<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11303
SYNBIOTICS CORPORATION
(Exact name of small business issuer as specified in its charter)
California 95-3737816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11011 Via Frontera
San Diego, California 92127
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (619) 451-3771
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
As of October 31, 1997, 8,184,803 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes [_] No [X]
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<PAGE>
SYNBIOTICS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Operations - Three and
nine months ended September 30, 1997 and 1996 2
Condensed Consolidated Balance Sheet - September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statement of Cash Flows - Nine months
ended September 30, 1997 and 1996 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 9
Part II - Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
Synbiotics Corporation
Condensed Consolidated Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $6,146,000 $3,747,000 $17,929,000 $14,598,000
Cost of sales 3,387,000 2,285,000 9,648,000 7,620,000
---------- ---------- ----------- -----------
Gross Profit 2,759,000 1,462,000 8,281,000 6,978,000
---------- ---------- ----------- -----------
Operating expenses:
Research and development 541,000 261,000 1,154,000 721,000
Selling and marketing 1,058,000 961,000 3,382,000 3,320,000
General and administrative 774,000 794,000 2,138,000 1,649,000
---------- ---------- ----------- -----------
2,373,000 2,016,000 6,674,000 5,690,000
---------- ---------- ----------- -----------
Income (loss) from operations 386,000 (554,000) 1,607,000 1,288,000
Other income (expense):
License fees and other 79,000 77,000 234,000 307,000
Interest, net (324,000) 77,000 (218,000) 132,000
Gain on sale of securities
available for sale 1,159,000
---------- ---------- ----------- -----------
Income (loss) before income
taxes 141,000 (400,000) 1,623,000 2,886,000
Provision (benefit) for
income taxes 261,000 (5,000) 898,000 113,000
---------- ---------- ----------- -----------
Net income (loss) $ (120,000) $ (395,000) $ 725,000 $ 2,773,000
========== ========== =========== ===========
Net income (loss) per share $ (.02) $ (.07) $ .09 $ .46
========== ========== =========== ===========
Weighted average shares
outstanding 7,790,000 6,000,000 7,759,000 6,013,000
========== ========== =========== ===========
</TABLE>
Net income (loss) per share was computed based upon the weighted average
number of shares outstanding, including common stock equivalents.
See accompanying notes to condensed financial statements.
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<PAGE>
Item 1. Financial Statements (continued)
--------------------
Synbiotics Corporation
Condensed Consolidated Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(unaudited) (audited)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 3,032,000 $ 3,050,000
Securities available for sale 3,060,000 2,872,000
Accounts receivable 3,281,000 1,363,000
Inventories 5,592,000 5,213,000
Deferred tax assets 372,000 1,045,000
Other current assets 1,323,000 1,353,000
----------- -----------
Total current assets 16,660,000 14,896,000
Property and equipment, net 914,000 656,000
Goodwill 15,648,000 5,347,000
Deferred tax assets 6,323,000 6,113,000
Other assets 1,480,000 1,555,000
----------- -----------
$41,025,000 $28,567,000
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 3,305,000 $ 2,241,000
Current portion of long-term debt 1,000,000
Income taxes payable 276,000
Other current liabilities 650,000
----------- -----------
Total current liabilities 4,581,000 2,891,000
----------- -----------
Long-term debt 7,029,000
----------- -----------
Mandatorily redeemable common stock 2,754,000
----------- -----------
Non-mandatorily redeemable common stock and
other shareholders' equity:
Common stock, no par value, 24,800,000 shares
authorized, 7,426,000 and 7,392,000 shares
issued and outstanding at September 30, 1997
and December 31, 1996, respectively 35,613,000 35,566,000
Common stock warrants 1,003,000
Cumulative translation adjustment (753,000)
Accumulated deficit (9,202,000) (9,890,000)
----------- -----------
Total non-mandatorily redeemable common
stock and other shareholders' equity 26,661,000 25,676,000
----------- -----------
$41,025,000 $28,567,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE>
Item 1. Financial Statements (continued)
--------------------
Synbiotics Corporation
Condensed Consolidated Statement of Cash Flows (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 725,000 $ 2,773,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,056,000 599,000
Gain on sale of securities available for sale (1,159,000)
Changes in assets and liabilities:
Accounts receivable (1,918,000) (633,000)
Inventories (379,000) (1,658,000)
Deferred taxes 463,000
Other assets (8,175,000) (192,000)
Accounts payable and accrued expenses 1,064,000 514,000
Income taxes payable 276,000
Other liabilities (650,000) (38,000)
----------- -----------
Net cash (used for) provided by operating activities (7,538,000) 206,000
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (420,000) (96,000)
Investment in securities available for sale (188,000) (3,940,000)
Proceeds from sale of securities available for sale 4,727,000
----------- -----------
Net cash (used for) provided by investing activities (608,000) 691,000
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net 10,775,000
Payments of long-term debt (1,743,000)
Proceeds from issuance of common stock, net (151,000) (25,000)
----------- -----------
Net cash provided by (used for) financing activities 8,881,000 (25,000)
----------- -----------
Net increase in cash and equivalents 735,000 872,000
Effect of exchange rate changes on cash (753,000)
Cash and equivalents - beginning of year 3,050,000 1,017,000
----------- -----------
Cash and equivalents - end of period $ 3,032,000 $ 1,889,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE>
Item 1. Financial Statements (continued)
--------------------
SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
Note 1 - Interim Financial Statements:
The accompanying consolidated balance sheet as of September 30, 1997 and the
consolidated statements of operations and of cash flows for the nine month
periods ended September 30, 1997 and 1996 have been prepared by Synbiotics
Corporation (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 notes thereto included in the Company's Annual Report
on Form 10-KSB filed for the year ended December 31, 1996. Interim operating
results are not necessarily indicative of operating results for the full year.
