) method and other
key aspects of the technology.
Based on scientific data, ICG believes that the PennHIP(R) method
surpasses other diagnostic methods in the ability to accurately predict
susceptibility to developing CHD. The method can be performed on dogs as young
as sixteen weeks of age compared with two years using the standard technique.
The ability to receive an early estimate of a dog's hip integrity is important
whether the dog is intended for breeding, working or a family pet. The
reliability of the data generated by PennHIP(R) will allow breeders to
confidently identify the tightest hip members of their breeding stock and
accurately assess the progress they are making with their breeding program as
they strive to reduce the amount of hip laxity in their dogs.
Veterinarians wishing to become members and participate in ICG's
PennHIP(R) Referral Network of trained and certified veterinarians attend a
program taught by Dr. Gail Smith. During this program, veterinarians are
instructed on the basis of the technology and proper positioning of the dog
during X-ray. After training, veterinarians are required to submit test
radiographs to ICG for interpretation. If the radiograph's quality is
acceptable, the veterinarian is then certified. The cost of certification is
included in the training seminar fee. Only certified veterinarians can submit
radiographs to ICG for interpretation with results reported back to the
veterinarian and dog owner.
ICG began offering PennHIP(R) training seminars to veterinarians in the
U.S. in June 1994. Since that time, 763 veterinarians have been trained in U.S.
seminars. Of the total veterinarians trained, 487 have been certified by ICG
and are offering PennHIP(R) to their clients. Certified veterinarians have
the option to join the PennHIP(R) Referral Network by contractually agreeing
to receive referrals from ICG. As of June 30, 1996, 424 certified veterinarians
have joined the PennHIP(R) Referral Network.
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CHD is a worldwide problem. Interest in PennHIP(R) is as high in the
major international dog markets (i.e. Europe, Japan, Canada, Australia) as it is
in the United States. Since June of 1994, 38 international veterinarians from
Canada, Australia, Spain, France, Denmark, the Netherlands and Japan have
attended training seminars in the United States.
On March 5, 1996, the Japan Kennel Club ("JKC") agreed to adopt
PennHIP(R) as the method of CHD evaluation for the JKC HIP Registry. The JKC,
the largest dog registry in Japan, has approximately 150,000 members with over
350,000 dogs registered.
As part of the JKC HIP Registry, only dogs tested by the PennHIP(R)
method will be registered in the JKC studbook. PennHIP(R) results will also
be recorded in each dog's certified pedigree and published in the JKC magazine
along with the PennHIP(R) requirements of breeding and registering puppies.
Under the agreement, ICG will provide the training and certification of Japanese
veterinarians, the for-fee measurement of PennHIP(R) radiographs and the
program database management. A total of seventy-one veterinarians, university
professors and JKC representatives attended the first two training sessions in
Tokyo and Kyoto the week of March 25, 1996. Two additional training sessions
are being scheduled for the Fall of 1996.
In order to expedite the receipt of films from Japan and other
international markets, streamline the measurement of all films and maximize the
overall profitability of PennHIP(R), ICG has begun a project to automate the
PennHIP(R) process. Phase one of the project was completed in July 1996. Longer
term, it is expected that automation will enable ICG to process the projected
increase in PennHIP(R) films with existing manpower resources.
ICG has also been informed by the American Kennel Club ("AKC") that it is
developing an "Information and Health Database" for its members and that
PennHIP(R) test results will be included. While the AKC breeding requirements
will not be as stringent as those of the JKC, inclusion in this program
represents an endorsement by the primary dog registry in the U.S. that
PennHIP(R) is an effective genetic screening tool.
Canine Nutrition
----------------
NUTRITIONAL SUPPLEMENTs. ICG has developed and is marketing two life cycle
nutritional supplements, ICG Stress Formula(TM) and ICG Coat & Skin Formula(TM).
These products are marketed to dog owners who recognize the increased
nutritional requirements and the stress to the bitch related to breeding,
gestation and lactation and the importance of maintaining the general health of
their dogs which is reflected in the condition of a dog's coat and skin. ICG's
nutritional supplement products are manufactured to ICG's specifications by an
unaffiliated company under the supervision of the consultant with whom ICG has
contracted for the development of nutritional supplements.
Grooming Products
-----------------
GROOMING PRODUCTS. In September 1994, ICG concluded an agreement with the
W. R. Van Wyck Group, Limited of Canada for the exclusive marketing and
distribution rights to the Duurstede(R) line of premium coat and skin care
products for dogs in the United States and selected international markets.
Developed in research facilities in Europe and Canada, the Duurstede(R) line
of products offers a comprehensive, easy to use system that addresses the needs
of all coat types.
MARKETING AND SALES
ICG markets directly to breeders in North America through mailings,
advertisements in trade magazines and by participating in major dog shows.
Currently, ICG's database contains over 85,000 breeders.
The ICG "typical breeder client" is a dog enthusiast spending an average of
one-half of his or her weekends each year involved in some activity with his or
her dogs. A favorite activity of ICG clients is participating in AKC sanctioned
dog shows or field trials of which over 13,000 are held each year in the U.S.
In order to provide easy access to ICG's nutritional supplements, grooming
products, consumer breeding
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products and prepare for the market introduction of OPTIMATE(TM), ICG entered
into distribution agreements with six regional dog show distribution companies
in 1995.
Breeding supplies and instructional materials are also offered directly to
breeders through a toll free number. The toll free number is staffed by a
veterinarian and trained technicians and provides ICG with an opportunity to
build an awareness of its products and services directly with breeders. ICG
generally receives over 3,000 toll free telephone calls per month requesting
technical, product and service information and to place orders. To improve
timely response and follow-up, ICG has organized a sales/telemarketing group
which routinely contacts potential customers to sell ICG's products or make
veterinary referrals. Network Veterinarians are also contacted by the
sales/telemarketing group to market ICG's products and perform selected market
research.
The major part of ICG's marketing strategy is designed to increase the
involvement of veterinarians in the dog breeding process. ICG instituted
training programs in fiscal 1990 to develop a network of qualified veterinarians
to deliver its Canine Reproduction products and services and in June 1994 to
develop a PennHIP(R) Referral Network. As of March 1996, there were 880
veterinarians in ICG's Reproduction Network and 402 veterinarians in its
PennHIP(R) Referral Network.
Through its direct breeder marketing activities, ICG is able to provide
client referrals to Network Veterinarians thereby enabling them to increase
revenues by attracting new breeder clients and by offering new services to
existing clients. Network Veterinarians receive a product purchase discount and
an opportunity to resell selected Company products. Additionally, ICG provides
extensive marketing support and training to Network Veterinarians. ICG
maintains a veterinary services staff to answer technical inquiries and a
customer support staff to market its products and perform general customer
service.
ICG believes that Western Europe, Japan, Canada, Australia and New Zealand
offer a significant opportunity for its products and services since the problems
confronted by breeders of purebred dogs are similar to those found in the United
States. ICG has established freezing centers in Canada, Australia, New Zealand
and the United Kingdom and has entered into distribution agreements for its
diagnostic products with companies in Australia, Canada, Italy and Finland.
Under the agreements, the distributors are able to purchase diagnostic and other
products at specified discounts from retail prices subject to minimum order
requirements. All sales are denominated in U.S. dollars. The distributors have
undertaken to promote sales of ICG's products through various advertising and
promotional programs.
MANUFACTURING AND OPERATIONS
ICG currently manufactures its Status-Pro(TM), Status-LH(TM) and
OPTIMATE(TM) products for ovulation timing at its Malvern facility. By
manufacturing these products, ICG believes it maintains greater control of
quality and is better able to limit outside access to its proprietary
technology. ICG also assembles the kits for Fresh Express(R) and packages
ancillary products at its Malvern facility.
ICG's ICAGEN(TM) Target test for ovulation timing is manufactured by an
unaffiliated company which co-developed that product. The nutritional
supplement products are manufactured by an unaffiliated manufacturer to ICG's
specifications under the direct supervision of a consultant to ICG. ICG's
proprietary buffers used in its Fresh Express(R) kit and frozen semen
operations are manufactured by an independent contractor.
ICG relies on single sources of supply for certain of the key components of
products it manufactures. However, it believes that alternative sources for
these components are available and it generally maintains an adequate inventory
to avoid temporary product flow interruptions. In addition, although ICG does
not have supply contracts with suppliers of its diagnostic and nutritional
supplement products, ICG believes that other contract manufacturers are
available in the event a manufacturer is unable or unwilling to supply products
to it.
ICG may be subject to product liability claims based upon product failure
or improper use of products by customers. ICG maintains product liability
insurance of $1,000,000 per occurrence, subject to an annual
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aggregate limit of $1,000,000. Based upon its experience and industry practice,
ICG believes that its insurance coverage is adequate for its present operations.
COMPETITION
ICG believes that its products and services are targeted at emerging
markets in which there is only fragmented competition. The primary competition
for its artificial insemination products and services is, and is projected to
remain, natural breeding. Regional competition exists in the area of artificial
insemination from a number of small businesses including veterinarian sole
practitioners who offer semen freezing services through their practices. ICG is
not aware of any national or international companies marketing artificial
insemination products or services in competition with ICG. Several companies
market nutritional supplements which compete with those of ICG. Also, various
companies and research and academic institutions are working in the areas of
canine genetic research and fertility management. To date, this research has
not resulted in products or services which compete with those offered or under
development by ICG. Although, as described above, ICG's competition to date has
been limited, primarily because it is creating a new market, ICG believes that
competition will increase as the market for its products and services expands.
The Orthopedic Foundation for Animals ("OFA"), a non-profit foundation,
does present established competition for ICG's PennHIP(R) product. The OFA
has been providing a diagnostic service for Canine Hip Dysplasia in the U.S. for
over twenty years. However, ICG believes the PennHIP(R) diagnostic service,
which is a quantitative test, is superior to the OFA's qualitative diagnostic
testing service. ICG believes it can successfully compete with the OFA for the
U.S. Canine Hip Dysplasia testing market.
PATENTS, TRADEMARKS AND LICENSES
ICG has been issued two patents from the U.S. Patent and Trademark Office
relating to certain aspects of its canine pregnancy and ovulation timing
testing. ICG has chosen not to obtain patent protection in foreign countries
and has foregone the option to do so. ICG has elected to maintain its formulas
for semen freezing and chilling medias (buffers) and nutritional supplements as
trade secrets, and has not sought patent protection for those technologies. ICG
has registered two trademarks with the United States Patent and Trademark
Office. ICG currently uses seven trademarks in connection with its products and
intends to file applications to register these marks with the PTO. ICG has
obtained the rights to several trademarks through various license and
distribution agreements. ICG also holds the exclusive licenses to several
proprietary products.
ICG has registered its Fresh Express(R) trademark with the United States
Patent and Trademark Office. ICG currently uses ICG(TM), ICAGEN(TM), Status-
Pro(TM), Status-LH(TM), OPTIMATE(TM), ICG Stress Formula(TM), and ICG Coat &
Skin Formula(TM) as trademarks in connection with its products and intends to
file applications to register these marks with the USPTO. ICG has obtained the
rights to the registered trademark PennHIP(R) via its license from the
University of Pennsylvania and the use of the trademark Duurstede(R) through its
distribution agreement with the W. R. Van Wyck Group, Limited. ICG intends to
apply to register additional federal trademarks and service marks with the USPTO
when and as ICG management deems necessary or appropriate.
ICG holds the exclusive licenses to several proprietary products, including
a license for proprietary technology used in the pregnancy testing service
provided by it. The license agreement provides ICG with the right to use the
pregnancy test in the United States for a period of five years beginning July
13, 1990 and provides for an automatic five year renewal of the license.
In December 1993, ICG entered into a license agreement with the University
of Pennsylvania for the exclusive worldwide rights to commercialize a new
technology for the diagnosis of Canine Hip Dysplasia and an exclusive worldwide
license to use the University of Pennsylvania registered trademark PennHIP(R).
The license agreement is for a term of seventeen years based on the issuance of
a U.S. patent for the PennHIP(R) method on January 9, 1996. In addition, as
part of this transaction, ICG entered into an agreement with Ortho/Analytic,
Inc. for the purchase, on an exclusive basis, of devices used to position the
dog during x-ray and which are provided to the veterinarian as part of the
training fee. The agreement is for a term of seventeen years.
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In November 1995, ICG entered into a license agreement with the Cornell
Research Foundation, the University of Medicine and Dentistry of New Jersey-New
Jersey Medical School and New York University for the exclusive rights to the
U.S. patent entitled "Relaxin Testing for Early Detection of Pregnancy in Dogs".
The license agreement is for a term of 13 years.
GOVERNMENT REGULATION
ICG's semen freezing products, diagnostic ovulation timing products and
pregnancy testing services for dogs fall within the definition of devices as
that term is defined in the FFDCA and, therefore, may be subject to regulation
by the FDA. While no formal pre-approval process is required for ICG's products
at this time, such products must adhere to certain labeling, use and
effectiveness requirements. ICG believes that it is in material compliance with
these requirements. The FFDCA also regulates pet foods, which include ICG's
nutritional supplements, by requiring certain information to be included on pet
food labels. States also often impose labeling requirements on pet food
manufacturers which exceed the federal requirements and require such information
as minimum protein and fat content and maximum fiber content. ICG's nutritional
supplements, which contain nutrients for the promotion of good health in dogs
during pregnancy or for the maintenance of a healthy coat and skin in dogs, are
subject to such regulations. ICG believes that it is in compliance with federal,
state and local regulations applicable to its products and services.
EMPLOYEES
As of June 30, 1996, ICG had a total of 17 full-time employees, each of
whom has entered into a confidentiality and non-competition agreement with ICG.
Of the 17 employees, four provide veterinary services, four are devoted to
administrative and financial activities, five are involved in sales, marketing
and order processing, three are engaged in research, development and
manufacturing activities and one employee handles shipping, receiving and
warehousing. ICG considers its employee relations to be satisfactory.
PROPERTIES (ICG)
Since April 1989, ICG's executive, marketing, research and development,
manufacturing and distribution operations have been located in an
office/industrial park in Malvern, Pennsylvania. In May 1993, ICG entered into
a five year lease agreement which expanded its facility from 4,725 square feet
to 9,240 square feet. Approximately 25% of ICG's current facilities are devoted
to each of its four principal operations: 1. Research, Development and
Manufacturing, 2. Veterinary Services and Clinical Operations, 3. Sales,
Marketing, Finance and Administration, and 4. Shipping, Receiving and
Warehousing.
LEGAL PROCEEDINGS (ICG)
ICG is not a party to any legal proceedings.
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MARKET PRICE OF ICG COMMON STOCK; DIVIDENDS
ICG's Common Stock and warrants to acquire Common Stock were moved from the
NASDAQ Small Cap Market to the OTC Bulletin Board on January 13, 1995. The
inability to maintain a minimum $1.00 per share bid price was the reason cited
by NASDAQ for this action. ICG actively pursued an appeal of this decision.
However, the decision to delist the Common Stock was upheld in May 1995.
The following table sets forth for the quarters indicated, the high and low
closing bid prices of the Common Stock and the Warrants as reported by the
National Quotation Service. Prices represent quotations between dealers without
adjustments for retail markups, markdowns or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
Bid Price
---------------------------
Common Stock Warrants
------------- -----------
High Low High Low
------ ---- ---- ----
<S> <C> <C> <C> <C>
Fiscal year ended June 30, 1996
First Quarter 1/2 3/16 3/64 1/64
Second Quarter 9/16 5/16 1/64 1/64
Third Quarter 5/16 5/16 1/64 1/64
Fourth Quarter 1 3/16 5/16 5/64 1/64
High Low High Low
------ ---- ---- ----
Fiscal year ended June 30, 1995 7/8 1/2 1/8 1/8
First Quarter 23/32 5/8 1/8 1/8
Second Quarter 5/8 1/4 1/8 1/8
Third Quarter 5/16 1/4 1/32 1/32
Fourth Quarter
</TABLE>
As of September 4, there were approximately 425 holders of ICG's Common
Stock and 375 holders of the Warrants.
ICG has not paid dividends in cash or stock on its Common Stock since
inception. ICG does not anticipate paying dividends in the foreseeable future
and any cash otherwise available for such dividends will be reinvested in its
business. The payment of cash dividends will depend on the ICG's earnings, if
any, its capital requirements and other factors considered relevant by the Board
of Directors.
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ICG MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The selected financial data set forth on the next page should be read in
conjunction with the audited financial statements and related notes appearing
elsewhere herein and the discussion of Results of Operations and Liquidity and
Capital Resources below.
GENERAL
Since its formation in 1986, ICG has devoted substantially all of its
resources to research and development programs and to the marketing of products
and services developed by ICG or licensed from third parties. ICG has been
unprofitable since its inception and expects to incur additional losses as it
expands the marketing of existing products and services and continues to invest
in research and development programs.
ICG's net revenues consist primarily of sales of its breeding, diagnostic,
nutritional supplement and coat and skin care products and revenues from its
PennHIP(R), ovulation timing, pregnancy and paternity testing services. Gross
profit consists of net revenues reduced by the related cost of revenues which
represents ICG's cost of purchasing, providing or manufacturing diagnostic and
breeding products and services, nutritional supplement and coat and skin care
products, and the cost of providing hip dysplasia, ovulation timing, pregnancy
and paternity testing services to customers.
RESULTS OF OPERATIONS
FISCAL YEARS ENDING JUNE 30, 1996 AND 1995
Net Revenues
Net revenues for the fiscal year ended June 30, 1996 were $1,651,000, an
increase of $149,000 or 10% compared to the $1,502,000 reported for the fiscal
year ended June 30, 1995. The overall year-to-year increase resulted primarily
from the growth in sales of ICG's diagnostic products, breeding services and
coat and skin care products.
Diagnostic revenues increased 16% to $495,000 in fiscal 1996 from $426,000
in fiscal 1995. During fiscal 1996, sales of ICG's Status Pro and Target
ovulation timing test increased 5% to $384,000 in fiscal 1996 from $366,000 in
fiscal 1995. In October 1995, ICG introduced to the market Optimate, ICG's at-
home ovulation confirmation test sold to dog breeders. This product contributed
$45,000 to overall diagnostic revenues in fiscal 1996. Status-LH, ICG's
diagnostic test to measure canine luteinizing hormone (LH), which was introduced
in February 1995, contributed $49,000 to fiscal 1996 revenues compared to
$21,000 in fiscal 1995. Revenues from ICG's LH/Progesterone testing service
declined from $17,000 in fiscal 1995 to $4,000 in fiscal 1996 as veterinarians
are now using the diagnostic kit in lieu of the testing service. ICG has
discontinued the testing service. Revenues from ICG's pregnancy testing and
paternity testing services declined from $19,000 and $4,000, respectively, in
fiscal 1995 to $10,000 and $2,000 in fiscal 1996.
Revenues from ICG's hip dysplasia service remained at $278,000 in both
fiscal 1996 and 1995. Revenues from the training of new veterinarians in the
PennHIP technology declined from $231,000 in fiscal 1995 to $197,000 in fiscal
1996. The decline was due to lower than planned attendance at the U.S.
training programs compared to fiscal 1995. In March 1996, the Japan Kennel Club
(JKC) agreed to include PennHIP in the JKC HIP Registry and ICG conducted the
first international training seminars for veterinarians in Tokyo and Kyoto.
These seminars contributed $45,000 to total training revenues. To date, ICG has
trained 810 veterinarians in the PennHIP technology of which 487 have been
certified by ICG and are making PennHIP available to their clients. During
fiscal 1996, ICG generated $81,000 in revenues from the evaluation of PennHIP
radiographs compared to $47,000 in fiscal 1995.
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Total breeding services, which consist of frozen and chilled semen
revenues, were $662,000 in fiscal 1996, an increase of 10% compared to the
$601,000 recorded in fiscal 1995. Overall frozen semen revenues increased 15%
to $521,000 in fiscal 1996 from $454,000 in fiscal 1995. Contributing to the
increase in overall frozen semen revenues was a 35% increase in semen storage
revenues from $103,000 in fiscal 1995 to $140,000 in fiscal 1996. This increase
was due to the general increase in semen collection and freezing activity
combined with a price increase implemented in February 1996. Revenues from
semen collection and freezing activities grew, but at a slower rate, to $324,000
in fiscal 1996 from $319,000 in fiscal 1995. During fiscal 1996, ICG generated
$57,000 from training and equipping new veterinary practices in the semen
collection and freezing technology. ICG's network of independently owned and
operated veterinary practices trained in semen collection stands at 51 centers
worldwide compared to 44 centers at June 30, 1995.
Overall chilled semen revenues declined 4% to $141,000 in fiscal 1996 from
$147,000 in fiscal 1995. Sales of kits to perform chilled semen breedings
declined marginally to $98,000 in fiscal 1996 from $101,000 in fiscal 1995.
Contributing to the decline in overall chilled semen revenues was a 39%
reduction in revenues from the sale of chilled semen training materials as the
growth of the membership in ICG's reproductive network has slowed. Partially
offsetting these declines was a 12% increase in veterinary reproductive fees,
generated at ICG's Malvern, PA facility, from $28,000 in fiscal 1995 to $32,000
in fiscal 1996.
Revenues from grooming products, for which ICG has exclusive marketing and
distribution rights from the W. R. Van Wyck Group, Limited in Canada, increased
from $26,000 in fiscal 1995 to $43,000 in fiscal 1996. ICG sells these products
directly to consumers and through a network of 6 distributors who make these
products available at dog shows in 27 states.
During fiscal 1996, nutritional supplement revenues declined 13% to $79,000
from $91,000 in fiscal 1995 as ICG did not actively advertise or promote these
products during fiscal 1996.
During fiscal 1996, revenues from ancillary products and services increased
33% to $77,000 in fiscal 1996 from $58,000 in fiscal 1995. Also, during fiscal
1996, ICG completed all aspects of the Military Working Dog contract and
generated revenue of $32,000 compared to $35,000 in fiscal 1995.
Gross Profit
ICG's gross profit for the twelve months ended June 30, 1996 was $762,000,
an increase of 11% compared to the $688,000 recorded for the twelve months ended
June 30, 1995. ICG's gross profit margin increased to 46.1% of net revenues in
fiscal 1996 from 45.8% in fiscal 1995. The improvement in the gross profit
margin was due to favorable product mix. In fiscal 1996, ICG's diagnostic
products, PennHIP radiographs and semen storage fees, which have higher gross
margins than ICG's other products and services, were 43% of ICG's total revenues
compared to 38% of total revenues in fiscal 1995.
Operating Expenses
Research and development expenses increased 1% from $549,000 in fiscal 1995
to $555,000 in fiscal 1996. The cost incurred for the development of an in-
clinic pregnancy test were partially offset by expense control measures
implemented by ICG in December, 1995, which included a reduction in the number
of employees and development cost incurred in fiscal 1995 for the Status-LH test
kit.
Selling, general and administrative expenses declined 7% to $1,479,000 in
fiscal 1996 from $1,588,000 in fiscal 1995. Increased consulting fees and
travel expenses related to the development of the Japanese market for PennHIP
were more than offset by expense control measures implemented by ICG in December
1995, which included a reduction in the number of employees.
Advertising and promotional expenses declined 1% to $279,000 in fiscal 1996
from $282,000 in fiscal 1995. Significant expenses associated with the launch of
Optimate were more than offset by expense control measures implemented by ICG in
December 1995.
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Loss from Operations
ICG's loss from operations declined 10% to $1,550,000 in fiscal 1996 from
$1,731,000 in fiscal 1995. The decrease in the loss from operations resulted
from increased revenues and resulting gross profit and a decline in operating
expenses.
Interest Expense and Other Income, Net
Interest expense increased $22,000 to $74,000 in fiscal 1996 from $52,000
in fiscal 1995. The increase in interest expense was due entirely to the
interest incurred on the S. R. One, Limited bridge loan of $500,000 which was
borrowed in December 1995 to continue to fund operations.
Other income, net, declined to $13,000 in fiscal 1996 from $43,000 in
fiscal 1995. The decline was due to lower interest income resulting from
declining cash balances and gain on the sale of an asset in fiscal 1995.
Net Loss Per Share of Common Stock
The net loss per share of Common Stock in fiscal 1996 was $0.60 compared to
a net loss per share of Common Stock of $0.96 in fiscal 1995. The decline in
the loss per share was due to a reduction in the net loss, accounting for $0.07
of the reduction, and the increase in the number of shares of common stock
outstanding, which accounted for $0.29 of the reduction.
FISCAL YEARS ENDING JUNE 30, 1995 AND 1994
Net Revenues
Net revenues for the fiscal year ended June 30, 1995 were $1,502,000, an
increase of $387,000 or 35% compared to the fiscal year ended June 30, 1994.
The overall year-to- year increase resulted primarily from growth in sales of
ICG's PennHIP(R) hip dysplasia diagnostic service, breeding services,
diagnostic products and services and coat and skin care products.
Revenues from ICG's hip dysplasia service increased from $47,000 in fiscal
1994 to $278,000 in fiscal 1995. PennHIP(R) was the fastest growing component
of revenue and accounted for 60% of ICG's overall year-to-year sales increase.
PennHIP(R) revenues are derived from fees from training veterinarians in the
PennHIP(R) technology and from radiographs submitted to ICG for evaluation.
During the fiscal year ended June 30, 1995, ICG trained 321 veterinarians in
PennHIP(R) which generated $231,000 in revenues compared to $40,000 in fiscal
1994. Also during the fiscal year ended June 30, 1995 ICG certified 252 trained
veterinarians enabling them to submit radiographs to ICG for evaluation.
Radiograph revenues in fiscal 1995 amounted to $47,000 compared to $7,000 in
fiscal 1994.
Diagnostic revenues increased 21% to $426,000 in fiscal 1995 from $352,000
in fiscal 1994. During fiscal 1995, sales of ICG's Status-Pro and Target
ovulation timing tests increased 14% to $366,000 from $321,000 in fiscal 1994
due to increased market demand. In February 1995, ICG introduced Status-LH(TM),
its new in-clinic diagnostic test to measure LH for ovulation timing. This new
product generated $21,000 in revenues during fiscal 1995. Revenues from ICG's
LH/Progesterone in-laboratory testing service, which was introduced in April
1994, increased to $17,000 in fiscal 1995 from $4,000 in fiscal 1994. Revenues
from this testing service began, as expected, to slow in the fourth quarter of
fiscal 1995 following the market launch of the Status-LH(TM) test kit. Revenues
from ICG's pregnancy testing service remained flat at $19,000 in both fiscal
1995 and 1994 and revenues from paternity testing declined from $7,000 in fiscal
1994 to $4,000 in fiscal 1995.
Total breeding services, which consist of frozen and chilled semen
revenues, were $601,000 in fiscal 1995, an increase of $60,000 or 11% compared
to the $541,000 recorded in fiscal 1994. Overall frozen semen revenues
increased 17% to $454,000 in fiscal 1995 from $387,000 in fiscal 1994.
Contributing to the increase in overall frozen semen revenues was an 82%
increase in semen storage revenues to $103,000 in the 1995 period from
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$57,000 in the 1994 period. This increase was due to the general increase in
semen collection and freezing activity combined with a price increase
implemented in August 1994. Revenues from semen collection and freezing
activities grew, but at a slower rate, to $319,000 in fiscal 1995 from $307,000
in fiscal 1994. During fiscal 1995, ICG trained and equipped five additional
veterinary practices in the semen collection and freezing technology which
generated $32,000 in revenues compared to $23,000 in fiscal 1994. ICG's network
of independently owned veterinary practices trained in semen collections and
freezing technology stands at 44 centers worldwide compared to 40 at June 30,
1994. Overall chilled semen revenues declined 4% to $147,000 in fiscal 1995
from $154,000 in fiscal 1994. Revenues from sales of kits used to perform
chilled semen breedings increased only 2% from $100,000 in fiscal 1994 to
$101,000 in fiscal 1995. Management believes the slow rate of growth was due to
the severe weather conditions during the 1994 period, which had the effect of
increasing revenues at a faster than normal rate in fiscal 1994. Completely
offsetting the growth in chilled semen kits was a 29% decrease in revenues from
the sale of chilled semen training materials. Management expected this decline
as growth of the membership in ICG's reproductive network has slowed.
In September 1994, ICG concluded an agreement with the W.R. Van Wyck Group
Limited in Canada for the exclusive marketing and distribution rights, in the
United States and selected international markets, for the Duurstede line of
premium grooming products for dogs. ICG sells these products directly to
consumers and through a network of six distributors who make the Duurstede
products available at dog shows in 27 states. During fiscal 1995, Duurstede
products contributed $26,000 to ICG's total revenue.
During fiscal 1995, nutritional supplements declined 13% to $91,000 from
$105,000 in fiscal 1994. ICG believes the decline in nutritional supplement
revenues is due to the deferred production of its newsletter to breeders and
owners of purebred dogs. The newsletter, which has been the primary means of
advertising support for the nutritional products, was deferred while ICG
evaluated alternate means of advertising and/or distribution.
During fiscal 1995, revenues from ancillary products amounted to $58,000,
an increase of 10% compared to the $53,000 reported in fiscal 1994. Also during
fiscal 1995, ICG completed Phase 2 of the Military Working Dog Contract which
generated $35,000 compared with $29,000 in fiscal 1994 associated with the
completion of Phase 1.
Gross Profit
ICG's gross profit for the twelve months ended June 30, 1995 was $688,000,
an increase of 47% compared to the $469,000 recorded for the twelve months ended
June 30, 1994. Gross profit margin increased to 45.8% of net revenues in fiscal
1995 from 42.1% of net revenues in fiscal 1994. The growth in gross profit and
the improvement in the gross profit margin was due to the overall 35% increase
in revenues and favorable product mix. In fiscal 1995, ICG's PennHIP(R) and
diagnostic revenues, which have higher gross profit margins than ICG's other
products, were 47% of ICG's total revenues compared to 35% of total fiscal 1994
revenues.
Operating Expenses
Research and development expenditures increased 44% from $381,000 in fiscal
1994 to $549,000 in fiscal 1995. The increase resulted from the full year
impact of a scientist hired in fiscal 1994, development expenses associated with
Status-LH(TM) which was introduced to the market in February 1995 and expenses
associated with new diagnostic test kits scheduled for market introduction in
fiscal 1996 and beyond.
Selling, general and administrative expenses grew 2% to $1,588,000 in
fiscal 1995 from $1,558,000 in fiscal 1994. The full year salary impact in
fiscal 1995 of hires made in fiscal 1994 and the expenses associated with the
market introduction and ongoing support of the PennHIP(R) technology were
partially offset by relocation expenses incurred during fiscal 1994, in
connection with the employment of a department head, which were not incurred in
the 1995 fiscal year.
Advertising and promotion expenses, which consist of the costs incurred in
developing and placing advertisements, direct mail and attendance at dog shows
and veterinary meetings and conferences, decreased 19% to $282,000 in fiscal
1995 from $348,000 in fiscal 1994. The primary reason for the year-to-year
decline was ICG's
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<PAGE>
decision to defer the quarterly newsletter to breeders and owners of purebred
dogs. In fiscal 1995, ICG prepared and mailed two newsletters compared to four
newsletters in fiscal 1994.
Losses from Operations
ICG's loss from operations declined 5% to $1,731,000 in fiscal 1995 from
$1,818,000 in fiscal 1994. The decrease in the loss from operations resulted
from revenues and the resulting gross profit increasing at a faster rate than
operating expenses.
Interest Expense
ICG's interest expense increased from $28,000 in fiscal 1994 to $52,000 in
fiscal 1995. The increase in interest expense was due primarily to the full
year impact of equipment purchased in fiscal 1994 under non-cancelable lease
agreements which have been classified and accounted for as capital leases.
Other income was $43,000 in fiscal 1995 compared to $79,000 in fiscal 1994.
The decrease in other income was due to the reduced amount of cash available to
ICG to invest which was partially offset by a $18,000 gain on the sale of a
fully depreciated asset.
Net Loss
As a result of the foregoing, ICG incurred a net loss of $1,740,000 in
fiscal 1995 compared to a net loss of $1,766,000 in fiscal 1994. Net loss per
share of Common Stock was $.96 in each of fiscal 1995 and 1994. Despite a 2%
reduction in the net loss from $1,766,000 in fiscal 1994 to $1,740,000 in fiscal
1995, the net loss per share remained constant due to the reduction in the
number of shares of Common Stock outstanding. The net loss per share of Common
Stock is computed using the weighted average number of shares of Common Stock
outstanding during the period.
In both calculations, the effect of stock options and warrants are excluded
from the computation as their effect is anti-dilutive. However, Common Stock
options issued during the 12 month period prior to the initial public offering
at prices below the public offering price of $7.00 per share have been included
in the 1994 calculation as if they were outstanding for the period presented
(using the treasury share method).
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations has been negative each year since inception as
research and development, selling, general and administrative and advertising
and promotional expenses have exceeded revenues from ICG's products and
services. For the year ended June 30, 1996, the cash flow deficiency from
operations was $1,380,000 compared to a cash flow deficiency of $1,650,000 for
the year ended June 30, 1995. The impact of a $130,000 reduction in the net
loss was increased by significantly higher accounts payable and accrued expense
levels.
ICG purchased approximately $3,000 in office and product manufacturing
equipment in fiscal 1996. During the 1995 and 1994 fiscal years, ICG's
purchases of equipment were $34,000 and $28,000 respectively. ICG expects to
continue to invest in equipment based on its need for enhanced capabilities to
support research, product development, manufacturing, warehousing and product
distribution and to accommodate increased sales.
On August 17, 1995, S. R. One, Limited invested an additional $850,000 less
expenses of $50,000 associated with the investment and converted $400,000 of
demand notes plus accrued interest of $10,144 into 1,008,155 shares of Common
Stock at a price of $1.25 per share. On December 22, 1995, S. R. One, Limited
advanced to ICG $500,000 under the terms of a demand note bearing interest at
the prime rate plus two points.
On October 19, 1995, ICG signed an agreement with the Cornell Research
Foundation, the University of Medicine and Dentistry of New Jersey and New York
University for the exclusive rights to the U.S. patent entitled "Relaxin Testing
for Early Detection of Pregnancy in Dogs." Payments associated with this
agreement
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and legal fees incurred with this transaction amounted to $41,000. In addition,
ICG has entered into a Sponsored Research Agreement with each university for the
co-development of a canine pregnancy test kit based on the underlying technology
covered by the patent.
At June 30, 1996, ICG had a net working capital deficit of $836,000 and for
the 1996 fiscal year operated at a deficit of $1,380,000. ICG has suffered
losses from operations since inception which causes substantial doubt about its
ability to continue as a going concern. ICG will require funds in addition to
those currently available to continue its sales, marketing and product
development activities for the next twelve months. ICG continues to explore
financing options; however, no assurances can be given that such funds will be
available on terms which are satisfactory to ICG or its stockholders.
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DIRECTORS AND EXECUTIVE OFFICERS OF ICG
Paul A. Rosinack is the only current director or executive officer of ICG
who will serve as a director or executive officer of Synbiotics after the
Acquisition.
MR. PAUL A. ROSINACK, 49, has served as the President, Chief Executive
Officer and a Director of ICG since December 1992. Mr. Rosinack joined ICG in
December 1991. He was appointed a Director in August 1992 and President and
Chief Executive Officer in December 1992. From December 1991 to December 1992,
he served as ICG's Chief Operating Officer and directed all marketing and
veterinary services activities. From June 1990 to December 1991 Mr. Rosinack
was an independent consultant to biotechnology companies. Mr. Rosinack has over
twenty years of diversified management experience in marketing, finance, product
development and manufacturing with biotechnology and diagnostic product
companies. Most recently, he was Chief Executive Officer and Director from
March 1989 to June 1990 of Leeco Diagnostics, Inc., a company which researches,
develops, manufactures and markets in-vitro immunodiagnostic test kits and
reagents. Prior to Leeco, from November 1983 to March 1989 he served as
President and Chief Executive Officer and as a Director of Cytotech, Inc., a
biotechnology company engaged in the development, manufacturing and marketing of
autoimmune disease in-vitro diagnostic kits and reagents. While at Cytotech,
Mr. Rosinack served as a Director of the San Diego Venture Group. From May 1980
to February 1983, Mr. Rosinack served as the Vice President, Sales and Marketing
for Hybritech, Inc., a company which develops and markets in-vitro diagnostic
products. Mr. Rosinack received a BA from Otterbein College. Mr. Rosinack will
serve as Vice President and General Manager, Animal Health of Synbiotics after
the Acquisition.
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EXECUTIVE COMPENSATION AND CERTAIN OTHER EMPLOYMENT MATTERS OF ICG
Summary Compensation Table
The following table sets forth certain information concerning the
compensation paid during the fiscal years ended June 30, 1996, 1995, and 1994 to
ICG's Chief Executive Officer who will continue to serve as an executive officer
of Synbiotics after the Acquisition.
<TABLE>
<CAPTION>
Name and Principal Fiscal Other Annual Restricted LTIP All Other
Position Year Salary Bonus Compensation Stock Awards Options(#) Payouts Compensation
- --------------------- ------ ------- ----- ------------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul A. Rosinack 1996 145,042 None (1) None 30,000 None None
President & 1995 146,200 None (1) None None None None
CEO 1994 136,000 None (1) None 45,000 None None
- ---------------------------
</TABLE>
/(1)/ Amount does not exceed the lesser of $50,000 or 10% of total
salary and bonus.
1996 Fiscal Year-End Option Values
The following table provides information relating to the number and value
of employee options held by ICG's Chief Executive Officer at the end of the 1996
fiscal year. The Chief Executive Officer did not exercise any options during the
1996 fiscal year. None of the options were in-the-money at fiscal year-end.
<TABLE>
<CAPTION>
Number of
Unexercised Options
at Fiscal Year-End(#)
Name --------------------------
---------------- Exercisable Unexercisable
==========================
<S> <C>
Paul A. Rosinack...... 64,583 43,750
</TABLE>
Pursuant to the Purchase Agreement, upon the Acquisition Date Paul A.
Rosinack, now the Chief Executive Officer and President of ICG, will become Vice
President and General Manager, Animal Health of Synbiotics at an annual salary
of $160,000. In addition, he will receive stock options to purchase 25,000
shares of Synbiotics Common Stock and an interest-free loan of up to $50,000 to
cover relocation expenses. The loan will be forgiven over time if Mr. Rosinack
continues as a Synbiotics employee.
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<PAGE>
SECURITY OWNERSHIP OF
CERTAIN ICG BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, according to
information supplied to ICG regarding the number and percentage of shares of
ICG's Common Stock beneficially owned on August 1, 1996: (i) by each person who
is the beneficial owner of more than 5% of the Common Stock; (ii) by each
director (who is a nominee or continuing director); (iii) by each executive
officer named in the Summary Compensation Table and (iv) by all directors and
executive officers of ICG as a group.
<TABLE>
<CAPTION>
Percentage
Name of Amount and Nature of Shares
Beneficial Owner of Beneficial Ownership(1) Outstanding(1)
- ------------------------------------------ ----------------------------- ----------------
<S> <C> <C>
S. R. One, Limited 2,283,941 (2) 73.3
Bay Colony Executive Park
Suite 315
565 East Swedesford Road
Wayne, PA 19087
Michael Cuneo 11,957 (3) *
c/o Howard Larson & Co.
Two Penn Center Plaza
Suite 140
Philadelphia, PA 19102
Paul A. Rosinack 66,583 (4) 2.3
271 Great Valley Parkway
Malvern, PA 19355
Peter A. Sears 2,283,941 (5) 73.3
S. R. One, Limited
Bay Colony Executive Park
Suite 315
565 East Swedesford Road
Wayne, PA 19087
R. Grady Rankin 148,142 (6) (7) 5.2
c/o State Capital Resource Center, Inc.
4010 Barrett Drive, Suite 205
Raleigh, NC 27609
Donald Lein, DVM, PhD 14,986 (8) *
Cornell University Veterinary School
Diagnostic Laboratories
NY State College of
Veterinary Medicine
Ithaca, NY 14851-0786
Stephen Hartogensis 22,693 (9) *
1070 Broadmoor Road
Bryn Mawr, PA 19010
All directors and officers 2,571,781 (10) 79.0
as a group (seven persons)
</TABLE>
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- -----------------------------------
* Denotes less than 1%
(1) Except as indicated in the footnotes to this table, the stockholders named
in this table have sole voting and investment power with respect to all
shares of Common Stock owned based upon information provided to ICG by such
stockholders. Includes shares issuable upon exercise of options and
warrants exercisable within 60 days of August 1, 1996.
(2) S.R. One, Limited ("S.R. One") is a wholly-owned subsidiary of SmithKline
Beecham Corporation, a publicly-owned health care company. Peter A. Sears,
the President of S.R. One, is a member of the Board of Directors of ICG.
See "Purchase Agreement--S.R. One Closing" for information regarding S.R.
One's agreement to invest in Synbiotics pursuant to the terms of the
Purchase Agreement. Includes warrants to purchase 296,070 shares of Common
Stock.
(3) Includes 9,600 shares issuable upon exercise of options and 2,236 issuable
upon exercise of warrants.
(4) Includes 64,583 shares issuable upon the exercise of options.
(5) Represents shares beneficially owned by S.R. One, of which Mr. Sears is
President. Mr. Sears disclaims beneficial ownership as to such shares.
(6) Includes 16,667 shares owned by Mr. Rankin's wife. Mr. Rankin disclaims
beneficial ownership as to such shares.
(7) Includes 12,600 shares issuable upon the exercise of options held by Mr.
Rankin and 6,375 shares issuable upon the exercise of options held by Mr.
Rankin's wife. Mr. Rankin disclaims beneficial ownership of the 6,375
shares.
(8) Includes 12,600 shares issuable upon the exercise of options and 2,236
shares issuable upon exercise of warrants.
(9) Includes 13,457 shares issuable upon the exercise of options and 2,236
shares issuable upon exercise of warrants.
(10) Includes 435,372 shares issuable upon the exercise of options and warrants
and the shares referenced in footnote 6 above.
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<PAGE>
CERTAIN TRANSACTIONS OF ICG
During the fourth quarter of fiscal 1995, S.R. One, a principal stockholder
of ICG, advanced $400,000 to ICG under various demand notes bearing interest at
an annual rate of 11%.