Note 2 - Acquisition:
On July 9, 1997 the Company acquired the worldwide veterinary diagnostic
business of Rhone Merieux S.A.S. ("RMD") pursuant to purchase agreements dated
May 14, 1997 and amended July 9, 1997. The consideration paid to Rhone Merieux
was $10,659,000 in cash and 759,000 shares of newly issued, unregistered
Synbiotics common stock valued at $3,178,000 (based upon the closing price of
Synbiotics' Common Stock on July 9, 1997 which was $4.1875 per share) (Note 6).
The shares issued by the Company include 230,000 shares which have been placed
in escrow pending certain U.S. regulatory approvals and subsequent sales of
related products. The cash portion of the consideration was provided by a series
of loans obtained from Banque Paribas (Note 5). Depending on performance of the
combined business in the three years following the acquisition, Synbiotics may
also pay up to $3,600,000 in contingent cash payments. The transaction was
accounted for as a purchase. Goodwill arising from the transaction totalled
$10,604,000 which is being amortized over an estimated useful life of 15 years
utilizing the straight-line method. $3,918,000 of the purchase price is
considered a non-cash financing activity for purposes of the statement of cash
flows.
Rhone Merieux and Synbiotics also entered into related agreements covering the
supply of various products and services, collaborative research and development,
licenses of Rhone Merieux patents, and the distribution of certain of the
acquired products by Rhone Merieux. The collaborative research agreement gives
Synbiotics a right of first refusal to acquire technology or products emanating
from Rhone Merieux's future research efforts that have potential veterinary
diagnostic applications.
The Company's condensed consolidated statement of operations include the results
of operations related to RMD for the period July 9, 1997 to September 30, 1997.
The following are unaudited pro forma results of operations as if the
transaction had been consummated on January 1, 1996:
-5-
<PAGE>
Item 1. Financial Statements (continued)
--------------------
SYNBIOTICS CORPORATION
Notes to Condensed Financial Statements (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
Three Months Ended September 30,
September 30, --------------------------
1996 1997 1996
------------------ ----------- -----------
<S> <C> <C> <C>
Net Sales:
As reported $3,747,000 $17,929,000 $14,598,000
========== =========== ===========
Pro forma $4,217,000 $19,339,000 $16,008,000
========== =========== ===========
Net income (loss):
As reported $(395,000) $ 725,000 $ 2,773,000
========== =========== ===========
Pro forma $(370,000) $ 800,000 $ 2,848,000
========== =========== ===========
Net income (loss) per share:
As reported $ (.07) $ .09 $ .46
========== =========== ===========
Pro forma $ (.06) $ .10 $ .45
========== =========== ===========
</TABLE>
Note 3 - Securities Available for Sale:
Included in current assets are securities available for sale which consist
primarily of short-term commercial paper and U.S. Government Treasury
securities.
Note 4 - Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials $4,391,000 $1,970,000
Work in process 13,000 8,000
Finished goods 1,188,000 3,235,000
---------- ----------
$5,592,000 $5,213,000
========== ==========
</TABLE>
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<PAGE>
Item 1. Financial Statements (continued)
--------------------
SYNBIOTICS CORPORATION
Notes to Condensed Financial Statements (unaudited)
- --------------------------------------------------------------------------------
Note 5 - Long-Term Debt:
In conjunction with the acquisition of RMD (Note 2), the Company obtained a
series of loans from Banque Paribas as follows: 1) $5,000,000, due May 31, 2002,
bearing interest at the rate of prime plus .75% (effectively 9.25% at September
30, 1997), payable quarterly beginning August 31, 1997 in the amount of $250,000
of principal plus accrued interest, and secured by substantially all of the
Company's assets; and 2) $5,000,000, due May 31, 2003, bearing interest at the
rate of prime plus 1.25% (effectively 9.75% at September 30, 1997), interest
only payable quarterly beginning August 31, 1997, and secured by
substantially all of the Company's assets.
In addition, the Company also obtained a revolving line of credit from Banque
Paribas whereby the Company may borrow up to $5,000,000 as determined by a
borrowing base calculation. The line of credit bears interest at the rate of
prime plus .75% (effectively 9.25% at September 30, 1997), with interest only
payments to be made quarterly beginning August 31, 1997. Any outstanding
principal is due May 31, 2002, although a portion of the outstanding principal
may become due and payable as determined by a monthly borrowing base
calculation. There were no borrowings outstanding under the line of credit at
September 30, 1997.
Principal payments scheduled during the next five years and thereafter are as
follows: 1997- $250,000, 1998 -$1,000,000, 1999 - $1,000,000, 2000 - $1,000,000,
2001 - $1,000,000, 2002 - $500,000, 2003 - $5,000,000.
Note 6 - Mandatorily Redeemable Common Stock:
The 759,000 shares issued in conjunction with the acquisition of RMD (Note 2)
are subject to certain registration rights as well as put and call
provisions. The put option gives Rhone Merieux the right, beginning on July 9,
2001, to sell all or any portion of its shares to the Company at a price of $5
per share. The call option gives the Company the right to acquire, at any time,
all or any portion of the shares then owned by Rhone Merieux at a per share
price of the greater of the average closing sale price of the Company's common
stock for the 30 day period prior to the call or $5. Should the Company
exercise its call option prior to July 9, 2001 at a call option price greater
than $5 per share, the agreement requires the difference between the per share
call option price and $5 to be shared by the Company and Rhone Merieux on a
sliding scale basis. In addition, should Rhone Merieux sell all or any portion
of the shares to a third party prior to July 9, 2001 at a price greater than $5
per share, the agreement requires the difference between the per share sales
price and $5 to be shared by the Company and Rhone Merieux on a sliding scale
basis. The Company has classified the shares on the balance sheet as
mandatorily redeemable and is accreting the value of the shares to the put
option price, using the interest method, with the accretion being charged
directly to retained earnings.
Note 7 - Common Stock Warrants:
In conjunction with the acquisition of RMD (Note 2), the Company issued to
Banque Paribas a warrant to purchase 240,000 unregistered shares of the
Company's common stock at an exercise price of $.01 per share. The warrant is
exercisable at any time through May 31, 2007 and contains certain anti-dilution
provisions and registration rights. The Company has valued the warrant at
$1,003,000 using the Black-Scholes option pricing model with the following
-7-
<PAGE>
Item 1. Financial Statements (continued)
--------------------
SYNBIOTICS CORPORATION
Notes to Condensed Financial Statements (unaudited)
- --------------------------------------------------------------------------------
weighted-average assumptions: dividend yield of 0%; expected volatility of
57.8%; risk-free interest rate of 6.52%; and expected life of 10 years.
Note 8 - Earnings per Share:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS
128, which applies to entities with publicly held common stock or potential
common stock, establishes standards for computing and presenting earnings per
share ("EPS"), simplifies the standards for computing EPS previously found in
Accounting Principles Board ("APB") Opinion No. 15 and makes EPS comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the statement of operations for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB 15.
The following are unaudited pro forma EPS for the three and nine month periods
ended September 30, 1997 and 1996 assuming that SFAS 128 were in effect as of
January 1, 1996:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
As reported:
Primary EPS $(.02) $(.07) $ .09 $ .46
===== ===== ===== =====
Pro forma:
Basic EPS $(.02) $(.07) $ .09 $ .47
===== ===== ===== =====
Diluted EPS $(.02) $(.07) $ .09 $ .45
===== ===== ===== =====
</TABLE>
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<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
The information contained in this Management's Discussion and Analysis or Plan
of Operation contains both historical financial information and forward-looking
statements. Synbiotics does not provide forecasts of future financial
performance. While management is optimistic about the Company's long-term
prospects, the historical financial information may not be indicative of future
financial performance. In fact, future financial performance may be materially
different than the historical financial information presented herein. Moreover,
the forward-looking statements about future business or future results of
operations are subject to significant uncertainties and risks, which could cause
actual future results to differ materially from what is suggested by the
forward-looking information. The following risk factors should be considered in
evaluating the Company's future financial performance:
Patent Litigation Involving the Company's Canine Heartworm Diagnostic Products
- ------------------------------------------------------------------------------
Barnes-Jewish Hospital of St. Louis (the "Hospital") has filed a lawsuit against
the Company claiming that the Company infringes a patent owned by the Hospital
(see Part II, Item 1) and is seeking unspecified damages. As previously reported
by Synbiotics, the Hospital is the owner of a patent which the Hospital alleges
covers the Company's canine heartworm diagnostic products. The Company is also
the owner of several patents which cover its canine heartworm diagnostic
products. The Company believes that it does not infringe the Hospital's patent,
and also believes that the Hospital's patent is invalid. However, in the event
that the Company were to lose the lawsuit or enter into an unfavorable
settlement agreement, there would be a materially adverse effect on the
Company's financial condition and results of operations. In addition, patent
litigation is likely to be costly and disruptive even if the Company were to
prevail in the litigation.
The Hospital had previously sued IDEXX Laboratories, Inc., the Company's primary
competitor for canine heartworm diagnostics, for patent infringement under the
Hospital's patent; IDEXX's defense involved an assertion that the patent is
invalid. On September 28, 1997, IDEXX announced a settlement of this suit for
$5,500,000 (an undisclosed portion of which represents royalties on prior sales)
and future royalties.
No Assurance that Acquired Businesses Can Be Successfully Combined
- ------------------------------------------------------------------
There can be no assurance that the anticipated benefits of the acquisition of
the veterinary diagnostics business of Rhone Merieux S.A.S. ("RMD") (completed
in July 1997), the 1996 acquisition of the business of International Canine
Genetics, Inc. ("ICG"), or any other future acquisitions (collectively, the
"Acquired Business"') will be realized. Acquisitions of businesses involve
numerous risks, including difficulties in the assimilation of the operations,
technologies and products of the Acquired Business, introduction of different
distribution channels, potentially dilutive issuances of equity and/or increases
in leverage and risk resulting from issuances of debt securities, the need to
establish internally operating functions which had been previously provided pre-
acquisition by a corporate parent, accounting charges, operating companies in
different geographic locations with different cultures, the potential loss of
key employees of the Acquired Business, 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 acquisitions 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, unexpected expenses and accounting charges which may be
associated with the integration of the Acquired Business and Synbiotics.
Competition
- -----------
Competition in the animal health care industry is intense. Many competitors,
such as Pfizer Animal Health, Merial Limited (the successor to Rhone Merieux)
and IDEXX Laboratories, have substantially greater financial, manufacturing,
marketing and product research resources than the Company. Large companies in
particular have
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<PAGE>
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 operations or
ability to maintain or increase sales and market share.
History of Operating Losses; Accumulated Deficit
- ------------------------------------------------
Although the Company's operations were profitable in the nine month periods
ended September 30, 1997 and 1996 and for the year ended December 31, 1996, the
Company has had a history of losses. Synbiotics has incurred a consolidated
accumulated deficit of $9,202,000 at September 30, 1997, even after the release
in 1996 of a $7,158,000 valuation allowance related to deferred tax assets.