On August 17, 1995, S.R. One invested an additional $850,000 less expenses
of $50,000 associated with the investment and converted the principal balances
of the demand notes plus accrued interest into 1,008,115 shares of Common Stock
at a price of $1.25 per share. Peter A. Sears, the Chairman of the Board of
Directors of ICG, is the president of S.R. One. On December 22, 1995, ICG
borrowed $500,000 from S.R. One pursuant to a demand note bearing interest at
price plus two points.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the ICG's
officers and directors, and persons who own more than 10% of a registered class
of ICG's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% shareholders
are required by SEC regulation to furnish ICG with copies of all Section 16(a)
forms they file.
Based solely on review of the copies of such forms furnished to ICG, or
written representations that no Forms 5 were required, ICG believes that, during
the fiscal year ended June 30, 1996, all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with by such persons or entities.
STOCKHOLDER PROPOSALS FOR ICG 1997 PROXY STATEMENT
In the event that the sale of ICG's assets to Synbiotics is not consummated
as contemplated in this Joint Proxy Statement, any properly submitted proposal
which a stockholder intends to present at the 1997 Annual Meeting of
Stockholders must be received by ICG by June 29, 1997 if it is to be included in
ICG's proxy statement and form of proxy relating to the next Annual Meeting.
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<PAGE>
DESCRIPTION OF SYNBIOTICS CAPITAL STOCK
The authorized capital stock of Synbiotics consists of 24,800,000 shares of
Common Stock, no par value per share, and 200,000 shares of Series B Common
Stock, no par value per share.
COMMON STOCK
The holders of Synbiotics Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the shareholders.
Holders of Synbiotics Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors of Synbiotics out of
funds legally available. In the event of liquidation, dissolution or winding up
of Synbiotics, holders of Synbiotics Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities, such that the holders of
Common Stock shall be entitled to receive, prior and in preference to any
distribution to the holders of Series B Common Stock the greater of (a) ten
dollars for each share of Common Stock then held by them or (b) an amount for
each share of Common Stock then held by them equal to ten times the amount
which, after such distribution, would remain available for distribution to
holders of Series B Common Stock for each share of Series B common Stock then
held by them. If the assets available for distribution among the holders of the
stock are insufficient to permit the payment to the holders of Common Stock of
the indicated preferential amount, then the entire amount of assets available
for distribution to the holders of the stock shall be distributed among the
holders of Common Stock ratably. Holders of Synbiotics Common Stock have no
preemptive rights. There are no redemption or sinking fund provisions
applicable to the Synbiotics Common Stock. All outstanding shares of Synbiotics
Common Stock are fully paid and nonassessable.
If the Charter Amendment is approved by the shareholders of Synbiotics,
Synbiotics' Restated Articles will contain no provision relating to dividends or
to the liquidation, dissolution or winding up of Synbiotics, whether voluntary
or involuntary.
SERIES B COMMON STOCK
The holders of Synbiotics Series B Common Stock are entitled to one-tenth
vote for each share held of record on all matters submitted to a vote of the
shareholders. No dividends may be declared or paid with respect to any share of
Series B Common Stock. In the event of liquidation, dissolution or winding up
of Synbiotics, holders of Synbiotics Series B Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and a certain
liquidation preference to the holders of Common Stock, such that the largest
amount that the holders of Series B Common Stock, as a class, shall be entitled
to receive is one-eleventh of any distribution of assets. Holders of Synbiotics
Series B Common Stock have no preemptive rights. There are no redemption or
sinking fund provisions applicable to the Synbiotics Series B Common Stock.
There are no outstanding shares of Synbiotics Series B Common Stock.
At September 6, 1996, there were 5,999,956 shares of Synbiotics Common
Stock outstanding and held of record by approximately 574 shareholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Synbiotics' Common Stock is Chase
Mellon Shareholder Services (effective September 3, 1996).
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<PAGE>
COMPARISON OF RIGHTS OF HOLDERS
OF SYNBIOTICS AND ICG COMMON STOCK
Upon distribution of the Acquisition Shares to the stockholders of ICG,
which is a corporation organized under Delaware law, the ICG stockholders will
become shareholders of Synbiotics, a corporation governed by the laws of
California, as well as by the Restated Articles and Bylaws of Synbiotics. There
are substantial similarities between California and Delaware law, as well as
between the corporation charters and Bylaws of Synbiotics and ICG; however, a
number of differences do exist. The following is a summary of those differences
that might significantly affect the rights of ICG stockholders.
Stockholder Approval of Acquisitions, Reorganizations and Certain Business
--------------------------------------------------------------------------
Combinations. Both the California Law and the Delaware General Corporation Law
- ------------
(the "Delaware Law") generally require that a majority of the stockholders of
both the acquiring and target corporations approve statutory mergers. The
Delaware Law does not require a stockholder vote of the surviving corporation in
a merger (unless the corporation provides otherwise in its certificate of
incorporation) if (i) the merger agreement does not amend the existing
certificate of incorporation, (ii) each share of the surviving corporation
outstanding before the merger is an identical outstanding or treasury share
after the merger and (iii) the number of shares to be issued by the surviving
corporation in the merger does not exceed 20% of the shares outstanding
immediately prior to the merger. The California Law contains a similar
exception to its voting requirements for reorganizations of corporations whose
shareholders immediately prior to the reorganization, or the corporation itself,
or both, will, immediately after the reorganization, own equity securities
constituting more than five-sixths of the voting power of the surviving or
acquiring corporation or its parent entity.
Both the California Law and the Delaware Law also require that a sale of
all or substantially all of the assets of a corporation be approved by a
majority of the voting shares of the corporation transferring such assets.
The Delaware Law generally does not require class voting, except in certain
transactions involving an amendment to the certificate of incorporation which
adversely affects a specific class of shares. In contrast, with certain
exceptions, the California Law requires that mergers, reorganizations, certain
sales of assets and similar transactions be approved by a majority vote of each
class of shares outstanding, subject to certain exceptions. Therefore, should
Synbiotics authorize and issue shares of a new class of capital stock, the
holders thereof would generally vote as a separate class. As a result, the
holders of Common Stock, if in the minority, would be unable to control the
outcome of a vote, and, if in the majority, would be able to control the outcome
of such a vote.
Section 1203 of the California Law also provides that, except in certain
circumstances, when a tender offer or a proposal for a reorganization or for a
sale of assets is made by an interested party (generally a controlling or
managing party of the target corporation), an affirmative opinion in writing as
to the fairness of the consideration to be paid to the shareholders must be
delivered to shareholders. This fairness opinion requirement does not apply to
a corporation which does not have shares held of record by a least 100 persons,
or to a transaction which has been qualified under California state securities
laws. Furthermore, if a tender of shares or vote is sought pursuant to an
interested party's proposal and a later proposal is made by another party at
least ten days prior to the date of acceptance of the interested party proposal,
the shareholder must be informed of the later offer and be afforded a reasonable
opportunity to withdraw any vote, consent or proxy, or to withdraw any tendered
shares.
The California Law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its affiliate
unless all of the holders of such common stock consent to the transaction. This
provision of the California Law may have the effect of making a "cash-out"
merger by a majority shareholder more difficult to accomplish.
Although the Delaware Law does not parallel the California Law in this
respect, under some circumstances, Section 203 of the Delaware Law ("Section
203") does provide similar protection against coercive two-tiered bids for a
corporation in which the stockholders are not treated equally. Section 203 only
applies
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to Delaware corporations which have a class of voting stock that is listed on a
national securities exchange, are quoted on an interdealer quotation system or
are held of record by more than 2,000 stockholders. A Delaware corporation may
elect not to be governed by Section 203 by a provision in its original
certificate of incorporation or an amendment thereto or to the bylaws, which
amendment must be approved by majority stockholder vote and may not be further
amended by the board of directors.
Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years following the date
that such person becomes an interested stockholder. With certain exceptions, an
interested stockholder is a person or group who or which owns 15% or more of the
corporation's outstanding voting stock (including any rights to acquire stock
pursuant to an option, warrant, agreement, arrangement or understanding, or upon
the exercise of conversion or exchange rights, and stock with respect to which
the person has voting rights only), or is an affiliate or associate of the
corporation and was the owner of 15% or more of such voting stock at any time
within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder, sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to 10% or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested stockholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date on which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
an interested stockholder (excluding from the 85% calculation shares owned by
directors who are also officers of the target corporation and shares held by
employee stock plans which do not permit employees to decide confidentially
whether to accept a tender or exchange offer); or (iii) on or after the date
such person becomes an interested stockholder, the board approves the business
combination and it is also approved at a stockholder meeting by 66-2/3% of the
voting stock not owned by the interested stockholder.
Section 203 has been challenged in lawsuits arising out of ongoing takeover
disputes, and it is not yet clear whether and to what extent its
constitutionality will be upheld by the courts. Although the United States
District Court for the District of Delaware has consistently upheld the
constitutionality of Section 203, the Delaware Supreme Court has not yet
considered the issue. Section 203 has the effect of limiting the ability of a
potential acquiror to make a two-tiered bid for a corporation in which all
stockholders would not be treated equally. Section 203 should also discourage
certain potential acquirors unwilling to comply with its provisions.
Rights Upon Liquidation. ICG's Restated Certificate of Incorporation (the
-----------------------
"Restated Certificate") permits the Board of Directors to fix by resolution any
provisions relating to the rights, preferences and privileges of its preferred
stock upon any liquidation, dissolution or winding up of ICG.
Synbiotics's Restated Articles state that in the event of liquidation,
dissolution or winding up of Synbiotics, holders of Synbiotics Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
such that the holders of Common Stock shall be entitled to receive, prior and in
preference to any distribution to the holders of Series B Common Stock the
greater of (a) ten dollars for each share of Common Stock then held by them or
(b) an amount for each share of Common Stock then held by them equal to ten
times the amount which, after such distribution, would remain available for
distribution to holders of Series B Common Stock for each share of Series B
common Stock then held by them. If the assets available for distribution among
the holders of the stock are insufficient to permit the payment to the holders
81
<PAGE>
of Common Stock of the indicated preferential amount, then the entire amount of
assets available for distribution to the holders of the stock shall be
distributed among the holders of Common Stock ratably.
However, if the Charter Amendment is approved by the shareholders of
Synbiotics, Synbiotics' Restated Articles will contain no provision relating to
the liquidation, dissolution or winding up of Synbiotics, whether voluntary or
involuntary.
Cumulative Voting. Both the California Law and Synbiotics's Bylaws provide
-----------------
for cumulative voting of shares by any shareholder in any election of directors
provided that (i) the name of the candidate for whom the shareholder wishes to
cumulate votes has been placed in nomination prior to commencement of the voting
and (ii) the shareholder has given notice prior to commencement of the voting of
his, her or its intent to cumulate votes. If any shareholder has given the
notice set forth in clause (ii) above, all shareholders are entitled to cumulate
votes.
Under the Delaware Law, cumulative voting in the election of directors is
not mandatory, and ICG's Bylaws do not provide for cumulative voting.
Classified Board of Directors. A classified board is one in which a
-----------------------------
certain number, but not all, of the directors are elected on a rotating basis
each year. ICG's Restated Certificate and Bylaws do not provide for a
classified Board of Directors. Likewise, Synbiotics' Restated Articles and
Bylaws do not provide for a classified Board of Directors.
Size of the Board of Directors. The Bylaws of ICG provide for a Board of
-------------------------------
Directors of from three to 12 members, with the number of directors currently
set at six. This fixed number may be changed within the stated range by the ICG
Board of Directors or a vote of a majority of the outstanding shares of ICG
stock entitled to vote.
The Bylaws of Synbiotics provide for a Synbiotics Board of Directors of
from five to nine members, with the exact number currently set at six members.
The indefinite number of directors may be changed, or a definite number may be
fixed without provision for an indefinite number, by the vote of the holders of
a majority of the outstanding Synbiotics shares entitled to vote, provided,
however, that an amendment reducing the fixed number or the minimum number of
directors to a number less than five cannot be adopted if the votes cast against
its adoption are equal to more than 16-2/3% of the outstanding shares entitled
to vote thereon.
Removal of Directors. Section 141(k) of the Delaware Law provides that (i)
--------------------
in the case of a Delaware corporation having cumulative voting, if less than the
entire board is to be removed, a director may not be removed without cause
unless the number of shares voted against such removal would not be sufficient
to elect the director under cumulative voting and, in the case where the holders
of a class or series are entitled to elect one or more directors, any director
so elected may not be removed without cause unless the number of shares voted
against such removal (based on the vote of the holders of the outstanding shares
of that class or series) would not be sufficient to elect the director under
cumulative voting and (ii) a director of a corporation with a classified board
of directors may be removed only for cause, unless the certificate of
incorporation otherwise provides. ICG does not have cumulative voting and does
not have a classified board of directors, therefore Section 141(k) of the
Delaware Law does not restrict the ability of ICG's stockholders to remove
directors. Any individual ICG director may be removed from office at any time
with or without cause, by the affirmative vote of a majority of shares entitled
to vote at an election of directors.
Section 303 and 304 of the California Law provide that (i) directors may be
removed by the remainder of the board, without cause, upon approval by the
holders of a majority of the outstanding shares of common stock entitled to vote
(subject to certain limitations which prevent any such removal where the removal
is opposed by a number of votes sufficient to elect a director, if the
corporation's board were elected by a cumulative vote) and (ii) directors may be
removed for fraudulent or dishonest acts or gross abuses of authority or
discretion following a suit brought by shareholders holding at least 10% of the
outstanding shares of any class of capital stock. In addition, Section 302 of
the California Law permits a corporation's board to remove directors declared of
unsound mind by a court or convicted of a felony.
82
<PAGE>
Filling Vacancies on the Board of Directors. ICG's Restated Certificate
-------------------------------------------
and Bylaws provide that any vacancy on the ICG Board of Directors that results
from an increase in the number of directors and any other vacancy on the ICG
Board of Directors may be filled by a majority of the directors then in office
(even though less than a quorum) or by a sole remaining director. If, at the
time of filling any vacancy or newly created directorship, the directors then in
office shall constitute less than a majority of the Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholder's holding at least 10% of the
total number of shares of the time outstanding having the right to vote for such
directors, order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office.
Synbiotics's Bylaws provide that any vacancy on the Synbiotics Board of
Directors other than one created by removal of a director may be filled by a
majority of the remaining directors even if less than a quorum, or by a sole
remaining director. In addition, California Law provides that a vacancy created
by the removal of a director by a shareholder vote or by a court order may be
filled only (i) by a vote of the holders of a majority of shares entitled to
vote at a duly called shareholder meeting or (ii) by the unanimous written
consent of all outstanding shares entitled to vote thereon, unless the Bylaws of
Articles of Incorporation of such corporation provide otherwise. Each director
so elected shall hold office until the next annual meeting of the shareholders
and until a successor has been elected and qualified. Any vacancies on the
Board of Directors (other than those created by removal) not filled by the
directors may be filled by written consent of the holders of a majority of the
outstanding shares entitled to vote thereon.
Amendments to Charter Documents. Pursuant to the Delaware Law and ICG's
-------------------------------
Restated Certificate, the Restated Certificate may be amended with the approval
of the ICG Board of Directors and upon adoption thereof by the affirmative vote
of a majority of the votes cast by the holders of ICG capital stock entitled to
vote thereon; however, any amendment to Article V, VII, XI, XII, XIII or XIV of
the Restated Certificate requires the affirmative vote of at least 66-2/3% of
the holders of all the outstanding shares entitled to vote thereon.
In contrast, neither Synbiotics' Restated Articles nor Bylaws contain any
provisions relating to amendments to the Articles of Incorporation of
Synbiotics. However, under the California Law, Synbiotics' Restated Articles
may be amended with the approval of the Synbiotics Board of Directors and, in
certain instances, the approval of the holders of a majority (or, in certain
instances, a super majority) of the outstanding Synbiotics shares entitled to
vote.
Amendments to Bylaws. Under the Delaware Law, bylaws may be amended or
--------------------
repealed or new bylaws adopted by action of the stockholders entitled to vote
thereon; provided, however, that any corporation may, in its certificate of
incorporation, confer the power to adopt, amend or repeal bylaws upon its Board
of Directors; provided that no amendment or supplement to the bylaws adopted by
the Board of Directors may vary or conflict with any amendment or supplement
adopted by the stockholders. The Restated Certificate confers upon the Board of
Directors and stockholders of ICG the right to alter or repeal any bylaw at any
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration or repeal be contained in the notice of such special meeting.
Synbiotics's Bylaws may be amended or repealed or new bylaws may be adopted
by either the Synbiotics Board of Directors or by the holders of Synbiotics
Common Stock entitled to exercise a majority of the voting power; provided that
(i) if the Articles of Incorporation of Synbiotics set forth the number of
authorized directors, then the authorized number of directors may be changed
only by an amendment of the Articles of Incorporation, and (ii) the authority of
the Synbiotics Board of Directors to amend or repeal bylaws or adopt new bylaws
is subject to the authority of the Synbiotics shareholders.
Power to Call Special Shareholders' Meetings; Shareholder Action by Written
---------------------------------------------------------------------------
Consent; Requiring Shareholder Notice of New Business at Synbiotics Meeting.
- ----------------------------------------------------------------------------
Pursuant to ICG's Bylaws, special meetings of ICG's stockholders may be called
at any time by the ICG President or Chairman of the Board and will be called by
the President or Secretary at the request in writing of a majority of the Board
of Directors or stockholders owning at least 10% of the capital stock of ICG
issued and outstanding and entitled to vote. ICG's Bylaws permit the
stockholders to act by the written consent of the outstanding shares having not
less than the minimal
83
<PAGE>
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
ICG's Bylaws do not require the stockholders of ICG to provide prior written
notice to ICG in order to submit new matters at the stockholders' annual meeting
or at a special meeting.
Similarly, pursuant to Synbiotics' Bylaws, special meetings of Synbiotics'
shareholders may be called at any time by the Board of Directors, the chairman
of the Board, the President, a Vice President, the Secretary or by one or more
shareholders holding not less than 10% of the voting power of the corporation.
Synbiotics's Bylaws permit the Synbiotics shareholders to act by the written
consent of the outstanding shares having not less than the minimal number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted, provided that
in acting to elect a director, other than to fill a vacancy on the Board of
Directors, Synbiotics' Bylaws require shareholders to fill such vacancy by the
unanimous written consent of holders of the shares entitled to vote for the
election of directors. Synbiotics' Bylaws do not require its shareholders to
provide prior written notice to Synbiotics in order to submit new matters at the
shareholders' annual meeting.
Loans to Officers and Employees. Under the Delaware Law, a corporation may
-------------------------------
make loans to, guarantee the obligations of or otherwise assist its officers or
other employees and those of its subsidiaries (including directors who are also
officers of employees) when such action, in the judgment of the directors, may
reasonably be expected to benefit the corporation.
Under the California Law, Synbiotics may, upon approval of the Board of
Directors alone, make loans of money or property to, or guarantee the
obligations of, any officer of Synbiotics or its parent or subsidiary, whether
or not a director, or adopt an employee benefit plan or plans authorizing such
loans or guaranties provided that (i) the Board of Directors determines that
such a loan or guaranty or plan may reasonably be expected to benefit
Synbiotics, (ii) Synbiotics has outstanding shares held of record by 100 or more
persons (as determined in Section 605 of the California Law) on the date of
approval by the Board of Directors, and (iii) the approval of the Board of
Directors is a vote sufficient without counting the vote of any interested
director or directors.
Indemnification and Limitation of Liability. There are certain differences
-------------------------------------------
between the California Law and the Delaware Law respecting indemnification and
limitation of liability. The laws of both states permit corporations to adopt a
provision in their articles of incorporation eliminating the liability of a
director to the corporation or its shareholders for monetary damages for breach
of the director's fiduciary duty of care. ICG's Restated Certificate eliminates
the liability of directors for monetary damages to the corporation to the
fullest extent permitted by the Delaware Law. The Delaware Law does not permit
the elimination of monetary liability where such liability is based on: (i)
breaches of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law; (iii) the payment of unlawful dividends
or unlawful stock repurchases or redemptions; or (iv) transactions from which
the director received an improper personal benefit. Such limitations of
liability provision also may not limit a director's liability for violation of,
or otherwise relieve ICG or its directors from the necessity of complying with
federal or state securities laws, or affect the availability of nonmonetary
remedies such as injunctive relief or rescission.
Synbiotics' Restated Articles eliminate the liability of directors for
monetary damages to the corporation to the fullest extent currently permissible
under the California Law. The California Law does not permit the elimination of
monetary liability where such liability is based on: (i) intentional misconduct
or knowing and culpable violation of law; (ii) acts or omissions that a director
believes to be contrary to the best interests of the corporation or its
shareholders, or that involve the absence of good faith on the part of the
director; (iii) receipt of an improper personal benefit; (iv) acts or omissions
that show reckless disregard for the director's duty to the corporation or its
shareholders, where the director in the ordinary course of performing a
director's duties should be aware of a risk of serious injury to the corporation
or its shareholders; (v) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
corporation and
84
<PAGE>
its shareholders; (vi) interested transactions between the corporation and a
director in which a director has a material financial interest; and (vii)
liability for improper distributions, loans or guarantees.
The Bylaws of ICG provide for indemnification of its officers and directors
to the fullest extent permitted by the Delaware Law. The Delaware Law generally
permits indemnification of expenses incurred in the defense or settlement of a
derivative or third-party action, provided there is a determination by a
disinterested quorum of the directors, by independent legal counsel or by a
majority vote of a quorum of the stockholders that the person seeking
indemnification acted in good faith and in a manner reasonably believed to be in
or (in contrast to the California Law) not opposed to the best interests of the
corporation. Without court approval, however, no indemnification may be made in
respect of any derivative action in which such person is adjudged liable for
negligence or misconduct in the performance of his duty to the corporation. The
Delaware Law requires indemnification of expenses when the individual being
indemnified has successfully defended the action on the merits or otherwise.
Likewise, the Restated Articles of Synbiotics provide for indemnification
of its officers and directors to the fullest extent permitted by the California
Law. The California Law permits indemnification of expenses incurred in
derivative or third-party actions, except that with respect to derivative
actions (i) no indemnification may be made without court approval when a person
is adjudged liable to the corporation in the performance of that person's duty
to the corporation and its shareholders, unless a court determines such person
is entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, and (ii) no indemnification
may be made without court approval in respect of amounts paid or expenses
incurred in settling or otherwise disposing of a threatened or pending action or
amounts incurred in defending a pending action which is settled or otherwise
disposed of without court approval.
Indemnification is permitted by the California Law only for acts taken in
good faith and believed to be in the best interests of the corporation and its
shareholders, as determined by a majority vote of a disinterested quorum of the
directors, independent legal counsel (if a quorum of independent directors is
not obtainable), a majority vote of a quorum of the shareholders (excluding
shares owned by the indemnified party) or the court handling the action.
The California Law requires indemnification when the individual has
successfully defended the action on the merits (as opposed to Delaware law which
requires indemnification relating to a successful defense on the merits or
otherwise).
The Delaware Law provides that the indemnification provided by statute
shall not be deemed exclusive of any other rights under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
Both the California Law and the Restated Articles of Synbiotics provide for
indemnification of agents (as defined in Section 317 of the California Law)
through bylaws, agreements with agents, vote of shareholders or disinterested
directors or otherwise in excess of that specifically authorized by Section 317
of the California Law, subject to certain limits set forth in Section 204 of the
California Law. Synbiotics has entered into indemnification agreements with its
officers and directors.
Inspection of Stockholder List. Both the California Law and the Delaware
------------------------------
Law allow any stockholder to inspect the stockholder list for a purpose
reasonably related to such person's interest as a stockholder. The California
Law provides, in addition, for an absolute right to inspect and copy the
corporation's shareholder list by persons holding an aggregate of 5% or more of
a corporation's voting shares or shareholders holding an aggregate of 1% or more
of such shares who have filed a Schedule 14B with the Securities and Exchange
Commission relating to the election of directors.
The Delaware Law does not provide for any such absolute right of
inspection, and no such right is granted under the Restated Certificate or
Bylaws of ICG, except with respect to the right of stockholders to examine a
complete list of the stockholders entitled to vote at a meeting of stockholders,
for any purpose germane to the meeting, for a period of at least 10 days prior
to the meeting. Lack of access to stockholder records, even though unrelated to
the stockholder's interest as a stockholder, could result in impairment of the
85
<PAGE>
stockholder's ability to coordinate opposition to management proposals,
including proposals with respect to a change in control of the corporation.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP serves as Synbiotics' independent accountants.
Representatives of Price Waterhouse LLP are expected to be present at the
Synbiotics Meeting, will be given the opportunity to make a statement, if they
desire to do so, and will be available to respond to appropriate questions.
Coopers & Lybrand L.L.P. serves as ICG's independent accountants.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at the
ICG Meeting, will be given the opportunity to make a statement, if they desire
to do so, and will be available to respond to appropriate questions.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Synbiotics Common Stock offered hereby will be passed upon for
Synbiotics by Brobeck, Phleger & Harrison LLP, San Diego, California.
McCausland, Keen & Buckman, Radnor, Pennsylvania, is acting as counsel for
ICG in connection with certain legal matters relating to the Acquisition and the
transactions contemplated thereby.
EXPERTS
The financial statements as of December 31, 1995 and 1994 and for the year
ended December 31, 1995, the nine months ended December 31, 1994 and the year
ended March 31, 1994 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The balance sheets as of June 30, 1995 and June 30, 1996 and the statements
of operations, stockholders' equity (deficit) and cash flows for each of the
three years in the period ended June 30, 1996 of International Canine Genetics,
Inc. included in this Registration Statement, have been included herein in
reliance upon the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in auditing and accounting.
86
<PAGE>
OTHER MATTERS
Synbiotics. Price Waterhouse LLP has served as the independent accountants
----------
of Synbiotics for a number of years. Although management anticipates that this
relationship will continue to be maintained during fiscal 1996, it is not
proposed that any formal action be taken at the Synbiotics Meeting with respect
to the continued engagement of Price Waterhouse LLP.
The Synbiotics Board of Directors knows of no other business which will be
presented at the Synbiotics Meeting. If any other business is properly brought
before the Synbiotics Meeting, it is intended that proxies in the enclosed form
will be voted in respect thereof in accordance with the judgments of the persons
voting the proxies. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SYNBIOTICS
MEETING, YOU ARE URGED TO COMPLETE, SIGN AND RETURN YOUR PROXY PROMPTLY.
ICG. The ICG Board of Directors knows of no other business which will be
presented at the ICG Meeting. If any other business is properly brought before
the ICG Meeting, it is intended that proxies in the enclosed form will be voted
in respect thereof in accordance with the judgments of the persons voting the
proxies. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ICG MEETING, YOU ARE
URGED TO COMPLETE, SIGN AND RETURN YOUR PROXY PROMPTLY.
BY ORDER OF THE SYNBIOTICS BOARD OF DIRECTORS
_____________ __, 1996 Michael K. Green, Secretary
San Diego, California
BY ORDER OF THE ICG BOARD OF DIRECTORS
_____________ __, 1996 John R. Bauer, Secretary
Malvern, Pennsylvania
87
<PAGE>
INDEX TO FINANCIAL STATEMENTS
SYNBIOTICS FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Condensed Balance Sheet as of June 30, 1996 (unaudited).............. F-2
Condensed Statement of Operations for the six months ended
June 30, 1996 (unaudited)............................................ F-3
Condensed Statement of Cash Flows for the six months ended
June 30, 1996 (unaudited)............................................ F-4
Notes to Financial Statements for the six months ended
June 30, 1996 (unaudited)............................................ F-5
Report of Independent Accountants.................................... F-6
Balance Sheet as of December 31, 1995 and 1994....................... F-7
Statement of Operations for the year ended December 31, 1995,
the nine months ended December 31, 1994 and the year ended
March 31, 1994 F-8
Statement of Cash Flows for the year ended December 31, 1995,
the nine months ended December 31, 1994 and the year ended
March 31, 1994....................................................... F-9
Statement of Shareholders' Equity for the year ended December 31,
1995, the nine months ended December 31, 1994 and the year ended
March 31, 1994....................................................... F-10
Notes to Financial Statements for the year ended
December 31, 1995, the nine months ended December 31, 1994
and the year ended March 31, 1994.................................... F-11
ICG FINANCIAL STATEMENTS
Report of Independent Accountants.................................... F-20
Balance Sheet as of June 30, 1995 and 1996........................... F-21
Statement of Operations for the years ended
June 30, 1994, 1995 and 1996......................................... F-22
Statement of Cash Flows for the years ended
June 30, 1994, 1995 and 1996......................................... F-23
Statements of Stockholders' Equity (Deficit) for each of the three
years in the period ended June 30, 1996.............................. F-24
Notes to Financial Statements for the years
ended June 30, 1994, 1995 and 1996................................... F-25
</TABLE>
F-1
<PAGE>
SYNBIOTICS CORPORATION
CONDENSED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................................... $ 2,970,000 $ 1,017,000
Securities available for sale.................................. 3,087,000
Accounts receivable............................................ 2,124,000 1,430,000
Inventories.................................................... 4,824,000 3,439,000
Other current assets........................................... 565,000 578,000
------------ ------------
Total current assets........................................ 13,570,000 6,464,000
Property and equipment, net...................................... 715,000 879,000
Securities available for sale.................................... -- 2,533,000
Other assets..................................................... 1,778,000 1,582,000
------------ ------------
$ 16,063,000 $ 11,458,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.......................... $ 1,590,000 $ 1,613,000
Other current liabilities...................................... 671,000 697,000
------------ ------------
Total current liabilities................................... 2,261,000 2,310,000
------------ ------------
Shareholders' equity:
Common stock, no par value, 24,800,000 shares authorized,
6,000,000 and 5,816,000 shares issued and outstanding at
June 30, 1996 and December 31, 1995......................... 29,801,000 29,351,000
Unrealized holding losses from securities available for sale... (1,035,000)
Accumulated deficit............................................ (15,999,000) (19,168,000)
------------ ------------
Total shareholders' equity.................................. 13,802,000 9,148,000
------------ ------------
$ 16,063,000 $ 11,458,000
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
F-2
<PAGE>
SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Revenues:
Product sales............................................. $10,851,000 $8,637,000
License fees and other.................................... 230,000 148,000
Interest.................................................. 54,000 17,000
----------- ----------
11,135,000 8,802,000
----------- ----------
Costs and expenses:
Cost of sales............................................. 5,334,000 4,487,000
Research and development.................................. 461,000 418,000
Selling and marketing..................................... 2,358,000 2,360,000
General and administrative................................ 854,000 712,000
----------- ----------
9,007,000 7,977,000
----------- ----------
Income before gain on sale of securities
available for sale and gain on disposition of
investment in affiliated company.......................... 2,128,000 825,000
Gain on sale of securities available for sale............... 1,159,000
Gain on disposition of investment in affiliate.............. -- 931,000
----------- ----------
Income before income taxes.................................. 3,287,000 1,756,000
Provision for income taxes.................................. 118,000 22,000
----------- ----------
Net income.................................................. $ 3,169,000 $1,734,000
=========== ==========
Net income per share........................................ $ .53 $ .30
=========== ==========
Weighted average shares outstanding......................... 5,968,000 5,805,000
=========== ==========
Net income per share was computed based upon the weighted
average number of shares outstanding, including common
stock equivalents.
</TABLE>
See accompanying notes to condensed financial statements.
F-3
<PAGE>
SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 3,169,000 $1,734,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 417,000 507,000
Gain on sale of securities available for sale....... (1,159,000)
Gain on disposition of investment in affiliate...... (931,000)
Changes in assets and liabilities:
Accounts receivable........................... (694,000) (385,000)
Inventories................................... (1,385,000) 111,000
Other assets.................................. -- 35,000
Accounts payable and accrued expenses......... (23,000) (144,000)
Other liabilities............................. (26,000) 2,000
----------- ----------
Net cash provided by operating activities................ 299,000 929,000
----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment................. (37,000) (75,000)
Investment in securities available for sale........... (3,087,000) --
Proceeds from sale of securities available for sale... 4,727,000 --
----------- ----------
Net cash provided by (used for) investing activities..... 1,603,000 (75,000)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net........... 51,000 (10,000)
----------- ----------
Net cash provided by (used for) financing activities..... 51,000 (10,000)
----------- ----------
Net increase in cash and equivalents..................... 1,953,000 844,000
Cash and equivalents -- beginning of year................ 1,017,000 447,000
----------- ----------
Cash and equivalents -- end of period.................... $ 2,970,000 $1,291,000
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying balance sheet as of June 30, 1996 and the statements of
operations and of cash flows for the six month periods ended June 30, 1996 and
1995 have been prepared by Synbiotics Corporations (the Company) and have not
been audited. These financial statements, in the opinion of management, include
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial position, results of operations and cash
flows for all periods presented. The financial statements should be read in
conjunction with the financial statements and the notes thereto as of and for
the year ended December 31, 1995, included elsewhere herein. Interim operating
results are not necessarily indicative of operating results for the full year.
2. SECURITIES AVAILABLE FOR SALE
Included in current assets are securities for sale which consist primarily of
short-term commercial paper.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Raw materials $ 911,000 $ 665,000
Work in progress 636,000 633,000
Finished goods 3,277,000 2,141,000
---------- ----------
$4,824,000 $3,439,000
========== ==========
</TABLE>
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders
of Synbiotics Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of shareholders' equity present fairly, in all
material respects, the financial position of Synbiotics Corporation at December
31, 1995 and 1994, and the results of its operations and its cash flows for the
year ended December 31, 1995, the nine months ended December 31, 1994 and the
year ended March 31, 1994, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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 of disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Diego, California
February 15, 1996
F-6
<PAGE>
SYNBIOTICS CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................. $ 1,017,000 $ 447,000
Accounts receivable (net of allowance for doubtful accounts of
$51,000 and $82,000 at December 31, 1995 and 1994)............ 1,430,000 1,444,000
Inventories...................................................... 3,439,000 2,763,000
Securities available for sale.................................... --- 502,000
Other current assets............................................. 578,000 963,000
------------ ------------
Total current assets............................................. 6,464,000 6,119,000
Property and equipment, net........................................ 879,000 1,329,000
Securities available for sale...................................... 2,533,000 942,000
Other assets....................................................... 1,582,000 1,921,000
------------ ------------
$ 11,458,000 $ 10,311,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................ $ 1,613,000 $ 1,662,000
Other current liabilities........................................ 697,000 695,000
------------ ------------
Total current liabilities........................................ 2,310,000 2,357,000
------------ ------------
Commitments (Note 9)
Shareholders' equity:
Common stock, no par value, 24,800,000 shares authorized,
5,816,000 and 5,803,000 shares issued and outstanding at
December 31, 1995 and 1994.................................... 29,351,000 29,318,000
Unrealized holding losses from securities available for sale..... (1,035,000) (1,695,000)
Accumulated deficit.............................................. (19,168,000) (19,669,000)
------------ ------------
Total shareholders' equity....................................... 9,148,000 7,954,000
------------ ------------
$ 11,458,000 $ 10,311,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
SYNBIOTICS CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
------------- ------------- ------------
<S> <C> <C> <C>
Revenues:
Products....................................... $13,676,000 $ 6,233,000 $14,144,000
Interest....................................... 46,000 75,000 137,000
License fees and others........................ 396,000 234,000 352,000
----------- ----------- -----------
14,118,000 6,542,000 14,633,000
----------- ----------- -----------
Cost and expenses:
Cost of products............................... 8,009,000 3,835,000 6,700,000
Research and development....................... 906,000 833,000 611,000
Selling and marketing.......................... 4,147,000 3,338,000 4,264,000
General and administrative..................... 1,486,000 1,630,000 2,701,000
----------- ----------- -----------
14,548,000 9,636,000 14,276,000
----------- ----------- -----------
(Loss) income before gain on disposition of
investment in affiliate........................ (430,000) (3,094,000) 357,000
Gain on disposition of investment in affiliate... 931,000 2,036,000 --
----------- ----------- -----------
Net income (loss)................................ $ 501,000 $(1,058,000) $ 357,000
=========== =========== ===========
Net income (loss) per share...................... $ .09 $ (.18) $ .06
=========== =========== ===========
Weighted average shares outstanding.............. 5,832,000 5,803,000 5,859,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
SYNBIOTICS CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 501,000 $(1,058,000) $ 357,000
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization....................... 1,028,000 677,000 1,003,000
Gain on disposition of investment in affiliate...... (931,000) (2,036,000)
Changes in assets and liabilities:
Accounts receivable.............................. 14,000 1,691,000 (1,297,000)
Receivables from affiliates...................... 88,000 (58,000)
Inventories...................................... (676,000) (615,000) (504,000)
Other assets..................................... 334,000 (472,000) (172,000)
Accounts payable and accrued expenses............ (43,000) (379,000) 878,000
Other liabilities................................ 2,000 (8,000) 40,000
---------- ----------- -----------
Net cash provided by (used for) operating activities..... 229,000 (2,112,000) 247,000
---------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment.................. (189,000) (424,000) (295,000)
Investment in securities available for sale............ 502,000 (502,000)
Loans to affiliate..................................... (150,000) (1,200,000)
Payment received on loans to affiliate................. 600,000
---------- ----------- -----------
Net cash provided by (used for) investing activities..... 313,000 (1,076,000) (895,000)
---------- ----------- -----------
Cash flows from financing activities:
Principal payments of long-term debt................... (3,000)
Proceeds from issuance of common stock, net............ 28,000 634,000
---------- ----------- -----------
Net cash provided by financing activities................ 28,000 631,000
---------- ----------- -----------
Net increase (decrease) in cash.......................... 570,000 (3,188,000) (17,000)
Cash and equivalents -- beginning........................ 447,000 3,635,000 3,652,000
---------- ----------- -----------
Cash and equivalents -- ending........................... $1,017,000 $ 447,000 $ 3,635,000
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
SYNBIOTICS CORPORATION
Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Unrealized
Holding
Losses from
Common Stock Series B Common Stock Securities
------------------------ ----------------------- Available Accumulated
Shares Amount Shares Amount for Sale Deficit Total
--------- ------------ -------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993.... 5,248,000 $28,671,000 2,000 $ 1,000 -- $(18,968,000) $ 9,704,000
Issuance of subscribed 530,000 -- -- -- -- -- --
common stock................
Collection of receivable for
subscribed common stock.... -- 570,000 -- -- -- -- --
Issuance of common stock
pursuant 23,000 73,000 -- -- -- -- --
to exercise of stock
options...................
Cancellation of stock options -- 2,000 -- -- -- -- 2,000
Conversion of Series B
common stock 2,000 1,000 (2,000) (1,000) -- -- --
to common stock............
Net income for the year...... -- -- -- -- -- 357,000 357,000
--------- ----------- ------- ----------- ------------- ------------ -----------
Balance at March 31, 1994.... 5,803,000 29,317,000 -- -- -- (18,611,000) 10,706,000
Cancellation of stock options -- 1,000 -- -- -- -- 1,000
Unrealized holding losses
from -- -- -- -- $(1,695,000) -- --
securities available for
sale......................
Net loss for the period...... -- -- -- -- -- (1,058,000) (1,058,000)
--------- ----------- ------- ----------- ------------- ------------ -----------
Balance at December 31, 1994. 5,803,000 29,318,000 -- -- (1,695,000) (19,669,000) 7,954,000
Issuance of common stock
pursuant to 13,000 33,000 -- -- -- -- --
exercise of stock options..
Unrealized holding gains from
securities available for -- -- -- -- 660,000 -- --
sale......................
Net income for the year...... -- -- -- -- -- 501,000 501,000
--------- ----------- ------- ----------- ------------- ------------ -----------
Balance at December 31, 1995. 5,816,000 $29,351,000 -- $ -- $(1,035,000) $(19,168,000) $ 9,148,000
========= =========== ======= =========== ============= ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
THE COMPANY
Synbiotics Corporation (the "Company"), incorporated in 1982, is an animal
health business which develops, manufactures and markets biological products and
monoclonal antibody based diagnostic products for use in the animal health care
field. The Company's principal markets are veterinarians and veterinary
clinical laboratories in the United States and Europe. The Company's products
are sold primarily to wholesale distributors.
INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined using
the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are recorded at cost.
Maintenance costs are charged to operations as incurred. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of five to eight years or the lease terms, if shorter.
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
Effective April 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115") on a prospective basis. In accordance with SFAS 115,
the Company determines the appropriate classification of its U.S. Government and
equity securities at the time of acquisition and reevaluates such designation as
of each balance sheet date. The Company has recorded these investments at fair
market value as it has designated them as "available for sale". Unrealized
holding losses on these investments, which are classified as a separate
component of shareholders' equity, totalled $1,035,000 and $1,695,000 at
December 31, 1995 and 1994, respectively.
PATENTS AND LICENSES
Patent and license costs are amortized ratably over the life of the respective
patent or license.
INVESTMENTS IN FORMER AFFILIATES
UniSyn Technologies, Inc. ("UniSyn"), of which the Company was a 23% shareholder
at March 31, 1994, provides research, pilot and production scale bioreactors and
disposables, and contract production, for the manufacture and purification of
mammalian cell-derived products. In June 1994, the Company entered into a bridge
loan agreement whereby $150,000 was loaned to UniSyn. In December 1994, UniSyn
issued additional shares of voting stock through a private placement offering,
which reduced the Company's effective ownership to 6%. In connection with this
private placement, the Company converted into common stock all of its shares of
convertible preferred stock, and exchanged the $150,000 note receivable into
convertible preferred stock. The conversion of the note receivable is
considered to be a non-cash investing activity for the purposes of the statement
of cash flows. As a result of the change in effective ownership, the Company
began utilizing the cost method to account for its investment in UniSyn, which
is included in other assets at December 31, 1995 and 1994.
ImmunoPharmaceutics, Inc. ("IPI"), of which the Company was a 41% shareholder at
March 31, 1994, is engaged in human drug discovery utilizing proprietary
rational drug design technology. In July 1994, IPI was acquired by Texas
Biotechnology Corporation (Note 3).
F-11
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Revenue from products is recognized when the products are shipped.
ADVERTISING COSTS
The Company recognizes the production costs of advertising at the time such
charges are incurred. Advertising expense totalled $629,000, $393,000 and
$706,000 during the year ended December 31, 1995, the nine months ended December
31, 1994 and the year ended March 31, 1994, respectively.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which is effective for years beginning after December 15, 1995.