There can be no assurance that Synbiotics can generate sufficient revenue to
sustain profitability.
Reliance on Third Party Manufacturers
- -------------------------------------
Certain of Synbiotics' products (including its ICT Gold(TM) diagnostic kits and
all of its vaccines) are, and certain anticipated new products are expected to
be, manufactured by third parties under the terms of distribution and/or
manufacturing agreements. The ICT Gold(TM) products and feline leukemia virus
vaccine are licensed to Synbiotics by their respective outside manufacturers. In
the event that these third parties are unable (due to operational, licensing,
financial or other reasons) to supply Synbiotics with sufficient finished
products, Synbiotics would suffer significant disruption of its business.
Synbiotics has the right, under certain circumstances, pursuant to the
agreements to use alternate manufacturing sources. In some circumstances,
however, the Company would lack such a right.
If Synbiotics should encounter delays or difficulties in its relationships with
manufacturers, the resulting problems could have a material adverse effect on
Synbiotics.
Sales and Marketing
- -------------------
The Company's product distribution strategy results in a large percentage of
sales being to only a few customers. During the year ended December 31, 1996,
sales to two distributors totalled 37% of the Company's gross revenues. In
addition, RMD's products are presently sold through distributors. 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 of its products. To the extent
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. IDEXX Laboratories' requirement
that its distributors not carry the products of competitors such as Synbiotics
has induced certain distributors to stop doing business with Synbiotics in order
to carry IDEXX products instead. In addition, Synbiotics' sales of products, on
a private-label basis, toward the over-the-counter market may cause an adverse
reaction among Synbiotics' regular distributor and veterinarian customers.
Attraction 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.
-10-
<PAGE>
Reliance on New and Recent Products
- -----------------------------------
Synbiotics relies to a significant extent on new and recently developed
products, and expects that it will need to continue to introduce new products to
be successful in the future. 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.
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 new
products on acceptable terms, or if it should encounter delays or difficulties
in its relationships with manufacturers, the introduction of new products would
be delayed, which could have a material adverse effect on Synbiotics.
Future Capital Needs; Uncertainty of Additional Funding
- -------------------------------------------------------
The development and commercialization of Synbiotics' products requires
substantial funds. Synbiotics' future capital requirements will depend on many
factors, including cash flow from operations, the need to finance further
acquisitions, if any, continued scientific progress in its products and
development programs, the cost of manufacturing scale-up, the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims, the
cost involved in patent infringement litigation, 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 current
capital requirements and fund its current operations, although any large
acquisition would require additional capital resources. There can be no
assurance that additional financing, if required, 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. Debt
financing would result in increased leverage and risk. In July 1997 the Company
obtained $15,000,000 of debt financing from Banque Paribas, of which $11,493,000
was used in connection with the acquisition of RMD. The $15,000,000 included a
$5,000,000 revolving line of credit. However, draws on the line of credit are
subject to certain requirements and can be used only for certain purposes. If
adequate funds are not available, Synbiotics may be required, among other
things, 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.
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.
Patents and Proprietary Technology
- ----------------------------------
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 eleven 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
-11-
<PAGE>
laws of some foreign countries do not protect Synbiotics' proprietary rights in
its products to the same extent as do the laws of the United States.
The patent positions of biotechnology companies, including Synbiotics, 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 U.S. Patent
and Trademark Office 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 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. A patentholder has filed a
lawsuit asserting that the Company's key canine heartworm diagnostic tests
infringe its patent (see Part II, Item 1).
There can be no assurance that such patentholder or other third parties will not
assert other 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. Such claims could result in the award of substantial
damages. Defense of any lawsuit or failure to obtain any such license could have
a material adverse effect on Synbiotics. Finally, litigation, regardless of
outcome, could result in substantial cost to, and a diversion of efforts by,
Synbiotics.
Government Regulation
- ---------------------
Synbiotics' business is subject to substantial regulation by the United States
government. See "Business--Government Regulation" in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996, which is hereby
incorporated by reference. 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.
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. There can be no assurance that Synbiotics will meet and
sustain compliance with any such requirements.
Product Liability and Insurance
- -------------------------------
The design, development and manufacture of Synbiotics' products involve an
inherent risk of product liability claims and associated adverse publicity.
Synbiotics has obtained liability insurance for potential product liability
associated with the commercial sale of its products. There can be no assurance,
however, that Synbiotics will be able to obtain or maintain such insurance.
Although Synbiotics currently maintains general liability insurance, there can
be no assurance that the coverage limits of Synbiotics' 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
-12-
<PAGE>
brought against Synbiotics in excess of Synbiotics' insurance coverage could
have a material adverse effect upon Synbiotics.
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.
Results of Operations
Net sales for the third quarter of 1997 increased by $2,399,000 or 64% over the
quarter ended September 30, 1996, and increased for the nine months ended
September 30, 1997 by $3,331,000 or 23% over the nine months ended September
1996. The increase in net sales during the third quarter of 1997 is primarily
due to $2,029,000 in sales of diagnostic products acquired in conjunction with
the acquisition of RMD in July 1997 and $292,000 in sales of the canine breeding
diagnostic products acquired from ICG in October 1996. In addition, the sales
of non-RMD and non-ICG diagnostic products increased 12% during the third
quarter of 1997, offset by a 7% decrease in sales of vaccine products. The
decrease in the vaccine sales is due to decreased sales of bulk feline leukemia
vaccine (related to the timing of shipments as requested by OEM customers),
offset by an increase in sales of vaccines to private label partners. The
increase in product sales during the nine months ended September 30, 1997 is
primarily due to $2,029,000 in sales of diagnostic products acquired in
conjunction with the acquisition of RMD in July 1997 and $942,000 in sales of
the canine breeding diagnostic products acquired from ICG in October 1996.