SFAS 123 defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" and including pro forma disclosures of net income and earnings per
share as if the fair value method had been applied. The Company has elected to
continue to measure its stock-based compensation in accordance with APB 25 and,
accordingly, does not expect the adoption of SFAS 123 to have a significant
effect on its financial position or results of operations.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.
NET INCOME (LOSS) PER SHARE
Computations of net income (loss) per share are based on the weighted average
number of common shares outstanding during each year. Shares issuable upon the
exercise of outstanding stock options have not been considered in the
computations for the nine months ended December 31, 1994 because their effect is
anti-dilutive.
STATEMENT OF CASH FLOWS
For purposes of this statement, cash includes cash investments which are highly
liquid and, generally, have an original maturity of three months or less.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-12
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CHANGE IN FISCAL YEAR
During 1994, the Company changed its fiscal year from March 31 to December 31.
Accordingly, the Company's transition period, which ended on December 31, 1994,
includes the nine months from April 1 to December 31, 1994. The Company's full
fiscal year ending March 31, 1994 includes twelve months.
The following unaudited results of operations for the year ending December 31,
1994 and the nine months ending December 31, 1993 include all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results for that period.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1994 1993
---------------- -------------
<S> <C> <C>
(unaudited) (unaudited)
Revenues:
Products $ 11,718,000 $ 8,658,000
Interest 90,000 122,000
License fees and other 299,000 287,000
---------------- -------------
12,107,000 9,067,000
---------------- -------------
Cost and expenses:
Cost of products 6,519,000 3,918,000
Research and development 1,091,000 362,000
Selling and marketing 4,756,000 2,875,000
General and administrative 2,415,000 1,974,000
---------------- -------------
14,781,000 9,129,000
---------------- -------------
Loss before gain on disposition of investment in affiliate (2,674,000) (62,000)
Gain on disposition of investment in affiliate 2,036,000 --
---------------- -------------
Net loss $ (638,000) $ (62,000)
================ =============
Net loss per share $ (.11) $ (.01)
================ =============
</TABLE>
3. DISPOSITION OF INVESTMENT IN AFFILIATED COMPANY
In February 1994, the Company entered into a bridge loan agreement whereby
$600,000 was loaned to IPI. The note was due on March 31, 1994, bore interest
at the rate of prime plus 1% and was secured by substantially all of the assets
of IPI. On July 25, 1994, IPI, of which the Company was a 41% shareholder, was
acquired by Texas Biotechnology Corporation ("TBC") in a triangular merger
transaction whereby unregistered shares of TBC common stock were issued in
exchange for all of the outstanding stock of IPI. The Company's TBC shares were
registered effective December 6, 1995.
The carrying value of the Company's investment in IPI had previously been
reduced to zero due to the application of the equity method of accounting for
the investment in IPI. In conjunction with the acquisition by TBC, the Company
exchanged its $600,000 note receivable from IPI into voting stock of IPI, which
is considered to be a non-cash investing activity for purposes of the statement
of cash flows.
As a result of the transaction, the Company received approximately 655,000
shares of TBC common stock. The Company valued its investment in TBC, which is
accounted for utilizing the cost method, at $4.025 per share, and, as a result,
recognized a gain for financial reporting purposes of approximately $2,036,000.
F-13
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On June 30, 1995, the Company received an additional 573,000 shares of TBC
common stock resulting from the satisfaction of a certain contingency on May 31,
1995 related to the acquisition of IPI by TBC. Accordingly, the Company
recognized a gain for financial reporting purposes in the amount of $931,000,
based on the closing price of TBC common stock on May 31, 1995 of $1.625 per
share as reported on the American Stock Exchange.
The Company may receive an additional 409,000 shares of TBC common stock (the
"Contingent Shares") pending the outcome of certain remaining contingencies. No
amounts have been recorded related to the Contingent Shares, and no amounts will
be recorded until such time as the contingencies are satisfied.
4. PRODUCT AGREEMENTS
In December 1992, the Company entered into an agreement with SmithKline Beecham
Animal Health, a division of SmithKline Beecham Corporation, whereby the Company
acquired certain distribution, manufacturing and licensing rights to ten
companion animal biological products in exchange for $1,000,000. As of December
31, 1995, $453,000 had been paid, and the remaining $547,000, which is included
in other liabilities, will be paid based on sales of the acquired products. Any
remaining balance, plus interest in the amount of $150,000, shall be due and
payable in October 1996. Sales of the related products, which commenced in
November 1993, totalled $757,000, $258,000 and $618,000 during the year ended
December 31, 1995, the nine months ended December 31, 1994 and the year ended
March 31, 1994, respectively.
5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
----------------- -------------
<S> <C> <C>
Inventories:
Raw materials $ 665,000 $ 576,000
Work in process 633,000 756,000
Finished goods 2,141,000 1,431,000
----------------- -------------
$ 3,439,000 $ 2,763,000
================= =============
</TABLE>
F-14
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1994
---------------- ---------------
<S> <C> <C>
Property and equipment:
Laboratory equipment $ 2,098,000 $ 1,968,000
Leasehold improvements 1,826,000 1,826,000
Office equipment 468,000 529,000
---------------- ---------------
4,392,000 4,323,000
Less accumulated depreciation and amortization (3,513,000) (2,994,000)
---------------- ---------------
$ 879,000 $ 1,329,000
================ ===============
</TABLE>
Depreciation expense was $639,000, $381,000 and $426,000 during the year ended
December 31, 1995, the nine months ended December 31, 1994 and the year ended
March 31, 1994, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
----------- --------------
<S> <C> <C>
Other assets:
Patents $ 79,000 $ 142,000
Licenses 1,556,000 1,825,000
Other 525,000 917,000
----------- --------------
2,160,000 2,884,000
Less current portion (578,000) (963,000)
----------- --------------
$1,582,000 $ 1,921,000
=========== ==============
</TABLE>
Accumulated amortization of patents and licenses was $1,406,000 and $1,016,000
at December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994
---------------- --------------
<S> <C> <C>
Accounts payable and accrued liabilities:
Accounts payable $ 1,101,000 $ 1,235,000
Accrued vacation 125,000 109,000
Accrued compensation 72,000 78,000
Other 315,000 240,000
---------------- --------------
$ 1,613,000 $ 1,662,000
================ ==============
</TABLE>
F-15
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS
The Company charged its former affiliates, UniSyn and IPI, and currently charges
IPI, now a wholly-owned subsidiary of TBC (Note 3), for shared costs including,
but not limited to, rent, utilities and property taxes. In addition, the
Company charged IPI for employee benefits, insurance and certain administrative
services during the nine months ended December 31, 1994 and the year ended March
31, 1994. Such charges to UniSyn, which terminated in June 1993, totalled
$51,000 during the year ended March 31, 1994. IPI was charged $357,000,
$388,000 and $624,000 during the year ended December 31, 1995, the nine months
ended December 31, 1994 and the year ended March 31, 1994, respectively.
In June 1991, the Company entered into a three year agreement with IPI whereby
IPI provided certain raw materials and/or services to the Company. The
agreement called for guaranteed quarterly payments of $50,000, totalling
$200,000 per year. Raw materials received by the Company were not significant
during the year ended March 31, 1994. During the nine months ended December 31,
1994 and the year ended March 31, 1994, the Company charged $33,000 and
$200,000, respectively, to income relating to the agreement. The agreement was
terminated in May 1994.
7. SHAREHOLDERS' EQUITY
SERIES B COMMON STOCK
In March 1994, all outstanding shares of Series B common stock were converted
into shares of common stock.
STOCK OPTION PLANS
The Company had adopted a series of non-qualified and incentive stock option
plans (the "Predecessor Plans"). In April 1995, the Company adopted the 1995
Stock Option/Stock Issuance Plan (the "1995 Plan") whereby an aggregate of
1,300,000 shares of the Company's common stock, inclusive of all optioned shares
that were exercisable and/or issuable under the Predecessor Plans, were reserved
for issuance. No further option grants may be made under the Predecessor Plans.
The 1995 Plan is administered by the Board of Directors and provides that
exercise prices shall not be less than 85 percent (non-qualified options) and
100 percent (incentive options) of the fair market value of the shares at the
date of grant. Options will generally vest at the rate of 1/16th of the granted
shares in each continuous quarter of employment and have an exercise period not
more than ten years from date of grant. At December 31, 1995 options to
purchase 620,000 shares are exercisable and 383,000 shares are available for
future grant under the 1995 Plan.
F-16
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the stock option plans' activity:
<TABLE>
<CAPTION>
Shares of
Common Stock
Option Prices Underlying
Per Share Options
-------------- -------------
<S> <C> <C>
March 31, 1993 $2.45-$9.25 519,000
Options granted $3.25-$4.88 92,000
Options canceled $2.55-$5.50 (20,000)
Options exercised $2.45-$3.72 (23,000)
March 31, 1994 $2.45-$9.25 -------------
568,000
Options granted $2.38-$3.88 193,000
Options canceled $2.45-$7.87 (45,000)
December 31, 1994 $2.45-$9.25 -------------
716,000
Options granted $1.63-$3.25 209,000
Options canceled $2.45-$6.59 (13,000)
Options exercised $2.00-$3.72 (13,000)
December 31, 1995 $1.63-$9.25 -------------
899,000
=============
</TABLE>
8. INCOME TAXES
The Company did not record a provision for Federal income taxes during the year
ended December 31, 1995 and the nine months ended December 31, 1994 due to net
operating losses for tax purposes. The Company did not record a provision for
Federal income taxes during the year ended March 31, 1994 due to the utilization
of net operating loss carryforwards. The provisions for state income taxes were
$2,000 during the year ended December 31, 1995, the nine months ended December
31, 1994 and the year ended March 31, 1994, and represent minimum franchise
taxes and are included in general and administrative expenses.
F-17
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets comprise the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994
------------------ ---------------
<S> <C> <C>
Federal:
Net operating loss carryforwards $ 5,626,000 $ 5,487,000
Equity in losses of investees 714,000 1,031,000
Investment tax, research and development and alternative
minimum tax credit carryforwards 859,000 848,000
------------------ ---------------
7,199,000 7,366,000
Less valuation allowance (7,199,000) (7,366,000)
------------------ ---------------
$ -- $ --
================== ===============
State:
Net operating loss carryforwards $ 634,000 $ 721,000
Equity in losses of investees 195,000 282,000
Investment tax and research and development credit carryforwards 216,000 215,000
------------------ ---------------
1,045,000 1,218,000
Less valuation allowance (1,045,000) (1,218,000)
------------------ ---------------
$ -- $ --
================== ===============
</TABLE>
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate to income before income taxes
follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
------------- ------------ -------------
<S> <C> <C> <C>
Amounts computed at statutory Federal rate $ 170,000 $ (360,000) $ 121,000
State income taxes, net of Federal benefit 31,000 (98,000) 33,000
(Deductions) income for financial reporting purposes
for which there is no current tax (benefit) provision (201,000) 458,000 --
Utilization of Federal net operating loss carryforwards (121,000)
Utilization of state net operating loss carryforwards (33,000)
State minimum franchise tax 2,000 2,000 2,000
------------- ------------ -------------
$ 2,000 $ 2,000 $ 2,000
============= ============ =============
</TABLE>
F-18
<PAGE>
SYNBIOTICS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The net changes in the valuation allowances for the year ended December 31, 1995
for Federal and state deferred tax assets were a decrease of $167,000 and
$173,000 for Federal and state tax purposes, respectively, and are due to the
net operating loss incurred during the year ended December 31, 1995, offset by
the realization of a portion of the equity in losses of IPI due to the
acquisition by TBC (Note 3). In addition, the valuation allowance for state
deferred tax assets was further reduced due to the expiration of a portion of
the state net operating loss carryforwards. The net changes in the valuation
allowances for the nine months ended December 31, 1994 for Federal and state
deferred tax assets were an increase of $167,000 and a decrease of $64,000 for
Federal and state tax purposes, respectively. The changes are due to the net
operating loss incurred during the nine months ended December 31, 1994, offset
by the realization of a portion of the equity in losses of IPI due to the
acquisition by TBC (Note 3).
The Company has available Federal net operating loss carryforwards at December
31, 1995 of approximately $16,548,000, which expire between 2001 and 2010.
Available state net operating loss carryforwards at December 31, 1995 total
approximately $6,816,000, which expire between 1996 and 2000. If certain
substantial changes in the Company's ownership should occur, there would be an
annual limitation on the amount of carryforwards which can be utilized. Unused
investment tax and research and development credits at December 31, 1995
aggregate approximately $1,075,000 and expire between 1998 and 2006.
9. COMMITMENTS
The Company leases office, laboratory and manufacturing facilities and equipment
under operating leases. The facilities leases provide for escalating rental
payments. Future minimum rentals under noncancelable operating leases as of
December 31, 1995 are $435,000, all of which are due in 1996. Total rent
expense under noncancelable operating leases was $377,000, $282,000 and $351,000
during the year ended December 31, 1995, the nine months ended December 31, 1994
and the year ended March 31, 1994, respectively.
10. SIGNIFICANT CUSTOMERS
The Company had sales to two customers totalling 44% of gross revenues during
the year ended December 31, 1995. During the nine months ended December 31,
1994, sales to two customers totalled 35% of gross revenues. Sales totalling
40% of gross revenues during the year ended March 31, 1994 were made to two
customers. Sales to foreign customers totalled 12%, 13%, 15% of product
revenues during the year ended December 31, 1995, the nine months ended December
31, 1994 and the year ended March 31, 1994, respectively. The Company grants
credit to all of its customers, substantially all of whom are in the animal
health products industry.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders
of International Canine Genetics, Inc.
We have audited the accompanying balance sheets of International Canine
Genetics, Inc. as of June 30, 1996 and 1995, and the related statements of
operations, stockholders equity (deficit) and cash flows for each of the three
years in the period ended June 30, 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 financial statements referred to above present fairly, in
all material respects, the financial position of International Canine Genetics,
Inc. as of June 30, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to this matter are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 7, 1996
F-20
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 247,559 $ 26,104
Accounts receivable, less allowance for doubtful accounts of
$47,792 and $47,226 at June 30, 1995 and June 30, 1996,
respectively 97,018 93,986
Inventories 64,864 92,357
Prepaid expenses 17,768 37,342
Other current assets 18,167 12,316
------------ -------------
Total current assets 445,376 262,105
Property and equipment, net 236,156 235,841
Intangible assets, net 65,882 96,961
Security deposits 36,209 48,664
Other assets 21,838 29,920
------------- -------------
Total assets $ 805,461 $ 673,491
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 400,000 $ 500,000
Notes payable-funding agreements 107,162 128,955
Capital leases-current portion 44,877 50,843
Accounts payable 165,087 283,536
Accrued expenses 89,940 135,106
------------- -------------
Total current liabilities 807,066 1,098,440
------------- -------------
Notes payable-funding agreements 362,769 327,886
Capital leases-long term 102,747 89,891
Notes payable-shareholder 8,880 9,471
Deferred compensation 168,851 193,068
------------- -------------
Total liabilities 1,450,313 1,718,756
------------- -------------
Stockholders' deficit:
Common stock, par value $.00006, authorized 10,000,000 shares, 109 169
issued 1,835,000 and 2,843,115 shares at June 30, 1995 and
June 30, 1996, respectively
Additional paid-in capital 10,341,478 11,551,560
Treasury stock, at cost, 23,960 shares (8,439) (8,439)
Accumulated deficit (10,978,000) (12,588,555)
------------- -------------
Total stockholders' deficit (644,852) (1,045,265)
------------- -------------
Total liabilities and stockholders' deficit $ 805,461 $ 673,491
============= =============
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues $ 1,114,676 $ 1,501,864 $ 1,651,220
Cost of revenues 645,516 814,038 889,240
------------ ------------ ------------
Gross profit 469,160 687,826 761,980
------------ ------------ ------------
Operating expenses:
Research and development expenditures 380,893 548,852 554,807
Selling, general and administrative 1,557,658 1,587,902 1,478,634
Advertising and promotional expense 348,318 282,254 278,764
------------ ------------ ------------
2,286,869 2,419,008 2,312,205
------------ ------------ ------------
Loss from operations (1,817,709) (1,731,182) (1,550,225)
Interest expense (27,562) (52,023) (73,808)
Other income, net 78,788 43,044 13,478
------------ ------------ ------------
Net loss $(1,766,483) $(1,740,161) $(1,610,555)
============ ============ ============
Net loss per share of common stock $ (0.96) $ (0.96) $ (0.60)
============ ============ ============
Shares of common stock outstanding (weighted average) 1,844,974 1,811,040 2,689,343
============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss ($1,766,483) ($1,740,161) ($1,610,555)
------------ ------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 40,169 47,096 50,818
Deferred compensation 48,440 48,448 24,217
Provision for uncollectible accounts 13,615 5,039 ---
Gain on sale of property and equipment 851 (17,500) ---
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (23,137) (26,300) 3,032
Increase in prepaid expenses (4,317) (2,131) (19,574)
Increase in inventories (30,273) (4,398) (27,493)
Decrease in other current assets --- --- 5,851
Increase in accounts payable 48,589 44,412 118,449
Increase (decrease) in accrued expenses 16,390 (30,494) 55,308
Increase in accrued interest payable-note payable-shareholder 591 591 591
Increase in accrued interest payable-funding agreements 16,570 25,378 21,495
------------ ------------ ------------
Total adjustments 127,488 90,141 232,691
------------ ------------ ------------
Net cash used in operating activities (1,638,995) (1,650,020) (1,377,861)
------------ ------------ ------------
Cash flow from investing activities:
Capital expenditures (27,772) (33,810) (2,644)
Purchase of technology license and trademark (76,381) --- (40,938)
Proceeds from notes receivable --- 811 ---
Proceeds from sale of property and equipment --- 1,750 ---
------------ ------------ ------------
Net cash (used in) investing activities (104,513) (31,249) (43,582)
------------ ------------ ------------
Cash flow from financing activities:
Net proceeds from issuance of common stock --- --- 800,000
Borrowings under note payable --- 400,000 500,000
Payments under notes payable-funding agreements (30,665) (15,209) (34,585)
Payments under notes payable-shareholder (591) (295) ---
(Increase) decrease in security deposits and other assets (23,477) 4,492 (20,537)
Payment of obligations under capital leases (21,217) (35,833) (44,890)
------------ ------------ ------------
Net cash (used in) provided by financing activities (75,950) 353,155 1,199,988
------------ ------------ ------------
Net decrease in cash and cash equivalents (1,819,098) (1,328,114) (221,455)
Cash and cash equivalents at beginning of period 3,394,771 1,575,673 247,559
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,575,673 $ 247,559 $ 26,104
============ ============ ============
Supplemental cash flow disclosures:
Cash used in operating activities include:
Cash paid for interest $ 47,743 $ 36,682 $ 52,820
Noncash investing and financing activities:
Sale of asset in exchange for note -- $ 17,500 --
Conversion of note payable and accrued interest into common stock -- -- $ 410,142
Capital lease obligation -- -- $ 38,000
</TABLE>
F-23
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Additional Treasury Total
Stock Paid In Stock Accumulated Stockholders
Shares Total Capital Shares Total Deficit Equity Deficit
------ ----- ---------- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1993 1,835,000 $109 $10,341,478 23,960 $(8,439) $ (7,471,356) $ 2,861,792
Net Loss --- --- --- --- --- (1,766,483) (1,766,483)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994 1,835,000 109 10,341,478 23,960 (8,439) (9,237,839) 1,095,309
Net Loss --- --- --- --- --- (1,740,161) (1,740,161)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1995 1,835,000 109 10,341,478 23,960 (8,439) (10,978,000) (644,852)
Net proceeds from issuance of common 680,000 41 799,959 --- --- --- 800,000
stock
Conversion of bridge notes and accrued 328,115 19 410,123 --- --- --- 410,142
interest
Net Loss -- -- -- --- --- (1,610,555) (1,610,555)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1996 2,843,115 $169 $11,551,560 23,960 $(8,439) $(12,588,555) $ (1,045,265)
===================================================================================================================================
</TABLE>
F-24
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BACKGROUND OF THE COMPANY:
International Canine Genetics, Inc. (the Company) was formed on July 14,
1986. The Company is primarily engaged in the business of developing,
manufacturing and marketing products and services which address the needs of
owners and breeders of purebred dogs and the veterinarians providing services to
them. The Company currently markets artificial insemination products and
services and in-clinic ovulation and laboratory timing diagnostic tests,
pregnancy and DNA paternity testing services, which collectively comprise the
majority of the Company's sales, the PennHIP/(R)/ diagnostic technology for the
early detection of Canine Hip Dysplasia to breeders and owners of purebred dogs
and their veterinarians, nutritional supplements and grooming products. All
product and service revenues are shipped from or performed at the Company's
Malvern, PA facility and sold to end users and distributors throughout the
world, with the vast majority of the sales made throughout the United States.
NOTE 2. LIQUIDITY:
The Company has incurred losses from operations since inception as it has
been developing its products and marketing channels and has a net capital
deficiency which raises substantial doubt about the entity's ability to continue
as a going concern. The Company's ability to support its operations with
product sales is dependent on the Company's ability to raise additional funds to
finance further product development and marketing as well as the successful
completion of such activities.
Management believes that the Company will be able to attract new sources
of funds to enable the Company to continue the development and marketing of its
products and services until completion of the acquisition by and integration
into Synbiotics Corporation (see Note 4). However, no assurance can be given
that such funds will be available or that the funds will be available on terms
which are satisfactory or advantageous to the Company or its shareholders.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost (first in, first out method)
or market.
Property and Equipment:
Property and equipment are stated at cost. Equipment acquired under
capital leases is stated at the lesser of the present value of the minimum lease
payments or the fair value of the equipment at the inception of the lease.
Depreciation and amortization, which includes the amortization of assets
recorded under capital leases, are computed using both the straight line and
accelerated methods over the estimated useful lives of the related assets
ranging from three to ten years. Leasehold improvements are amortized over the
lives of the respective leases or the lives of the improvements, whichever is
shorter.
Technology and Trademark License:
Purchased technology and licenses are capitalized at cost and are
amortized on a straight-line basis over the remaining life of the license
agreement and the patent (10 and 15 years, respectively).
Research and Development:
Research and development costs are expensed in the period incurred.
Advertising and Promotional:
F-25
<PAGE>
INTERNATIONAL CANINE GENETICS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Advertising and promotional costs are expensed in the period incurred.
Income Taxes:
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse.
Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, which are
maintained in a high quality credit institution, and accounts receivable.
The Company markets its products and services primarily to two specific
classes of customers, namely dog breeders and veterinarians, which may subject
the Company to credit risk. Such risk is mitigated, however, because the
Company's markets are geographically dispersed. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Fair Value of Financial Instruments
The carrying value of the Company's short-term financial instruments, such
as receivables and payables, approximate their fair values, based on the short-
term maturities of these instruments. As of June 30, 1996, the fair value of
the Company's demand notes payable, notes payable funding agreements and capital
lease obligations, using rates currently available to the Company for such
financial instruments with similar terms and remaining maturities, approximate
their carrying amounts.
Net Loss Per Share of Common Stock and Pro Forma Net Loss Per Share of
Common Stock:
The net loss per share of Common Stock is computed using the weighted
average number of shares of Common Stock outstanding during the period.
The effect of stock options and warrants are excluded from the computation
as their effect is anti-dilutive, except that, pursuant to Securities and
Exchange Commission staff accounting bulletins, Common Stock options issued
during the 12 month period prior to the initial public offering at prices below
the public offering price of $7.00 per unit have been included in the 1994
computation as if they were outstanding for the period presented (using the
treasury stock method).
Stock-Based Compensation
In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", which is effective for years beginning after December
15, 1995. SFAS 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" and including pro forma disclosures of net income
and earnings per share as if the fair value method had been applied. The
Company has elected to continue to measure its stock-based compensation in
accordance with APB 25 and, accordingly, does not expect the adoption of SFAS
123 to have a significant effect on its financial position or results of
operations.
Use of Estimates
<PAGE>
INTERNATIONAL CANINE GENETICS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 4. ACQUISITION:
On July 23, 1996, the Company entered into a definitive purchase agreement
for Synbiotics Corporation to acquire substantially all of the assets and
certain liabilities of the Company.
All of the assets and certain liabilities of the Company will be acquired
by Synbiotics in exchange for the issuance of 1,400,000 shares of registered
Synbiotics Common Stock, a transaction valued at between $3,500,000 and
$4,900,000. The number of shares is subject to adjustment if the market price
per share of Synbiotics' stock is above $3.50 per share or below $2.50 per share
at the closing. A portion of the 1,400,000 shares of Synbiotics Common Stock
will be used to satisfy the Company's debt and the balance will be distributed
to the holders of Common Stock. All of the Company's outstanding warrants and
stock options will similarly be assumed by Synbiotics and will be exercisable
for shares of Synbiotics Common Stock. Additionally, S. R. One, Limited, the
Company's largest stockholder, will purchase $1,000,000 of newly issued
restricted shares of Synbiotics Common Stock at the closing. The transaction is
subject to certain regulatory review and Board of Directors and shareholder
approval of both companies. The transaction is expected to close in October,
1996.
NOTE 5. INVENTORIES:
At June 30, 1995 and 1996, inventories were as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Components $34,747 $61,345
Finished Goods 30,117 31,012
------- -------
$64,864 $92,357
======= =======
</TABLE>
NOTE 6. TECHNOLOGY AND TRADEMARK LICENSE:
On December 21, 1993, the Company finalized an agreement with the
University of Pennsylvania for the exclusive worldwide rights to commercialize a
new proprietary technology for the diagnosis of Canine Hip Dysplasia. Under the
agreement, the Company also obtained the exclusive worldwide rights to use the
University of Pennsylvania trademark PennHIP/(R)/. At June 30, 1996, the
Company has capitalized costs and accumulated amortization of $76,381 and
$18,405, respectively, related to the licensing and transfer to the Company of
this technology and trademark.
On November 6, 1995, the Company concluded an agreement with the Cornell
Research Foundation, the University of Medicine and Dentistry of New Jersey-New
Jersey Medical School and New York University for the exclusive rights to a U.S.
patent entitled "Relaxin Testing for Early Detection of Pregnancy in Dogs." At
June 30, 1996, the Company has capitalized costs and accumulated amortization of
$40,938 and $1,952, respectively, related to the licensing and transfer to the
Company of this technology.
NOTE 7. PROPERTY AND EQUIPMENT:
At June 30, property and equipment were as follows:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
</TABLE>
F-27
<PAGE>
INTERNATIONAL CANINE GENETICS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C>
Lab equipment.................................... $214,045 $214,045
Marketing equipment.............................. 44,740 44,740
Furniture and fixtures........................... 197,991 238,634
Warehouse equipment.............................. 16,218 16,218
Leasehold improvements........................... 8,464 8,464
-------- --------
481,458 522,101
Less accumulated depreciation and amortization... $245,302 $286,260
-------- --------
$236,156 $235,841
======== ========
</TABLE>
At June 30, 1996, assets recorded under capital leases and related
accumulated amortization are $204,674 and $49,377, respectively.
NOTE 8. NOTES PAYABLE:
During fiscal 1995, the Company borrowed $400,000 from S. R. One, Limited,
a majority stockholder, under the terms of two demand note agreements bearing
interest at the prime rate plus two points. On August 17, 1995, S. R. One,
Limited invested cash of $850,000 and converted the $400,000 of demand notes and
accrued interest of $10,144 into 1,008,115 newly issued shares of common stock
at $1.25 per share.
On December 22, 1995, the Company borrowed $500,000 from S. R. One, Limited
under the terms of a demand note agreement bearing interest at the prime rate
plus two points.
NOTE 9. NOTES PAYABLE - FUNDING AGREEMENTS:
During fiscal years 1988 through 1991, the Company received $145,090 and
$51,578 under three separate funding agreements (the "first and second" and
"third" agreements, respectively) from the Ben Franklin Technology Center of
Southeastern Pennsylvania (BFTC).
Under the first and second agreements, the Company is required to repay
three times the disbursed funds in quarterly installments of 1% of total Company
revenues. The full amount of the obligation under the first and second
agreements, $435,270, has been accrued by charges to interest expense during
fiscal years 1988 through 1991.
Under the third agreement, the Company is required to repay up to a maximum
of three times the disbursed funds in quarterly installments of 3% of total
Company revenues subject to annual dollar caps as set forth below.
Year Ending
September 30, Annual Dollar Cap
------------ -----------------
1996 .................. 37,136
1997 .................. 46,422
Under the third agreement, the Company is accruing interest using the
effective interest method over the anticipated repayment period. Interest
expense related to the agreement amounted to $16,570, $24,768 and $21,060 for
the years ended June 30, 1994, 1995 and 1996, respectively, and is included in
the statement of operations.
On February 27, 1995, the Company entered into a supplemental agreement
with BFTC to temporarily modify the repayment requirements until the Company has
obtained additional funding. Under the terms of this supplemental agreement,
the Company's quarterly repayments under the first, second and third agreements
are not to exceed $3,000. The unpaid balance accrues interest at the prime rate.
All amounts in arrears, including
F-28
<PAGE>
INTERNATIONAL CANINE GENETICS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
accrued interest, under this agreement are payable within seven days following
completion of the Company obtaining additional funding as defined by the
supplemental agreement. At June 30, 1995, the unpaid balance under this
agreement was $30,557 and accrued interest amounted to $610. Interest expense
on the supplemental agreement incurred in fiscal 1996 was $435.
The amounts outstanding under these agreements, including accrued interest,
are as follow:
<TABLE>
<CAPTION>
June 30,
-----------------------
1995 1996
--------- ---------
<S> <C> <C>
First and Second Agreements.......... $ 435,270 $ 435,270
Third Agreement...................... 120,525 141,585
Interest on Supplemental Agreement... 610 1,045
Less payments........................ (86,474) (121,059)
--------- ---------
469,931 456,841
Less current portion................. (107,162) (128,955)
--------- ---------
$ 362,769 $ 327,886
========= =========
</TABLE>
NOTE 10. STOCK OPTION PLAN
The Company maintains a stock option plan whereby employees, consultants
and advisors may be granted incentive stock options ("ISO") or non-qualified
stock options to purchase up to 275,000 shares of the Company's Common Stock.
The ISO option exercise price is determined by the Compensation and Stock Option
Committee subject to a minimum exercise price equal to the fair market value of
the Company's Common Stock on the date of the grant. The exercise price of non-
qualified options is determined by the Compensation and Stock Option Committee.
The options vest over a four year period and expire 10 years from the date of
grant.
F-29
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares per Share
--------- -------------
<S> <C> <C>
Outstanding as of June 30, 1993 42,042 $ 1.35
Granted 82,332 $ 7.00
Granted 99,250 $ 2.00
Exercised - -
Canceled - -
--------- -------------
Outstanding as of June 30, 1994 223,624 $ 1.35-$7.00
Granted - -
Exercised - -
Canceled 5,510 $ 2.00-$7.00
--------- -------------
Outstanding as of June 30, 1995 218,114 $1.35 - $7.00
======= =============
Granted 152,950 $ 1.25
Exercised -- --
Canceled 11,465 $ 1.25-$7.00
Outstanding as of June 30, 1996 359,599 $ 1.25-$7.00
======= =============
</TABLE>
At June 30, 1996, options for 218,218 shares were exercisable and 130,401
shares were available for future grants under the plan.
During the twelve months ended June 30, 1995 and 1996, the Company
recognized $48,448 and $24,217, respectively, as compensation expense in
connection with options granted prior to the Company's initial public offering.
NOTE 11. STOCK WARRANTS:
In January, 1993, in accordance with a Recapitalization Agreement, 62,075
shares of Preferred-B warrants were exchanged for 10,346 common stock warrants
exercisable at $8.40 per share over five years, and 300,000 common share
warrants were exchanged for 50,000 common stock warrants exercisable at $8.40
per share over five years.
In March 1993, 715,000 warrants ("Public Warrants") to purchase common
stock were issued as part of the Company's initial public offering. In this
offering, the Company sold 715,000 Units, each consisting of one share of common
stock and one common stock warrant. The warrants are exercisable over a five
year period at an initial exercise price of $10.00 per warrant. However, as the
Company did not generate revenues of $7 million during the fiscal year ended
June 30, 1995, the exercise price was reduced to $5.00 per warrant in accordance
with the terms of the offering document.
F-30
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In addition, the underwriter of the Company's initial public offering
received, as part of its compensation, warrants ("Underwriters' Warrants") to
purchase 71,500 Units (each unit consisting of one share of common stock and one
redeemable common stock warrant.). The Underwriters' Warrants are exercisable
over five years at a price of $8.40 per warrant. The common stock warrants
contained in the Unit warrant have the same terms and characteristics as the
public warrants issued as part of the initial public offering.
The terms of the Public Warrant and Underwriters' Warrant agreements
provide the holders of the warrants with anti-dilution protection if the Company
issues common stock or equivalents, including stock options, at a price below
the original exercise prices per warrant of $10.00 and $8.40, respectively.
During the year ended June 30, 1994, the Company issued stock options under its
1992 Stock Option Plan at $7.00 per share and $2.00 per share (see Note 10). As
a result, the Public Warrants have an adjusted exercise price of $9.66 per
warrant and may be redeemed for 740,166 shares of common stock. The
Underwriters' Warrant have an adjusted exercise price of $1.76 and can be
redeemed for 341,250 shares of Common Stock and 341,250 redeemable warrants.
The redeemable warrants have an adjusted exercise price of $9.66 and can be
redeemed for 353,538 shares of Common Stock.
On August 16, 1995, the Board of Directors approved modifications to the
715,000 Public Warrants. The exercise price of the Public Warrants was reduced
from $5.00 per warrant to $1.25 per warrant and the term of each Public Warrant
was extended from March 24, 1988 to March 24, 2000.
In addition, in order to simplify the Company's capital structure and
eliminate certain onerous anti-dilution provisions which have had and would have
an adverse impact on the shareholders, the holders of 60,346 warrants to
purchase common stock at an exercise price of $8.40 per warrant agreed to
exchange their warrants for 245,692 warrants to purchase common stock with the
same terms and conditions as the Public Warrants. Also, the underwriter of the
Company's initial public offering agreed to exchange 71,500 unit warrants (each
unit consisting of one share of common stock and one redeemable common stock
warrant) for 71,500 warrants to purchase Common Stock on the same terms and
conditions as the Public Warrants. Warrants outstanding as of June 30, 1996
total 1,032,192 (exercisable for 1,067,525 shares of Common Stock) at an
exercise price of $1.25 per share.
NOTE 12. COMMITMENTS AND CONTINGENCIES:
The Company leases equipment and office, research, manufacturing/warehouse
space under various non-cancelable leases with third parties. The leases range
from three to five years and require the Company to pay all insurance, taxes and
operating expenses.
The Company entered into a 5-year lease agreement and expanded its Malvern,
PA facility from 4,725 square feet to 9,240 square feet. Payments under this
lease commenced on September 20, 1993, upon substantial completion of
improvements to the facility. For the years ended June 30, 1994 and 1995, the
Company acquired office, product development, manufacturing and warehouse
equipment under non-cancelable capital lease agreements.
F-31
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum obligations under non-cancelable lease agreements at June
30, 1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating
For years ending June 30, Leases Leases
- ---------------------------------------- --------- --------
<S> <C> <C>
1997 $ 63,163 $121,201
1998 44,498 119,104
1999 11,497 39,440
-------- --------
Total Minimum Payments 119,158 $279,745
========
Less amount representing interest 16,424
--------
Present value of net minimum lease
payments under capital leases $102,734(1)
=======
</TABLE>
- ------------------------
(1) Does not include a $38,000 capital lease obligation.
Rent expense under operating leases for the years ended June 30, 1994, 1995
and 1996 is $83,504, $115,319 and $159,825 respectively.
At June 30, 1995, the Company has a letter of credit outstanding in the
amount of $19,800 which guarantees a telephone equipment lease. The contract
amount of the letter of credit was for approximately 40% of the fair value of
the lease at its inception and decreases annually over the life of the lease.
NOTE 13. INCOME TAXES:
Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting standards No. 109, "Accounting for Income Taxes" (SFAS
109). There was no cumulative effect of the accounting change and prior periods
have not be restated.
At June 30, 1995 and 1996, the Company had a deferred tax asset comprised
of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net operating loss carryforwards $3,917,000 $4,418,000
Receivables 31,000 19,000
Inventory 4,000 4,000
---------- ----------
Deferred tax asset $3,952,000 $4,441,000
========== ==========
</TABLE>
The Company has recorded a valuation allowance for the full amount of the
deferred tax asset at June 30, 1995 and 1996, since the likelihood of the
realization of the tax benefits cannot be established.
At June 30, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $11.7 million, which expire in
varying amounts through 2011.
F-32
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Section 317 of the California General Corporation Law provides for the
indemnification of officers and directors of Synbiotics against expenses,
judgments, fines and amounts paid in settlement under certain conditions and
subject to certain limitations.
(b) Article VIII, Section 4 of the Bylaws of Synbiotics provides that the
Company shall have the power to indemnify any person who is or was a director,
officer, employee or agent of the Company or any person who is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, subject to certain limitations. The rights to indemnity thereunder
continue as to a
person who has ceased to be director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of the person. In
addition, expenses incurred by a director, officer,
employee or agent in defending a civil or criminal action, suit or proceeding by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Company (or was serving at the
Synbiotics' request as a director, officer, employee or agent of another
corporation) may be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Company.
(c) Article Seventh of the Synbiotics' Articles of Incorporation provides
that liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under
California Law. Article Eighth of the Company's Articles of Incorporation
further provides that the Company is authorized to indemnify agents (as defined
in Section 317 of the California Law) in excess of the indemnification otherwise
permitted by Section 317, subject to the limits set forth in Section 204 of the
California Law.
(d) Pursuant to authorization provided under the Articles of Incorporation,
the Company has entered into indemnification agreements with its directors and
officers. Generally, the indemnification
agreements attempt to provide the maximum protection permitted by California Law
as it may be amended from time to time. Moreover, the indemnification
agreements provide for certain additional
indemnification. the indemnification agreements provided for the Company to
advance to the individual any and all reasonable expenses (including legal fees
and expenses) incurred in investigating or
defending an action, suit or proceeding. In order to receive an advance of
expenses, the individual must undertake to repay such advance upon a
determination that he or she is not entitled to
indemnification. Synbiotics' Bylaws contain a provision of similar effect
relating to advancement of expenses to a director or officer, subject to an
undertaking to repay if it is ultimately determined that
indemnification is unavailable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
------------------------------------------
(a) Exhibit Index
-------------
Exhibits marked with an asterisk have not been included with this Form
S-4 Registration Statement, but instead have been incorporated by
reference to other documents filed by Synbiotics with the Securities
and Exchange Commission. Synbiotics will furnish a copy of any one or
more of these exhibits to a shareholder who so requests upon receipt
of payment for the cost of duplicating and mailing the requested
items.
II-I
<PAGE>
<TABLE>
<CAPTION>
Exhibit Title Method of Filing
- --------- ----- ----------------
<C> <S> <C>
2.1* Plan and Agreement of Merger of Texas Incorporated herein by reference to
Biotechnology Corporation, TBC Acquisition Exhibit 2.1 to the Registrant's Current
Company No. 1 and ImmunoPharmaceutics, Report on Form 8-K, as amended, dated
Inc. dated as of June 17, 1994. July 25, 1994.
2.2 Purchase Agreement dated July 23, 1996 by Filed herewith.
and among Synbiotics, ICG and S.R. One.
3.1* Articles of Incorporation, as amended. Incorporated by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form
10-KSB for its fiscal year ended December
31, 1995.
3.2* Bylaws, as amended. Incorporated herein by reference to
Exhibit 3.2 to the Registrant's Quarterly
Report on Form 10-QSB for the quarterly
period ended June 30, 1995.
5.1 Opinion of Brobeck, Phleger & Harrison Filed herewith.
LLP with respect to the Common Stock
being registered.
10.1* Lease of Premises by Registrant located at Incorporated herein by reference to
11011 Via Frontera, San Diego, California, Exhibit 10.1 to the Registrant's Annual
dated November 28, 1989. Report on Form 10-K for its fiscal year
ended March 31, 1991.
10.4*+ 1983 Stock Option Plan. Incorporated herein by reference to the
Registrant's Registration Statement on
Form S-18, Registration No. 2-83602, dated
August 25, 1983.
10.2 Employment Agreement between the Filed herewith.
Registrant and Kenneth M. Cohen dated
May 7, 1996.
10.3 General Release and Severance Agreement Filed herewith.
between the Registrant and Robert L.
Widerkehr dated July 31, 1996.
10.4.1*+ First Amendment to 1983 Stock Option Incorporated herein by reference to
Plan. Exhibit 10.4.1 to the Registrant's Annual
Report on Form 10-K for its fiscal year
ended March 31, 1988.
10.5*+ 1984 Stock Option Plan. Incorporated herein by reference to
Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1,
Registration No. 33-5292, dated July 16,
1986.
10.5.1*+ First and Second Amendments to 1984 Stock Incorporated herein by reference to
Option Plan. Exhibit 10.5.1 to the Registrant's Annual
Report on Form 10-K for its fiscal year
ended March 31, 1988.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Title Method of Filing
- ------- ----- ----------------
<C> <S> <C>
10.6*+ 1986 Stock Option Plan. Incorporated herein by reference to
Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1,
Registration No. 33-5292, dated July 16,
1986.
10.6.1*+ First Amendment to 1986 Stock Option Incorporated herein by reference to
Plan. Exhibit 10.6.1 to the Registrant's Annual
Report on form 10-K for its fiscal year
ended March 31, 1988.
10.21* Distribution Agreement between Vedco, Inc. Incorporated herein by reference to
and the Registrant, dated October 15, 1986. Exhibit 10.21 to the Registrant's
Registration Statement on Form S-1,
Registration No. 33-5292, dated July 16,
1986.
10.26*+ 1987 Stock Option Plan. Incorporated herein by reference to
Exhibit 28 to the Registrant's Registration
Statement on Form S-8, Registration No.
33-15712, dated July 9, 1987.
10.26.1*+ First Amendment to 1987 Stock Option Incorporated herein by reference to
Plan. Exhibit 10.26.1 to the Registrant's Annual
Report on Form 10-K for its fiscal year
ended March 31, 1988.
10.33* Lease of Premises (expansion) by the Incorporated herein by reference to
Registrant located at 16410 Via Esprillo, San Exhibit 10.33 to the Registrant's Annual
Diego, California, dated February 25, 1988. Report on Form 10-K for its fiscal year
ended March 31, 1988.
10.33.1* First Amendment to Lease of Premises by Incorporated herein by reference to
the Registrant located at 16410 Via Esprillo, Exhibit 10.33.1 to the Registrant's Annual
San Diego, California, dated August 9, 1988. Report on Form 10-K for its fiscal year
ended March 31, 1989.
10.36* Marketing Agreement between the Incorporated herein by reference to
Registrant and Bio-Trends International, Exhibit 10.36 to the Registrant's Annual
Inc., dated May 10, 1989. Report on form 10-K for its fiscal year
ended March 31, 1989.
10.36.1* Distribution Agreement between the Incorporated herein by reference to
Registrant and Bio-Trends International, Exhibit 10.36.1 to the Registrant's Annual
Inc., dated February 7, 1990. Report on Form 10-K for its fiscal year
ended March 31, 1990.
10.39* Distribution Agreement between the Incorporated herein by reference to
Registrant and Bio-Trends International, Exhibit 10.39 to the Registrant's Annual
Inc., dated August 1, 1990. Report on Form 10-K for its fiscal year
ended March 31, 1991.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit Title Method of Filing
- ------- ----- ----------------
<C> <S> <C>
10.40* Framework Agreement between Pitman- Incorporated herein by reference to
Moore, Inc. and the Registrant, dated June Exhibit 7.01 to the Registrant's Current
26, 1992. Report on Form 8-K dated July 13, 1992,
as amended Form 8 on November 4, 1992
and December 10, 1992.
10.41* Agreement between the Registrant and Incorporated herein by reference to
Rhone Merieux, dated July 9, 1992. Exhibit 7.01 to the Registrant's current
Report on Form 8-K dated July 23, 1992.
10.43*+ 1991 Stock Option Plan, as amended. Incorporated herein by reference to
Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 , Registration No.
33-55992, dated December 21, 1992.
10.44* Purchase Agreement between SmithKline Incorporated herein by reference to
Beecham Animal Health and the Registrant, Exhibit 7.01 to the Registrant's Current
dated December 10, 1992. Report on Form 8-K dated December 30,
1992.
10.46* Agreement Regarding Licensing, Incorporated herein by reference to
Development, Marketing and Manufacturing Exhibit 10.46 to the Registrant's Quarterly
between the Registrant and Binax, Inc., Report on Form 10-QSB for the quarter
dated as of June 30, 1993. ended December 31, 1993.
10.47* Amendment No. One to Agreement Incorporated herein by reference to
Regarding Licensing, Development, Exhibit 10.47 to the Registrant's Quarterly
Marketing and Manufacturing between the Report on Form 10-QSB for the quarter
Registrant and Binax, Inc., dated December ended December 31, 1993.
9, 1993.
10.48* Amendment No. Two to Agreement Incorporated herein by reference to
Regarding Licensing, Development, Exhibit 10.48 to the Registrant's Annual
Marketing and Manufacturing between the Report on Form 10-KSB for its fiscal year
Registrant and Binax, Inc., dated as of July ended December 31, 1995.
27, 1994.
10.50*+ 1995 Stock Option/Stock Issuance Plan, as Incorporated herein by reference to
amended. Exhibit 10.50 to the Registrant's Quarterly
Report on Form 10-QSB for the quarterly
period ended September 30, 1995.
10.51*+ Form of Notice of Grant/Stock Option Incorporated herein by reference to
Agreement, as used under the 1995 Stock Exhibit 99.2 to the Registrant's
Option/Stock Issuance Plan. Registration Statement on Form S-8,
Registration No. 33-61103, dated July 17,
1995.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit Title Method of Filing
- --------- ----- ----------------
<C> <S> <C>
10.52 Contract Manufacturing Agreement, dated Certain confidential portions of this
as of March 31, 1995. exhibit
have been omitted by means of blacking
out the text (the "Mark"). This exhibit has
been filed separately with the Secretary of
the Commission without the Mark
pursuant to the Company's Application
Requesting Confidential Treatment under
Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.
11.1* Computation of Earnings Per Share. Incorporated herein by reference to
Exhibit 11.1 to the Registrant's Annual
Report on Form 10-KSB for its fiscal year
ended December 31, 1995 and to Exhibit
11.1 to the Registrant's Report on Form
10-QSB for the quarter ended June 30,
1996.
23.1 Consent of Price Waterhouse LLP. Filed herewith.
23.2 Consent of Coopers & Lybrand L.L.P. Filed herewith.
24.1 Power of Attorney. Filed herewith.
</TABLE>
* Incorporated by reference.
+ Management contract or compensatory plan or arrangement.
ITEM 22. UNDERTAKINGS.
(a) 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.
(b) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used
II-5
<PAGE>
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
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.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This means information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, County of San
Diego, State of California, on August 16, 1996.
SYNBIOTICS CORPORATION
By:
Kenneth M. Cohen
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth M. Cohen and Michael K. Green, or either
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any registration statement
related to this Registration Statement and filed pursuant to Rule 462 under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
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
- ---------------------- ------------------------------ ----------------
<S> <C> <C>
/s/ KENNETH M. COHEN Chief Executive Officer August 16, 1996
- ---------------------- (Principal Executive Officer)
Kenneth M. Cohen
/s/ MICHAEL K. GREEN Vice President-Finance and August 16, 1996
- ---------------------- Chief Financial Officer
Michael K. Green (Principal Financial Officer)
/s/ KEITH A. BUTLER
- ---------------------- Corporate Controller and August 16, 1996
Keith A. Butler Chief Accounting Officer
/s/ DONALD E. PHILLIPS Chairman of the Board August 16, 1996
- ----------------------
Donald E. Phillips
/s/ PATRICK OWEN BURNS Director August 16, 1996
- ----------------------
Patrick Owen Burns
/s/ JAMES C. DECESARE Director August 16, 1996
- ----------------------
James C. DeCesare
/s/ M. BLAKE INGLE Director August 16, 1996
- ----------------------
M. Blake Ingle
/s/ ROBERT J. KUNZE Director August 16, 1996
- ----------------------
Robert J. Kunze
</TABLE>
II-7
<PAGE>
EXHIBIT 2.2
-----------
PURCHASE AGREEMENT
by and among
Synbiotics Corporation, a California corporation,
International Canine Genetics, Inc., a Delaware corporation, and
S.R. One, Limited, a Pennsylvania business trust
Dated as of July __, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ARTICLE I. PURCHASE AND SALE OF STOCK............................ 1
Section 1.1 Sale and Issuance of Common Stock................... 1
Section 1.2 Closing............................................. 2
Section 1.3 Restrictions on Resale.............................. 2
ARTICLE II. PURCHASE AND SALE OF ASSETS........................... 2
Section 2.1 Description of Assets to be Acquired................ 2
Section 2.2 Excluded Assets..................................... 4
Section 2.3 Non-Assignment of Certain Assets.................... 4
Section 2.4 Instruments of Transfer............................. 4
ARTICLE III. LIABILITIES OF ICG.................................... 5
Section 3.1 Assumption of Liabilities........................... 5
Section 3.2 Liabilities Not Assumed............................. 5
ARTICLE IV. PURCHASE PRICE FOR ASSETS............................. 6
Section 4.1 Consideration....................................... 6
Section 4.2 Payment of Purchase Price........................... 6
Section 4.3 Allocation of Purchase Price........................ 6
Section 4.4 Registration Statement on Form S-4.................. 6
Section 4.5 Restrictions on Resale.............................. 7
Section 4.6 Asset and Assumed Liabilities Schedules............. 7
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF SBIO.................. 7
Section 5.1 Organization; Good Standing; Power.................. 7
Section 5.2 Authorization....................................... 8
Section 5.3 Compliance With Other Instruments................... 8
Section 5.4 Litigation.......................................... 8
Section 5.5 Valid Issuance of Shares of Common Stock of SBIO.... 8
Section 5.6 Consents............................................ 9
Section 5.7 Broker Fees......................................... 9
Section 5.8 SEC Filings......................................... 9
Section 5.9 Proxy Statement..................................... 10
Section 5.10 Capitalization of SBIO............................. 11
Section 5.11 Complete Disclosure................................ 11
Section 5.12 Absence of Material Adverse Change................. 11
Section 5.13 Form S-4........................................... 11
Section 5.14 No Reliance on Forecasts........................... 11
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF ICG......................... 12
Section 6.1 Organization; Good Standing; Power......................... 12
Section 6.2 Authorization.............................................. 12
Section 6.3 SEC Filings; Financial Statements.......................... 13
Section 6.4 Proxy Statement............................................ 13
Section 6.5 Absence of Certain Changes and Events...................... 14
Section 6.6 Form S-4................................................... 15
Section 6.7 Conduct of Business........................................ 15
Section 6.8 Undisclosed Liabilities.................................... 15
Section 6.9 Inventory.................................................. 16
Section 6.10 Accounts and Notes Receivable............................. 16
Section 6.11 Properties................................................ 16
Section 6.12 Taxes..................................................... 17
Section 6.13 Compliance with Laws...................................... 18
Section 6.14 Consents.................................................. 18
Section 6.15 Products.................................................. 18
Section 6.16 Proprietary Rights........................................ 19
Section 6.17 Restrictive Documents or Orders........................... 21
Section 6.18 Contracts and Commitments................................. 21
Section 6.19 Assets.................................................... 21
Section 6.20 Insurance................................................. 22
Section 6.21 Product Warranties and Product Liability.................. 22
Section 6.22 Litigation................................................ 22
Section 6.23 No Conflict or Default.................................... 22
Section 6.24 Labor Relations........................................... 23
Section 6.25 Employee Benefit Plans.................................... 23
Section 6.26 Brokers' and Finders' Fees/Contractual Limitations........ 24
Section 6.27 Interested Party Relationships............................ 24
Section 6.28 Environmental Matters..................................... 24
Section 6.29 Certain Payments.......................................... 25
Section 6.30 Books and Records......................................... 25
Section 6.31 Customers and Suppliers................................... 25
Section 6.32 Complete Disclosure....................................... 26
Section 6.33 No Reliance on Forecasts.................................. 26
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF S.R. ONE................... 26
Section 7.1 Authorization............................................. 26
Section 7.2 Consents.................................................. 26
Section 7.3 Purchase Entirely for Own Account......................... 27
Section 7.4 Disclosure of Information................................. 27
Section 7.5 Investment Experience..................................... 27
Section 7.6 Accredited Investor....................................... 27
Section 7.7 Restricted Securities..................................... 27
Section 7.8 Broker Fees................................................ 27
Section 7.9 No Contrary Knowledge...................................... 28
Section 7.10 No Reliance on Forecasts.................................. 28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII. CORPORATE SECURITIES LAWS .................................. 28
Section 8.1 California Commissioner of Corporations.................... 28
ARTICLE IX. COVENANTS..................................................... 28
Section 9.1 Standstill Provision....................................... 28
Section 9.2 Maintenance of Business.................................... 29
Section 9.3 Access to ICG Information.................................. 29
Section 9.4 Access to SBIO Information................................. 30
Section 9.5 Meetings of Stockholders................................... 30
Section 9.6 Breach of Representations and Warranties................... 31
Section 9.7 Best Efforts............................................... 31
Section 9.8 Tax Returns................................................ 31
Section 9.9 Employment Offers.......................................... 31
Section 9.10 COBRA..................................................... 32
Section 9.11 Other Discussions......................................... 32
Section 9.12 Mail and Receivables Payments............................. 32
Section 9.13 Notification of Noncompliance............................. 32
Section 9.14 Further Action............................................ 32
Section 9.15 Covenants Against Disclosure.............................. 33
Section 9.16 Bulk Transfer Law......................................... 33
Section 9.17 Registered Options........................................ 33
Section 9.18 Change and Use of Name.................................... 33
Section 9.19 Cooperation by ICG........................................ 33
Section 9.20 Liquidation and Distribution of Shares.................... 33
Section 9.21 Resale of the Shares by ICG............................... 34
ARTICLE X. CLOSINGS....................................................... 34
Section 10.1 Time of Closing........................................... 34
Section 10.2 Closing of the Sale and Issuance of
Common Stock to S.R. One.................................. 34
Section 10.3 Closing of the Sale of Assets............................. 34
ARTICLE XI. CONDITIONS PRECEDENT TO OBLIGATIONS (S.R. ONE CLOSING)........ 35
Section 11.1 Conditions to Obligations of S.R. One..................... 35
(a) Representations and Warranties Correct.......................... 35
(b) Covenants....................................................... 36
(c) Opinion of SBIO's Counsel....................................... 36
(d) Substantive Deliverables........................................ 36
Section 11.2 Conditions to Obligations of SBIO......................... 36
(a) Representations and Warranties Correct.......................... 36
(b) Covenants....................................................... 36
(c) No Law Prohibiting or Restricting Sale.......................... 36
(d) Substantive Deliverables........................................ 36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XII. CONDITIONS PRECEDENT TO OBLIGATIONS (ICG
CLOSING)...................................................... 36
Section 12.1 Conditions to Obligations of SBIO.............................. 36
(a) Representations and Warranties................................ 36
(b) Performance of Agreement...................................... 37
(c) Absence of Governmental or Other Objection.................... 37
(d) Certificate of President...................................... 37
(e) Evidence of Title............................................. 37
(f) Board and Stockholder Approval................................ 37
(g) Legal Opinion................................................. 37
(h) SEC Registration.............................................. 37
(i) Licenses...................................................... 37
(j) Due Diligence Investigation................................... 37
(k) Approval of Documentation..................................... 37
Section 12.2 Conditions to Obligations of ICG............................... 38
(a) Representations and Warranties................................ 38
(b) Performance of Agreement...................................... 38
(c) Absence of Governmental or Other Objection.................... 38
(e) Legal Opinion................................................. 38
(g) Nasdaq National Market Listing................................ 38
(h) SEC Registration.............................................. 38
(i) Appointment of Director....................................... 38
(j) Substantive Deliverables...................................... 39
ARTICLE XIII. ICG'S HOLD-HARMLESS............................................ 39
Section 13.1 Excluded Liabilities........................................... 39
ARTICLE XIV. INDEMNIFICATION................................................. 39
Section 14.1 Survival of Representations, Warranties, Covenants and
Agreements......................................................... 39
Section 14.2 Indemnification.............................................. 40
Section 14.3 Procedure for Indemnification with Respect to Third-Party
Claims............................................................. 41
Section 14.4 Procedure For Indemnification with Respect to Non-Third
Party Claims....................................................... 42
Section 14.5 Limitations on Indemnification Amount........................ 43
ARTICLE XV. TERMINATION AND ABANDONMENT..................................... 43
Section 15.1 Termination.................................................. 43
Section 15.2 Procedure and Consequences of Termination.................... 44
ARTICLE XVI. MISCELLANEOUS PROVISIONS........................................ 45
Section 16.1 Notice....................................................... 45
Section 16.2 Entire Agreement............................................. 45
Section 16.3 Binding Effect; Assignment................................... 45
Section 16.4 Expenses of Transaction; Taxes............................... 45
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
Section 16.5 Waiver; Consent.............................................. 46
Section 16.6 Third-Party Beneficiaries.................................... 46
Section 16.7 Counterparts................................................. 46
Section 16.8 Severability................................................. 46
Section 16.9 Governing Law................................................ 46
Section 16.10 Attorneys' Fees............................................. 46
Section 16.11 Cooperation and Records Retention........................... 47
</TABLE>
EXHIBITS
10.2 Investor's Rights Agreement
10.3(a)(i) Bill of Sale for the Assets
10.3(a)(v) Affidavit of Foreign Status
[11.3(B)(II) PENNSYLVANIA EXEMPTION CERTIFICATE]
11.1 Opinion of Brobeck, Phleger & Harrison LLP
12.1 Opinion of McCausland, Keen & Buckman
12.2 Opinion of Brobeck, Phleger & Harrison LLP
14.4 Special Arbitration Procedures
SCHEDULES
2.1(a) List of Equipment
2.1(b) List of Inventory
2.1(c) List of Contracts
2.1(d) List of Real Property
2.1(e) List of Proprietary Rights
2.1(k) List of Leasehold Interests
2.1(l) List of Insurance Policies
2.2 List of Excluded Assets
3.1(a) List of Assumed Liabilities
3.1(c) List of Outstanding Options and Warrants
(v)
<PAGE>
CONFIDENTIAL
DRAFT DATED JULY __, 1996
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is dated as of July __, 1996 by and among Synbiotics
Corporation, a California corporation ("SBIO"), S.R. One, Limited, a
Pennsylvania business trust ("S.R. One"), and International Canine Genetics,
Inc., a Delaware corporation ("ICG").
WHEREAS, S.R. One desires to acquire from SBIO and SBIO desires to sell to
S.R. One, Common Stock of SBIO;
WHEREAS, ICG is engaged in, among other things, the business of manufacturing
and marketing canine reproduction diagnostic products and services, a diagnostic
test for canine hip dysplasia, nutritional supplements and a line of coat and
skin care products to breeders and owners of purebred dogs and their
veterinarians (the "Business");
WHEREAS, ICG and SBIO have executed a letter of intent dated May 14, 1996
regarding the acquisition by SBIO of the assets of the Business and now desire
to enter into a definitive agreement;
WHEREAS, SBIO desires to acquire from ICG and ICG desires to transfer to
SBIO, the assets, properties, and rights of ICG related to or associated with,
directly or indirectly, the Business, except as provided in Section 2.2 below,
upon the terms and conditions of this Agreement; and
WHEREAS, SBIO and ICG intend such sale of assets not to be a reorganization
within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE OF STOCK
--------------------------
Section 1.1 Sale and Issuance of Common Stock. Upon the terms and subject
----------- ---------------------------------
to the conditions set forth in this Agreement, S.R. One agrees to purchase at
the S.R. One Closing, which shall occur one hour before the Time of Closing (as
defined in Section 10.1) and SBIO agrees to sell and issue to S.R. One at the
S.R. One Closing, the number of shares of SBIO Common Stock (not registered
under the Securities Act of 1933, as amended (the
<PAGE>
"Securities Act")) equal to $1,000,000 divided by the Average Closing Sales
Price (as defined in Section 4.2) for an aggregate purchase price of $1,000,000.
Section 1.2 Closing. At the S.R. One Closing, SBIO shall deliver to S.R.
----------- -------
One a certificate representing the Common Stock which S.R. One is purchasing
(the "Unregistered Securities") against delivery to SBIO by S.R. One of a
cashier's check in the amount of $1,000,000 payable to SBIO's order.
Section 1.3 Restrictions on Resale. The Unregistered Securities will be
----------- ----------------------
subject to the following restrictions against transfer by S.R. One:
(a) any restrictions imposed by applicable federal and state securities laws;
and
(b) the volume limitations on resale as set forth in now-current Rule 144 of
the Securities Act until the second anniversary of the S.R. One Closing.
Certificates representing the Unregistered Securities will bear legends
describing the applicable restrictions on transferability referred to in this
Section 1.3, as follows:
"These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel (or other evidence) satisfactory to
Synbiotics Corporation that such registration is not required or unless sold
pursuant to Rule 144 of such Act."
"The securities represented by this certificate are subject to the terms
and conditions of a Purchase Agreement, dated as of July __, 1996, which
includes certain restrictions on the sale of the securities. Copies of the
agreement may be obtained upon written request to the Secretary of Synbiotics
Corporation."
ARTICLE II.
PURCHASE AND SALE OF ASSETS
---------------------------
Section 2.1 Description of Assets to be Acquired. Upon the terms and
----------- ------------------------------------
subject to the conditions set forth in this Agreement, ICG agrees to, at the
Time of Closing, convey, sell, transfer, assign, and deliver to SBIO, and SBIO
shall purchase from ICG, all right, title, and interest of ICG at the Time of
Closing in and to the assets, properties, and rights of the Business of every
kind, nature, and description, personal and real, tangible and intangible, known
or unknown, wherever located, including, without limiting the generality of the
foregoing (but excluding the "Excluded Assets," as such term is defined in
Section 2.2 below):
(a) All interests in machinery, equipment, instruments, computer hardware and
software, tooling, furniture, fixtures, motor vehicles, supplies, repair and
maintenance parts,
2
<PAGE>
and other fixed assets, together with manufacturer or vendor warranties
associated therewith, including, without limitation, those interests listed on
Schedule 2.1(a) hereto;
(b) All inventories of raw materials (together with any manufacturer or
vendor warranties associated therewith), work-in-process, finished goods and
supplies, packaging materials and business supplies, including, without
limitation, those listed on Schedule 2.1(b) hereto (collectively, the
"Inventory");
(c) All claims and rights under all agreements, contracts, licenses, leases,
franchises, instruments, documents, purchase and sale orders and other executory
commitments, and all permits, consents, and certificates of any regulatory,
administrative or other governmental agency or body, including, without
limitation, those listed on Schedule 2.1(c) hereto (collectively, the
"Contracts");
(d) All interests in the real property listed on Schedule 2.1(d) hereto, and
all buildings, facilities, and other improvements located thereon (including
construction in progress), together with all related rights, easements and uses
which benefit or burden any such property;
(e) All right, title and interest to trademarks, trademark rights, service
marks, service mark rights, copyrights, trade names, trade name rights,
fictitious business names, works of authorship, inventions, industrial models,
industrial designs, utility models and certificates of invention, designs,
emblems and logos, data, ideas, protocols, plans, trade secrets, formulae,
processes, know-how, manufacturing know-how, technical information, patents,
patent applications, mask work registrations, inventions, franchises, franchise
rights, customer and supplier lists together with the goodwill associated
therewith and other proprietary rights (collectively, the "Proprietary Rights"),
including without limitation those listed on Schedule 2.1(e) hereto;
(f) All accounts receivable and notes receivable of ICG as of the Time of
Closing (collectively, the "Accounts");
(g) All original books and records or duplicates thereof of all account,
general ledgers, sales invoices, purchase orders, accounts payable and payroll
records, tax returns and supporting schedules, drawings, files, papers,
electronic storage media, laboratory notebooks, and all other records (the
"Records");
(h) All rights under express or implied warranties from suppliers of ICG;
(i) All of ICG's causes of action, judgments, and claims or demands of
whatever kind or description arising out of or relating to the Business,
including deferred income taxes, and tax refunds or credits;
(j) All goodwill of the Business;
(k) All leasehold interests of ICG listed on Schedule 2.1(k) hereto;
3
<PAGE>
(l) All insurance policies of ICG other than the officers and directors
liability insurance policy of ICG, together with all proceeds thereof and rights
thereunder, including those policies listed on Schedule 2.1(l) hereto; and
(m) The current assets ICG as of the Time of Closing in the categories that
appear on the most recent balance sheet of ICG in form and substance
substantively similar to the balance sheet of ICG set forth in the most recent
Annual Report on Form 10-K, including, without limitation, all cash, lease and
rent deposits, prepaid expenses, prepaid taxes, bank accounts and all other
current assets of ICG.
The assets, properties, and rights to be conveyed, sold, transferred, assigned,
and delivered to SBIO pursuant to this Section 2.1 are sometimes hereinafter
collectively referred to as the "Assets."
Section 2.2 Excluded Assets. Notwithstanding the provisions of Section 2.1
----------- ---------------
hereof, the assets to be transferred to SBIO pursuant to this Agreement shall
not include those assets specifically listed on Schedule 2.2 (collectively, the
"Excluded Assets").
Section 2.3 Non-Assignment of Certain Assets. Notwithstanding anything to
----------- --------------------------------
the contrary in this Agreement, to the extent that the assignment hereunder of
any of the Assets shall require the consent of any other party (or in the event
that any of the same shall be nonassignable), neither this Agreement nor any
action taken pursuant to its provisions shall constitute an assignment or an
agreement to assign if such assignment or attempted assignment would constitute
a breach thereof or result in the loss or diminution thereof; provided, however,
that in each such case, ICG shall use its best efforts to obtain the consent of
such other party to an assignment to SBIO. If such consent is not obtained by
the Time of Closing, ICG shall cooperate with SBIO in any arrangement designed
for SBIO to perform ICG's obligations with respect to such Asset after the Time
of Closing and for SBIO to receive the benefits under any such Asset after the
Time of Closing, which arrangements may include enforcement, for the account and
benefit of SBIO, of any and all rights of ICG against any other person arising
out of the breach or cancellation by such other person or otherwise, all of such
actions of ICG to be at the direction and expense of ICG. ICG shall reimburse
or pay SBIO for all actual costs and expenses, including amounts owed as a
result of increased obligations under such instruments, resulting from an
inability of SBIO to receive the benefits of such assignment.
Section 2.4 Instruments of Transfer. The sale, assignment, transfer,
----------- -----------------------
conveyance and delivery of the Assets shall be made by such bills of sale and
other instruments of assignment, transfer and conveyance as SBIO shall
reasonably request.
4
<PAGE>
ARTICLE III.
LIABILITIES OF ICG
------------------
Section 3.1 Assumption of Liabilities.
----------- -------------------------
(a) SBIO hereby agrees to assume, satisfy or perform those liabilities
and obligations of ICG specifically identified in Schedule 3.1, and those
written contractual commitments arising after the Time of Closing (but not based
on events prior to the Time of Closing) as specifically set forth in the written
contracts specifically listed in Schedule 2.1(c) attached hereto and also
specifically marked therein with an asterisk (collectively, the "Assumed
Liabilities").
(b) The parties agree that Schedule 3.1 shall be prepared by SBIO and ICG
by the Time of Closing and shall only contain a list of liabilities not to
exceed the sum of Time of Closing cash, accounts receivable and inventory plus
$____________ less Time of Closing accounts payable (excluding all accounting
and legal fees, all costs related to the transactions contemplated by this
Agreement, insurance and payroll related items and accrued royalties where the
related receivable has been collected). The liabilities actually to be included
on Schedule 3.1 shall include first all accounts payable not within the
parenthetical clause in the preceding sentence, and only thereafter (and only to
the extent the overall assumption limit amount is not exceeded) accounts payable
which are within the parenthetical clause in the preceding sentence.
(c) SBIO shall, effective as of the Time of Closing, assume those
unexpired and unexercised options to purchase shares of ICG under ICG's 1992
Stock Option Plan listed on Schedule 3.1(c) (the "Options"). SBIO shall,
effective as of the Time of Closing, assume the outstanding warrants to purchase
Common Stock of ICG listed on Schedule 3.1(c) (the "Warrants"). The effect of
such assumption shall be that the Options and Warrants shall be exercisable for
SBIO Common Stock (with the number of shares and the exercise price per share
adjusted for the deemed Time-of-Closing acquisition ratio), if the holder
delivers the cash exercise price and other exercise deliverables to SBIO before
expiration or termination of the Option or Warrant. SBIO acknowledges that each
holder of the Options and the Warrants shall be a third party beneficiary of
this Agreement in connection with the assumption of such Options and Warrants by
SBIO.
Section 3.2 Liabilities Not Assumed. Other than the Assumed Liabilities,
----------- -----------------------
SBIO shall not assume, nor shall SBIO or any affiliate, or any officer,
director, employee, stockholder or agent of SBIO, be deemed to have assumed or
guaranteed, any liabilities, obligations, litigation, disputes, debts, payables,
counterclaims, rights of set-off or return, or commitments or claims, whether
such liabilities are contingent or otherwise, or direct or indirect, of ICG in
existence on or prior to or after the Time of Closing or otherwise
5
<PAGE>
or based on any events, facts or circumstances in existence prior to or in
connection with or after the sale of the Assets or in connection with or arising
from any activities of ICG or any services provided by or goods or assets sold
by or products delivered to ICG (collectively, the "Excluded Liabilities"),
except for obligations of S.R. One expressly created in this Agreement.
ARTICLE IV.
PURCHASE PRICE FOR ASSETS
-------------------------
Section 4.1 Consideration. Upon the terms and subject to the conditions
----------- -------------
contained in this Agreement, in consideration for the Assets and in full payment
therefor, SBIO will pay the purchase price set forth in Section 4.2 to ICG.
Section 4.2 Payment of Purchase Price. The purchase price ("Purchase
----------- -------------------------
Price") to be paid by SBIO to ICG shall consist of shares of common stock of
SBIO (the "Common Stock") to be issued directly from SBIO to ICG (collectively,
the "Shares"), the number of which shall be 1,400,000, provided that the average
closing sales price of the Common Stock of SBIO as quoted on the Nasdaq National
Market for the five (5) trading days ending one (1) business day prior to the
date of the Time of Closing (the "Average Closing Sales Price") is not greater
than $3.50 per share or less than $2.50 per share. If the Average Closing Sales
Price is greater than $3.50 per share, ICG shall receive a number of shares of
SBIO Common Stock equal to 1,400,000 multiplied by a fraction, the numerator of
which shall be $3.50 and the denominator of which shall be the Average Closing
Sales Price. If the Average Closing Sales Price is less than $2.50 per share,
ICG shall receive a number of shares of SBIO Common Stock equal to 1,400,000
multiplied by a fraction, the numerator of which shall be $2.50 and the
denominator of which shall be the Average Closing Sales Price. In addition, as
part of the Purchase Price, SBIO shall assume the Options and the Warrants as
set forth in Section 3.1(c).
Section 4.3 Allocation of Purchase Price. The Purchase Price shall be
----------- ----------------------------
allocated in the manner to be agreed upon in good faith by the parties within
thirty (30) days after the Time of Closing, and to prepare all financial
reports, and SBIO and ICG agree to file all income and other tax returns and
information reports, in a manner consistent with such allocation.
Section 4.4 Registration Statement on Form S-4. The Shares to be issued
----------- ----------------------------------
hereunder and the shares of Common Stock of SBIO to be issued upon exercise of
the Warrants (the "Warrant Shares") shall be issued pursuant to registration of
the Shares and the Warrant Shares under the Securities Act pursuant to a
Registration Statement on Form S-4 (as amended, the "Form S-4") with the
Securities and Exchange Commission (the "SEC") (the "Registered Offering").
Section 4.5 Restrictions on Resale. The Shares and the Warrant Shares will
----------- ----------------------
be subject to the following restrictions against transfer by ICG and any persons
receiving them upon liquidation of ICG:
6
<PAGE>
(a) any restrictions imposed by applicable federal and state securities laws;
and
(b) with respect to the Shares to be distributed to each and any forty
percent or greater stockholder of ICG, the volume limitations on resale as set
forth in the now-current Rule 144 and Rule 145 of the Securities Act until the
second anniversary of the Time of Closing.
Certificates representing the Shares and the Warrant Shares will, while
beneficially owned by ICG or persons who at the Time of Closing were affiliates
of ICG, bear legends describing the applicable restrictions on transferability
referred to in this Section 4.5, including the following legend:
"The securities represented by this certificate are subject to the terms
and conditions of a Purchase Agreement, dated as of July __, 1996, which
includes certain restrictions on the sale of the securities. Copies of the
agreement may be obtained upon written request to the Secretary of Synbiotics
Corporation."
Section 4.6 Asset and Assumed Liabilities Schedules. Except as set forth in
----------- ---------------------------------------
this Section 4.6, all schedules required by the terms of this Agreement shall be
provided to SBIO, in form and substance satisfactory to SBIO, on each of the
date of this Agreement and the Time of Closing. Schedule 2.2 shall be provided
to SBIO on the date of this Agreement and the parties agree that ICG shall not
be entitled to exclude any additional assets from sale to SBIO or increase the
value of any Excluded Assets set forth on such Schedule after the date of this
Agreement, without SBIO's written consent. Except as set forth on Schedule 2.2,
all such schedules shall accurately reflect the value of those assets and
liabilities as of such dates.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SBIO
--------------------------------------
Except as set forth in identical letters specifically referring to this
Article V dated as of the date of this Agreement (the "Synbiotics Disclosure
Letter") delivered by Synbiotics to ICG and S.R. One, which disclosures shall be
deemed to modify the representations and warranties hereunder, SBIO hereby
represents to ICG and S.R. One that:
Section 5.1 Organization; Good Standing; Power. SBIO is a corporation duly
----------- ----------------------------------
organized, validly existing, and in good standing under the laws of the State of
California and has the corporate power and authority to own, lease and operate
its properties and to carry on its business as the same is now being conducted.
SBIO is qualified as a foreign corporation and is in good standing in such other
jurisdictions in which the conduct of its business or its ownership or leasing
of its property requires such qualification. SBIO does not own, directly or
indirectly, any equity or other ownership interest in or control any
corporation, partnership, joint venture or other entity.
7
<PAGE>
Section 5.2 Authorization. SBIO has full corporate power and authority to
----------- -------------
enter into this Agreement, to perform its obligations hereunder, and to
consummate the transactions contemplated hereby, including the execution and
delivery of this Agreement and other documents delivered in accordance with
Section 10.2(a) and Section 10.3(b) hereunder. SBIO has taken all necessary and
appropriate corporate action with respect to the execution and delivery of this
Agreement, and this Agreement constitutes a valid and binding obligation of
SBIO, enforceable in accordance with its terms. No other corporate proceedings
on the part of SBIO are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby (except that, with respect to the sale of
Assets, the approval and adoption of this Agreement by the holders of a majority
of the outstanding shares of SBIO's capital stock may be required, depending on
the number of Shares to be issued). This Agreement constitutes a valid and
binding obligation of SBIO, enforceable in accordance with its terms.
Section 5.3 Compliance With Other Instruments. The execution and delivery
----------- ---------------------------------
of this Agreement, the consummation of the transactions contemplated hereby and
the compliance with the terms hereof by it will not violate any statute,
regulation, or ordinance of any governmental authority, or conflict with or
result in the breach of any term, condition, or provision of its Articles of
Incorporation or Bylaws, as presently in effect, or of any agreement, deed,
contract, mortgage, indenture, writ, order, decree, legal obligation, or
instrument to which it is a party, or constitute a default (or an event which,
with the lapse of time or the giving of notice, or both, would constitute a
default) thereunder.
Section 5.4 Litigation. There is no claim, investigation, litigation,
----------- ----------
action, suit or proceeding, administrative or judicial, pending or, to SBIO's
knowledge, threatened against it, or any of its officers or directors, at law or
in equity, before any federal, state, local or foreign court, or regulatory
agency, or other governmental authority, including, without limitation, any
unfair labor practice or grievance proceedings or otherwise. SBIO has not
received any complaints from any of its customers or suppliers within the last
twelve months, which will, individually or in the aggregate, have any non-
trivial adverse effect on the business, prospects, operations, employee
relations, rights or condition of SBIO.
Section 5.5 Valid Issuance of Shares of Common Stock of SBIO. The
----------- ------------------------------------------------
Unregistered Securities and the Shares of SBIO Common Stock, when issued, sold
and delivered to S.R. One and ICG, respectively, in accordance with the terms
hereof for the consideration described herein, will be duly authorized and
validly issued, fully paid and nonassessable and will be issued in compliance
with all applicable federal and state securities laws. The assumption by SBIO
of the Warrants pursuant to Section 3.1(c) of this Agreement will be duly
authorized and the Warrant Shares that will be issuable upon exercise of the
Warrants, pursuant to the adjusted terms of such Warrants, will be duly
authorized and validly issued, fully paid and nonassessable, and the Warrant
Shares will be issued in compliance with all applicable federal and state
securities laws. The assumption by SBIO of the Options pursuant to Section
3.1(c) of this Agreement will be duly authorized and the shares that will be
issuable upon exercise of such options, pursuant to the adjusted terms of such
Options, will be duly authorized and validly issued, fully paid and
nonassessable and will be issued in compliance with all applicable federal and
state securities laws. A sufficient number of
8
<PAGE>
shares have been reserved to provide for the issuance of the shares issuable
upon exercise of the Warrants and the Options to be issued upon the assumption
of the Warrants and the Options.
Section 5.6 Consents. The execution and delivery of this Agreement by SBIO
----------- --------
do not, and the performance of this Agreement by SBIO shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, or any other
third party, including licensors and lenders, except for applicable
requirements, if any, of the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and state securities laws ("Blue Sky
Laws").
Section 5.7 Broker Fees. It is not obligated to pay any fees or expenses of
----------- -----------
any broker or finder in connection with the origin, negotiation or execution of
this Agreement or in connection with any of the transactions contemplated
hereby.
SBIO shall indemnify and hold harmless the other parties from and against any
and all claims, liabilities, or obligations with respect to brokerage or
finders' fees or commissions or consulting fees in connection with the
transactions contemplated by this Agreement, asserted by any person on the basis
of any statement or representation alleged to have been made by such
indemnifying party. Neither SBIO, nor any officer, director, employee, agent or
representative of SBIO (collectively "SBIO's Representatives") are or have been
subject to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts SBIO or SBIO's Representatives from negotiating,
entering into and consummating this Agreement and the transactions contemplated
hereby.
Section 5.8 SEC Filings.
----------- -----------
(a) SBIO has filed all forms, reports and documents required to be filed with
the SEC since its initial public offering and has provided to S.R. One and to
ICG (i) its Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995, (ii) its Quarterly Report on Form 10-QSB for the quarter ended March 31,
1996, and (iii) all proxy statements relating to SBIO's meetings of shareholders
(whether annual or special) held in the three years prior to the date of this
Agreement, (iv) all other reports or registration statements filed by SBIO with
the SEC in the three years prior to the date of this Agreement, and (v) all
amendments and supplements and restatements to all such reports and registration
statements filed by SBIO with the SEC in the three years prior to the date of
this Agreement, (collectively, the "SBIO SEC Reports"). The SBIO SEC Reports
(i) were prepared in accordance with the requirements of the Exchange Act, and
(ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any related
notes thereto) contained in SBIO's SEC Reports was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved and each fairly presented the financial position
of SBIO as at the respective dates thereof and the results of its operations and
cash flows for the periods indicated, except that the
9
<PAGE>
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount. SBIO's revenue recognition policies with respect to financial
statements contained in SBIO's SEC Reports have been made in accordance with
generally accepted accounting principles. SBIO maintains a standard system of
accounting in accordance with generally accepted accounting principles. All of
SBIO's general ledgers, books and records are located at SBIO's principal place
of business. To SBIO's knowledge, SBIO's financial reserves are adequate to
cover claims already incurred.
(c) SBIO has heretofore furnished to S.R. One and ICG a complete and correct
copy of any amendments, supplements or modifications and restatements which have
not yet been filed with the SEC but which are required to be filed by SBIO with
the SEC pursuant to the Securities Act or the Exchange Act.
Section 5.9 Proxy Statement. The information supplied by SBIO in writing
----------- ---------------
for inclusion in the combined proxy statement to be sent to each of the
stockholders of ICG and SBIO in connection with the meeting of ICG's
stockholders (the "ICG Stockholders Meeting") and the meeting of the SBIO's
shareholders (the "SBIO Shareholders Meeting") to consider and approve the sale
of the Assets (such proxy statements as amended or supplemented is referred to
herein as the "Proxy Statement"), shall not, on the date the Proxy Statement is
first mailed to shareholders, at the time of the SBIO Shareholders Meeting, and
at the Time of Closing, contain any statement which, at such time and in light
of the circumstances under which it shall be made, is false or misleading with
respect to any material fact, or shall omit to state any material fact necessary
in order to make the statements made therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the SBIO
Shareholders Meeting which has become false or misleading. If at any time prior
to the Time of Closing, any event relating to SBIO or any of its affiliates,
officers or directors is discovered by SBIO which should be set forth in a
supplement to the Proxy Statement, SBIO shall promptly inform ICG in writing.
The Proxy Statement shall comply in all material respects as to form and
substance with the requirements of the Securities Act and Exchange Act and the
rules and regulations thereunder. It is understood that SBIO's shareholders
will not in fact vote on the acquisition of the Assets unless such vote is
legally required.
Section 5.10 Capitalization of SBIO. The authorized capital of SBIO
------------ ----------------------
consists of 24,800,000 shares of Common Stock, of which ______________ shares
are issued and outstanding, and 200,000 shares of Series B Common Stock, none of
which are outstanding. Options to purchase ______________ shares of Common
Stock are outstanding. Except as set forth herein, SBIO has not reserved any
shares of capital stock for issuance and there are no outstanding options,
restricted stock awards, warrants, calls, commitments or rights of any character
to purchase or otherwise to acquire from SBIO shares of capital stock of any
class, and there are no outstanding securities of SBIO that are convertible into
shares of capital stock of SBIO of any class and no options, warrants or rights
to purchase from SBIO any of such convertible securities.
10
<PAGE>
Section 5.11 Complete Disclosure. The copies of all instruments,
------------ -------------------
agreements, other documents and written information delivered by SBIO to ICG or
its counsel are and will be complete and correct in all material respects as of
the date of delivery thereof. No representation or warranty made by SBIO in
this Agreement, and no exhibit, schedule, statement, certificate or other
writing furnished by SBIO to ICG pursuant to this Agreement or in connection
with the transactions contemplated hereby, contains or will contain any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
There is no presently existing event, fact or condition that adversely affects
SBIO's financial condition or prospects, or that could reasonably be expected to
do so, which has not been set forth in this Agreement or the exhibits hereto or
otherwise disclosed by SBIO to ICG in writing at the Time of Closing.
Section 5.12 Absence of Material Adverse Change. Since March 31, 1996,
------------ ----------------------------------
there has been no event, circumstance or change which would constitute a
material adverse change in the business of SBIO, including, without limitation,
the termination or material reduction in the amount of business between SBIO and
any of its three largest suppliers and three largest customers, where such
termination or reduction would have a material adverse effect on SBIO.
Section 5.13 Form S-4. The information supplied by SBIO for inclusion in
------------ --------
the Form S-4 to be filed with the SEC in connection with the Registered Offering
shall not, on the date the Form S-4 is filed with the SEC and at the Time of
Closing, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading. If at any
time prior to the Time of Closing, any event relating to SBIO or any of its
affiliates, officers or directors is discovered by SBIO which should be set
forth in an amendment to the Form S-4, SBIO shall promptly inform ICG in
writing. The Form S-4 shall comply in all material respects as to form and
substance with the requirements of the Securities Act and the rules and
regulations thereunder.