The cost of sales as a percentage of product revenue decreased to 55% during the
third quarter of 1997 compared to 61% for the quarter ended September 30, 1996.
The decrease is due to the fact that the RMD sales in the 1997 period had a 76%
gross margin. The high gross margin is a direct result of the products being
manufactured by RMD rather than by third party manufacturers. In comparison, the
Company's sales, exclusive of the RMD sales, in the 1997 period had a 33% gross
margin. The reduced margin on non-RMD sales is due to the fact that a larger
percentage of product sales during 1997 were generated from products which are
manufactured for the Company by third parties. The Company's manufacturing costs
are predominantly fixed costs. Among the Company's 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 the
Company relatively more dependent on the third-party manufacturers. Vaccines
(other than feline leukemia virus vaccine) have particularly been a drain on
profitability. The cost of sales as a percentage of product revenue increased to
54% for the nine months ended September 30, 1997 compared to 52% for the nine
months ended September 30, 1996. The increase is primarily due to factors
similar to those discussed in the quarterly comparison, but with the
approximately three months of RMD sales having a relatively smaller beneficial
impact. Gross margin during the nine months ended September 30, 1997 was also
affected by a decrease in the average selling prices for the Company's canine
heartworm products during the first six months of 1997 due to severe price
competition from IDEXX Laboratories, the Company's main diagnostic competitor,
as well as a decrease in average selling prices for certain potentially short-
dated vaccines during the first quarter of 1997.
Research and development expenses during the third quarter of 1997 increased by
$280,000 or 107% over the quarter ended September 30, 1996, and increased during
the nine months ended September 30, 1997 by $433,000 or 60% over the nine months
ended September 30, 1996. The increases are primarily due to the acquisition of
RMD, which has its own research and development group, as well as increased
contracted research and development expenses and legal expenses related to
patent filings. Research and development expenses as a percentage of net sales
were 9%
-13-
<PAGE>
and 7% during the quarter ended September 30, 1997 and 1996, respectively, and
were 6% and 5% during the nine months ended 30, 1997 and 1996, respectively.
Selling and marketing expenses during the third quarter of 1997 increased by
$97,000 or 10% over the quarter ended September 30, 1996, and remained
relatively unchanged during the nine months ended September 30, 1997 as compared
to the nine months ended September 30, 1996. The increase during the third
quarter is due primarily to the acquisition of RMD, which has its own sales and
marketing group. Selling and marketing expenses as a percentage of net sales
were 17% and 26% during the quarter ended September 30, 1997 and 1996,
respectively, and were 19% and 23% during the nine months ended September 30,
1997 and 1996, respectively.
General and administrative expenses during the third quarter of 1997 remained
relatively unchanged during the third quarter of 1997 as compared to the quarter
ended September 30, 1996 due to the non-recurrence of exit compensation related
to the retirement of the Company's previous President on July 31, 1996, offset
by goodwill amortization related to the acquisitions of ICG and RMD. General and
administrative expenses increased during the nine months ended September 30,
1997 by $489,000 or 30% over the nine months ended September 30, 1996. The
increase during the nine months ended September 30, 1997 are due primarily to
amortization of goodwill and additional payroll costs related to the acquisition
of both RMD and the operations of ICG. General and administrative expenses as a
percentage of net sales were 13% and 21% during the quarter ended September 30,
1997 and 1996, respectively, and were 12% and 11% during the nine months ended
September 30, 1997 and 1996, respectively.
Other income (expense) during the third quarter of 1997 decreased $399,000 from
the third quarter of 1996 due primarily to interest expense related to the debt
incurred in conjunction with the acquisition of RMD. Other income (expense)
during the nine months ended September 30, 1997 decreased $423,000 from the nine
months ended September 30, 1996. The decrease was due to the interest related to
the debt incurred in conjunction with the acquisition of RMD, as well as the
non-recurrence of license fees received in conjunction with an exclusive
distribution agreement with Daiichi Pharmaceutical Co., Ltd. for the
distribution of the Company's vaccine and diagnostic products in Japan. The
Daiichi arrangement is not expected to generate significant product sales
revenues until 1998 at the earliest. The increased interest expense was
partially offset by an increase in interest revenue due to an increased level of
invested cash resulting from the sale of the Company's investment in Texas
Biotechnology Corporation ("TBC") in the first and second quarters of 1996. The
total proceeds received from the sale were $4,727,000. Sales of TBC stock
resulted in a $1,159,000 gain during the nine months ended September 30, 1996.
The provision for income taxes during the nine months ended September 30, 1997
increased by $785,000 or 695% over the nine months ended September 30, 1996. The
income tax provision for 1997 includes $411,000 in foreign income taxes
resulting from the RMD operations. The combined Federal and state effective tax
rate was 51% during the nine months ended September 30, 1997 as compared to 4%
during the nine months ended September 30, 1996. The income tax provision during
the nine months ended September 30, 1997, in addition to the foreign income
taxes, comprises a current income tax provision of $21,000 and a deferred income
tax provision of $466,000. The income tax provision during the nine months ended
September 30, 1997 comprises only a current income tax provision of $113,000.