Section 5.14 No Reliance on Forecasts. In the negotiation and consideration
------------ ------------------------
of the transactions contemplated by this Agreement, SBIO and its Board of
Directors have not relied upon any information or documents concerning ICG and
its business or financial results except: (i) information and documents that
are publicly available, (ii) representations and warranties made by ICG in this
Agreement and (iii) disclosure of interim financial results made pursuant to
this Agreement. In the course of negotiations, SBIO and ICG exchanged
information regarding hypothetical situations, based on various assumptions, of
the results of operations of the combined companies and possible market prices
for SBIO's common stock. SBIO does not make any representation or warranty
regarding any such hypothetical situations provided by it, including those that
may contain forecasts or projections of its future operating results, and SBIO
disclaims reliance on any such hypothetical situations provided by ICG or third
parties.
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ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF ICG
-------------------------------------
Except as set forth in identical letters specifically referring to this
Article VI dated as of the date of this Agreement (the "ICG Disclosure Letter")
delivered by ICG to SBIO and Brobeck, Phleger & Harrison LLP, which disclosures
shall be deemed to modify the representations and warranties hereunder, ICG
hereby represents and warrants to SBIO that:
Section 6.1 Organization; Good Standing; Power. ICG is a corporation duly
----------- ----------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, lease and operate
its properties and to carry on its business as the same is now being conducted.
ICG is qualified as a foreign corpor ation and is in good standing in such other
jurisdictions in which the conduct of its business or its ownership or leasing
of its property requires such qualification. ICG does not own, directly or
indirectly, any equity or other ownership interest in or control any
corporation, partnership, joint venture or other entity.
Section 6.2 Authorization. ICG has full power and authority to enter into
----------- -------------
this Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby, including, without limitation, the execution
and delivery of this Agreement, general conveyances, bills of sale, assignments,
and other documents and instruments evidencing the conveyance of the Assets or
delivered in accordance with Section 10.3(a) hereunder (the "ICG Closing
Documents"). ICG has taken all necessary and appropriate corporate action with
respect to the execution and delivery of this Agreement and the ICG Closing
Documents. No other corporate proceedings on the part of ICG are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
(other than, with respect to the sale of Assets, the approval and adoption of
this Agreement by the holders of a majority of the outstanding shares of ICG's
capital stock in accordance with Delaware law and ICG's charter documents).
This Agreement constitutes a valid and binding obligation of ICG, enforceable in
accordance with its terms.
Section 6.3 SEC Filings; Financial Statements.
----------- ---------------------------------
(a) ICG has filed all forms, reports and documents required to be filed with
the SEC since its initial public offering and has provided to SBIO: (i) its
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1995, (ii) its
Quarterly Reports on Form 10-QSB for the periods ended September 30, 1995,
December 31, 1995 and March 31, 1996, (iii) all proxy statements relating to
ICG's meetings of stockholders (whether annual or special) held since its
initial public offering, (iv) all other reports or registration statements filed
by ICG with the SEC since its initial public offering, and (v) all amendments,
supplements and restatements to all such reports and registration statements
filed by ICG with the SEC (collectively, the "ICG SEC Reports"). ICG SEC
Reports (and any related, supplement or amended ICG SEC Report): (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they
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were filed (or if amended, superseded or restated by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, not misleading.
(b) Each of the financial statements (including, in each case, any related
notes thereto) contained in ICG's SEC Reports was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved and each fairly presented the financial position
of ICG as at the respective dates thereof and the results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. ICG's
revenue recognition policies with respect to financial statements contained in
ICG's SEC Reports have been made in accordance with generally accepted
accounting principles. ICG maintains a standard system of accounting in
accordance with generally accepted accounting principles. All of ICG's general
ledgers, books and records are located at ICG's principal place of business. To
ICG's knowledge, ICG's financial reserves are adequate to cover claims already
incurred.
(c) ICG has heretofore furnished to SBIO a complete and correct copy of any
amendments, supplements or modifications and restatements which have not yet
been filed with the SEC but which are required to be filed by ICG with the SEC
pursuant to the Securities Act or the Exchange Act.
Section 6.4 Proxy Statement. The information supplied by ICG for inclusion
----------- ---------------
in the Proxy Statement shall not, on the date the Proxy Statement is first
mailed to stockholders, at the time of the ICG Stockholders Meeting and at the
Time of Closing, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for ICG's
Stockholders' Meeting which has become false or misleading. If at any time
prior to the Time of Closing, any event relating to ICG or any of its
affiliates, officers or directors should be discovered by ICG which should be
set forth in a supplement to the Proxy Statement, ICG shall promptly inform SBIO
in writing. The Proxy Statement shall comply in all material respects as to
form and substance with the requirements of the Securities Act and Exchange Act
and the rules and regulations thereunder.
Section 6.5 Absence of Certain Changes and Events. Since March 31, 1996,
----------- -------------------------------------
there has not been:
(a) Any adverse change in the financial condition, results of operation,
assets, liabilities, business, or prospects of ICG or any occurrence,
circumstance, or combination thereof which, to ICG's knowledge, reasonably could
be expected to result in any such adverse change;
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(b) Any event, including, without limitation, shortage of materials or
supplies, fire, explosion, accident, requisition or taking of property by any
governmental agency, flood, drought, earthquake, or other natural event, riot,
act of God or a public enemy, or damage, destruction, or other casualty, whether
covered by insurance or not, which has had an adverse effect on ICG or the
Assets or any such event which, to ICG's knowledge, reasonably could be expected
to have such an effect on ICG or the Assets;
(c) Any material transaction relating to or involving ICG (other than the
transactions contemplated herein) which was entered into or carried out by ICG
other than in the ordinary and usual course of business;
(d) Any change made by ICG in its method of operating the Business or its
accounting practices relating thereto;
(e) Any mortgage, pledge, lien, security interest, hypothecation, charge, or
other encumbrance imposed or agreed to be imposed on or with respect to the
Assets other than liens arising with respect to taxes not yet due and payable,
and such liens and encumbrances, if any, which arise in the ordinary course of
business and are not material in nature or amount either individually or in the
aggregate, and which do not detract from the value of the Assets or impair the
operations conducted thereon or any discharge or satisfaction thereof;
(f) Any sale, lease, or disposition of, or any agreement to sell, lease, or
dispose of any of the Assets, other than sales, leases, or dispositions in the
usual and ordinary course of business and consistent with prior practice;
(g) Any modification, waiver, change, amendment, release, rescission, accord
and satisfaction, or termination of, or with respect to, any term, condition, or
provision of any contract, agreement, license, or other instrument to which ICG
is a party and relating to or affecting the Business or the Assets, other than
any satisfaction by performance in accordance with the terms thereof in the
usual and ordinary course of business and consistent with prior practice;
(h) Any labor disputes or disturbances materially affecting in an adverse
manner the Business or financial condition of ICG, including, without
limitation, the filing of any petition or charge of unfair labor practices with
the National Labor Relations Board;
(i) Any notice (written or unwritten) from any significant employee (as that
term is used in Item 401 of Regulation S-K, promulgated under the Securities
Act) of ICG that such employee has terminated, or intends to terminate, such
employee's employment with ICG;
(j) Any adverse change in relationships or conditions with vendors or
customers that may have an adverse effect on ICG, the Business or the Assets;
(k) Any waivers of any rights of substantial value by ICG;
14
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(l) Any other event or condition of any character which adversely affects,
or, to ICG's knowledge, may reasonably be expected to so affect, the Assets or
the results of operations or financial condition of ICG; or
(m) Any purchase or lease of or any agreements to purchase or lease capital
assets by ICG in excess of $10,000 individually, or in excess of $20,000 in the
aggregate.
Section 6.6 Form S-4. The information supplied by ICG in writing for
----------- --------
inclusion in the Form S-4 to be filed by SBIO with the SEC in connection with
the Registered Offering shall not, on the date the Form S-4 is filed with the
SEC and at the Time of Closing, contain any statement which, at such time is
false or misleading with respect to any material fact, or shall omit to state
any material fact necessary in order to make the statements made therein not
false or misleading. If at any time prior to the Time of Closing, any event
relating to ICG or any of its affiliates, officers or directors which should be
set forth in an amendment to the Form S-4, ICG shall promptly inform SBIO in
writing.
Section 6.7 Conduct of Business. At all times since March 31, 1996, ICG has
----------- -------------------
conducted the Business diligently in the ordinary course thereof and used
reasonable commercial efforts to preserve intact the organization of the
Business and the goodwill of its customers, suppliers, and others having
business relations with it consistent with past practice.
Section 6.8 Undisclosed Liabilities. There are no debts, liabilities or
----------- -----------------------
obligations with respect to ICG or to which the Assets are subject, liquidated,
unliquidated, accrued, absolute, contingent, or otherwise, GAAP or non-GAAP,
that are not reflected in the financial statements and the notes thereto
contained in ICG's SEC Reports. ICG has not guaranteed the repayment of any
obligations of any third party, including affiliates and affiliated entities or
persons. SBIO shall only be obligated to retire the Assumed Liabilities.
Section 6.9 Inventory. All Inventory of ICG and all items to be delivered
----------- ---------
to ICG for Inventory after the Time of Closing that are subject to purchase
commitments outstanding at the Time of Closing, consist of items that are or
upon delivery will be good and merchantable and of a quality and quantity
presently usable and saleable in the ordinary course of business. The Inventory
is not stated on the financial statements contained in ICG's SEC Reports in an
amount greater than the estimated net realizable value thereof.
Section 6.10 Accounts and Notes Receivable. All Accounts reflected on the
------------ -----------------------------
financial statements contained in ICG's SEC Reports are (i) valid, genuine and
existing, (ii) subject, to ICG's knowledge, to no defenses, setoffs or
counterclaims, (iii) current (not more than ninety (90) days past due) and
collectible in the ordinary course of business, and (iv) will be paid in full,
net of reserves, in the ordinary course of business, less any applicable trade
discounts. No person has any lien on such Accounts or any part thereof except
liens imposed by operation of law or liens incurred in the ordinary course of
business; no agreement for deduction, free goods, discount or other deferred
price or quantity adjustment has been made with respect to any of such Accounts;
and, to ICG's knowledge, no customer of ICG with an Account balance is involved
in voluntary or involuntary bankruptcy
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proceedings or is otherwise insolvent or has notified ICG (or, to the knowledge
of employees in ICG's financial department, orally) that such customer will not
pay its Account.
Section 6.11 Properties. ICG has good and valid title to all property and
------------ ----------
Assets, tangible and intangible, purported to be owned by it, including the
property and Assets reflected on the financial statements contained in ICG's SEC
Reports. All such property and Assets purported to be owned by ICG are free and
clear of all mortgages, liens, charges, security interests or other encumbrances
of any nature whatsoever except as reflected in the financial statements
contained in ICG's SEC Reports and except for liens for current taxes not
delinquent, liens imposed by operation of law and liens incurred in the ordinary
course of business. All property and Assets, including machinery and equipment,
owned, leased or otherwise used by ICG are in good operating condition and
repair, reasonable wear and tear excepted, and are suitable and adequate for use
in the ordinary course of business and conform in all material respects to all
applicable laws. All leases are binding, valid and enforceable in accordance
with their terms subject to the effect, if any, of (i) applicable bankruptcy and
other similar laws affecting the rights of creditors generally, and (ii) rules
of law governing specific performance, injunctive relief and other equitable
remedies, and, to ICG's knowledge, there are no current defaults or events which
have occurred with which the giving of notice or lapse of time or both would
constitute a material default under any lease. After the Time of Closing, SBIO
will be entitled to the continued use and possession of the property leased by
it, for the terms specified in such leases and for the purposes for which such
property is used. There is no pending or threatened condemnation or similar
proceeding affecting any of the real property owned or leased by ICG.
Section 6.12 Taxes.
------------ -----
(a) All Taxes (as hereinafter defined) due or payable by ICG, and all
interest and penalties thereon, whether disputed or not, other than Taxes which
are not yet due and payable, have been paid in full. All Tax returns,
statements, reports, forms and other documents required to be filed in
connection therewith have been accurately prepared and duly and timely filed
(and no extension of any filing date applicable thereto has been requested or
granted) and were correct and complete in all respects. All deposits required
by law to be made by ICG with respect to employees' withholding taxes have been
duly made. ICG is not delinquent in the payment of any Tax, assessment or
governmental charge or deposit, and ICG does not have any Tax deficiency or
claim currently pending, outstanding or asserted against it, and, to ICG's
knowledge, there is no basis for any such Tax deficiency or claim. There is no
audit currently pending regarding any Taxes and ICG has not extended the period
in which any Tax could be assessed or collected.
(b) No tax is required to be withheld pursuant to Section 1445 of the
Internal Revenue Code of 1986, as amended (the "Code") as a result of the
transfers contemplated by this Agreement, and ICG is not a person other than a
United States person within the meaning of the Code. No recording or filing
fees or sales, use, transfer or documentary taxes are payable by SBIO in
connection with, or as a result of, the transactions provided
16
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for by this Agreement under the laws of the State of Pennsylvania or any
political subdivision thereof.
(c) There are no liens for Taxes upon the Assets except liens for current
Taxes not yet due. The unpaid Taxes of ICG do not exceed the reserve for Taxes
established on the books and records of ICG. To ICG's knowledge, no
governmental entity (a "Taxing Authority") responsible for the imposition of any
Tax (domestic or foreign), has asserted jurisdiction to impose any Taxes upon
ICG.
(d) The net operating losses of ICG are not subject to any limitation on
their use other than such limitation as may arise as a result of the
transactions contemplated by this Agreement.
(e) There is no contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of ICG that,
individually or collectively, could give rise to the payment by ICG of any
amount that would not be deductible pursuant to Section 280G or Section 162 of
the Code. None of the assets (including the Assets) of ICG (i) is property that
is required to be treated as owned by any other person pursuant to the so-called
"safe harbor lease" provisions of former Section 168(f)(8) of the Code, (ii)
directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code or (iii) is "tax exempt use property" within
the meaning of Section 168(h) of the Code. The transactions contemplated herein
are not subject to the tax withholding provisions of Code Section 3406, or of
Subchapter A of Chapter 3 of the Code or of any other provision of law in any
jurisdiction. ICG is not and has never been a member of a group permitted or
required to file consolidated Tax returns and is not party to any agreement
relating to the payment or sharing of liability for Taxes. ICG has not filed a
consent under Section 341(f) of the Code.
(f) For purposes of this Agreement, "Tax" (and, with correlative meaning,
"Taxes" and "Taxable") means (i) any net income, alternative or add-on minimum
tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Taxing Authority responsible for the imposition
of any such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of any express or implied obligation to indemnify any other
person.
Section 6.13 Compliance with Laws. ICG has complied and is in compliance,
------------ --------------------
in all material respects, with all applicable foreign, federal, state, and local
laws, statutes, licensing requirements, rules, and regulations, and judicial or
administrative decisions applicable to the Business. ICG has been granted all
licenses, permits (temporary and otherwise),
17
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authorizations, and approvals from foreign, federal, state, and local government
regulatory bodies necessary to carry on the Business as currently conducted, all
of which are currently valid and in full force and effect. All such licenses,
permits, authorizations, and approvals shall be transferred to SBIO effective as
of the Time of Closing, and shall be valid and in full force and effect to the
same extent as if ICG were continuing operation of the Business. To the best of
ICG's knowledge, there is no order issued, investigation, or proceeding pending
or threatened, or notice served with respect to any violation of any law,
ordinance, order, writ, decree, rule, or regulation issued by any federal,
state, local, or foreign court or governmental agency or instrumentality
applicable to the Business.
Section 6.14 Consents. The execution and delivery of this Agreement by ICG
------------ --------
do not, and the performance of this Agreement by ICG shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, or any other
third party, including licensors and lenders, except for applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
bulk sales laws and the notification requirements of the HSR Act.
Section 6.15 Products. There are no known defects in the design or
------------ --------
technology embodied in any product which ICG currently markets, has marketed in
the past that impair or are likely to impair the stated use of the product or,
in connection with such stated use, is reasonably likely to injure any consumer
of the product or third party, except that warranty claims may arise in the
normal course of business, for products shipped prior to the Time of Closing, in
an aggregate amount of no more than the warranty reserves established on the
most recent balance sheet of ICG.
Section 6.16 Proprietary Rights.
------------ ------------------
(a) Schedule 2.1(e) sets forth all of the items within the categories which
define Proprietary Rights (i) which are used in the business of ICG, (ii) which
are owned by ICG, or (iii) to which ICG otherwise has rights to license or use.
Any of the Proprietary Rights the transfer of which require the execution and
filing with an appropriate governmental agency have been so indicated on
Schedule 2.1(e).
(b) Schedule 2.1(e) sets forth a true and complete list of all contracts,
licenses and other agreements to which ICG is a party, which affect any item of
ICG Proprietary Rights and which are material to the business of ICG as
conducted. Schedule 2.1(e) specifically designates all such contracts, licenses
or other agreements (i) pursuant to which ICG is a licensor or licensee of
Proprietary Rights, (ii) under which ICG has granted or been granted exclusive
rights, and (iii) under which ICG is obligated to pay in excess of (or under
which the consideration is reasonably expected to exceed) $25,000 in any one
year period.
(c) (i) ICG either owns or has the exclusive right to use, sell, license and
dispose of, to bring actions for the infringement of and otherwise exercise all
Proprietary Rights, including Proprietary Rights which comprise trade secret
rights, to the extent permitted by law (hereinafter, "Trade Secrets"), free and
clear of all encumbrances.
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(ii) ICG has the non-exclusive right to use, sell, license and dispose
of all Proprietary Rights listed (on Schedule 2.1(e)) as exceptions to the
previous paragraph.
(iii) ICG has taken all reasonable actions and made all applicable
applications and filings pursuant to applicable laws to perfect or protect
its interests in all Proprietary Rights, except where the failure to take
such actions or make such applications or filings would not have a material
adverse effect on ICG's business or materially interfere with the use or
enforcement of such Proprietary Rights in the ordinary course of its
business.
(iv) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not (A) breach,
violate or conflict with any instrument or agreement governing any
Proprietary Right, (B) cause the forfeiture or termination or give rise to a
right of forfeiture or termination of any Proprietary Right, or (C) in any
way impair the right of SBIO to use, sell, license or dispose of or to bring
any action for the infringement of, any Proprietary Right or any products or
technology designed, developed, manufactured, sold or serviced by the
Business (collectively, "Products").
(v) To ICG's knowledge, the manufacture, marketing, license, sale or
use of any Products anywhere in the world does not or would not (A) violate
any license or agreement with any third party, (B) infringe on any non-patent
Proprietary Right of any third party or (C) infringe any third party patent
rights. ICG has not, and to its knowledge, no employees have, in the course
of their work for ICG, misappropriated any third party trade secrets. There
is no claim or litigation pending or, to ICG's knowledge, threatened,
contesting the validity, ownership or right to use, sell, license or dispose
of any Proprietary Right or claiming that ICG or any of its employees has
misappropriated any third party trade secrets, nor, to ICG's knowledge, is
there any basis for any such claim.
(vi) ICG is not aware of any third party infringing on any Proprietary
Right where such infringement could materially limit the protection afforded
by the Proprietary Rights to the use, sale, license, sublicense or
disposition of the Products or prevent the future enforcement of such
Proprietary Right.
(vii) ICG has taken all reasonable steps (including, without limitation,
entering into appropriate confidentiality, nondisclosure and noncompetition
agreements, the forms of which have been delivered to SBIO or its counsel,
with all officers, directors, subcontractors, employees, licensees and
entities that serve ICG) to safeguard and maintain the secrecy and
confidentiality of, and the proprietary rights in, all Proprietary Rights.
(viii) All Trade Secrets are presently and as of the Time of Closing
will be located at ICG's address as shown in this Agreement and have not been
used, divulged or appropriated for the benefit of any person other than ICG
or to the detriment of ICG.
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(d) (i) Each of the licenses and agreements listed or required to be listed
in Schedule 2.1(e) is in full force and effect and is a valid and enforceable
obligation against ICG (to the extent it is a party thereto), and against the
other party thereto in accordance with its terms, subject to the effect, if any
of (A) applicable bankruptcy and other similar laws affecting the rights of
creditors generally and (B) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(ii) ICG has in all material respects performed, or is now performing in
all material respects, its obligations, and ICG is not in default in any
material respect (or would by the lapse of time or the giving of notice or
both be in default in any material respect), under any license or agreement
listed or required to be listed in Schedule 2.1(e). To ICG's knowledge, no
other party to such licenses and agreements is in default in any material
respect (or would by the lapse of time or the giving of notice or both, be in
default in any material respect) thereunder or has breached in any material
respect any terms or provisions thereof.
(iii) ICG has not received any notice of any claim by, or dispute or
controversy with, any third party with respect to any of the licenses or
agreements which is listed or required to be listed in Schedule 2.1(e). ICG
has not received written notice or warning or, to the knowledge of ICG's
management, oral notice or warning of alleged nonperformance, delay in
delivery or other noncompliance by ICG with respect to its obligations under
any such licenses or agreements.
Section 6.17 Restrictive Documents or Orders. ICG is not a party to or
------------ -------------------------------
bound under any agreement, contract, order, judgment, or decree, or any similar
restriction not of general application which materially adversely affects, or
reasonably could be expected to materially adversely affect (i) the continued
operation by SBIO of the Business after the Time of Closing on substantially the
same basis as said business was theretofore operated, or (ii) the consummation
of the transactions contemplated by this Agreement.
Section 6.18 Contracts and Commitments.
------------ -------------------------
(a) Set forth on Schedule 2.1(c) is a list of all outstanding Contracts,
whether or not in writing, to which ICG is a party or to which any of the Assets
are subject that may: (i) involve obligations (contingent or otherwise) or
unwritten agreements of, or payments to, ICG in excess of $25,000; (ii) involve
agreements (written or unwritten) with suppliers and customers of ICG; (iii)
involve the license of any Proprietary Rights to or from ICG; (iv) contain
provisions restricting and/or affecting the development, manufacture, or
distribution of ICG's products or services; (v) relate to any aspect of the
Business of ICG in which any other person who was or is an officer, director, or
employee of ICG (or any person, firm, partnership, trust, or corporation
affiliated with any such persons or any family members of such persons) have a
material interest; or (vi) involve agreements (written or unwritten) on which
the Business is materially dependent.
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(b) ICG has performed all of its obligations under the terms of each Contract
listed in Schedule 2.1(c) to which it is a party, and is not in default
thereunder. No event or omission has occurred which but for the giving of
notice or lapse of time or both would constitute a default by any party thereto
under any such Contract, where such default by any party (other than ICG) could
have an adverse impact on the results of operations or financial condition or
prospects of ICG, the Business or the Assets. Each such Contract is valid and
binding on all parties thereto and in full force and effect, subject to the
effect, if any of (i) applicable bankruptcy and other similar laws affecting the
rights of creditors generally and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies. ICG has received
no notice of default, cancellation, or termination in connection with any such
Contract.
Section 6.19 Assets. The Assets include all intellectual property,
------------ ------
inventory and all other property in which ICG has any right, title and interest.
The Assets include all the assets (whether or not owned by ICG) necessary to
operate the Business in the same manner as the Business was operated by ICG
prior to the Time of Closing. The Assets are suitable for the purpose or
purposes for which they are being used, are in good operating condition and in
reasonable repair, and free from any known defects, except such minor defects as
do not interfere with the continued use thereof. Each tangible Asset has been
serviced and maintained in accordance with customary industry practices.
Subject to normal wear and tear, such plants, facilities, machinery, and
equipment whose customary use is the production of products are capable of and
are producing sound and merchantable products.
Section 6.20 Insurance. Schedule 2.1(l) lists all insurance policies and
------------ ---------
fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of ICG. There is no claim by ICG pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
payable under all such policies and bonds have been paid and, to ICG's
knowledge, ICG is otherwise in full compliance with the terms of such policies
and bonds (or other policies and bonds providing substantially similar insurance
coverage). To ICG's knowledge, such policies of insurance and bonds are of the
type and in amounts customarily carried by persons conducting businesses similar
to those of ICG. ICG does not know of any threatened termination of or material
premium increase with respect to, any of such policies. SBIO shall be entitled
to the benefit of each such policy upon the consummation of the transactions
contemplated hereby.
Section 6.21 Product Warranties and Product Liability. ICG has delivered to
------------ ----------------------------------------
SBIO copies of its warranty policies and all outstanding warranties or
guarantees relating to any of ICG's products other than warranties or guarantees
implied by law. ICG is not aware of any claim asserting (a) any damage, loss or
injury caused by any Product, or (b) any breach of any express or implied
product warranty or any other similar claim with respect to any Product other
than standard warranty obligations (to replace, repair or refund) made by ICG in
the ordinary course of business, except for those claims that, if adversely
determined against the Business, would not have a material adverse change on the
results of operations or financial condition of ICG, the Business or the
Assets.
21
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Section 6.22 Litigation. There is no claim, investigation, litigation,
------------ ----------
action, suit, or proceeding, administrative or judicial, pending or, to ICG's
knowledge, threatened against ICG or any officer or director of ICG, or
involving the Assets, at law or in equity, before any federal, state, local, or
foreign court, or regulatory agency, or other governmental authority, including,
without limitation, any unfair labor practice or grievance proceedings or
otherwise. ICG has not received any complaints from any of its customers or
suppliers within the last twelve months, which will individually or in the
aggregate have any adverse effect on the Business, Assets, prospects,
operations, employee relations, rights or condition of ICG.
Section 6.23 No Conflict or Default. Neither the execution and delivery of
------------ ----------------------
this Agreement, nor compliance with the terms and provisions hereof and thereof,
including without limitation, the consummation of the transactions contemplated
hereby, will violate any statute, regulation, or ordinance of any governmental
authority, or conflict with or result in the breach of any term, condition, or
provision of ICG's Articles of Incorporation or Bylaws, as presently in effect,
or of any agreement, deed, contract, mortgage, indenture, writ, order, decree,
legal obligation, or instrument to which ICG is a party or by which it or any of
the Assets are or may be bound, or constitute a default (or an event which, with
the lapse of time or the giving of notice, or both, would constitute a default)
thereunder.
Section 6.24 Labor Relations.
------------ ---------------
(a) With respect to the Business, ICG has not failed to comply in any respect
with Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor
Standards Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, all applicable federal, state, and local laws, rules, and regulations
relating to employment, and all applicable laws, rules and regulations governing
payment of minimum wages and overtime rates, and the withholding and payment of
taxes from compensation of employees.
(b) There are no labor controversies pending or threatened between ICG and
any of its employees or any labor union or other collective bargaining unit
representing any of the employees.
(c) ICG has never entered into a collective bargaining agreement or other
labor union contract relating to the Business and applicable to the employees.
(d) There are no written employment or separation agreements, or oral
employment or separation agreements other than those establishing an "at-will"
employment relationship between ICG and any of the employees.
Section 6.25 Employee Benefit Plans.
------------ ----------------------
(a) The ICG Disclosure Letter lists all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or
22
<PAGE>
arrangements, and any current or former employment or executive compensation or
severance agreements, written or otherwise, for the benefit of, or relating to,
any employee of ICG, any trade or business (whether or not incorporated) which
is a member or which is under common control with ICG (an "ERISA Affiliate")
within the meaning of Section 414 of the Code (together, the "Employee Plans"),
and a copy of each such Employee Plan has been provided to SBIO.
(b) (i) None of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person; (ii) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code, with respect to any Employee Plan, which could result in any
material liability of ICG; (iii) all Employee Plans are in compliance in all
respects with the requirements prescribed by any and all statutes (including
ERISA and the Code), orders, or governmental rules and regulations currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, Internal Revenue
Service or Secretary of the Treasury), and ICG has performed all material
obligations required to be performed by it under, is not in any material respect
in default under or violation of, and has no knowledge of any default or
violation by any other party to, any of the Employee Plans; (iv) each Employee
Plan intended to qualify under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code does so qualify and a
favorable determination letter with respect to each such Employee Plan and trust
has been received from the Internal Revenue Service (the "IRS"), and nothing has
occurred which is reasonably likely to cause the loss of such qualification or
exemption; (v) all contributions required to be made to any Employee Plan
pursuant to Section 412 of the Code, the terms of the Employee Plan or any
collective bargaining agreement, have been made on or before their due dates and
a reasonable amount has been accrued for contributions to each Employee Plan for
the current plan years; (vi) with respect to each Employee Plan, no "reportable
event" within the meaning of Section 4043 of ERISA (excluding any such event for
which the thirty (30) day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in Section 4062,
4063 or 4041 of ERISA has occurred; and (vii) no Employee Plan is covered by,
and ICG has not incurred or expects to incur any liability under, Title IV of
ERISA or Section 412 of the Code.
Section 6.26 Brokers' and Finders' Fees/Contractual Limitations. ICG is not
------------ --------------------------------------------------
obligated to pay any fees or expenses of any broker or finder in connection with
the origin, negotiation, or execution of this Agreement or in connection with
any transactions contemplated hereby. ICG shall indemnify and hold harmless the
other parties from and against any and all claims, liabilities, or obligations
with respect to brokerage or finders' fees or commissions or consulting fees in
connection with the transactions contemplated by this Agreement, asserted by any
person on the basis of any statement or representation alleged to have been made
by such indemnifying party. Neither ICG, nor any officer, director, employee,
agent or representative of ICG (collectively "ICG Representatives") are or have
been subject to any agreement, letter of intent, or understanding of any kind
which prohibits, limits, or restricts ICG or the ICG Representatives from
negotiating, entering into and consummating this Agreement and the transactions
contemplated hereby.
23
<PAGE>
Section 6.27 Interested Party Relationships. Neither ICG nor, to ICG's
------------ ------------------------------
knowledge, any officer or director or family member thereof, or any corporation,
partnership, or other entity which, directly or indirectly, alone or together
with others, controls, is controlled by, or is in common control with any
officer and director or family member thereof has any material financial
interest, direct or indirect, in any material supplier or customer, any party to
any contract which is material to the Business, or any competitor with the
Business.
Section 6.28 Environmental Matters. ICG (i) has obtained all applicable
------------ ---------------------
permits, licenses and other authorizations which are required under foreign,
federal, state or local laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants or hazardous or
toxic materials or wastes by ICG (or its agents); (ii) is in compliance with all
terms and conditions of such required permits, licenses and authorization, and
also is, to ICG's knowledge, in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder; (iii) is not aware of nor has received
notice of any event, condition, circumstance, activity, practice, incident,
action or plan which is reasonably likely to interfere with or prevent continued
compliance or which would give rise to any common law or statutory liability, or
otherwise form the basis of any claim, action, suit or proceeding, based on or
resulting from ICG's (or any of its agents') manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge, or release into the environment, of any pollutant,
contaminant, or hazardous or toxic material waste; (iv) has taken all actions
necessary under applicable requirements of Federal, state or local laws, rules
or regulations to register any products or materials required to be registered
by ICG (or any of its agents) thereunder; and (v) is not aware of any
contaminated soil or groundwater at any of the properties owned or operated,
leased or previously owned or leased by ICG. ICG has disclosed to SBIO in the
ICG Disclosure Letter (i) all permits relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants or hazardous or
toxic materials or wastes by ICG (or its agents) it holds as of the date hereof,
and (ii) all documents relating to tests previously conducted or to be conducted
in the future for potential contamination at any of ICG's facilities, whether
owned or leased, including soil and water tests.
Section 6.29 Certain Payments. In connection with the Business, ICG has not
------------ ----------------
and no person directly or indirectly on behalf of ICG has made or received any
payment that was not legal to make or receive.
24
<PAGE>
Section 6.30 Books and Records. The books and records of ICG to which SBIO
------------ -----------------
and its accountants and attorneys have been given access are the true books and
records of ICG and truly and fairly reflect the underlying facts and
transactions in all material respects.
Section 6.31 Customers and Suppliers. ICG is neither aware nor has any
------------ -----------------------
reason to believe that any of ICG's ten largest customers and ten largest
suppliers during the twelve months ended June 30, 1996, 1996 (determined on the
basis of both revenues and bookings during such period) has terminated, or
intends to materially reduce or terminate, the amount of its business with ICG,
and ICG has no reason to believe that such termination or alteration would occur
as a result of the consummation of this Agreement.
Section 6.32 Complete Disclosure. The copies of all instruments,
------------ -------------------
agreements, other documents and written information delivered by ICG to SBIO or
its counsel are and will be complete and correct in all material respects as of
the date of delivery thereof. No representations or warranties made by ICG in
this Agreement, nor any document, written information, statement, financial
statement, certificate or exhibit prepared and furnished or to be prepared and
furnished by ICG or its representatives to SBIO pursuant hereto or in connection
with the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements or facts contained herein or therein not
misleading. There is no presently existing event, fact or condition that
adversely affects the Business, Assets, ICG's financial condition or prospects,
or that could reasonably be expected to do so, which has not been set forth in
this Agreement or the exhibits hereto or otherwise disclosed by ICG to SBIO in
writing at the Time of Closing.
Section 6.33 No Reliance on Forecasts. In the negotiation and consideration
------------ ------------------------
of the transactions contemplated by this Agreement, ICG and its Board of
Directors have not relied upon any information or documents concerning SBIO and
its business or financial results except: (i) information and documents that
are publicly available, (ii) representations and warranties made by SBIO in this
Agreement and (iii) disclosure of interim financial results made pursuant to
this Agreement. In the course of negotiations, SBIO and ICG exchanged
information regarding hypothetical situations, based on various assumptions, of
the results of operations of the combined companies and possible market prices
for SBIO's Common Stock. ICG makes no representation or warranty regarding any
such hypothetical situations provided by it, including those that may contain
forecasts or projections of its future operating results, and ICG disclaims
reliance on any such hypothetical situations provided by SBIO or third parties.
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF S.R. ONE
------------------------------------------
S.R. One hereby represents and warrants to SBIO as follows:
25
<PAGE>
Section 7.1 Authorization. S.R. One has full power and authority to enter
----------- -------------
into this Agreement. This Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms.
Section 7.2 Consents. The execution and delivery of this Agreement by S.R.
----------- --------
One do not, and the performance of this Agreement by S.R. One shall not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
or any other third party.
Section 7.3 Purchase Entirely for Own Account. The Unregistered Securities
----------- ---------------------------------
will be acquired for S.R. One's own account and without a view to the resale or
distribution of any part thereof, and S.R. One has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, S.R. One further represents that S.R. One does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person,
with respect to any of the Unregistered Securities.
Section 7.4 Disclosure of Information. S.R. One believes it has received all
----------- -------------------------
the information it considers necessary or appropriate for deciding whether to
purchase the Unregistered Securities. S.R. One further has had an opportunity
to ask questions and receive answers from SBIO regarding the terms and
conditions of the offering of the Unregistered Securities. S.R. One has
determined that it does not require contractual access rights of the kind set
forth in Section 9.4.
Section 7.5 Investment Experience. S.R. One is able to fend for itself, can
----------- ---------------------
bear the economic risk of its investment and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Unregistered Securities. S.R. One has not been
organized for the purpose of acquiring the Unregistered Securities.
Section 7.6 Accredited Investor. S.R. One is an "accredited investor" as
----------- -------------------
such term is defined in Rule 501(a) promulgated under the Securities Act.
Section 7.7 Restricted Securities. S.R. One understands that the
----------- ---------------------
Unregistered Securities it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from SBIO in a transaction not involving a public offering and that
under such laws and applicable regulations such securities may be resold without
registration under the Securities Act, only in certain limited circumstances.
In this connection, S.R. One represents that it is familiar with SEC Rule 144,
as presently in effect, and understands the resale limitations imposed thereby
and by the Securities Act.
Section 7.8 Broker Fees. It is not obligated to pay any fees or expenses of
----------- -----------
any broker or finder in connection with the origin, negotiation or execution of
this Agreement or in connection with any of the transactions contemplated
hereby. S.R. One shall indemnify and hold harmless the other parties from and
against any and all claims, liabilities, or obligations with respect to
brokerage or finders' fees or commissions or consulting fees in connection
26
<PAGE>
with the transactions contemplated by this Agreement, asserted by any person on
the basis of any statement or representation alleged to have been made by such
indemnifying party.
Section 7.9 No Contrary Knowledge. To S.R. One's best knowledge, all the
----------- ---------------------
representations and warranties of ICG in this Agreement are true, correct and
complete.
Section 7.10 No Reliance on Forecasts. In the negotiation and consideration
------------ ------------------------
of the transactions contemplated by this Agreement, S.R. One has not relied upon
any information or documents concerning SBIO and its business or financial
results except: (i) information and documents that are publicly available, (ii)
representations and warranties made by SBIO in this Agreement and (iii)
disclosure of interim financial results made pursuant to this Agreement. In the
course of negotiations, SBIO and ICG and S.R. One exchanged information
regarding hypothetical situations, based on various assumptions, of the results
of operations of the combined companies and possible market prices for SBIO's
Common Stock. S.R. One disclaims reliance on any such hypothetical situations
provided by SBIO or third parties.
ARTICLE VIII.
CORPORATE SECURITIES LAWS
-------------------------
Section 8.1 California Commissioner of Corporations. THE SALE OF THE
----------- ---------------------------------------
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR
SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF
SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
ARTICLE IX.
COVENANTS
---------
Section 9.1 Standstill Provision. S.R. One (for it and its affiliates)
----------- --------------------
agrees during the time from the date of this Agreement until [the fifth
anniversary of the S.R. One Closing] not to, without express prior written
consent of the Board of Directors of SBIO, acquire any equity securities of SBIO
except (i) its pro rata distribution of the Shares upon liquidation of ICG, (ii)
the Common Stock of SBIO purchased pursuant to this Agreement, (iii) upon
exercise of any Warrants held by S.R. One or (iv) issuances of any securities
upon stock splits or stock dividends with respect to any equity securities of
SBIO.
27
<PAGE>
Section 9.2 Maintenance of Business.
----------- -----------------------
(a) During the period from the date hereof through the Time of Closing, ICG
shall carry on and use its best efforts to preserve the Business, maintain all
equipment and machinery in good working order, discharge and maintain current
obligations with respect to any employee withholding taxes, comply with the
Securities Act and Exchange Act, preserve inventories of necessary supplies at
proper levels, keep available the services of present officers and key employees
and preserve relationships with customers, suppliers and others having dealings
with ICG. ICG shall not, except as expressly permitted herein, (i) enter into
agreements or contracts of employment or terminate the employment of any
engineering or technical personnel or other key employees except for cause; (ii)
alter any employee or personnel benefits; (iii) dispose of any Assets (other
than in the ordinary course and subject to the obligation to maintain proper
inventory levels) or acquire or newly lease any assets in excess of $10,000
individually, or $20,000 in the aggregate; (iv) make any capital improvements,
additions or expenditures; (v) incur any liabilities or obligations (other than
in the ordinary course of business), except for ICG's currently contemplated
convertible note financing of up to $750,000; (vi) declare any distribution or
dividends of any kind, or (vii) repurchase or otherwise acquire any shares of
its capital stock.
(b) During the period from the date hereof through the Time of Closing, ICG
agrees to advise SBIO of any material operating decisions. Notwithstanding the
foregoing, ICG acknowledges that such operating decisions shall be made
independently and ICG shall be solely responsible for implementation,
consequences, and liabilities, if any.
(c) ICG will assist SBIO in determining the Contracts that are material to
the operations of the Business and assist SBIO in establishing separate
agreements with the other parties to such Contracts.
Section 9.3 Access to ICG Information.
----------- -------------------------
(a) ICG will give SBIO and its accountants, legal counsel and other
representatives full access, during normal business hours and upon reasonable
notice, to all of the properties, books, contracts, commitments, and records
relating to the Business and the Assets, and ICG will furnish to SBIO, its
accountants, legal counsel, and other representatives during such period all
such information concerning the Business or the Assets as SBIO may request;
provided, that any furnishing of such information pursuant hereto or any
investigation by SBIO shall not affect SBIO's right to rely on the
representations, warranties, agreements and covenants made by ICG in this
Agreement. ICG shall cause ICG's accountants to cooperate with SBIO in auditing
the financial statements of ICG's Business, but not limited to, executing any
and all representation or other letters or agreements required by SBIO's
accountants. ICG shall cause its accountants to consent in writing or agree to
consent in writing to the inclusion of ICG's financial statements in SBIO's
Report on Form 8-K within the applicable time for filing. ICG shall provide to
SBIO's counsel drafts of all written communications with stockholders and the
SEC and prospective filings with the SEC for comment prior to their distribution
to the SEC and the stockholders. SBIO hereby acknowledges that it has obtained
and continues to
28
<PAGE>
obtain knowledge of and access to confidential and valuable business information
relating to ICG not generally known by or available to the general public and in
connection therewith agreed to be bound by the confidentiality agreement dated
January 29, 1996 and that such information shall be deemed confidential
information.
(b) In connection with its ownership and operation of the Business and
Assets, ICG has obtained confidential information relating to the trade secrets,
business, operations, properties, assets, products, condition (financial and
otherwise), liabilities, employee relations, customer, supplier and distributor
relations and prospects of the Business and Assets. Following the Time of
Closing, ICG shall treat such information as confidential, preserve the
confidentiality thereof, not duplicate or use such information, and instruct its
employees who have that access to such information, to keep confidential and not
to use any such information, unless such information is now, or is hereafter,
disclosed by SBIO, in a manner making it available to the general public. ICG
shall use the same methods to safeguard such information as it uses to protect
its own confidential and proprietary information.
Section 9.4 Access to SBIO Information. SBIO will give S.R. One and ICG and
----------- --------------------------
their accountants, legal counsel and other representatives full access, during
normal business hours and upon reasonable notice, to all of the properties,
books, contracts, commitments, and records relating to the business of SBIO, and
SBIO will furnish to S.R. One and ICG, their accountants, legal counsel, and
other representatives during such period all such information concerning the
business of SBIO as S.R. One and ICG may request; provided, that any furnishing
of such information pursuant hereto or any investigation by S.R. One and ICG
shall not affect S.R. One's or ICG's right to rely on the representations,
warranties, agreements and covenants made by SBIO in this Agreement. SBIO shall
cause SBIO's accountants to cooperate with ICG in auditing the financial
statements of SBIO's business, but not limited to, executing any and all
representation or other letters or agreements required by ICG's accountants.
SBIO shall provide to ICG's counsel drafts of all written communications with
shareholders and the SEC and prospective filings with the SEC for comment prior
to their distribution to the SEC and the shareholders. S.R. One and ICG hereby
acknowledge that they have obtained and continue to obtain knowledge of and
access to confidential and valuable business information relating to SBIO not
generally known by or available to the general public, in connection therewith
ICG has agreed to be bound by the confidentiality agreement dated January 29,
1996 and S.R. One has agreed to be bound by the confidentiality agreement dated
July __, 1996, and that such information shall be deemed confidential
information.
Section 9.5 Meetings of Stockholders.
----------- ------------------------
(a) ICG shall promptly after the date hereof take all action necessary in
accordance with Delaware Law and its Certificate of Incorporation and Bylaws to
convene the ICG Stockholders Meeting as soon as practicable following the
effectiveness of the Form S-4. ICG shall not postpone or adjourn (other than
for the absence of a quorum) the ICG Stockholders Meeting without the consent of
SBIO. ICG shall use its best efforts to solicit from stockholders of ICG
proxies in favor of the Agreement and shall take all other action
29
<PAGE>
necessary or advisable to secure the vote or consent of stockholders required by
Delaware law to effect the transactions contemplated hereby (including, without
limitation, changing its name to something altogether dissimilar from
"International Canine Genetics, Inc.").
(b) Given the possibility that a vote of the shareholders of SBIO to consider
and approve the sale of the Assets is required by law, SBIO shall promptly after
the date hereof take all action necessary in accordance with California Law and
its Articles of Incorporation and Bylaws to convene the SBIO Shareholders
Meeting as soon as practicable following the effectiveness of the Form S-4.
SBIO shall not postpone or adjourn (other than for the absence of a quorum) the
SBIO Shareholders Meeting without the consent of ICG. SBIO shall use its best
efforts to solicit from shareholders of SBIO proxies in favor of the Agreement
and shall take all other action necessary or advisable to secure the vote or
consent of shareholders required by California law to effect the transactions
contemplated hereby; provided, however, if SBIO shareholder approval is not
required by law or by Nasdaq National Market rules, SBIO need not obtain the
shareholder approval.
Section 9.6 Breach of Representations and Warranties. Each of SBIO, ICG and
----------- ----------------------------------------
S.R. One shall not take any action that would breach or cause to be inaccurate
any of the representations and warranties set forth in Article V, VI or VII, as
the case may be. Promptly after becoming aware of the occurrence of or the
pending or threatened occurrence of any event that would cause or constitute
such a breach or inaccuracy, ICG or S.R. One, as the case may be, shall give
detailed written notice thereof to SBIO, or SBIO shall give detailed written
notice thereof to ICG or S.R. One, as the case may be, and the party or parties
shall use its or their best efforts to prevent or remedy such breach or
inaccuracy promptly.
Section 9.7 Best Efforts. Each of S.R. One and SBIO shall use its best
----------- ------------
efforts to effectuate their transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to the S.R. One Closing under this
Agreement. Each of ICG and SBIO shall use its best efforts to effectuate their
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to the ICG Closing under this Agreement.
Section 9.8 Tax Returns. ICG shall timely file all tax returns, reports and
----------- -----------
information statements (taking into account valid extensions of time to file)
required to be filed by it and shall provide SBIO with a reasonable opportunity
to review such documents prior to their filing.
Section 9.9 Employment Offers. SBIO may offer employment to those employees
----------- -----------------
of ICG as SBIO, in it sole and absolute discretion, shall select, such offers of
employment to be contingent on the ICG Closing. SBIO need not agree to maintain
such employment for any particular period of time and, if such offers are
accepted, such employees will be employed on an "at will" basis.
Notwithstanding the foregoing, SBIO covenants to use its reasonable efforts to
negotiate a mutually satisfactory employment agreement with Paul A. Rosinack
based on the substantive terms set forth in that certain term sheet between SBIO
and Paul A. Rosinack dated July __, 1996, for employment by SBIO as a Vice
President and officer of SBIO, such employment to commence after the ICG
Closing.
30
<PAGE>
Section 9.10 COBRA. ICG shall comply with the health care continuation
------------ -----
coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985 applicable to employees of ICG who are terminated by ICG on or before or
after the Time of Closing. SBIO shall provide, without charge, administrative
assistance to ICG in connection with ICG's compliance.
Section 9.11 Other Discussions ("No-Shop"). From the date hereof until the
------------ -----------------------------
Time of Closing, neither ICG, nor any of its representatives on its behalf,
shall (i) directly or indirectly through any other party initiate, encourage or
engage in any negotiations with or provide any information to any other person,
firm or corporation with respect to an acquisition transaction involving ICG or
the Business, (ii) directly or indirectly through any other party solicit any
proposal relating to the acquisition of, or other major transaction involving,
the Business. If ICG or any such representatives receives any inquiries from
another party relating to any proposed disposition of the Business or the Assets
following the date hereof, ICG shall promptly (i) advise such party that ICG is
not entitled to enter into any such discussions or negotiations and (ii) notify
SBIO in writing of such inquiry.
Section 9.12 Mail and Receivables Payments. From and after the Time of
------------ -----------------------------
Closing, ICG shall endorse any check or any other evidence of indebtedness or
payment received by ICG on account of any Accounts after the Time of Closing to
the order of SBIO or take other appropriate actions and shall promptly forward
such payment to SBIO no later than five (5) business days after actual receipt
by ICG. SBIO and ICG shall each provide to the other all the cooperation which
the other may reasonably request in connection with the collection of the
Accounts.
Section 9.13 Notification of Noncompliance. Until the Time of Closing each
------------ -----------------------------
party shall give prompt detailed notice to the other of (i) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence, of which causes
or would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate and (ii) any failure of S.R. One or SBIO or
ICG, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 9.14 Further Action. Upon the terms and subject to the conditions
------------ --------------
hereto, each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and to otherwise satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement.
Section 9.15 Covenants Against Disclosure. The parties agree to maintain
------------ ----------------------------
the confidentiality of the terms and conditions of this Agreement. No party
shall disseminate (except to the parties to this Agreement) any press release or
announcement concerning the transactions contemplated by this Agreement or the
parties hereto without the prior written
31
<PAGE>
consent of S.R. One, ICG and SBIO, unless required by law, statutes, rule or
regulation, in which case each such public dissemination should be jointly
prepared by S.R. One, ICG and SBIO.
Section 9.16 Bulk Transfer Laws. ICG shall comply with any applicable state
------------ ------------------
bulk transfer laws (collectively, the "Bulk Sales Provisions") prior to the Time
of Closing and shall provide SBIO with written documentation of such compliance.
Section 9.17 Registered Options. SBIO shall cause the Option Shares to be
------------ ------------------
registered under the Securities Act on Form S-8 at or promptly after the Time of
Closing.
Section 9.18 Change and Use of Name. From and after the Time of Closing,
------------ ----------------------
ICG shall refrain from any use of the words "International Canine Genetics" or
any variation thereof in connection with its business or otherwise.
Section 9.19 Cooperation by ICG. ICG agrees to use its best efforts after
------------ ------------------
the Time of Closing to provide cooperation between ICG's personnel in ICG's
offices and SBIO's personnel to help assure an orderly transition of the sale of
Assets and the continuation of the Business associated therewith. SBIO will
reimburse ICG for these services at ICG's cost (including fully burdened labor
costs, materials and reasonable travel costs).
Section 9.20 Liquidation and Distribution of Shares. It is understood that
------------ --------------------------------------
after the Time of Closing, ICG may choose to liquidate and dissolve and
distribute the Shares to its stockholders; provided however, that ICG shall not
do so at such time or in such a way as to render the purchase and sale of the
Assets a reorganization within the meaning of Section 368(a)(1)(C) of the Code.
32
<PAGE>
Section 9.21 Resale of the Shares by ICG. SBIO and ICG agree that ICG may
------------ ---------------------------
sell up to ____ percent (__%) of the Shares after the Time of Closing and prior
to liquidation of ICG, but only to the extent required in order to pay costs
incurred in connection with this Agreement.
ARTICLE X.
CLOSINGS
--------
Section 10.1 Time of Closing. The SBIO/ICG transactions contemplated by
------------ ---------------
this Agreement shall be completed on [September 30,] 1996 (the "Time of
Closing"), unless otherwise agreed to in writing by SBIO and ICG. The S.R. One
Closing shall take place one hour prior to the Time of Closing. The S.R. One
Closing and the ICG Closing shall take place at the offices of SBIO, 11011 Via
Frontera, San Diego, California 92127, or at such other place or date as may be
agreed to in writing by SBIO and ICG. The "ICG Closing" shall mean the
deliveries to be made by SBIO and ICG at the Time of Closing in accordance with
this Agreement.
Section 10.2 Closing of the Sale and Issuance of Common Stock to S.R. One.
------------ ------------------------------------------------------------
(a) At the S.R. One Closing, SBIO shall deliver, or cause to be delivered, to
S.R. One all duly and properly executed, the following:
(i) Stock Certificate for the Unregistered Securities.
(ii) The Investor's Rights Agreement, in the form attached hereto as
Exhibit 10.2 (the "Investor's Rights Agreement").
(b) At the S.R. One Closing, S.R. One shall deliver, or cause to be
delivered, to SBIO, all duly and properly executed, the following:
(i) $1,000,000.
(ii) The Investor's Rights Agreement.
Section 10.3 Closing of the Sale of Assets.
------------ -----------------------------
(a) At the ICG Closing, ICG shall deliver to SBIO, all duly and properly
executed, the following:
(i) A good and sufficient Bill of Sale for the Assets in the form
attached hereto as Exhibit 10.3(a)(i), selling, delivering, transferring, and
assigning to SBIO title to all of ICG's right, title, and interest to the
Assets, free and clear of all mortgages, pledges, liens, encumbrances, security
interests, equities, charges, and restrictions of any nature whatsoever.
33
<PAGE>
(ii) Good and sufficient supplementary assignments of all rights,
title and interest in the Proprietary Rights in the form satisfactory to SBIO
and its counsel.
(iii) Valid assignments for all Contracts and other third party or
governmental consents necessary in order for SBIO to operate the Business.
(iv) Resale certificates for the resale of items of Inventory.
(v) An affidavit of ICG, in the form attached hereto as Exhibit
10.3(a)(v), stating, under penalty of perjury, ICG's United States taxpayer
identification number and that ICG is not a foreign person, pursuant to Section
1445(b)(2) of the Code.
(b) At the ICG Closing, SBIO shall deliver, or cause to be delivered, to ICG,
all duly and properly executed, the following:
(i) The Shares.
[(ii) A PENNSYLVANIA EXEMPTION CERTIFICATE IN THE FORM ATTACHED
HERETO AS EXHIBIT 10.3(b)(ii).]
(c) At or after the Time of Closing, each of SBIO and ICG shall prepare,
execute, and deliver, at the preparer's expense, such further instruments of
conveyance, sale, assignment, or transfer, and shall take or cause to be taken
such other or further action, as any party shall reasonably request of any other
party at any time or from time to time in order to perfect, confirm, or evidence
in SBIO title to all or any part of the Assets or to consummate, in any other
manner, the terms and provisions of this Agreement.
ARTICLE XI.
CONDITIONS PRECEDENT TO OBLIGATIONS (S.R. ONE CLOSING)
------------------------------------------------------
Section 11.1 Conditions to Obligations of S.R. One. Each and every
------------ -------------------------------------
obligation of S.R. One to be performed at the S.R. One Closing shall be subject
to the satisfaction as of or before one hour prior to the Time of Closing of the
following conditions (unless waived in writing by S.R. One):
(a) Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by SBIO in Article V hereof shall have been in all material
respects true and correct when made, and shall be in all material respects true
and correct at the S.R. One Closing with the same force and effect as if they
had been made on and as of said date.
(b) Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed by SBIO on or prior to the time of the S.R. One
Closing shall have been performed or complied with in all material respects.
34
<PAGE>
(c) Opinion of SBIO's Counsel. S.R. One shall have received from Brobeck,
-------------------------
Phleger & Harrison LLP, counsel for SBIO, an opinion, dated as of the date of
the S.R. One Closing, in substantially the form attached hereto as Exhibit 11.1.
(d) Substantive Deliverables. S.R. One shall have received all items
------------------------
specified in Section 10.2(a).
Section 11.2 Conditions to Obligations of SBIO. Each and every obligation
------------ ---------------------------------
of SBIO to be performed at the S.R. One Closing shall be subject to the
satisfaction as of or before one hour prior to the Time of Closing of the
following conditions (unless waived in writing by SBIO):
(a) Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by S.R. One in Article VII hereof shall have been in all
material respects true and correct when made, and shall be in all material
respects true and correct as of the S.R. One Closing with the same force and
effect as if they had been made on and as of said time.
(b) Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed by S.R. One on or prior to the S.R. One Closing shall
have been performed or complied with in all material respects.
(c) No Law Prohibiting or Restricting Sale. There shall not be in effect any
--------------------------------------
law, rule or regulation prohibiting or restricting the sale, or requiring any
consent or approval of any person which shall not have been obtained, to issue
the Unregistered Securities to S.R. One.
(d) Substantive Deliverables. SBIO shall have received all items specified
------------------------
in Section 10.2(b).
ARTICLE XII.
CONDITIONS PRECEDENT TO OBLIGATIONS (ICG CLOSING)
-------------------------------------------------
Section 12.1 Conditions to Obligations of SBIO. Each and every obligation
------------ ---------------------------------
of SBIO to be performed at the ICG Closing shall be subject to the satisfaction
as of or before the Time of Closing of the following conditions (unless waived
in writing by SBIO):
(a) Representations and Warranties. The representations and warranties of
------------------------------
ICG set forth in this Agreement shall have been in all material respects true
and correct when made and shall be in all material respects true and correct at
and as of the Time of Closing as if such representations and warranties were
made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
------------------------
obligations set forth in this Agreement which are to be performed or complied
with by ICG, including Board of Directors and stockholder approval, shall have
been in all material respects performed and complied with at or prior to the
Time of Closing.
35
<PAGE>
(c) Absence of Governmental or Other Objection. There shall be no pending or
------------------------------------------
threatened lawsuit challenging the transaction by any body or agency of the
federal, state, or local government or by any third party, and the consummation
of the transaction shall not have been enjoined by a court of competent
jurisdiction as of the Time of Closing and any applicable waiting period under
any applicable federal law shall have expired. Any and all filings under
applicable Bulk Sales Provisions shall have been timely made and have been
completed.
(d) Certificate of President. ICG shall have delivered to SBIO a certificate
------------------------
executed by its President, dated the date of the ICG Closing, to the effect that
the conditions set forth in subsections (a)-(c) of this Section 12.1 have been
satisfied.
(e) Evidence of Title. ICG shall provide to SBIO's satisfaction at the Time
-----------------
of Closing termination statements of security interests from all secured
creditors and releases of related liens.
(f) Board and Stockholder Approval. The Board of Directors and stockholders
------------------------------
of ICG shall have approved this Agreement. The Board of Directors and, if
required by law or the rules and regulations of the Nasdaq National Market, the
shareholders of SBIO shall have approved this Agreement.
(g) Legal Opinion. SBIO shall have received from McCausland, Keen & Buckman,
-------------
counsel to ICG, an opinion, dated the date of the ICG Closing, in substantially
the form attached hereto as Exhibit 12.1.
(h) SEC Registration. The SEC shall have declared the Form S-4 effective,
----------------
and no stop order shall have been issued with respect to the Form S-4.
(i) Licenses. SBIO shall have received all licenses from all appropriate
--------
governmental agencies or third parties to operate the Business in the same
manner as ICG operated the Business prior to the Time of Closing.
(j) Due Diligence Investigation. SBIO shall be satisfied in its sole
---------------------------
discretion with the results of its due diligence investigation of ICG.
(k) Approval of Documentation. The form and substance of all certificates,
-------------------------
instruments, opinions, and other documents delivered or to be delivered to SBIO
under this Agreement shall be satisfactory to SBIO and its counsel in all
reasonable respects.
(l) Substantive Deliverables. SBIO shall have received all items specified
------------------------
in Section 10.3(a).
Section 12.2 Conditions to Obligations of ICG. Each and every obligation of
------------ --------------------------------
ICG to be performed at the Time of Closing shall be subject to the satisfaction
as of or before such time of the following conditions (unless waived in writing
by ICG):
36
<PAGE>
(a) Representations and Warranties. The representations and warranties of
------------------------------
SBIO set forth in this Agreement shall have been in all material respects true
and correct when made and shall be in all material respects true and correct at
and as of the Time of Closing as if such representations and warranties were
made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
------------------------
obligations set forth in this Agreement which are to be performed or complied
with by SBIO shall have been in all material respects performed and complied
with at or prior to the Time of Closing.
(c) Absence of Governmental or Other Objection. There shall be no pending or
------------------------------------------
threatened lawsuit challenging the transaction by any body or agency of the
federal, state, or local government, and the consummation of the transaction
shall not have been enjoined by a court of competent jurisdiction as of the Time
of Closing.
(d) Certificate of President. SBIO shall have delivered to ICG a certificate
------------------------
executed by its President, dated the date of the ICG Closing to the effect that
the conditions set forth in subsections (a)-(c) of this Section 12.2 have been
satisfied.
(e) Legal Opinion. ICG shall have received from Brobeck, Phleger & Harrison
-------------
LLP, counsel to SBIO, an opinion, dated the date of the ICG Closing, in
substantially the form attached hereto as Exhibit 12.2.
(f) Board and Stockholder Approval. The Board of Directors and stockholders
------------------------------
of ICG shall have approved this Agreement. The Board of Directors and, if
required by law or the rules and regulations of the Nasdaq National Market, the
shareholders of SBIO shall have approved this Agreement.
(g) Nasdaq National Market Listing. The Shares issuable to ICG pursuant to
------------------------------
this Agreement shall have been authorized for listing on the Nasdaq National
Market, upon official notice of issuance.
(h) SEC Registration. The SEC shall have declared the Form S-4 effective,
----------------
and no stop order shall have been issued with respect to the Form S-4.
(i) Appointment of Director. A mutually agreeable designee of ICG shall have
-----------------------
been appointed to the Board of Directors of SBIO effective as of the Time of
Closing.
(j) Substantive Deliverables. ICG shall have received all items specified in
------------------------
Section 10.3(b).
37
<PAGE>
ARTICLE XIII.
ICG'S HOLD-HARMLESS
-------------------
Section 13.1 Excluded Liabilities. For the consideration set forth in
------------ --------------------
Article IV herein, ICG waives and releases and agrees to hold harmless SBIO and
its successors, officers, directors, affiliates, agents, employees and/or
assigns and covenants not to sue or otherwise institute or cause to be
instituted or in any way participate in (except at the request of SBIO or as
required by legal process) legal or administrative proceedings against SBIO and
its successors, officers, directors, affiliates, agents, employees and/or agents
with respect to any matter of any kind arising out of, relating to or connected
with any Excluded Liabilities.
This waiver and release extends to all claims of every nature and kind, known
or unknown, suspected or unsuspected, past, present or future, arising from the
Excluded Liabilities. ICG acknowledges that any and all rights granted to such
ICG under Section 1542 of the California Civil Code or any analogous state law
or federal law or regulation are hereby expressly waived. Said Section 1542 of
the Civil Code of the State of California reads as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
This Section 13.1 shall constitute a complete defense to any claim
released herein.
ARTICLE XIV.
INDEMNIFICATION
---------------
Section 14.1 Survival of Representations, Warranties, Covenants and
------------ ------------------------------------------------------
Agreements.
- ----------
(a) Notwithstanding any investigation conducted at any time with regard
thereto by or on behalf of any party to this Agreement, all representations,
warranties, covenants, and agreements of each party in this Agreement shall
survive for a period of two years the execution, delivery, and performance of
this Agreement. No investigation made by or on behalf of SBIO with respect to
ICG or S.R. One, or by or on behalf of ICG or S.R. One with respect to SBIO,
shall be deemed to affect SBIO's (or ICG's or S.R. One's, as the case may be)
reliance on the representations, warranties, covenants and agreements made by
ICG and/or S.R. One (or by SBIO, as the case may be) contained in this Agreement
and shall not be a waiver of SBIO's (or ICG's or S.R. One's, as the case may be)
rights to indemnity as herein provided for the breach or inaccuracy of or
failure to perform or comply with any of ICG's or S.R. One's (or SBIO's, as the
case may be) representations, warranties,
38
<PAGE>
covenants or agreements under this Agreement. All representations and
warranties of each party set forth in this Agreement shall be deemed to have
been made again by such party at and as of the S.R. One Closing (as to SBIO and
S.R. One) or at and as of the Time of Closing (as to SBIO and ICG).
(b) As used in this Article XIV, any reference to a representation, warranty,
agreement or covenant contained in any section of this Agreement shall include
the schedule and/or disclosure in a Disclosure Letter relating to such section.
(c) Nothing in this Agreement shall be construed as limiting in any way the
remedies that may be available to a party in the event of fraud relating to the
representations, warranties, agreements or covenants made by any other party in
this Agreement.
Section 14.2 Indemnification.
------------ ---------------
(a) Subject to the limitations set forth in the Section 14.5, S.R. One hereby
agrees to indemnify, defend and hold harmless SBIO and its affiliates against
any and all losses, liabilities, damages, demands, claims, suits, actions,
judgments, and causes of action, assessments, costs, and expenses, including,
without limitation, interest, penalties, reasonable attorneys' fees, any and all
expenses incurred in investigating, preparing, and defending against any
litigation, commenced or threatened, and any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation (collectively, "Claims"),
asserted against, resulting from, imposed upon, or incurred or suffered by SBIO
and its affiliates, directly or indirectly, as a result of or arising from or in
connection with any inaccuracy in or breach or nonfulfillment of or
noncompliance with any of the representations, warranties, covenants, or
agreements made by S.R. One in this Agreement or any facts or circumstances
constituting such an inaccuracy, breach, nonfulfillment or noncompliance.
(b) Subject to the limitations set forth in the Section 14.5, ICG hereby
agrees to indemnify, defend and hold harmless SBIO and its affiliates against
any and all Claims, asserted against, resulting from, imposed upon, or incurred
or suffered by SBIO and its affiliates, directly or indirectly, as a result of
or arising from or in connection with:
(i) any inaccuracy in or breach or nonfulfillment of or noncompliance
with any of the representations, warranties, covenants or agreements made by ICG
in this Agreement or any facts or circumstances constituting such inaccuracy,
breach, nonfulfillment or noncompliance;
(ii) other than Assumed Liabilities, any liability of ICG imposed upon
SBIO as transferee of the Assets, including, without limitation, any liability
arising out of any lien or any obligation or claim brought by creditors of ICG
or claims based on the premise that the sale of the Assets did not comply with
the Bulk Sales Provisions and any liability arising out of obligations to ICG's
employees (including, without limitation, any obligations under any employee
benefit, profit sharing, or pension or welfare plan) or out of ICG's status as
employer of employees; and
39
<PAGE>
(iii) any liability imposed on or asserted against SBIO or any of its
affiliates for any of the Excluded Liabilities or Excluded Assets.
(c) Subject to the limitations set forth in the Section 14.5, SBIO hereby
agrees to indemnify, defend and hold harmless S.R. One and ICG and each of their
respective affiliates against any and all Claims, asserted against, resulting
from, imposed upon, or incurred or suffered by S.R. One and ICG and their
respective affiliates, directly or indirectly, as a result of or arising from or
in connection with any inaccuracy in or breach or nonfulfillment of or
noncompliance with any of the representations, warranties, covenants, or
agreements made by SBIO or any facts or circumstances constituting such
inaccuracy, breach, nonfulfillment or noncompliance.
Section 14.3 Procedure for Indemnification with Respect to Third-Party
------------ ---------------------------------------------------------
Claims.
- ------
(a) If an indemnified party(ies)(the "Indemnified Party") determines to seek
indemnification under this Article XIV with respect to the existence of a Claim
resulting from the assertion of liability by third parties (the "Indemnifiable
Claim"), the Indemnified Party shall give notice to the indemnifying party(ies)
(the "Indemnifying Party") within thirty (30) days of the Indemnified Party
becoming aware of any such Indemnifiable Claim or of facts upon which any such
Indemnifiable Claim will be based; the notice shall set forth such material
information with respect thereto as is then reasonably available to the
Indemnified Party. In case any such liability is asserted against the
Indemnified Party, and the Indemnified Party notifies the Indemnifying Party
thereof, the Indemnifying Party will be entitled, if it so elects by written
notice delivered to the Indemnified Party within twenty (20) days after
receiving the Indemnified Party's notice, to assume the defense thereof with
counsel satisfactory to the Indemnified Party. Notwithstanding the foregoing,
(i) the Indemnified Party shall also have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of the Indemnified Party unless the Indemnified Party shall reasonably determine
that there is a conflict of interest between or among the Indemnified Party
and/or the Indemnifying Party with respect to such Indemnifiable Claim, in which
case the fees and expenses of such counsel will be borne by the Indemnifying
Party, (ii) the Indemnified Party shall not have any obligation to give any
notice of any assertion of liability by a third party unless such assertion is
in writing, and (iii) the rights of the Indemnified Party to be indemnified
hereunder in respect of Indemnifiable Claims resulting from the assertion of
liability by third parties shall not be adversely affected by its failure to
give notice pursuant to the foregoing unless, and, if so, only to the extent
that, the Indemnifying Party is materially prejudiced thereby. With respect to
any assertion of liability by a third party that results in an Indemnifiable
Claim, the parties hereto shall make available to each other all relevant
information in their possession material to any such assertion.
(b) In the event that the Indemnifying Party, within twenty (20) days after
receipt of the aforesaid notice of an Indemnifiable Claim, fails to assume the
defense of the Indemnified Party against such Indemnifiable Claim, the
Indemnified Party shall have the right to undertake the defense, compromise, or
settlement of such action on behalf of and for the account, expense, and risk of
the Indemnifying Party.
40
<PAGE>
(c) Notwithstanding anything in this Article XIV to the contrary, if there is
a reasonable probability that an Indemnifiable Claim may materially adversely
affect the Indemnified Party, the Indemnified Party shall have the right to
participate in such defense, compromise, or settlement and the Indemnifying
Party shall not, without the Indemnified Party's written consent (which consent
shall not be unreasonably withheld), settle or compromise any Indemnifiable
Claim or consent to entry of any judgment in respect thereof unless such
settlement, compromise, or consent includes as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified Party a release from
all liability in respect of such Indemnifiable Claim.
Section 14.4 Procedure For Indemnification with Respect to Non-Third Party
------------ -------------------------------------------------------------
Claims. In the event that the Indemnified Party asserts the existence of a
- ------
Claim (but excluding Claims resulting from the assertion of liability by third
parties), it shall give written notice to the Indemnifying Party within thirty
(30) days of the Indemnified Party becoming aware of any such Claim. Such
written notice shall state that it is being given pursuant to this Section 14.4,
specify the nature and amount of the Claim asserted and indicate the date on
which such assertion shall be deemed accepted and the amount of the Claim deemed
a valid claim (such date to be established in accordance with the next
sentence). If Indemnifying Party, within thirty (30) days after the mailing of
notice by the Indemnified Party, shall not give written notice to the
Indemnified Party announcing its intent to contest such assertion of the
Indemnified Party, such assertion shall be deemed accepted and the amount of
Claim shall be deemed a valid claim. In the event, however, that the
Indemnifying Party contests the assertion of a Claim by giving such written
notice to the Indemnified Party within said period, then the parties shall act
in good faith to reach agreement regarding such Claim. If the parties hereto,
acting in good faith, cannot reach agreement with respect to such claim within
ten days after such notice, such Claim shall be resolved to the exclusion of a
court of law by binding arbitration in San Diego, California, in accordance with
the Commercial Arbitration Rules of the American Arbitration Association then in
effect as expressly modified by Exhibit 14.4 attached hereto (but nonetheless
the arbitration itself shall not be conducted under the auspices of such
Association unless the parties shall expressly so agree).
41
<PAGE>
Section 14.5 Limitations on Indemnification Amount.
------------ -------------------------------------
(a) Notwithstanding anything to the contrary contained in this Agreement, (i)
neither of S.R. One nor ICG shall be obligated to pay to indemnify, defend or
hold harmless SBIO, or its successors and assigns, unless and until the
aggregate amount of those Claims that S.R. One and/or ICG otherwise would be
obligated to pay pursuant to the provision of this Agreement exceeds $100,000,
(ii) the maximum liability of ICG pursuant to this Article XIV for all Claims
shall not exceed the purchase price paid to ICG pursuant to this Agreement;
provided, however, that neither such limitation shall apply to the provisions of
Section 14.2(b)(ii) and (iii) of this Agreement, (iii) the maximum liability of
S.R. One pursuant to this Article XIV for all such Claims shall not exceed the
purchase price paid to ICG pursuant to this Agreement, and (iv) no Claim which
does not (aggregated with all other like Claims) exceed [$2,000] shall be
indemnifiable by anyone to any extent.
(b) Notwithstanding anything to the contrary contained in this Agreement,
SBIO shall not be obligated to pay to indemnify, defend or hold harmless S.R.
One or ICG, or their respective successors and assigns, unless and until the
aggregate amount of those Claims that SBIO otherwise would be obligated to pay
pursuant to the provision of this Agreement exceeds $500,000, and the maximum
liability of SBIO pursuant to this Article XIV for all Claims shall not exceed
$1,000,000 (as to S.R. One) or the fair market value of the Shares as of the
Time of Closing (as to ICG).
(c) The minimums stated in this Section are thresholds, not deductibles. For
example, if SBIO's Claims against ICG total $101,000, ICG must pay SBIO
$101,000.
ARTICLE XV.
TERMINATION AND ABANDONMENT
---------------------------
Section 15.1 Termination. This Agreement may be terminated and the
------------ -----------
transactions herein contemplated may be abandoned at any time notwithstanding
any party's Board or stockholder approval, but not later than the S.R. One
Closing (as to S.R. One) or the Time of Closing (as to SBIO and ICG):
(a) by SBIO, if there has been a material breach by either of S.R. One or ICG
of its representations, warranties, covenants or agreements set forth in this
Agreement and S.R. One/ICG fails to cure within five (5) business days after
notice thereof is given by SBIO (except that no cure period shall be provided
for a breach by S.R. One/ICG which by its nature cannot be cured);
(b) by S.R. One, if there has been a material breach by SBIO of the
representations, warranties, covenants or agreements set forth in this Agreement
as to S.R. One and SBIO fails to cure within five (5) business days after notice
thereof is given by S.R. One (except that no cure period shall be provided for a
breach by SBIO which by its nature cannot be cured);
42
<PAGE>
(c) by ICG, if there has been a material breach by SBIO of the
representations, warranties, covenants or agreements set forth in this Agreement
as to ICG and SBIO fails to cure within five (5) business days after notice
thereof is given by ICG (except that no cure period shall be provided for a
breach by SBIO which by its nature cannot be cured);
(d) by SBIO, if the required approval of the stockholders of ICG contemplated
by this Agreement shall not have been obtained within thirty (30) days from the
solicitation of such consents or proxies;
(e) by ICG, if the approval of this Agreement by the shareholders of SBIO of
this Agreement is required and such approval shall not have been obtained within
forty-five (45) days from the solicitation of such consents or proxies;
(f) by SBIO or ICG, if any permanent injunction or other order of a court or
other competent authority preventing the sale of Assets shall have become final
and nonappealable; or
(g) by SBIO or ICG, if any governmental or administrative agency shall have
issued a temporary restraining order, preliminary injunction or permanent
injunction or other order preventing the consummation of the sale of Assets or
any litigation shall be pending, the ultimate resolution of which is likely to
(i) result in the issuance of such an order or injunction, or the imposition
against SBIO or ICG, of substantial damages if the sale of Assets is
consummated, (ii) prohibit SBIO's ownership or operation of all or a material
portion of the business rights of ICG or SBIO taken as a whole, or to compel
SBIO or ICG to dispose of or hold separate all or a material portion of the
business or assets of SBIO or ICG as a result of the sale of Assets, (iii)
materially limit or restrict SBIO's conduct or operation of the Business after
the Time of Closing, or (iv) render SBIO or ICG unable to consummate the sale of
Assets. In the event any such order or injunction shall have been issued, each
party agrees to use its reasonable efforts to have any such injunction lifted.
Section 15.2 Procedure and Consequences of Termination. In the event of
------------ -----------------------------------------
termination pursuant to Section 15.1 hereof, written notice thereof shall
forthwith be given to the other parties and this Agreement shall terminate and
the transactions contemplated hereby shall be abandoned without further action.
If this Agreement is terminated as provided herein, neither party hereto shall
have any further obligation or liability to the other party except as stated in
this Agreement and in the confidentiality agreement dated January 29, 1996 and
except for prior breaches.
43
<PAGE>
ARTICLE XVI.
MISCELLANEOUS PROVISIONS
------------------------
Section 16.1 Notice. All notices and other communications required or
------------ ------
permitted under this Agreement shall be delivered to the parties at the address
set forth below their respective signature blocks, or at such other address that
they designate by notice to all other parties in accordance with this Section
16.1. Any party delivering notice to ICG shall deliver a copy to: International
Canine Genetics, Inc., 271 Great Valley Parkway, Malvern, Pennsylvania 19355 and
McCausland, Keen & Buckman, Five Radnor Corporate Center, Suite 500, Radnor,
Pennsylvania 19087, Attention: Nancy D. Weisberg, Esq. (with a copy to
whichever of SBIO and S.R. One is not the sender of the notice). Any party
delivering notice to SBIO shall deliver a copy to: Synbiotics Corporation,
11011 Via Frontera, San Diego, California 92127 and Brobeck, Phleger & Harrison
LLP, 550 West "C" Street, Suite 1200, San Diego, California 92101, Attention:
Hayden J. Trubitt, Esq. (with a copy to whichever of ICG and S.R. One is not the
sender of the notice). Any party delivering notice to S.R. One shall deliver a
copy to: 565 E. Swedesford Road, Suite 315, Wayne, Pennsylvania 19087,
Attention: Peter Sears, and SmithKline Beecham, One Franklin Plaza,
Philadelphia, Pennsylvania 19102, Attention: Donald Parman, Esq. (with a copy
to whichever of SBIO and ICG is not the sender of the notice). All notices and
communications shall be deemed to have been received: (i) in the case of
personal delivery, on the date of such delivery; (ii) in the case of facsimile
transmission, on the date on which the sender receives confirmation by facsimile
transmission that such notice was received by the addressee, provided that a
copy of such transmission is additionally sent by mail as set forth in (iv)
below; (iii) in the case of overnight air courier, on the second business day
following the day sent, with receipt confirmed by the courier; and (iv) in the
case of mailing by first class certified or registered mail, postage prepaid,
return receipt requested, on the fifth business day following such mailing.
Section 16.2 Entire Agreement. This Agreement, the exhibits and schedules
------------ ----------------
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter.
Section 16.3 Binding Effect; Assignment. This Agreement and the various
------------ --------------------------
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon S.R. One, ICG, and SBIO and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be transferred or assigned (by operation of law or
otherwise) by any of the parties hereto without the prior written consent of the
other parties then in existence.
Section 16.4 Expenses of Transaction; Taxes. Each party shall bear its own
------------ ------------------------------
costs and expenses in connection with this Agreement and the transactions
contemplated hereby. SBIO and ICG shall bear the printing expenses of the Form
S-4 and the Proxy Statement pro rata based upon the size of their respective
shareholder mailings. ICG shall pay all
44
<PAGE>
applicable recording or filing fees or sales, use, excise, transfer, documentary
and any other similar taxes arising out of the purchase and sale of the Assets,
including without limitation any and all such fees and taxes under the laws of
the States of California, Delaware and Pennsylvania or any political subdivision
thereof.
Section 16.5 Waiver; Consent. This Agreement may not be changed, amended,
------------ ---------------
terminated, augmented, rescinded, or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Agreement or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto. Except to the extent that a party hereto may have otherwise agreed in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations or representations hereunder or
thereunder shall be deemed to be a waiver of any other condition or subsequent
or prior breach of the same or any other obligation or representation by the
other party, nor shall any forbearance by the first party to seek a remedy for
any noncompliance or breach by the other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
Section 16.6 Third-Party Beneficiaries. Except as otherwise expressly
------------ -------------------------
provided for in this Agreement, nothing herein, expressed or implied, is
intended or shall be construed to confer upon or give to any person, firm,
corporation, or legal entity, other than the parties hereto, any rights,
remedies, or other benefits under or by reason of this Agreement.
Section 16.7 Counterparts. This Agreement may be executed simultaneously in
------------ ------------
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Section 16.8 Severability. If one or more provisions of this Agreement are
------------ ------------
held to be unenforceable under applicable law, such provision shall be
interpreted so as to be enforceable to the maximum extent possible, and the
balance of the Agreement shall be enforceable in accordance with its terms.
Section 16.9 Governing Law. This Agreement shall in all respects be
------------ -------------
construed in accordance with and governed by the laws of the State of California
as applied to agreements entered into among California residents and to be
performed entirely within the State of California.
Section 16.10 Attorneys' Fees. If any action at law or in equity is
------------- ---------------
necessary to enforce or interpret the terms of this Agreement or to protect the
rights obtained hereunder the prevailing party shall be entitled to its
reasonable attorneys' fees, costs, and disbursements in addition to any other
relief to which it may be entitled.
Section 16.11 Cooperation and Records Retention. ICG and SBIO shall (i)
------------- ---------------------------------
each provide the other with such assistance as may reasonably be requested by
them in connection with the preparation of any Tax return, statement, report,
form or other
45
<PAGE>
document (hereinafter collectively a "Tax Return"), or in connection with any
audit or other examination by any taxing authority or any judicial or
administrative proceedings relating to liability for Taxes, (ii) each retain and
provide the other, with any records or other information which may be relevant
to any such Tax Return, audit or examination, proceeding or determination, and
(iii) each provide the other with any final determination of any such audit or
examination, proceeding or determination that affects any amount required to be
shown on any Tax Return of the other for any period. Without limiting the
generality of the foregoing, ICG and SBIO shall retain, until the applicable
statute of limitations (including any extensions) have expired, copies of all
Tax Returns, supporting work schedules and other records or information which
may be relevant to such Tax Returns for all tax periods or portions thereof
ending before or including the Time of Closing and shall not destroy or
otherwise dispose of any such records without first providing the other party
with a reasonable opportunity to review and copy the same. SBIO shall keep the
original copies of the records at its facilities in California and elsewhere, if
applicable, and, at ICG's expense, shall provide copies of the Records to ICG
upon ICG's request.
[REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
S.R. ONE, LIMITED, a Pennsylvania business trust
By:
-----------------------------------------------------
Title:
--------------------------------------------------
SYNBIOTICS CORPORATION, a California corporation
By:
-----------------------------------------------------
Title:
--------------------------------------------------
INTERNATIONAL CANINE GENETICS, INC., a Delaware corporation
By:
-----------------------------------------------------
Title:
--------------------------------------------------
[SIGNATURE PAGE TO PURCHASE AGREEMENT]
<PAGE>
EXHIBIT 10.2
------------
SYNBIOTICS CORPORATION
INVESTOR'S RIGHTS AGREEMENT
September ___, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights..................................................... 1
1.1 Definitions....................................................... 1
1.2 Company Registration.............................................. 2
1.3 Obligations of the Company........................................ 2
1.4 Furnish Information............................................... 4
1.5 Expenses of Company Registration.................................. 4
1.6 Underwriting Requirements......................................... 4
1.7 Delay of Registration............................................. 5
1.8 Indemnification................................................... 5
1.9 "Market Stand-Off" Agreement...................................... 7
1.10 Covenants of the Investors........................................ 7
1.11 Termination of Registration Rights................................ 7
2. Miscellaneous........................................................... 8
2.1 Successors and Assigns............................................ 8
2.2 Governing Law..................................................... 8
2.3 Counterparts...................................................... 8
2.4 Titles and Subtitles.............................................. 8
2.5 Notices........................................................... 8
2.6 Expenses.......................................................... 8
2.7 Amendments and Waivers............................................ 8
2.8 Severability...................................................... 8
2.9 Aggregation of Stock.............................................. 9
2.10 Entire Agreement; Amendment; Waiver............................... 9
</TABLE>
(i)
<PAGE>
INVESTOR'S RIGHTS AGREEMENT
---------------------------
THIS INVESTOR'S RIGHTS AGREEMENT is made as of the ______ day of September,
1996, by and between Synbiotics Corporation, a California corporation (the
"Company"), and S.R. One, Limited, a Pennsylvania business trust (the
"Investor").
RECITALS
--------
WHEREAS, the Company and the Investor are parties to the Purchase Agreement
dated July __, 1996 (the "Purchase Agreement");
WHEREAS, in order to induce the Company to enter into the Purchase Agreement
and to induce the Investor to invest funds in the Company pursuant to the
Purchase Agreement, the Investor and the Company hereby agree that this
Agreement shall govern the rights of the Investor to cause the Company to
register shares of Common Stock owned by the Investors and certain other matters
as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the SEC which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issued to the Investor pursuant to the Purchase Agreement, and (ii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or
<PAGE>
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of the shares referenced in (i) above,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which his rights under this Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Company Registration. If (but without any obligation to do so) the
--------------------
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 2.5, the Company shall, subject to the provisions of
Section 1.6, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
1.3 Obligations of the Company. Whenever required under this Section 1
--------------------------
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a post-
effective amendment which (I) includes
2
<PAGE>
any prospectus required by Section 10(a)(3) of the Act or (II) reflects facts or
events representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the
registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.4 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method
3
<PAGE>
of disposition of such securities as shall be required to effect the
registration of such Holder's Registrable Securities.
1.5 Expenses of Company Registration. The Company shall bear and pay all
--------------------------------
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.2 for each Holder, including (without limitation) all registration, filing,
and qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder; if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements of one counsel for the selling Holders selected by them,
but excluding underwriting discounts and commissions relating to Registrable
Securities.
1.6 Underwriting Requirements. In connection with any offering involving
-------------------------
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 1.2 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as the
underwriters determine in their sole discretion will not, jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders)
but in no event shall (i) the amount of securities of the selling Holders
included in the offering be reduced below twenty percent (20%) of the total
amount of securities included in such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
shareholder," and any pro-rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
1.7 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
4
<PAGE>
1.8 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
or the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.8(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, or the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will pay any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.8(b), in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 1.8(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; provided, that, in no
event
5
<PAGE>
shall any indemnity under this subsection 1.8(b) exceed the gross proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.8 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.8, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.8.