The current provision for income taxes during the nine months ended September
30, 1997 and 1996 arose from alternative minimum taxes due to the utilization of
net operating loss carryforwards. The increase in the deferred provision for
income taxes is due to the fact that as of September 30, 1996 the Company
provided a deferred tax asset valuation allowance for deferred tax assets which
management determined were "more likely than not" to be unrealizable based on
recent trends in operating results. At the end of 1996, the Company released the
valuation allowance related to its deferred tax assets based on management's
assessment that it was "more likely than not" that the Company would realize
those assets in future periods due to improvements in the Company's operating
results. As a result, $466,000 (representing the tax effect of the change in the
carrying amount of the deferred tax assets) was included in the 1997 statement
of operations because, unlike in 1996, there was no longer any valuation
allowance left to release it from. The deferred tax provision reduces the
Company's deferred tax assets, but the amount of the deferred tax provision does
not actually have to be paid to the Government.
-14-
<PAGE>
Because RMD is such a large part of the post-acquisition Company, and because of
the significant amount of long-term debt the Company incurred in connection with
the acquisition, historical results of operations will not necessarily be fairly
comparable to results of operations in the near-term future.
Financial Condition
Management believes that the Company's present capital resources, which included
working capital of $12,079,000 at September 30, 1997, are sufficient to meet its
current working capital needs and service the debt related to the acquisition of
RMD.
The Company's operations have become seasonal due to the success of its canine
heartworm diagnostic products. Sales and profits tend to be concentrated in the
December to April time period, as distributors prepare for the heartworm season
by purchasing diagnostic products for resale to veterinarians. This seasonality
may be somewhat reduced by the acquisition of RMD, which is relatively less
seasonal.
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
Barnes-Jewish Hospital v. Synbiotics Corporation - United States District Court
- -------------------------------------------------------------------------------
for the Eastern District of Missouri, Eastern Division
- ------------------------------------------------------
As previously reported by Synbiotics, Barnes-Jewish Hospital of St. Louis (the
"Hospital") is the owner of a patent which the Hospital alleges covers the
Company's canine heartworm diagnostic products. The Company is also the owner of
several patents which cover its canine heartworm diagnostic products. The
Company believes that it does not infringe the Hospital's patent, and also
believes that the Hospital's patent is invalid. On September 29, 1997, the
Hospital sued the Company in the United States District Court for the Eastern
District of Missouri for patent infringement, seeking unspecified damages.
The Company has also brought an action, seeking a declaratory judgment that the
Company does not infringe the Hospital's patent and/or that the Hospital's
patent is invalid, against the Hospital in the United States District Court for
the Southern District of California.
The Hospital had previously sued IDEXX Laboratories, Inc., the Company's primary
competitor for canine heartworm diagnostics, for patent infringement under the
Hospital's patent; IDEXX's defense involved an assertion that the patent is
invalid. IDEXX announced a settlement of this suit on September 28, 1997.
Item 2. Changes in Securities
---------------------
On July 9, 1997, the Company issued 759,018 shares of newly issued unregistered
Synbiotics common stock to Rhone Merieux S.A.S. as partial consideration for the
acquisition of RMD. In conjunction with the acquisition of RMD, the Company
issued to Banque Paribas, from whom the Company obtained a series of loans to
finance the cash portion of the RMD acquisition, a warrant to purchase 239,950
shares of unregistered Synbiotics common stock at an exercise price of $.01 per
share. The shares of common stock issued or issuable in conjunction with both of
these transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
-15-
<PAGE>
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders was held on July 24, 1997. The following
matters were submitted to a vote, with the results indicated below:
(a) Election of directors:
<TABLE>
<CAPTION>
Broker
Nominee For Against Abstain Withheld Non-votes
------- --------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Patrick Owen Burns 6,163,432 n/a n/a 376,003 0
Kenneth M. Cohen 6,164,632 n/a n/a 374,803 0
James C. DeCesare 6,164,532 n/a n/a 374,903 0
Brenda D. Gavin, DVM 6,161,182 n/a n/a 378,253 0
M. Blake Ingle, Ph.D. 6,164,082 n/a n/a 375,353 0
Donald E. Phillips 6,164,182 n/a n/a 375,253 0
</TABLE>
(b) Approval of the amendment of the Company's 1995 Stock Option/Stock
Issuance Plan:
For: 3,320,312 Against: 854,081 Abstain: 94,740
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
-------
2.4 Asset Purchase Agreement between Rhone Merieux, Inc. and the
Registrant, dated May 14, 1997./(1)/
2.4.1 Amendment No. 1 to Asset Purchase Agreement between Rhone
Merieux, Inc. and the Registrant, dated July 9, 1997/(2)/.
2.4.2 Amendment No. 2 to Asset Purchase Agreement between Rhone
Merieux, Inc. and the Registrant, dated July 9, 1997/(3)/.
2.5 Stock Purchase Agreement between Rhone Merieux S.A., Institut
De Selection Animale S.A., Rhone Merieux Diagnostics S.A.S.
and the Registrant, dated May 14, 1997./(4)/
-16-
<PAGE>
2.5.1 Amendment No. 1 to Stock Purchase Agreement between Rhone
Merieux S.A.S., Institut De Selection Animale S.A., R.M. -
Diagnostics S.A.S. and the Registrant, dated July 9,
1997/(5)/.
2.5.2 Amendment No. 2 to Stock Purchase Agreement between Rhone
Merieux S.A.S., Institut De Selection Animale S.A., R.M. -
Diagnostics S.A.S. and the Registrant, dated July 9,
1997/(6)/.
10.64 Credit Agreement among the Registrant, the Banks Named Herein
and Banque Paribas as Agent, dated as of July 9, 1997/(7)/.
10.65 Stock Restriction and Rights Agreement between the Registrant
and Rhone Merieux S.A.S., dated as of July 9, 1997.
10.66 Warrant Agreement between the Registrant and Banque Paribas,
dated as of July 9, 1997.
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule (for electronic filing purposes only).
------------
(1) Incorporated herein by reference to Exhibit 2.4 to the
Registrant's Current Report on Form 8-K dated July 9, 1997.