(d) If the indemnification provided for in this Section 1.8 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 1.8
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
6
<PAGE>
1.9 "Market Stand-Off" Agreement. Investor hereby agrees that, during
----------------------------
the period of duration specified by the Company and an underwriter of common
stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(a) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements; and
(b) such market stand-off time period shall not exceed 180 days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.9 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-14 or Form S-15 or similar forms which may be promulgated
in the future.
1.10 Covenants of the Investors. Investor agrees that the Registrable
--------------------------
Securities shall be subject to the volume limitations on resale as set forth in
the now-current Rule 144 of the Act until the second anniversary of the date of
this Agreement.
1.11 Termination of Registration Rights. No Holder shall be entitled to
----------------------------------
exercise any right provided for in this Section 1 after three (3) years
following the date of this Agreement.
2. Miscellaneous.
-------------
2.1 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
7
<PAGE>
2.2 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
2.3 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.
2.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or permitted
-------
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
2.6 Expenses. If any action at law or in equity is necessary to enforce
--------
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
2.8 Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
2.9 Aggregation of Stock. All shares of Registrable Securities held or
--------------------
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
2.10 Entire Agreement; Amendment; Waiver. This Agreement (including the
-----------------------------------
Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
8
<PAGE>
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SYNBIOTICS CORPORATION, a California corporation
By:
-------------------------------------------------------------
___________________, President
Address: 11011 Via Frontera
San Diego, CA 92127
INVESTOR:
S.R. ONE, LIMITED, a Pennsylvania business trust
By:
-------------------------------------------------------------
Address:
-------------------------------------------------------------
-----------------------------------------------------------------
[SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENT]
10
<PAGE>
EXHIBIT 10.3(a)(i)
------------------
BILL OF SALE
------------
KNOW ALL MEN BY THESE PRESENTS, THAT INTERNATIONAL CANINE GENETICS, INC., a
Delaware corporation ("ICG"), hereby grants, conveys, transfers, assigns, sets
over and delivers, as of _________________, 1996 (the "Effective Date"), unto
SYNBIOTICS CORPORATION, a California corporation ("SBIO"), pursuant to that
certain Purchase Agreement among ICG, SBIO and S.R. One, Limited, a Pennsylvania
business trust, dated July ___, 1996 (the "Agreement"), all of ICG's right,
title and interest in and to all tangible and intangible assets, rights and
properties used in connection with the performance and operation of ICG's
Business (other than Excluded Assets as set forth in Section [2.2] of the
Agreement), wherever located, including without limitation, all of the assets,
rights and properties set forth in Section [2.1] of the Agreement (the
"Assets"), TO HAVE AND TO HOLD the Assets unto SBIO, its successors and assigns
forever. Defined terms not otherwise defined herein shall have the meanings
given them in the Agreement.
ICG and its successors and SBIO hereby agree to take all actions reasonably
necessary to obtain any necessary consent (to the extent not already obtained)
for the transfer of the Assets to SBIO and, upon the receipt of such consent, to
provide to SBIO the benefits of title to such Assets. All the Assets shall
automatically be deemed to have been transferred and assigned to SBIO as of the
Time of Closing. Pending such formal transfer and assignment, SBIO shall be
entitled to the full economic benefit of ownership of the Assets and shall not
be liable for any loss, damage or charge arising out of acts or omissions
occurring prior to the Time of Closing with respect to the Assets or the conduct
of ICG's Business, except as may be set forth in the Agreement. The obligation
of ICG and its successor shall be to take all reasonable action necessary to
obtain the consents and to provide to SBIO the benefits of title to all of the
Assets referred to above.
ICG HEREBY CONSTITUTES and appoints SBIO and SBIO's successors and assigns,
the true and lawful attorneys of ICG with full power of substitution, in the
name of ICG or otherwise, and on behalf and for the benefit of SBIO, its
successors and assigns, to demand and receive from time to time any and all
Assets transferred or intended so to be; to give receipts, releases and
acquittances for or in respect of the same of any part thereof; and to take any
action necessary to effect the transfer to SBIO of full legal title in and
beneficial ownership of any Asset hereby transferred and assigned or intended so
to be. ICG declares that the foregoing powers are coupled with an interest and
shall not be revocable by it in any manner or for any reason.
ICG, FOR ITSELF AND ITS SUCCESSORS, AGREES THAT it or such successors shall
hereafter cause the execution and delivery of any further assignments,
instruments of transfer, bills of sale, powers of attorney or conveyances and
perform other acts, as may be
<PAGE>
necessary or desirable fully to vest in SBIO title to and enjoyment of the
Assets assigned and transferred or intended so to be pursuant to the Agreement.
IN WITNESS WHEREOF, ICG has caused this Bill of Sale to be executed as of the
date first written above.
"ICG"
INTERNATIONAL CANINE GENETICS, INC., a Delaware
corporation
By:
----------------------------------------------
Its:
---------------------------------------------
[SIGNATURE PAGE TO BILL OF SALE]
<PAGE>
EXHIBIT 11.1
------------
_____________, 1996
S.R. One, Limited
565 Swedesford Road, Suite 315
Wayne, PA 19087
Ladies and Gentlemen:
We have acted as counsel for Synbiotics Corporation, a California
corporation (the "Company"), in connection with the issuance and sale of shares
of its Common Stock to you at the S.R. One Closing pursuant to the Purchase
Agreement dated July __, 1996 (the "Purchase Agreement") among the Company,
International Canine Genetics, Inc, and you. This opinion is being rendered to
you pursuant to Section 11.1(c) of the Purchase Agreement in connection with the
S.R. One Closing. Capitalized terms not otherwise defined in this opinion have
the meaning given them in the Purchase Agreement.
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Purchase
Agreement and upon certificates and statements of government officials and of
officers of the Company. We have also examined originals or copies of such
corporate documents or records of the Company as we have considered appropriate
for the opinions expressed herein. We have assumed for the purposes of this
opinion that the signatures on documents and instruments examined by us are
authentic, that each document is what it purports to be, and that all documents
submitted to us as copies conform with the originals, which facts we have not
independently verified.
In rendering this opinion we have also assumed: (A) that the Purchase
Agreement and Investor's Rights Agreement have been duly and validly executed
and delivered by you or on your behalf and constitute valid, binding and
enforceable obligations upon you; (B) that the representations and warranties
made in the Purchase Agreement by you are true and correct; (C) that any wire
transfers, drafts or checks tendered by you will be honored; (D) if you are a
corporation or other entity, that you have filed any required
<PAGE>
state franchise, income or similar tax returns and have paid any required state
franchise, income or similar taxes; and (E) that there are no extrinsic
agreements or understandings among the parties to the Purchase Agreement or the
Investor's Rights Agreement that would modify or interpret the terms of the
Purchase Agreement or the Investor's Rights Agreement or the respective rights
or obligations of the parties thereunder.
As used in this opinion, the expression "we are not aware" means as to
matters of fact that, based on the actual knowledge of individual attorneys
within the firm principally responsible for handling current matters for the
Company and after an examination of documents referred to herein and after
inquiries of certain officers of the Company, no facts have been disclosed to us
that have caused us to conclude that the opinions expressed are factually
incorrect; but beyond that we have made no factual investigation for the
purposes of rendering this opinion. Specifically, but without limitation, we
have made no inquiries of securities holders or employees of the Company, other
than such officers.
This opinion relates solely to the laws of the State of California and
the federal law of the United States, and we express no opinion with respect to
the effect or application of any other laws. Special rulings of authorities
administering such laws or opinions of other counsel have not been sought or
obtained.
Based upon our examination of and reliance upon the foregoing and subject
to the limitations, exceptions, qualifications and assumptions set forth below
and except as set forth in the Purchase Agreement or the Synbiotics Disclosure
Letter, we are of the opinion that as of the date hereof:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, and the Company has the
requisite corporate power and authority to own its properties and to conduct its
business as presently conducted.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform the Purchase Agreement and Investor's Rights
Agreement. Each of the foregoing has been duly and validly authorized by the
Company, and duly executed and delivered by an authorized officer of the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company according to its terms.
3. The Company's execution, delivery, performance and compliance as to
S.R. One with the terms of the Purchase Agreement and Investor's Rights
Agreement do not violate any provision of any applicable federal or California
law, rule or regulation or any provision of the Company's Restated Articles of
Incorporation or Bylaws and do not conflict with or constitute a default under
the provisions of any judgment, writ, decree or order specifically identified in
the Synbiotics SEC Reports or the material provisions of any material agreement
specifically identified in the Synbiotics SEC Reports.
4. All consents, approvals, permits, orders or authorizations of, and
all qualifications, registrations, designations, declarations or filings with,
any federal or
<PAGE>
S.R. One, Limited
Page 15 , 1996
----------
California state governmental authority on the part of the Company required in
connection with the execution and delivery of the Purchase Agreement and
consummation at the S.R. One Closing of the transactions contemplated by the
Purchase Agreement to be consummated there have been obtained, and are
effective, except the filing required by Section 25102(f) of the California
Corporate Securities Law of 1968, and we are not aware of any proceedings, or
written threat thereof, that question the validity thereof.
5. We are not aware that there is any action, proceeding or governmental
investigation pending, against the Company or any of its officers or directors,
or that any of the foregoing has received any written threat thereof, which
questions the validity of the Purchase Agreement or the Investor's Rights
Agreement, or the right of the Company to enter into such Purchase Agreement or
Investor's Rights Agreement.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
(A) The effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting the relief of debtors or the rights
and remedies of creditors generally, including without limitation the effect of
statutory or other law regarding fraudulent conveyances and preferential
transfers.
(B) We express no opinion as to the Company's compliance or noncompliance
with applicable federal or state antifraud or antitrust statutes, laws, rules
and regulations.
(C) Limitations imposed by state law, federal law or general equitable
principles upon the specific enforceability of any of the remedies, covenants or
other provisions of any applicable agreement and upon the availability of
injunctive relief or other equitable remedies, regardless of whether enforcement
of any such agreement is considered a proceeding in equity or at law.
(D) The effect of court decisions, invoking statutes or principles of
equity, which have held that certain covenants and provisions of agreements are
unenforceable where enforcement of such covenants or provisions under the
circumstances would violate the enforcing party's implied covenant of good faith
and fair dealing, is not reasonably necessary for the protection of the
enforcing party, or is not a material breach of a material covenant or
provision.
(E) We express no opinion concerning the past, present or future fair
market value of any securities.
(F) The unenforceability under certain circumstances of any provisions
prohibiting waivers of any terms of the Purchase Agreement or Investor's Rights
Agreement other than in writing, or prohibiting oral modifications thereof or
modification by course of dealing.
<PAGE>
S.R. One, Limited
Page 16 , 1996
----------
(G) The unenforceability under certain circumstances of provisions
indemnifying a party against, or requiring contributions toward, that party's
liability for its own wrongful or negligent acts, or where indemnification or
contribution is contrary to public policy. In this regard, we advise you that
in the opinion of the Securities and Exchange Commission indemnification of
directors, officers and controlling persons of an issuer against liabilities
arising under the Securities Act of 1933, as amended, is against public policy
and is therefore unenforceable.
(H) The unenforceability under certain circumstances of provisions
expressly or by implication waiving broadly or vaguely stated rights, unknown
future rights, or defenses to obligations or rights granted by law, when such
waivers are against public policy or prohibited by law.
(I) The unenforceability under certain circumstances of provisions to the
effect that rights or remedies are not exclusive, that rights or remedies may be
exercised without notice, that every right or remedy is cumulative and may be
exercised in addition to or with any other right or remedy, that election of a
particular remedy or remedies does not preclude recourse to one or more
remedies, or that failure to exercise or delay in exercising rights or remedies
will not operate as a waiver of any such right or remedy.
(J) The effect of California law, federal law or equitable principles
which limits the amount of attorneys' fees that can be recovered under certain
circumstances.
This opinion is rendered as of the date first written above solely for
your benefit in connection with the Purchase Agreement and may not be delivered
to, quoted or relied upon by any person other than you, or for any other
purpose, without our prior written consent. Our opinion is expressly limited to
the matters set forth above and we render no opinion, whether by implication or
otherwise, as to any other matters relating to the Company. We assume no
obligation to advise you of facts, circumstances, events or developments which
hereafter may be brought to our attention and which may alter, affect or modify
the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 12.1
------------
[MCCAUSLAND, KEEN & BUCKMAN LETTERHEAD]
______________, 1996
Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
Ladies and Gentlemen:
We have acted as counsel for International Canine Genetics, Inc., a
Delaware corporation ("Seller"), in connection with the sale of substantially
all of its assets to Synbiotics Corporation, a California corporation ("Buyer"),
pursuant to the Purchase Agreement dated as of July __, 1996 among Seller, Buyer
and S.R. One, Limited, (the "Agreement"). This opinion is being rendered to you
pursuant to Section 12.1(g) of the Agreement. Capitalized terms used herein and
not otherwise defined shall have the same meaning given to such terms in the
Agreement.
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by Seller pursuant to the Agreement and
upon certificates and statements of government officials and of officers of
Seller. We have also examined originals or copies of such corporate documents
or records of Seller as we have considered appropriate for the opinions
expressed herein. We have assumed for the purposes of this opinion that the
signatures on documents and instruments examined by us are authentic, that each
document is what it purports to be, and that all documents submitted to us as
copies conform with the originals, which facts we have not independently
verified.
In making our examination of the documents executed by entities other
than Seller, we have assumed that each such other entity had the power to enter
into and perform all its obligations thereunder and the due authorization of,
and the due execution and delivery of, such documents by each such entity.
To the extent that the obligations of Seller may be dependent upon such
matters, we assume for purposes of our opinions that: (A) you have complied
with any applicable requirement to file returns and pay taxes under the
California tax laws; (B) the Agreement has been duly authorized, executed and
delivered by and constitutes the legal, valid and binding obligation of all
parties thereto other than Seller, enforceable in accordance with its terms; (C)
each of the parties thereto has the requisite corporate or other organizational
<PAGE>
power and authority to perform its obligations under the Agreement; and (D) the
Agreement accurately and completely set forth the terms of the transaction
intended by the parties to be covered thereby.
Except as expressly covered in our opinions, we are not expressing any
opinion as to the effect of or compliance with any state or federal laws or
regulations applicable to the transactions contemplated by the Agreement because
of the nature of the businesses of the parties thereto other than Seller.
As used in this opinion, the expression "to our knowledge" with reference
to matters of fact means that after an examination of documents in our files and
considering the actual knowledge of those attorneys in our firm who have given
substantive attention to legal matters for Seller, including information
obtained by inquiry to responsible persons at our client concerning factual
matters related to the opinions expressed herein, but not including any
constructive or imputed notice of any information, we find no reason to conclude
that the opinions expressed herein are factually incorrect. Beyond that we have
made no independent factual investigation for the purpose of rendering an
opinion with respect to such matters.
This opinion relates solely to the laws of the State of Delaware, the
State of Pennsylvania and applicable Federal laws of the United States, and we
express no opinion with respect to the effect or applicability of the laws of
other jurisdictions.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
(K) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware with the corporate power and
authority to own its properties and other assets and to carry on its business
and to own and lease the properties and assets it now owns or operates. Seller
has the corporate power and authority to execute, deliver and carry out the
terms of the Agreement.
(L) The execution and delivery of the Agreement and the consummation of
the transactions contemplated thereby have been duly authorized by the Board of
Directors of Seller and by the stockholders of Seller. The Agreement has been
duly executed and delivered by Seller and is the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms.
(M) No consents, approvals or authorizations of any governmental
authority of the State of Delaware, the State of Pennsylvania or the United
States are required or necessary on the part of Seller in connection with the
execution, delivery and performance at the Time of Closing by Seller of the
Agreement, except for (i) such consents, approvals or authorizations which have
been obtained or waived prior to the date hereof, (ii) any filings which may be
required on the part of Seller in the period following the consummation of the
transactions contemplated by the Agreement under the International
<PAGE>
Synbiotics Corporation
, 1996
- ----------
Investment and Trade In Services Act of 1976, and (iii) compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 or the Defense Production
Act of 1950, as to which with your consent we express no opinion. The
Pennsylvania bulk sales law is not applicable to the transactions contemplated
by the Agreement.
(N) Neither the execution or delivery by Seller of the Agreement nor the
consummation by Seller at the Time of Closing of the transactions contemplated
thereby will violate any provision of the Certificate of Incorporation or Bylaws
of Seller, or will to our knowledge violate or be in conflict with any judgment,
decree, injunction or order specifically identified in the ICG SEC Reports or
the schedules to the Agreement, or will to our knowledge violate or conflict
with or constitute a material default (or an event which, with notice or lapse
of time or both, would constitute a material default) under or result in the
termination of, accelerate the performance required by, or, except as provided
in the Agreement, result in the creation of any lien, security interest, charge
or encumbrance upon any of the assets or properties of Seller under, any term or
provision of any material contract specifically identified in the ICG SEC
Reports or the schedules to the Agreement.
(O) To our knowledge, there are no pending or overtly threatened actions,
proceedings, investigations or claims against or affecting Seller before any
court, arbitrator or governmental authority which challenge the validity or
enforceability of the Agreement.
(P) Seller has sold, transferred and conveyed to Buyer all of its right,
title and interest in and to the Assets as of the Time of Closing.
The foregoing opinions are subject to the following additional
limitations, qualifications, assumptions and exceptions:
(a) The enforceability of Seller's obligations under the Agreement is
subject to the effect of i) bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent transfer and other similar laws affecting the rights of
creditors generally; and ii) the discretion of any court of competent
jurisdiction in awarding equitable remedies, including, without limitation,
specific performance or injunctive relief, and the effect of general principles
of equity embodied in federal and state statutes and common law.
(b) The unenforceability under certain circumstances of provisions
indemnifying a party against, or requiring contributions toward, that party's
liability for its own wrongful or negligent acts, or where indemnification or
contribution is contrary to public policy. In this regard, we advise you that
in the opinion of the Securities and Exchange Commission indemnification of
directors, officers and controlling persons of an issuer against liabilities
arising under the Securities Act of 1933, as amended, is against public policy
and is therefore unenforceable.
<PAGE>
Synbiotics Corporation
, 1996
- ----------
(c) Provisions of the Agreement may be unenforceable where (i) the breach
of such provisions imposes restrictions or burdens upon Seller, including the
acceleration of indebtedness due under debt instruments, and it cannot be
demonstrated that the enforcement of such restrictions or burdens is reasonably
necessary for the protection of the obligee, (ii) the obligee's enforcement of
such provisions under the circumstances would violate the obligee's implied
covenant of good faith and fair dealing or (iii) the breach of such provision is
not a material breach of a material covenant or provision.
(d) Provisions of the Agreement expressly or by implication waiving
broadly or vaguely stated rights, unknown future rights, rights or defenses to
obligations granted by law, may be unenforceable under certain circumstances
where such waivers are against public policy or prohibited by law.
(e) Provisions of the Agreement may be unenforceable under certain
circumstances where they provide (specifically or in effect) that rights or
remedies are not exclusive, that every right or remedy is cumulative and may be
exercised in addition to or with any other right or remedy, that election of a
particular remedy or remedies does not preclude recourse to one or more other
remedies, that any right or remedy may be exercised without notice, or that
failure to exercise or delay in exercising rights or remedies will not operate
as a waiver of any such right or remedy.
(f) The effect of state law, federal law or equitable principles which
limits the amount of attorneys' fees that can be recovered under certain
circumstances.
(g) We express no opinion as to the validity, binding effect or
enforceability of any provisions prohibiting waivers of any terms of the
Agreement other than in writing, or prohibiting oral modifications thereof or
modification by course of dealing.
This opinion is rendered as of the date first written above solely for
your benefit in connection with the Agreement and may not be delivered to,
quoted or relied upon by any person other than you, or for any other purpose,
without our prior written consent. Our opinion is expressly limited to the
matters set forth above and we render no opinion, whether by implication or
otherwise, as to any other matters relating to Seller. We assume no obligation
to advise you of facts, circumstances, events or developments which hereafter
may be brought to our attention and which may alter, affect or modify the
opinions expressed herein.
Very truly yours,
MCCAUSLAND, KEEN & BUCKMAN
<PAGE>
EXHIBIT 12.2
------------
______________, 1996
International Canine Genetics, Inc.
271 Great Valley Parkway
Malvern, PA 19355
Ladies and Gentlemen:
We have acted as counsel for Synbiotics Corporation, a California
corporation ("Buyer"), in connection with its purchase of substantially all the
assets of International Canine Genetics, Inc., a Delaware corporation
("Seller"), pursuant to the Purchase Agreement dated as of July __, 1996 among
Seller, S.R. One, Limited, and Buyer (the "Agreement"). This opinion is being
rendered to you pursuant to Section 12.2(e) of the Agreement. Capitalized terms
used herein and not otherwise defined shall have the same meaning given to such
terms in the Agreement.
In connection with the opinions expressed herein we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by Buyer pursuant to the Agreement and
upon certificates and statements of government officials and of officers of
Buyer. We have also examined originals or copies of such corporate documents or
records of Buyer as we have considered appropriate for the opinions expressed
herein. We have assumed for the purposes of this opinion that the signatures on
documents and instruments examined by us are authentic, that each document is
what it purports to be, and that all documents submitted to us as copies conform
with the originals, which facts we have not independently verified.
In making our examination of the documents executed by entities other
than Buyer, we have assumed that each such other entity had the power to enter
into and perform all its obligations thereunder and the due authorization of,
and the due execution and delivery of, such documents by each such entity.
To the extent that the obligations of Buyer may be dependent upon such
matters, we assume for purposes of our opinions that: (A) you have complied
with any applicable requirement to file returns and pay taxes under the Delaware
and Pennsylvania tax laws; (B) the Agreement has been duly authorized, executed
and delivered by and constitutes the legal, valid and binding obligation of all
parties thereto other than Buyer, enforceable in accordance with its terms; (C)
each of the parties thereto has the requisite corporate or other organizational
power and authority to perform its obligations under the Agreement; and (D) the
Agreement accurately and completely set forth the terms of the transaction
intended by the parties to be covered thereby.
<PAGE>
International Canine Genetics, Inc. Page 2
, 1996
- ----------
Except as expressly covered in our opinions, we are not expressing any
opinion as to the effect of or compliance with any state or federal laws or
regulations applicable to the transactions contemplated by the Agreement because
of the nature of the businesses of the parties thereto other than Buyer.
As used in this opinion, the expression "to our knowledge" with reference
to matters of fact means that after an examination of documents in our files and
considering the actual knowledge of those attorneys in our firm who have given
substantive attention to legal matters for Buyer, including information obtained
by inquiry to responsible persons at our client concerning factual matters
related to the opinions expressed herein, but not including any constructive or
imputed notice of any information, we find no reason to conclude that the
opinions expressed herein are factually incorrect. Beyond that we have made no
independent factual investigation for the purpose of rendering an opinion with
respect to such matters.
This opinion relates solely to the laws of the State of California and
applicable Federal laws of the United States, and we express no opinion with
respect to the effect or applicability of the laws of other jurisdictions.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
(Q) Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of California with the corporate power and
authority to own its properties and other assets and to carry on its business
and to own and lease the properties and assets it now owns or operates.
(R) Buyer has the corporate power and authority to execute, deliver and
carry out the terms of the Agreement, and has taken all necessary corporate
action to authorize the execution and delivery of the Agreement.
(S) No consents, approvals or authorizations of any governmental
authority of the State of California or the United States are required or
necessary on the part of Buyer in connection with the execution, delivery and
performance at the Time of Closing by Buyer of the Agreement, except for (i)
such consents, approvals or authorizations which have been obtained or waived
prior to the date hereof, (ii) any filings which may be required on the part of
Buyer in the period following the consummation of the transactions contemplated
by the Agreement under the International Investment and Trade In Services Act of
1976, and (iii) compliance with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 or the Defense Production Act of 1950, as to which with your consent we
express no opinion.
<PAGE>
International Canine Genetics, Inc. Page 3
, 1996
- ----------
(T) The Agreement is the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
(U) Neither the execution or delivery by Buyer of the Agreement nor the
consummation by Buyer at the Time of Closing of the transactions contemplated
thereby will violate any provision of the Restated Articles of Incorporation or
Bylaws of Buyer, or will to our knowledge violate or be in conflict with any
judgment, decree, injunction or order specifically identified in the Synbiotics
SEC Reports, or will to our knowledge violate or conflict with or constitute a
material default (or an event which, with notice or lapse of time or both, would
constitute a material default) under or result in the termination of, accelerate
the performance required by, or, except as provided in the Agreement, result in
the creation of any lien, security interest, charge or encumbrance upon any of
the assets or properties of Buyer under, any term or provision of any material
contract specifically identified in the Synbiotics SEC Reports.
(V) To our knowledge, there are no pending or overtly threatened actions,
proceedings, investigations or claims against or affecting Buyer before any
court, arbitrator or governmental authority which challenge the validity or
enforceability of the Agreement.
The foregoing opinions are subject to the following additional
limitations, qualifications, assumptions and exceptions:
(a) The enforceability of Buyer's obligations under the Agreement is
subject to the effect of i) bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent transfer and other similar laws affecting the rights of
creditors generally; and ii) the discretion of any court of competent
jurisdiction in awarding equitable remedies, including, without limitation,
specific performance or injunctive relief, and the effect of general principles
of equity embodied in federal and California statutes and common law.
(b) The unenforceability under certain circumstances of provisions
indemnifying a party against, or requiring contributions toward, that party's
liability for its own wrongful or negligent acts, or where indemnification or
contribution is contrary to public policy. In this regard, we advise you that
in the opinion of the Securities and Exchange Commission indemnification of
directors, officers and controlling persons of an issuer against liabilities
arising under the Securities Act of 1933, as amended, is against public policy
and is therefore unenforceable.
(c) Provisions of the Agreement may be unenforceable where (i) the breach
of such provisions imposes restrictions or burdens upon Buyer, including the
acceleration of indebtedness due under debt instruments, and it cannot be
demonstrated that the enforcement of such restrictions or burdens is reasonably
necessary for the protection of the obligee, (ii) the obligee's enforcement of
such provisions under the circumstances would
<PAGE>
International Canine Genetics, Inc. Page 4
, 1996
- ----------
violate the obligee's implied covenant of good faith and fair dealing or (iii)
the breach of such provision is not a material breach of a material covenant or
provision.
(d) Provisions of the Agreement expressly or by implication waiving
broadly or vaguely stated rights, unknown future rights, rights or defenses to
obligations granted by law, may be unenforceable under certain circumstances
where such waivers are against public policy or prohibited by law.
(e) Provisions of the Agreement may be unenforceable under certain
circumstances where they provide (specifically or in effect) that rights or
remedies are not exclusive, that every right or remedy is cumulative and may be
exercised in addition to or with any other right or remedy, that election of a
particular remedy or remedies does not preclude recourse to one or more other
remedies, that any right or remedy may be exercised without notice, or that
failure to exercise or delay in exercising rights or remedies will not operate
as a waiver of any such right or remedy.
(f) Our opinions are subject to the effect of California law which
provides that a court may refuse to enforce, or may limit the application of, a
contract or any clause thereof which the court finds as a matter of law to have
been unconscionable at the time it was made or contrary to public policy.
(g) We express no opinion as to Buyer's compliance or non-compliance with
applicable federal or state antifraud or antitrust statutes, laws, rules and
regulations.
(h) We express no opinion concerning the past, present or future fair
market value of any securities.
(i) The effect of California law, federal law or equitable principles
which limits the amount of attorneys' fees that can be recovered under certain
circumstances.
(j) We express no opinion as to the validity, binding effect or
enforceability of any provisions prohibiting waivers of any terms of the
Agreement other than in writing, or prohibiting oral modifications thereof or
modification by course of dealing.
This opinion is rendered as of the date first written above solely for
your benefit in connection with the Agreement and may not be delivered to,
quoted or relied upon by any person other than you, or for any other purpose,
without our prior written consent. Our opinion is expressly limited to the
matters set forth above and we render no opinion, whether by implication or
otherwise, as to any other matters relating to Buyer. We assume
<PAGE>
International Canine Genetics, Inc. Page 5
, 1996
- ----------
no obligation to advise you of facts, circumstances, events or developments
which hereafter may be brought to our attention and which may alter, affect or
modify the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 14.4
------------
SPECIAL ARBITRATION PROCEDURES
------------------------------
1. Establishment of Forum. Arbitration shall be initiated by one party
----------------------
sending to the other a Notice of Arbitration, by registered or certified United
States mail, which notice must contain a description of the dispute, the amount
involved, and the remedy sought. Unless the parties agree on one arbitrator
within ten days thereafter, a sole arbitrator shall be designated by the
American Arbitration Association. The arbitration shall be held within ninety
(90) days after the mailing of the initiating notice, at a date, time and place
in San Diego, California determined (subject to this Agreement) by the
arbitrator.
2. Pre-Hearing Conference. The arbitrator shall schedule a pre-hearing
----------------------
conference to reach agreement or procedural matters, arrange for the exchange of
information, obtain stipulations, and attempt to narrow the issues.
3. Discovery. The parties agree to expedite the arbitration proceedings by
---------
eliminating discovery. Instead of discovery, the parties agree to the following
exchange of information:
(a) Either party can make a written demand for lists of the witnesses to
be called or the actual documents to be introduced at the hearing. The demand
must be received prior to the pre-hearing conference.
(b) The lists and such documents must be served within fifteen (15) days
of the demand.
(c) Except as expressly provided in this Item 3, no depositions,
interrogatories, or document production may be taken for discovery.
4. The Hearing.
-----------
(a) The parties must file briefs with the arbitrator at least three (3)
days before the hearing, specifying the facts each intends to prove and
analyzing the applicable law.
(b) The parties have the right to representation by legal counsel
throughout the arbitration proceedings.
(c) Judicial rules of evidence and procedure relating to the conduct at
the hearing, examination of witnesses, and presentation of evidence do not
apply. Any relevant evidence, including hearsay, shall be admitted by the
arbitrator if it is the sort of evidence on which responsible persons are
accustomed to rely on in the conduct of serious affairs, regardless of the
admissibility of such evidence in a court of law.
1
<PAGE>
(d) Subject to the discretion of the arbitrator, both sides at the
hearing may call and examine witnesses for relevant testimony, introduce
relevant exhibits or other documents, cross-examine or impeach witnesses who
shall have testified orally on any matter relevant to the issues, and otherwise
rebut evidence.
(e) Any party desiring a stenographic record may secure a court reporter
to attend the proceedings. The requesting party must notify the other parties
of the arrangements in advance of the hearing and must pay for the cost
incurred.
(f) Any party may request the oral evidence to be given under oath.
5. The Award.
---------
(a) The decision shall be based on the evidence introduced at the
hearing, including all logical and reasonable inferences therefrom. The
arbitrator may grant any remedy or relief which is just and equitable. The
arbitrator shall be empowered to award relief which is legal and/or equitable in
nature, as appropriate, and in accordance with any statutory provisions.
(b) The award must be made in writing and signed by the arbitrator. It
shall contain a concise statement of the reasons in support of the decision.
(c) The award must be mailed promptly to the parties, but no later than
thirty (30) days from the closing of the hearing.
6. Fees and Expenses. Each party must pay its one-half share of the
-----------------
arbitrator's expenses and fees, together with other expenses of the arbitration
incurred or approved by the arbitrator. The arbitrator shall have discretion to
award, to the party he determines to be the prevailing party, its or his
attorney fees, witness fees and other such expenses incurred.
2
<PAGE>
SCHEDULE 2.1(a)
List of Equipment
See Attached as of 4/30/96.
1
<PAGE>
SCHEDULE 2.1(b)
List of Inventory
as of 4/30/96
<TABLE>
<CAPTION>
<S> <C>
1. Status Pro Diagnostic $24,591.96
2. Target Diagnostic $ 3,524.40
3. Nutritional Supplements $ 7,517.91
4. PennHIP $27,870.68
5. Status LH Diagnostic $ 4,003.11
6. Grooming Products $10,399.19
7. Optimate Diagnostic $16,134.58
8. All Other $12,622.47
9. Reserve for Inventory $10,660.49
TOTAL $97,003.31
</TABLE>
1
<PAGE>
SCHEDULE 2.1(c)
List of Contracts
1. Consulting Contract with Dr. Laura T. Goldsmith re: Relaxin.
2. Consulting Contract with Dr. Bernard G. Steinetz re: Relaxin.
3. Consulting Contract with Dr. George Lust re: Relaxin.
4. Exclusive License Agreement with the Cornell Research Foundation, Inc. re:
Relaxin.
5. Sponsored Research Agreement with The University of Medicine and Dentistry of
New Jersey re: Relaxin.
6. Sponsored Research Agreement with Cornell University re: Relaxin.
7. Sponsored Research Agreement with new York University re: Relaxin.
8. Evaluation and Certification Agreement with the Trustees of the University of
Pennsylvania re: PennHIP.
9. License Agreement with the Trustees of the University of Pennsylvania re:
PennHIP.
10. Consulting Agreement with Dr. Gail Smith re: PennHIP.
11. Consulting Agreement with Ortho/Analytic, Inc. re: PennHIP.
12. Consulting Agreement with Dr. Pamela McKelvie re: PennHIP.
13. Consulting Agreement with Dr. Eldin Leighton re: PennHIP.
14. Consulting Agreement with Thomas P. Gregor re: PennHIP.
15. Consulting Agreement with Veterinary Nutrition Specialist, Inc. re:
Nutritional Supplements.
16. Manufacturing and Distribution Agreement with the W. R. Van Wyck Group,
Limited re: Grooming Products.
17. Distribution Consulting Agreement with Wolfgang Jackle Associates, Inc.
18. Equipment Operating Lease Agreements (12) with AT&T Capital.
1
<PAGE>
19. Equipment Operating Lease Agreement with Sanwa Leasing.
20. Equipment Capital Leases (3) with Advanta Leasing.
21. Equipment Capital Lease with Avco Leasing.
22. Equipment Capital Lease with Copelco.
23. Equipment Capital Leases (2) with Colonial Pacific Leasing.
24. Equipment Capital Lease with G.E. Capital.
25. Equipment Capital Lease with The Manifest Group.
26. License Agreement with Cambridge Veterinary Science re: Pregnancy Testing.
27. Lease Agreement with Morehall Associates, Ltd. for facility located at 271
Great Valley Parkway, Malvern, PA 19355.
28. Capital Lease Agreement with LPI Software Funding Group. $38,000 of
advanced payments made under agreement. Equipment and software is expected
to be fully operational sometime in September 1996.
29. Verbal contract with Howard Graham, dating to 1987, for preparation of all
frozen and chilled semen buffers.
30. Verbal agreement with Country Club Kennels, dating back to 1987, for monthly
housing of training beagles.
31. Rental agreement with G E Capital, Modular Space for rental of trailer
located at Country Club Kennels and used for training.
32. Equipment operating lease with Easy Lease Company.
2
<PAGE>
SCHEDULE 2.1(d)
List of Real Property
1. Leased facility at 271 Great Valley Parkway, Malvern, PA 19355. See Schedule
2.1(c), List of Contracts.
1
<PAGE>
SCHEDULE 2.1(e)
List of Proprietary Rights
<TABLE>
<CAPTION>
<C> <S>
1. Fresh Express Registered Trademark
2. Ov-U-Peak Registered Trademark
3. ICG Trademark
4. Status-Pro Trademark
5. ICAGEN Trademark
6. Status-LH Trademark
7. ICG Stress Formula Trademark/Formula Trade Secret
8. ICG Coat & Skin Formula Trademark/Formula Trade Secret
9. ICG Lite Formula Trademark/Formula Trade Secret
10. PennHIP Registered trademark licensed for the
University of Pennsylvania
11. Frozen/chilled semen buffers Proprietary of ownership/trade secret
12. Optimate Trademark
13. U.S. Patent # 5,120,660 Method for Canine Fertility Detection
14. U.S. Patent # 5,106,761 Method for determining Molecules in a
Liquid Medium
15. U.S. Patent # 5,089,419 Detection of Pregnancy by identification of
the C Peptide of Relaxin in the Urine of
Animals
</TABLE>
16. Exclusive License for the use of U.S. Patent #5,108,897--Relaxin testing for
early detection of pregnancy in dogs.
17. Exclusive License for the use of U.S. Patent # 5,482,055--Method for
assessing Canine Hip Dysplasia.
18. Customer list as maintained in the Mail Order Manager (M.O.M.) order
entry computer system.
19. Vendor/supplier list as contained in the Real World 6.5 Accounting
Computer System, Accounts Payable Module.
1
<PAGE>
SCHEDULE 2.1(k)
List of Leasehold Interests
None other than the leasehold improvements listed on List of Equipment (Schedule
2.1(a)).
1
<PAGE>
SCHEDULE 2.1(l)
List of Insurance Policies
1. Guardian Health/Life Policy -- G160341.
2. Long-Term Disability Policy -- #LTD 097397 -- Reliance Insurance.
3. Package insurance including Property, Electronic Data Processing, General
Liability and Product Liability.
Federal Insurance Company Policy -- #3532-36-61.
4. Workers Compensation.
Federal Insurance Company Policy -- #7163-51-81.
1
<PAGE>
SCHEDULE 2.2
Schedule of Excluded Assets
1. Employment Contract with Paul A. Rosinack.
2. Employment Contract with John R. Bauer.
3. Employment Contract with Stephen T. Peterson.
4. Employment Contract with Michael C. Brown.
5. Employment Contract with Melissa Goodman.
6. Directors and Officers Liability Insurance.
Zurich Insurance Company Policy -- #DOC-8357613.
1
<PAGE>
SCHEDULE 3.1(a)
List of Assumed Liabilities
[TO BE PREPARED AT THE TIME OF CLOSING]
1
<PAGE>
SCHEDULE 3.1(c)
List of Outstanding Options and Warrants
<TABLE>
<CAPTION>
EQUIVALENT
#OF EXERCISE EXPIRATION COMMON
SCHEDULE OF WARRANT HOLDERS WARRANTS PRICE DATE SHARE
- --------------------------- ---------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
JANNEY MONTGOMERY SCOTT 20,000 $1.25 MARCH 24, 2000 20,704
GILFORD SECURITIES 48,500 $1.25 MARCH 24, 2000 48,137
PENN JANNEY FUND, INC. 205,000 $1.25 MARCH 24, 2000 212,216
HARRY LEOPOLD 12,416 $1.25 MARCH 24, 2000 12,853
GARY A. FOLD 8,278 $1.25 MARCH 24, 2000 8,567
STEPHEN DE GROAT 25,000 $1.25 MARCH 24, 2000 25,880
PUBLIC WARRANTS 715,000 $1.25 MARCH 24, 2000 740,168
</TABLE>
<TABLE>
<CAPTION>
#OF EXERCISE
SCHEDULE OF STOCK OPTIONS OPTIONS PRICE
- ------------------------- -------- ----------
<S> <C> <C>
ISO's 41,667 $1.35
69,200 $7.00
80,950 $2.00
96,850 $1.25
TOTAL ISO'S 288,467
NON-QUALIFIED: 375 $1.35
6,857 $7.00
13,500 $2.00
51,400
TOTAL NON-QUALIFIED 71,132
TOTAL STOCK OPTIONS 359,599
</TABLE>
<TABLE>
<CAPTION>
STOCK OPTION SUMMARY TOTAL AT 6/94
- ------------------------- --------------
<S> <C>
TOTAL EMPLOYEES 299,932
TOTAL BOARD OF DIRECTORS 48,257
TOTAL CONSULTANTS 22,875
FORFITS (11,465)
--------------
TOTAL OPTIONS GRANTED 359,699
OPTIONS AUTHORIZED 490,000
--------------
AVAILABLE FOR ISSUANCE 130,401
==============
</TABLE>
<TABLE>
<CAPTION>
SUMMARY ISO'S NQUAL TOTAL
- ------------ -------- -------- --------
<S> <C> <C> <C>
Options at 61.35 per share 41,667 375 42,042
Options at $7.00 per share 68,200 5,857 75,057
Options at $2.00 per share 80,950 13,500 94,450
Options at $1.25 per share 98,650 51,400 148,050
-------- -------- --------
TOTAL 289,467 71,132 359,599
</TABLE>
1
<PAGE>
AS OF MAY 30, 1996
EQUITY ANALYSIS
- -----------------------------
<TABLE>
<CAPTION>
$1.25
$1.38 $2.00 $1.25 NQUAL. TOTAL
NQUAL. $7.00 TOTAL NQUAL. TOTAL NQUAL. AT AT
FOUNDERS AT 3/93 NQUAL. AT 4/94 AT 6/94 AT 6/94 AT 7/95 11/95 11/95
SHARES -------- ------ -------- -------- -------- -------- ------- -------
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BOARD OF DIRECTORS
- -------------------
S. HARTOGENSIS 857 857 3,000 3,857 9,600 13,457
R.G. RANKIN 112,500 112,500 3,000 115,500 9,600 125,100
M. CUNEO 0 0 0 9,600 9,600
D. LEIN 0 3,000 3,000 9,600 12,600
CONSULTANTS
- ------------
N. MOSER 375 375 375 375
G. SMITH 5,000 5,000 5,000 5,000 5,000 15,000
S. GRISEWOOD 2,500 2,500
PORTER, LE AY & ROSE 0 4,500 4,500 4,500
MCKELVIE, PAM 250 250
GREGOR, TOM 250 250
_______ _______ _____ _______ _________ _______ _______ _____ ______
TOTAL 112,500 375 5,857 118,732 13,500 132,232 5,500 45,900 183,632
======== ======== ====== ======== ======== ======== ======== ======= =======
</TABLE>
1
<PAGE>
AS OF MAY 30, 1996
EQUITY ANALYSIS
- -----------------------------
<TABLE>
<CAPTION>
$1.35
ISO'S $7.00 $2.00
HIRE FOUNDERS AT ISO'S TOTAL ISO'S TOTAL
DATE SHARES 3/93 AT 5/83 AT 4/84 AT 6/94 AT 6/94
-------- -------- ------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EMPLOYEE
- ---------
RESEARCH & DEVELOPMENT
- ----------------------
BROWN, MICHAEL 09/01/91 4,167 9,500 13,667 11,500 25,167
FERRARR, GAIL 10/10/90 1,295 1,295 1,000 2,295
MARCHAK, STAN 06/02/92 325 325 800 925
KWATKOWSKI, MARCIA 02/07/94 0 1,000 1,000
COSTELLO, SNADRA (PART TIM 09/06/93 0 250 250
SALES & MARKETING
- ------------------
PETERSON, STEPHEN 01/10/84 7,000 7,000 6,000 13,000
RANKIN, SANDRA 07/14/86 18,687 5,000 21,687 3,600 25,687
LUMSARGIS, KATHY 09/21/94 570 670 675 1,245
WESBERRY, PAMELA 12/16/91 1,335 1,335 675 2,010
MURRAY, CHARLES 01/01/90 1,000 1,000 250 1,250
MORTIZ, DAN 04/01/90
JAMES, LEAH 02/16/95
VETERINARY SERVICES
- --------------------
GOODMAN, MELISSA 01/01/88 12,500 10,000 22,500 12,500 35,000
MAYERS, CARLA 03/28/91 0 1,750 1,750
MULLEN, SHERRI 01/01/88 1,760 1,750 250 2,000
O'NEILL SHIRLEE 05/23/88 1,750 1,750 1,000 2,750
PETOR, MICHELE 05/08/94
ADMINISTRATION & FINANCE
- ------------------------
BAUER, JOHN 08/16/90 4,167 11,000 15,187 15,500 90,667
TRAVIS, CONCETTA 01/10/81 935 935 800 1,535
HOOVER, DEBORAH 10/01/93 0 350 350
CROSSON, JOYCE 09/08/91 870 870 1,000 1,870
FACCIOLLI, JOE 10/12/94
KELLEY, KEVIN 01/14/91 935 935 250 1,185
ROSINACK, PAUL 12/01/91 33,333 20,000 63,333 25,000 78,333
SPADA, NANCY
TRUEX, HOWARD
-------- ------ -------- ---------- -------- --------
TOTAL 31,187 42,060 73,858 154,723 84,844 288,963
======== ====== ======== ========== ======== ========
____________ 0 3,685 3,685 2,700 8,685 4,800
NET 41,687 69,200 140,034 80,950 220,964 41,488
</TABLE>
<TABLE>
<CAPTION>
$1.25 $1.25 $ 1.25
ISO'S ISO'S TOTAL ISO'S TOTAL
AT 7/95 AT 11/95 AT 11/95 AT 4/94 AT 4/96
--------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
EMPLOYEE
- ---------
RESEARCH & DEVELOPMENT
- ----------------------
BROWN, MICHAEL 5,487 4,533 74,021 74,021
FERRARR, GAIL 1,100 6,985 6,985
MARCHAK, STAN 800 3,175 3,175
KWATKOWSKI, MARCIA 1,100 3,100 3,100
COSTELLO, SNADRA (PART TIM 300 800 800
SALES & MARKETING
- ------------------
PETERSON, STEPHEN 8,201 6,799 48,000 48,000
RANKIN, SANDRA 3,500 78,161 78,161
LUMSARGIS, KATHY 800 3,960 3,960
WESBERRY, PAMELA 800 6,155 6,155
MURRAY, CHARLES 760 4,260 4,260
MORTIZ, DAN 800 800 800
JAMES, LEAH 250 250 250
VETERINARY SERVICES
- --------------------
GOODMAN, MELISSA 5,467 4,533 102,500 102,500
MAYERS, CARLA 3,500 7,000 7,000
MULLEN, SHERRI 750 6,510 6,510
O'NEILL SHIRLEE 750 8,000 8,000
PETOR, MICHELE 750 750 750
ADMINISTRATION & FINANCE
- ------------------------
BAUER, JOHN 8,201 6,799 151,521 151,521
TRAVIS, CONCETTA 750 4,955 4,955
HOOVER, DEBORAH 750 1,450 1,450
CROSSON, JOYCE 1,000 5,610 5,610
FACCIOLLI, JOE 250 250 250
KELLEY, KEVIN 350 3,655 3,655
ROSINACK, PAUL 219,999 219,999
SPADA, NANCY 0 1,250 1,250
TRUEX, HOWARD 0 1,250 1,250
--------- ---------- ---------- --------- -------
TOTAL 47,211 23,859 746,705 2,994 749,699
========= ========== ========== ========= =======
0 11465 35,020 0 35,020
0 0
52,664 315,134 962,121 2,500 964,621
</TABLE>
2
<PAGE>
EXHIBIT 5.1
-----------
August 12, 1996
Synbiotics Corporation
11011 Via Frontera
San Diego, California 92127
Re: Registration Statement on Form S-4 of Synbiotics Corporation
------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Synbiotics Corporation, a California
corporation ("Synbiotics"), in connection with the Registration Statement on
Form S-4 filed by Synbiotics with the Securities and Exchange Commission (the
"Registration Statement") with respect to the issuance and sale of up to
1,712,142 shares of Common Stock of Synbiotics (the "Shares") proposed to be
issued in connection with the acquisition of substantially all the assets of
International Canine Genetics, Inc. by Synbiotics (the "Acquisition") pursuant
to a Purchase Agreement dated as of July 23, 1996 (the "Purchase Agreement"), as
described in the Joint Proxy Statement/Prospectus of Synbiotics which is a part
of the Registration Statement.
In connection with this opinion, we have examined the Registration
Statement and related Joint Proxy Statement/Prospectus, Synbiotics' Restated
Articles of Incorporation, as amended through the date hereof, Synbiotics'
bylaws, as amended through the date hereof, and the originals, or copies
certified to our satisfaction, of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below (the "Documents"). We are
relying (without any independent investigation thereof) upon the truth and
accuracy of the statements, covenants, representations and warranties set forth
in such Documents.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Shares have been duly authorized, and if, as and when issued in
accordance with the Purchase Agreement and the Registration Statement and Joint
Proxy Statement/Prospectus (as amended and supplemented through the date of
issuance), will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the Joint Proxy Statement/Prospectus constituting a part thereof and
any further amendments thereto. Subject to the foregoing sentence, this opinion
is given as of the date hereof solely for your benefit and may not be relied
upon, circulated, quoted or otherwise referred to for any purpose without our
prior written consent.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.2
------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made by and between Synbiotics Corporation, a
California corporation ("EMPLOYER"), and Kenneth M. Cohen ("EMPLOYEE") as of May
7, 1996.
R E C I T A L S:
- - - - - - - -
WHEREAS, EMPLOYER and EMPLOYEE wish to set forth in this Agreement the
terms and conditions under which EMPLOYEE is to be employed by EMPLOYER.
NOW, THEREFORE, EMPLOYER and EMPLOYEE, in consideration of the mutual
promises set forth herein, agree as follows:
ARTICLE 1
---------
TERM OF AGREEMENT
-----------------
1.1 Term. The term of this Agreement shall commence on the date first
----
written above and shall continue until terminated pursuant to Article 6.
EMPLOYEE shall serve as a consultant from the date first written above through
May 14, 1996, for cash consideration of $1.00. Thereafter he shall serve as an
employee on the terms and conditions set forth below.
ARTICLE 2
---------
EMPLOYMENT DUTIES
-----------------
2.1 Title/Responsibilities. Beginning May 15, 1996, EMPLOYEE shall serve as
----------------------
an employee of EMPLOYER and hold the position of Chief Executive Officer of
EMPLOYER, and shall have the powers and responsibilities consistent with such
position. Subject to the ultimate direction and management of EMPLOYER's Board
of Directors, EMPLOYEE will have general charge of the management and operations
of EMPLOYER. EMPLOYEE shall also perform all duties which from time to time are
assigned to him by EMPLOYER's Board of Directors, and shall provide the Board
with periodic reports upon request.
2.2 Directorship. EMPLOYEE agrees, if and when elected, to serve (at the
------------
pleasure of EMPLOYER's shareholders) as a Director on EMPLOYER's Board of
Directors (and on such Board committees to which he may be appointed) at no
additional compensation during the time he is an employee of EMPLOYER. It is
understood that EMPLOYEE shall forthwith be elected
<PAGE>
to fill a newly-created seat on EMPLOYER's Board of Directors and shall, as long
as he remains Chief Executive Officer, be included on management's slate of
director nominees.
<PAGE>
2.3 Full Time Attention. EMPLOYEE shall perform his duties hereunder in a
-------------------
diligent and professional manner and devote substantially all of his business
time and attention, best efforts, energy and skills to EMPLOYER during the time
he is employed hereunder as Chief Executive Officer of EMPLOYER. During the
term of this Agreement EMPLOYEE shall not without the express consent of
EMPLOYER's Board of Directors serve or act as a shareholder (except passive
holdings of less than 1% of the stock), employee, agent, consultant, officer,
director, partner, representative or owner of any other business entity, nor (if
it would require more than an insubstantial amount of business time or
attention) of any non-profit entity.
2.4 Compliance with Rules. EMPLOYEE shall comply with all applicable
---------------------
governmental laws, rules and regulations and with all of EMPLOYER's policies,
rules and/or regulations applicable to all employees of EMPLOYER.
ARTICLE 3
---------
COMPENSATION
------------
3.1 Base Salary. From and after May 15, 1996, EMPLOYER shall pay semi-
-----------
monthly to EMPLOYEE a salary of $225,000 per annum until such time or times as
it may discretionarily be raised (but not lowered) upon annual
performance/salary review by EMPLOYER's Board of Directors Compensation
Committee.
3.2 Additional Compensation (Stock Option). In addition to the salary
--------------------------------------
provided in Section 3.1, EMPLOYER hereby grants to EMPLOYEE as additional
compensation for EMPLOYEE's services (but not for any capital-raising purposes
or in connection with any capital-raising activities):
(a) an incentive stock option to purchase 225,000 shares of EMPLOYER
Common Stock under EMPLOYER's 1995 Stock Option/Stock Issuance Plan, with an
exercise price equal to the Fair Market Value per share of EMPLOYER Common Stock
on the date first written above, such option to vest in five equal annual
installments; and
(b) a direct issuance of 10,000 fully-vested shares of unregistered
EMPLOYER Common Stock.
3.3 Bonus. In addition to the salary provided in Section 3.1, EMPLOYEE shall
-----
participate in a cash bonus plan giving him the opportunity to receive, in the
discretion of EMPLOYER's Board of Directors (upon recommendation of its
Compensation Committee), a bonus of up to 30% of annual salary upon achievement
of targets established for him by EMPLOYER's Board of Directors (upon
recommendation of such Compensation Committee) in its discretion.
<PAGE>
ARTICLE 4
---------
OTHER BENEFITS
--------------
4.1 Fringe Benefits. EMPLOYEE shall be entitled during the term of his
---------------
employment under this Agreement to all other fringe benefits made available from
time to time by EMPLOYER to its executives generally and/or its employees
generally, including without limitation participation in EMPLOYER's 401(k) plan
and group health insurance plan.
4.2 Expenses. EMPLOYER shall reimburse EMPLOYEE, not less often than
--------
monthly, for reasonable out-of-pocket business expenses incurred by EMPLOYEE in
the course of his duties hereunder, upon submission by EMPLOYEE of appropriate
expense account reports and substantiating receipts.
4.3 Vacation. EMPLOYEE shall be entitled to four weeks paid vacation per
--------
full year of service, in accordance with and subject to EMPLOYER's vacation
accrual plan and policies. EMPLOYEE acknowledges the "cap" on vacation accruals
set forth in such plan and policies.
4.4 Executive Protection. By no later than July 1, 1996, EMPLOYER and
--------------------
EMPLOYEE shall confer to establish and implement a mutually agreeable program to
protect EMPLOYER's executives against the eventuality of EMPLOYER being
acquired, including but not limited to cash parachute payments and acceleration
of stock option vesting upon takeover.
ARTICLE 5
---------
FORMER EMPLOYMENT
-----------------
5.1 No Conflict. EMPLOYEE represents and warrants that the execution and
-----------
delivery by him of this Agreement, his employment by EMPLOYER and his
performance of duties under this Agreement will not conflict with and will not
be constrained by any prior employment or consulting agreement or relationship,
or any other contractual obligation.
5.2 No Use of Prior Confidential Information. EMPLOYEE will not
----------------------------------------
intentionally disclose to EMPLOYER or use on its behalf any confidential
information belonging to any of his former employers, but during his employment
by EMPLOYER he will use in the performance of his duties all information (but
only such information) which is generally known and used by persons with
training and experience comparable to his own or is common knowledge in the
industry or otherwise legally in the public domain.
<PAGE>
ARTICLE 6
---------
TERMINATION
-----------
6.1 Term. This Agreement (including EMPLOYEE'S employment) shall continue
----
until terminated by either EMPLOYER or EMPLOYEE. Such termination (including
termination of EMPLOYEE's employment) shall be effected by written notification
and may be effected at any time, with or without cause, for any reason or no
reason.
6.2 Severance. If this Agreement and/or EMPLOYEE's employment is terminated
---------
for cause, EMPLOYEE shall be entitled to no severance pay. If this Agreement
and/or EMPLOYEE's employment is terminated other than for cause, EMPLOYEE shall
be entitled to severance pay as follows: if termination after May 14, 1997:
six months' salary at EMPLOYEE's then base salary rate; if termination before
May 15, 1997: six months' salary at EMPLOYEE's then base salary rate, plus
salary at $225,000 per annum through May 14, 1997. "Cause" shall be defined to
mean:
(a) Death;
(b) Voluntary resignation (other than because of a material breach by
EMPLOYER of its obligations under this Agreement or reassignment of EMPLOYEE to
a location outside San Diego County);
(c) EMPLOYEE's repudiation of this Agreement;
(d) permanent disability (defined as EMPLOYEE's inability to perform,
with or without reasonable accommodation, the essential functions of his
position for any 50 business days -- exclusive of vacation days taken -- within
any continuous period of 200 days by reason of physical or mental illness or
incapacity);
(e) EMPLOYEE being formally charged with the commission of a felony, or
being convicted of a misdemeanor involving moral turpitude;
(f) EMPLOYEE's demonstrable fraud or dishonesty;
(g) EMPLOYEE's use of alcohol, drugs or any illegal substance in such a
manner as to interfere with the performance of his duties under this Agreement;
(h) EMPLOYEE's intentional, reckless or grossly negligent action
materially detrimental to the best interest of the EMPLOYER, including any
misappropriation or unauthorized use of EMPLOYER's property or improper use or
disclosure of confidential information (but excluding any good faith exercise of
business judgment);
<PAGE>
(i) EMPLOYEE's intentional failure to perform material duties under this
Agreement if such failure has continued for 15 days after EMPLOYEE has been
notified in writing by EMPLOYER of the nature of EMPLOYEE's failure to perform;
or
(j) EMPLOYEE's chronic absence from work for reasons other than illness
or permitted vacation.
Termination for cause shall be without prejudice to any other right or
remedy to which EMPLOYER may be entitled at law, in equity, or under this
Agreement.
ARTICLE 7
---------
ARBITRATION
-----------
7.1 Final and Binding Arbitration. Any controversy, claim or dispute between
-----------------------------
(a) a party to this Agreement, on the one hand, and (b) the other party to this
Agreement and/or such second party's parents, subsidiaries or affiliates and/or
any of their directors, officers, employees, agents, successors, assigns, heirs,
executors, administrators, or legal representatives, on the other hand, arising
out of, in connection with, or in relation to (t) the interpretation, validity,
performance or breach of this Agreement, (u) EMPLOYEE's stock options and the
underlying shares, (v) EMPLOYEE's employment by EMPLOYER, (w) any termination of
such employment, (x) any actions during or with respect to EMPLOYEE's work for
EMPLOYER, (y) any claims for breach of contract, tort, or breach of the covenant
of good faith and fair dealing, or (z) any claims of discrimination or other
claims under any federal, state or local law or regulation now in existence or
hereinafter enacted and as amended from time to time concerning in any way the
subject of EMPLOYEE's employment with EMPLOYER or its termination, shall, at the
request of either party, be resolved to the exclusion of a court of law by
binding arbitration in San Diego, California, in accordance with the Employment
Dispute Resolution Arbitration Rules of the American Arbitration Association
then in effect as expressly modified by Exhibit A hereto (but nonetheless the
arbitration itself shall not be conducted under the auspices of such Association
unless the parties shall expressly so agree). This paragraph shall not have the
effect of diminishing the remedies to which EMPLOYEE may be due under any of
such claims, but shall merely affect the forum in which such claims are made.
Each of EMPLOYEE and EMPLOYER understands and agrees that the arbitration shall
be instead of any civil litigation and that the arbitrator's decision shall be
final and binding to the fullest extent permitted by law and enforceable by any
court having jurisdiction thereof. The only claims not covered by this Section
---
7.1 are claims for benefits under the workers' compensation laws or claims for
unemployment insurance benefits, which will be resolved pursuant to those laws.
<PAGE>
ARTICLE 8
---------
GENERAL PROVISIONS
------------------
8.1 Governing Law. This Agreement and the rights of the parties thereunder
-------------
shall be governed by and interpreted under California law.
8.2 Assignment. EMPLOYEE may not delegate, assign, pledge or encumber his
----------
rights or obligations under this Agreement or any part thereof.
8.3 Notice. Any notice required or permitted to be given under this
------
Agreement shall be sufficient if it is in writing and is sent by registered or
certified mail, postage prepaid, or personally delivered, to the following
addresses, or to such other addresses as either party shall specify by giving
notice under this section:
<TABLE>
<C> <S>
TO EMPLOYER: Chairman, Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
Copy to: Hayden J. Trubitt
Brobeck, Phleger & Harrison
550 West C Street, Suite 1300
San Diego, CA 92101
TO EMPLOYEE: Kenneth M. Cohen
895 La Jolla Corona Court
La Jolla, CA 92037
</TABLE>
8.4 Amendment. This Agreement may be waived, amended or supplemented
---------
only by an express writing signed by both of the parties hereto. To be valid,
EMPLOYER's signature must be by a person specially authorized by EMPLOYER's
Board of Directors to sign such particular document.
8.5 Waiver. No waiver of any provision of this Agreement shall be
------
binding unless and until set forth expressly in writing and signed by the
waiving party. To be valid, EMPLOYER's signature must be by a person specially
authorized by EMPLOYER's Board of Directors to sign such particular document.
The waiver by either party of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any preceding or succeeding breach of
the same or any other term or provision, or a waiver of any contemporaneous
breach of any other term or provision, or a continuing waiver of the same or any
other term or provision. No failure or delay by a party in exercising any
right, power, or privilege hereunder or other conduct by a party shall operate
as a waiver thereof, in the particular case or in any past or future case, and
no single or partial exercise thereof shall preclude the full exercise or
further exercise of any right, power, or privilege. No action taken pursuant to
this Agreement
<PAGE>
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein.
8.6 Severability. All provisions contained herein are severable and
------------
in the event that any of them shall be held to be to any extent invalid or
otherwise unenforceable by any court of competent jurisdiction, such provision
shall be construed as if it were written so as to effectuate to the greatest
possible extent the parties' expressed intent; and in every case the remainder
of this Agreement shall not be affected thereby and shall remain valid and
enforceable, as if such affected provision were not contained herein.
8.7 Headings. Article and section headings are inserted herein for
--------
convenience of reference only and in no way are to be construed to define, limit
or affect the construction or interpretation of the terms of this Agreement.
8.8 Drafting Party. The provisions of this Agreement have been
--------------
prepared, examined, negotiated and revised by each party hereto, and no
implication shall be drawn and no provision shall be construed against either
party by virtue of the purported identity of the drafter of this Agreement, or
any portion thereof.
8.9 No Outside Representations. No representation, warranty, condition,
--------------------------
promise, understanding or agreement of any kind with respect to the subject
matter hereof has been made by either party, nor shall any such be relied upon
by either party, except those contained herein. There were no inducements to
enter into this Agreement, except for what is expressly set forth in this
Agreement.
8.10 Entire Agreement. This Agreement, together with EMPLOYER's
----------------
standard Proprietary Information and Inventions Agreement, constitutes the
entire agreement between the parties pertaining to the subject matter hereof and
completely supersedes all prior or contemporaneous agreements, understandings,
arrangements, commitments, negotiations and discussions of the parties, whether
oral or written (all of which shall have no substantive significance or
evidentiary effect). Each party acknowledges, represents and warrants that he
or it has not relied on any representation, agreement, understanding,
arrangement or commitment which has not been expressly set forth in this
Agreement. Each party acknowledges, represents and warrants that this Agreement
is fully integrated and not in need of parol evidence in order to reflect the
intentions of the parties. The parties specifically intend that the literal
words of this Agreement shall, alone, conclusively determine all questions
concerning the parties' intent.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Employment Agreement in San Diego, California as of the date first written
above.
SYNBIOTICS CORPORATION
By:
------------------------------------------------
Donald E. Phillips, Chairman
------------------------------------------------
KENNETH M. COHEN
Attachment: Exhibit A (Special Arbitration Procedures)
<PAGE>
EXHIBIT A
---------
SPECIAL ARBITRATION PROCEDURES
------------------------------
1. Establishment of Forum. Arbitration shall be initiated by one party
----------------------
sending to the other a Notice of Arbitration, by registered or certified United
States mail, which notice must contain a description of the dispute, the amount
involved, and the remedy sought. Unless the parties agree on one arbitrator
within ten days thereafter, a sole arbitrator shall be designated by the
American Arbitration Association. The arbitration shall be held within 90 days
after the mailing of the initiating notice, at a date, time and place in San
Diego, California determined (subject to this Agreement) by the arbitrator.
2. Pre-Hearing Conference. The arbitrator shall schedule a pre-hearing
----------------------
conference to reach agreement or procedural matters, arrange for the exchange of
information, obtain stipulations, and attempt to narrow the issues.
3. Discovery. The parties agree to expedite the arbitration proceedings by
---------
eliminating discovery. Instead of discovery, the parties agree to the following
exchange of information:
(a) Either party can make a written demand for lists of the witnesses to
be called or the actual documents to be introduced at the hearing. The demand
must be received prior to the pre-hearing conference.
(b) The lists and such documents must be served within fifteen days of
the demand.
(c) Except as expressly provided in this Item 3, no depositions,
interrogatories, or document production may be taken for discovery.
4. The Hearing.
-----------
(a) The parties must file briefs with the arbitrator at least three days
before the hearing, specifying the facts each intends to prove and analyzing the
applicable law.
(b) The parties have the right to representation by legal counsel
throughout the arbitration proceedings.
(c) Judicial rules of evidence and procedure relating to the conduct at
the hearing, examination of witnesses, and presentation of evidence do not
apply. Any relevant evidence, including hearsay, shall be admitted by the
arbitrator if it is the sort of evidence on which responsible persons are
accustomed to rely on in the conduct of serious affairs, regardless of the
admissibility of such evidence in a court of law.
(d) Subject to the discretion of the arbitrator, both sides at the
hearing may call and examine witnesses for relevant testimony, introduce
relevant exhibits or other documents, cross-examine or impeach witnesses who
shall have testified orally on any matter relevant to the issues, and otherwise
rebut evidence.
(e) Any party desiring a stenographic record may secure a court reporter
to attend the proceedings. The requesting party must notify the other parties
of the arrangements in advance of the hearing and must pay for the cost
incurred.
(f) Any party may request the oral evidence to be given under oath.
5. The Award.
---------
(a) The decision shall be based on the evidence introduced at the
hearing, including all logical and reasonable inferences therefrom. The
arbitrator may grant any remedy or relief which is just and equitable. The
arbitrator shall be empowered to award relief which is legal and/or equitable in
nature, as appropriate, and in accordance with any statutory provisions.
A-1
<PAGE>
(b) The award must be made in writing and signed by the arbitrator. It
shall contain a concise statement of the reasons in support of the decision.
(c) The award must be mailed promptly to the parties, but no later than
thirty (30) days from the closing of the hearing.
6. Fees and Expenses. Each party must pay its one-half share of the
-----------------
arbitrator's expenses and fees, together with other expenses of the arbitration
incurred or approved by the arbitrator. The arbitrator shall have discretion to
award, to the party he determines to be the prevailing party, its or his
attorney fees, witness fees and other such expenses incurred.
7. Special Limitations Period. EMPLOYEE shall have six months after receipt
--------------------------
of notification of termination pursuant to Article 6, or knowledge of facts
alleged to constitute some other breach of this Agreement, in which to submit a
demand for arbitration to EMPLOYER. If EMPLOYEE fails to submit a demand for
arbitration within said six month period, such failure shall constitute an
absolute bar to EMPLOYEE's institution of any arbitration proceeding (or any
other kind of proceeding or court action) thereon.
8. California Arbitration Statutes. Except to the extent expressly
-------------------------------
contradicted by this Agreement, the arbitration provisions of Section 1280 et
seq. (Part 3, Title 9) (with the exception of Section 1283.05) of the California
Code of Civil Procedure shall be fully applicable to this Agreement. For
purposes of California Code of Civil Procedure Section 1281.8 (relating to court
issuance of provisional remedies), the parties agree that in any controversy,
claim or dispute involving the protection of any intellectual property, it shall
be conclusively presumed, if a party is otherwise entitled to have a court issue
a provisional remedy, that the arbitration award to which the party may be
entitled may be rendered ineffectual without such provisional remedy.
Except for applications or other procedures to obtain provisional relief from
a court as contemplated by California Code of Civil Procedure Section 1281.8 or
any equivalent statute, if any controversy, claim or dispute within the scope of
Article 7 becomes the subject of a judicial action and, despite the other
party's request for arbitration, for any reason remains the subject of a
judicial action, all decisions of fact and law shall be determined by reference
pursuant to Section 638 et seq. (Part 2, Title 8, Chapter 6) of the California
Code of Civil Procedure. The parties shall designate to the court as referee a
person determined by the parties in accordance with the provisions established
for the selection of an arbitrator pursuant to this Agreement; but if an
arbitrator is already selected pursuant to this Agreement the reference shall be
to such arbitrator.
A-2
<PAGE>
EXHIBIT 10.3
------------
GENERAL RELEASE AND SEVERANCE AGREEMENT
---------------------------------------
This General Release and Severance Agreement (hereinafter "Agreement") is
made and entered into in San Diego, California by and between Robert L.
Widerkehr (hereinafter "EMPLOYEE") and Synbiotics Corporation (hereinafter
"EMPLOYER") as of July 31, 1996. (EMPLOYEE and EMPLOYER are sometimes
hereinafter referred to collectively as the "Parties.")
RECITALS
--------
A. EMPLOYEE was for a period of time an employee of EMPLOYER;
B. EMPLOYEE's employment with EMPLOYER terminated July 31, 1996;
C. EMPLOYEE and EMPLOYER wish to resolve permanently and amicably any and
all disputes arising or which may ever arise out of EMPLOYEE's employment with
EMPLOYER.
NOW, THEREFORE, for and in consideration of the mutual agreements contained
in the following paragraphs, EMPLOYER and EMPLOYEE agree as follows:
9. Standard Benefits. EMPLOYER agrees to provide the following to EMPLOYEE:
-----------------
a. Accrued salary through July 31, 1996, less applicable tax
withholding.
b. Pay for accrued but unused vacation through July 31, 1996, in
accordance with and subject to EMPLOYEE's vacation accrual plan and policies,
amounting to $27,446 (310.68 hours of accrued but unused vacation) less
applicable tax withholding.
c. Reimbursement for all reasonable out-of-pocket business expenses
incurred by EMPLOYEE in the course of his duties through July 31, 1996, upon
submission by EMPLOYEE of appropriate expense account reports and substantiating
receipts.
d. COBRA benefits as required by law.
10. Additional Benefits. EMPLOYER agrees to provide the following additional
-------------------
benefits to EMPLOYEE, which the Parties acknowledge EMPLOYEE would not be
entitled to receive but for this Agreement, in consideration for this Agreement:
a. All of EMPLOYEE's EMPLOYER stock options shall become fully vested as
of July 31, 1996, and shall remain exercisable until July 31, 1999.
b. In respect of all obligations under EMPLOYER's management cash bonus
plan for 1996, EMPLOYER shall pay EMPLOYEE on February 28, 1997 the product of
$183,750 times 40% times 7/12 times the percentage of their maximum bonus which
EMPLOYER's other managers receive under such plan for 1996 (less applicable tax
withholding).
c. EMPLOYER shall pay EMPLOYEE an additional $30,000 (less applicable
tax withholding) on February 28, 1997.
d. EMPLOYER shall pay EMPLOYEE an additional $5,104.17 (less applicable
tax withholding) on the 15th day of each calendar month from August 1996 through
July 1999.
<PAGE>
e. EMPLOYER shall procure and pay for the period of August 1, 1996
through July 31, 1997 all premiums on a term life insurance policy on and in the
name of EMPLOYEE with a face value of $250,000. EMPLOYEE shall be the owner of
this term life insurance policy and shall have the sole right to designate the
beneficiary or beneficiaries thereof in his complete discretion.
11. Definition of "Claims". For purposes of this Agreement, "Claims" shall
----------------------
mean any and all manner of action or actions, cause or causes of action, in law
or in equity, suits, debts, liens, contracts, agreements, promises, liabilities,
claims, demands, losses, settlements, judgments, costs, or expenses of any
nature whatsoever, whether known or unknown, fixed or contingent, which
heretofore have existed or now exist or may in the future exist; provided,
however, that "Claims" shall not include EMPLOYEE's rights under or arising out
of this Agreement.
12. EMPLOYEE Release.
----------------
4.1 Release. EMPLOYEE, for EMPLOYEE and for EMPLOYEE's relatives,
-------
spouse, legal representatives, agents, attorneys, heirs, executors,
administrators, assigns and affiliates, past and present and future, and each of
them, does hereby fully and forever release and discharge EMPLOYER and each of
EMPLOYER's present and former shareholders, parents, subsidiaries, related
entities, predecessors, successors, officers, directors, employees, agents,
attorneys, partners, affiliates and assigns (collectively with EMPLOYER, the
"Primary EMPLOYER Releasees"), and each of them, and the Primary EMPLOYER
Releasees' spouses, relatives, heirs, executors, administrators, legal
representatives, officers, directors, employees, agents, attorneys,
predecessors, successors, assigns, shareholders, partners, parents,
subsidiaries, related entities and affiliates, past and present, and all persons
acting by, through, under, or in concert with them, or any of them
(collectively, together with the Primary EMPLOYER Releasees, the "EMPLOYER
Releasees"), with respect to any and all Claims which EMPLOYEE now has or may
hereafter have against the EMPLOYER Releasees, or any of them, by reason of any
matter, cause or thing whatsoever from the beginning of time to the date hereof.
(It is expressly agreed that EMPLOYEE's rights under the agreements expressly
identified in Section 9 as not being superseded are not released hereunder.)
The Parties specifically understand, acknowledge and agree that this is a full
and final release, applying to all of EMPLOYEE's Claims, whether known or
unknown, against the EMPLOYER Releasees, or any of them. EMPLOYEE understands
and agrees that EMPLOYEE is waiving any rights EMPLOYEE may have had, now has,
or in the future may have to pursue any and all remedies available to EMPLOYEE
under (among other things) any employment-related causes of action, including
without limitation, claims of wrongful discharge, breach of contract, claims
under Title VII of the 1964 Civil Rights Act, as amended, the California Fair
Employment and Housing Act, the Equal Pay Act of 1963, California Labor Code
Section 1197.5, the Age Discrimination in Employment Act of 1967, the Civil
Rights Act of 1866, the Americans with Disabilities Act, and any other laws and
regulations relating to employment or employment discrimination. EMPLOYEE
hereby expressly and voluntarily waives all rights or benefits that EMPLOYEE
might otherwise have under the provisions of Section 1542 of the Civil Code of
the State of California, which provides as follows, and under all federal, state
and/or common-law statutes or principles of similar effect:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
This Agreement is in full accord, satisfaction and discharge of all of
EMPLOYEE's Claims against the EMPLOYER Releasees, or any of them. This
Agreement has been executed with the express intention of effectuating the full
and final extinguishment of all such Claims.
4.2 No Suit or Cooperation. EMPLOYEE represents, warrants, covenants and
----------------------
agrees that EMPLOYEE will not, at any time hereafter, initiate, assign, maintain
or prosecute, or knowingly aid in the initiation, assignment, maintenance or
prosecution of any action, claim, demand or cause of action against the EMPLOYER
Releasees, or any of them (or against any other person or entity, if such
action, claim, demand or cause of action materially adversely affects or might
materially adversely affect EMPLOYER), arising from, or relating to, or in any
way connected with any Claim with respect to which EMPLOYEE has released the
EMPLOYER Releasees pursuant to this Agreement. EMPLOYEE further represents and
warrants that neither EMPLOYEE nor EMPLOYEE's relatives, spouse, legal
representatives, agents, attorneys, assigns or affiliates, past or present, has
instituted any action or claim against the EMPLOYER Releasees, or any of them,
with respect to any matter. EMPLOYEE
2
<PAGE>
agrees that if EMPLOYEE violates this Section 4.2 in any manner or in any manner
asserts against the EMPLOYER Releasees, or any of them, any of the Claims
released hereunder, then EMPLOYEE will pay to the EMPLOYER Releasees, and each
of them, in addition to any other damages caused to the EMPLOYER Releasees
thereby, all attorneys' fees incurred by the EMPLOYER Releasees in defending or
otherwise responding to said action, etc. or Claim.
4.3 No Prior Assignments. EMPLOYEE represents and warrants that there
--------------------
has been no assignment or other transfer of any interest in any Claim which
EMPLOYEE may have against the EMPLOYER Releasees, or any of them, and EMPLOYEE
agrees to defend, indemnify and hold the EMPLOYER Releasees, and each of them,
harmless from any liability, claims, demands, damages, costs, expenses and
attorneys' fees incurred by the EMPLOYER Releasees, or any of them, as a result
of any person asserting any such assignment or transfer. It is the intention of
the Parties that this indemnity does not require payment as a condition
precedent to recovery by the EMPLOYER Releasees under the indemnity, and that
this indemnity shall be payable as incurred and on demand.
4.4 Denial of Liability and Obligation. This Agreement is not intended
----------------------------------
to and shall not constitute any admission or concession of any kind by EMPLOYER
or any other person as to the existence of any liability or obligation to
EMPLOYEE under any Claim. The EMPLOYER Releasees specifically deny the
existence of any such liability or obligation to EMPLOYEE.
13. Full Defense. It is specifically understood and agreed that this
------------
Agreement may be pleaded as a full and complete defense to and may be used as
the basis for an injunction against any action, arbitration, suit, or other
proceeding which may be instituted, prosecuted or attempted in breach of this
Agreement.
14. Assumption of Risk as to Facts. The Parties both understand that if the
------------------------------
facts with respect to which they are executing this Agreement are later found to
be other than or different from the facts both or either of them now believe to
be true, they expressly accept and assume the risk of such possible difference
in fact and agree that this Agreement shall remain effective despite any
difference of fact.
15. No Outside Representations. No representation, warranty, condition,
--------------------------
promise, understanding or agreement of any kind with respect to the subject
matter hereof has been made by any Party, nor shall any such be relied upon by
any Party, except those contained herein. There were no inducements to enter
into this Agreement, except for what is expressly set forth in this Agreement.
16. Benefit. This Agreement shall inure to the benefit of and be binding
-------
upon the Parties and the Parties' respective spouse, agents, relatives,
employees, officers, directors, shareholders, parents, subsidiaries, related
entities, affiliates, attorneys, partners, legal representatives, heirs,
executors, administrators, successors and assigns.
17. Entire Agreement. This Agreement represents and contains the entire
----------------
agreement and understanding between the Parties with respect to the subject
matter of this Agreement (which is deemed to include, without limitation,
EMPLOYEE's employment with EMPLOYER, all rights and benefits in connection
therewith, all written or oral contracts relating thereto, and all matters
relating to the cessation or termination of such employment), and completely
supersedes any and all prior or contemporaneous agreements, understandings,
arrangements, commitments, negotiations and discussions of the Parties, whether
oral or written (all of which shall have no substantive significance or
evidentiary effect); provided, that the Parties hereby confirm that this
Agreement does not in any way supersede the Indemnification Agreement dated
---
November 27, 1991 between EMPLOYER and EMPLOYEE and the proprietary information
and inventions Agreement dated June 13, 1991 between EMPLOYER and EMPLOYEE.
Each Party acknowledges, represents and warrants that he or it has not relied on
any representation, agreement, understanding, arrangement or commitment which
has not been expressly set forth in this Agreement. Each Party acknowledges,
represents and warrants that this Agreement is fully integrated and not in need
of parol evidence in order to reflect the intentions of the Parties. The
Parties specifically intend that the literal words of this Agreement shall,
alone, conclusively determine all questions concerning the Parties' intent.
This Agreement may not be amended or modified or waived except by an agreement
signed by both Parties.
3
<PAGE>
18. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, and all of which together shall be deemed one
and the same instrument.
19. California Law. This Agreement is made pursuant to, and shall be
--------------
governed by, the internal laws of the State of California.
20. Waiver. No waiver of any provision of this Agreement shall be binding
------
unless and until set forth expressly in writing and signed by the waiving Party.
The waiver by any Party of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any preceding or succeeding breach of the
same or any other term or provision, or a waiver of any contemporaneous breach
of any other term or provision, or a continuing waiver of the same or any other
term or provision. No failure or delay by a Party in exercising any right,
power, or privilege hereunder or other conduct by a Party shall operate as a
waiver thereof, in the particular case or in any past or future case, and no
single or partial exercise thereof shall preclude the full exercise or further
exercise of any right, power, or privilege. No action taken pursuant to this
Agreement shall be deemed to constitute a waiver by the Party taking such action
of compliance with any representations, warranties, covenants or agreements
contained herein.
21. Severability. All provisions contained herein are severable and in the
------------
event that any of them shall be held to be to any extent invalid or otherwise
unenforceable by any court of competent jurisdiction, such provision shall be
construed as if it were written so as to effectuate to the greatest possible
extent the Parties' expressed intent; and in every case the remainder of this
Agreement shall not be affected thereby and shall remain valid and enforceable,
as if such affected provision were not contained herein.
22. Headings. Section headings are inserted herein for convenience of
--------
reference only and in no way are to be construed to define, limit or affect the
construction or interpretation of the terms of this Agreement.
23. Drafting Party. The provisions of this Agreement have been prepared,
--------------
examined, negotiated and revised by each Party hereto. No implication shall be
drawn and no provision shall be construed against any Party by virtue of the
purported identity of the drafter of this Agreement, or any portion thereof.
24. Tax Consequences. EMPLOYER shall have no obligation to EMPLOYEE with
----------------
respect to any tax obligations incurred as the result of or attributable to this
Agreement or arising from any payments made or to be made hereunder. Any
payments made pursuant to this Agreement shall be subject to such withholding
and reports as may be required by any then-applicable laws or regulations of any
state or federal taxing authority.
25. Survival of Agreement. The obligations of EMPLOYER in this Agreement
---------------------
shall not be terminated by reason of any liquidation, dissolution, bankruptcy,
cessation of business or similar event involving EMPLOYER. Nor shall this
Agreement be terminated by any merger, consolidation or other reorganization of
EMPLOYER. In the event any such merger, consolidation or reorganization shall
be accomplished by a transfer of stock, assets or otherwise, the obligations of
EMPLOYER in this Agreement shall be binding upon the transferee and inure to the
benefit of the surviving or resulting company or person.
26. No Coercion. EMPLOYEE acknowledges that EMPLOYEE was given at least
-----------
twenty-one (21) days before the signing of this Agreement in which to consider
this Agreement (including EMPLOYEE's waivers made in this Agreement). EMPLOYEE
acknowledges that EMPLOYEE has read and understands this Agreement, and that
EMPLOYEE has been encouraged to and has had the opportunity to consult an
attorney and obtain independent legal advice regarding this Agreement, and has
in fact retained attorneys and received such consultation and advice in
connection with this Agreement. EMPLOYEE has not been coerced into signing this
Agreement and is entering into this Agreement voluntarily and of EMPLOYEE's own
free will. EMPLOYEE further acknowledges that the waivers EMPLOYEE has made in
this Agreement are knowing, conscious and voluntary and are made with full
appreciation that EMPLOYEE is forever foreclosed from pursuing any of the rights
so waived.
27. Temporary Right to Revoke. EMPLOYEE understands that for a period of
-------------------------
seven (7) days after signing this Agreement EMPLOYEE has the right to revoke it
and that this Agreement shall not become effective or enforceable until after
those seven (7) days.
4
<PAGE>
28. Resignation. EMPLOYEE hereby resigns as a Director of EMPLOYER and from
-----------
all positions as an officer of EMPLOYER.
IN WITNESS WHEREOF, the Parties have executed and delivered this General
Release and Severance Agreement on and as of July 31, 1996.
-------------------------------------
ROBERT L. WIDERKEHR
SYNBIOTICS CORPORATION
By:
- ------------------ ----------------------------------
Donald E. Phillips, Chairman
5
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF PRICE WATERHOUSE LLP
-------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Synbiotics Corporation of our report dated
February 15, 1996 relating to the financial statements of Synbiotics
Corporation, which appears in such Prospectus. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
San Diego, California
August 15, 1996
6
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF COOPERS & LYBRAND L.L.P.
-----------------------------------
We hereby consent to the inclusion in this registration statement on Form S-4 of
our report dated August 7, 1996 which includes an explanatory paragraph
regarding the Company's ability to continue as a going concern), on our audits
of the financial statements of International Canine Genetics, Inc. We also
consent to the refernece to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
August 14, 1996
1
<PAGE>
EXHIBIT 24.1
- ------------
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, County of San
Diego, State of California, on _______________, 1996.
SYNBIOTICS CORPORATION
By:
-----------------------------------------
Kenneth M. Cohen
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth M. Cohen and Michael K. Green, or either
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any registration statement
related to this Registration Statement and filed pursuant to Rule 462 under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
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>
Chief Executive Officer __________, 1996
- --------------------- (Principal Executive Officer)
Kenneth M. Cohen
Vice President--Finance and __________, 1996
- --------------------- Chief Financial Officer
Michael K. Green (Principal Financial Officer)
- --------------------- Corporate Controller and __________, 1996
Chief
Keith A. Butler Accounting Officer
Chairman of the Board __________, 1996
- ---------------------
Donald E. Phillips
Director __________, 1996
- ---------------------
Patrick Owen Burns
Director __________, 1996
- ---------------------
James C. DeCesare
Director __________, 1996
- ---------------------
M. Blake Ingle
Director __________, 1996
- ---------------------
Robert J. Kunze
</TABLE>