(2) Incorporated herein by reference to Exhibit 2.4.1 to the
Registrant's Current Report on Form 8-K/A dated July 9, 1997.
(3) Incorporated herein by reference to Exhibit 2.4.2 to the
Registrant's Current Report on Form 8-K/A dated July 9, 1997.
(4) Incorporated herein by reference to Exhibit 2.5 to the
Registrant's Current Report on Form 8-K dated July 9, 1997.
(5) Incorporated herein by reference to Exhibit 2.5.1 to the
Registrant's Current Report on Form 8-K/A dated July 9, 1997.
(6) Incorporated herein by reference to Exhibit 2.5.2 to the
Registrant's Current Report on Form 8-K/A dated July 9, 1997.
(7) Incorporated herein by reference to Exhibit 10.64 to the
Registrant's Current Report on Form 8-K dated July 9, 1997.
(b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K dated July 9, 1997 reflecting
the acquisition of the worldwide veterinary diagnostic business of
Rhone Merieux S.A.S. pursuant to purchase agreements dated May 14,
1997 and amended July 9, 1997. The report on Form 8-K was subsequently
amended.
-17-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYNBIOTICS CORPORATION
Date: November 14, 1997 /s/ Michael K. Green
-------------------------------
Michael K. Green
Vice President of Finance and
Chief Financial Officer
(signing both as a duly authorized
officer and as principal financial
officer)
-18-
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
2.4 Asset Purchase Agreement between Rhone Merieux, Inc. and the
Registrant, dated May 14, 1997./(1)/
2.4.1 Amendment No. 1 to Asset Purchase Agreement between Rhone Merieux,
Inc. and the Registrant, dated July 9, 1997/(2)/.
2.4.2 Amendment No. 2 to Asset Purchase Agreement between Rhone Merieux,
Inc. and the Registrant, dated July 9, 1997/(3)/.
2.5 Stock Purchase Agreement between Rhone Merieux S.A., Institut De
Selection Animale S.A., Rhone Merieux Diagnostics S.A.S. and the
Registrant, dated May 14, 1997./(4)/
2.5.1 Amendment No. 1 to Stock Purchase Agreement between Rhone Merieux
S.A.S., Institut De Selection Animale S.A., R.M. - Diagnostics
S.A.S. and the Registrant, dated July 9, 1997/(5)/.
2.5.2 Amendment No. 2 to Stock Purchase Agreement between Rhone Merieux
S.A.S., Institut De Selection Animale S.A., R.M. - Diagnostics
S.A.S. and the Registrant, dated July 9, 1997/(6)/.
10.64 Credit Agreement among the Registrant, the Banks Named Herein and
Banque Paribas as Agent, dated as of July 9, 1997/(7)/.
10.65 Stock Restriction and Rights Agreement between the Registrant and
Rhone Merieux S.A.S., dated as of July 9, 1997.
10.66 Warrant Agreement between the Registrant and Banque Paribas, dated
as of July 9, 1997.
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule (for electronic filing purposes only).
------------
(1) Incorporated herein by reference to Exhibit 2.4 to the
Registrant's Current Report on Form 8-K dated July 9, 1997.
(2) Incorporated herein by reference to Exhibit 2.4.1 to the
Registrant's Current Report on Form 8-K/A dated July 9, 1997.
(3) Incorporated herein by reference to Exhibit 2.4.2 to the
Registrant's Current Report on Form 8-K/A dated July 9, 1997.
(4) Incorporated herein by reference to Exhibit 2.5 to the
Registrant's Current Report on Form 8-K dated July 9, 1997.
(5) Incorporated herein by reference to Exhibit 2.5.1 to the
Registrant's Current Report on Form 8-K/A dated July 9, 1997.
(6) Incorporated herein by reference to Exhibit 2.5.2 to the
Registrant's Current Report on Form 8-K/A dated July 9, 1997.
(7) Incorporated herein by reference to Exhibit 10.64 to the
Registrant's Current Report on Form 8-K dated July 9, 1997.
<PAGE>
Exhibit 10.65
-------------
STOCK RESTRICTION AND RIGHTS AGREEMENT
--------------------------------------
This Agreement dated as of the 9th day of July, 1997 is entered into by and
between Synbiotics Corporation, a California corporation ("Synbiotics"), and
Rhone Merieux S.A.S., a French societe par actions simplifiee ("RM").
WHEREAS, Synbiotics, RM and others have entered into a Stock Purchase
Agreement dated May 14, 1997, under which Synbiotics will acquire the veterinary
diagnostics business of RM outside the United States and Canada (the "Purchase
Agreement"); and
WHEREAS, in accordance with the Purchase Agreement, Synbiotics will issue
to RM on the date hereof certain unregistered shares of Synbiotics Common Stock
(the "Shares"); and
WHEREAS, Synbiotics wishes to obtain from RM certain representations and
warranties with respect to its acquisition of the Shares and an undertaking not
to increase the number of shares of Synbiotics Common Stock it will own; and
WHEREAS, RM desires to obtain certain registration rights with respect to
the Shares and Synbiotics desires to grant such rights; and
WHEREAS, Synbiotics and RM desire to grant and receive certain purchase
options with respect to the Shares.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
-------------------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Act" shall mean the United States Securities Act of 1933, as amended.
-----
"Affiliate" shall have the meaning set forth in the Act.
---------
"Common Stock" shall mean the common stock of Synbiotics Corporation, no
--------------
par value.
"Form S-1" shall mean such form under the Act as in effect on the date
----------
hereof or any registration form under the Act subsequently adopted by the SEC to
replace it.
"Form S-3" shall mean 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 Synbiotics with the SEC.
"1934 Act" shall mean the United States Securities Exchange Act of 1934, as
-----------
amended.
"Registration Statement" means a Registration Statement filed by Synbiotics
------------------------
with the SEC for a public offering and sale of Common Stock (other than a
Registration Statement on Form S-8 or Form S-4, or their successors or any other
form for a similar limited purpose, or any Registration Statement covering only
securities proposed to be issued in exchange for securities or assets of another
corporation).
"Registrable Securities" means (i) the Common Stock issued to RM pursuant
------------------------
to the Purchase Agreement, and (ii) any Common Stock of Synbiotics issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement
1
<PAGE>
of the shares referenced in (i) above. Such Common Stock shall cease to be
Registrable Securities (i) upon any sale pursuant to a Registration Statement or
Rule 144 or otherwise under the Act and the Rules and Regulations adopted
thereunder or (ii) upon any sale or other transfer in any manner to a person or
entity which, by virtue of Section 10 of this Agreement, is not entitled to the
rights provided by this Agreement.
"SEC" shall mean the United States Securities and Exchange Commission.
-----
2. REGISTRATION RIGHTS.
-------------------
Synbiotics covenants and agrees as follows:
2.1 Required Registrations.
----------------------
(a) At any time after the date hereof, RM may request, in writing,
that Synbiotics effect a one-time registration of all or a portion of its
Registrable Securities having an aggregate offering price of at least U.S.
$1,000,000 (based on the then current public market price). Thereupon,
Synbiotics shall, as expeditiously as possible, use its best efforts to effect
the registration on Form S-3 (or, if Synbiotics is not then permitted to effect
the registration on Form S-3, on Form S-1 or another permitted form) of all
Registrable Securities which Synbiotics has been requested to so register. RM
agrees that any registration effected in accordance with this Section 2.1 shall
be conducted as a firm commitment underwritten offering by an underwriter
approved in writing by Synbiotics, such approval not to be unreasonably
withheld.
(b) Synbiotics shall not be required to effect more than one (1)
registration pursuant to paragraph (a) above for the duration of this Agreement.
(c) If at the time of the request to register Registrable Securities
pursuant to this Section 2.1, Synbiotics is engaged or has fixed plans to engage
within 30 days of the time of the request in a registered public offering as to
which RM may include Registrable Securities pursuant to Section 2.2 or is
engaged in any transaction which, in the good faith determination of Synbiotics'
Board of Directors, would be adversely affected by the requested registration to
the material detriment of Synbiotics because Synbiotics would be required to
disclose such transaction at a time when doing so would, in the opinion of
Synbiotics' Board of Directors, adversely affect the successful outcome of such
transaction, then Synbiotics may at its option direct that such request be
delayed for a period not in excess of six months from the effective date of such
offering or the date of commencement of such other material activity, as the
case may be.
2.2 Incidental Registration. If (but without any obligation to do so)
-----------------------
Synbiotics proposes to register under a Registration Statement any Common Stock
in connection with the public offering of such securities solely for cash,
Synbiotics shall, at such time, promptly give RM written notice of such
registration. Upon the written request of RM given within twenty (20) days
after mailing of such notice by Synbiotics, Synbiotics shall, subject to the
provisions of Section 2.6, cause to be registered under the Act all of the
Registrable Securities that RM has requested to be registered.
2.3 Obligations of Synbiotics. Whenever required under this Section 2 to
-------------------------
effect the registration of any Registrable Securities, Synbiotics 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 reasonable best efforts to
cause such Registration Statement to become effective.
(b) Upon the request of RM, keep the 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 RM refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock (or other
securities) of Synbiotics, and (ii) in case the Registrable Securities intended
to be offered on a continuous or delayed basis (pursuant to a registration
statement form which permits sales on a continuous or delayed basis), such 120-
day
2
<PAGE>
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 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.
(c) 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.
(d) Furnish to RM such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, and such
other documents as RM may reasonably request in order to facilitate the
disposition of Registrable Securities owned by it.
(e) Use its reasonable best efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
Blue sky laws of such United States jurisdictions as shall be reasonably
requested by RM; provided that Synbiotics 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.
(f) 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. RM shall also enter into
and perform its obligations under such agreement.
(g) Notify RM at any time of the happening of any event as a result of
which the prospectus relating to the Registrable Securities 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.
(h) Cause all such Registrable Securities registered pursuant to such
Registration Statement to be listed on each securities exchange or Nasdaq market
on which similar securities issued by Synbiotics are then listed.
(i) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.
2.4 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of Synbiotics to take any action pursuant to this Section 2 with
respect to the Registrable Securities that RM furnish to Synbiotics such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of the Registrable Securities.
2.5 Expenses of Synbiotics Registration. Synbiotics 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 Sections 2.1 and 2.2, including (without limitation) all
registration, filing, Nasdaq or exchange listing, and qualification fees, blue
sky filing fees, special audits, printer and accounting fees relating or
apportionable thereto, the fees and disbursements of counsel for Synbiotics
(and, if RM in its reasonable discretion deems the joint representation of
Synbiotics and RM, as a selling shareholder, to be inappropriate, or if
Synbiotics' counsel does not make itself available for this purpose, up to
$40,000 in fees and expenses of special counsel to RM) ("Registration Expenses")
but excluding underwriting discounts and commissions relating to Registrable
Securities. Notwithstanding the foregoing, if a registration under Section 2.1
is withdrawn at the request of RM (other than as a result of information
concerning the business or financial condition of Synbiotics which is made known
to RM after the date on which such registration was
3
<PAGE>
requested) and if RM elects not to have such registration counted as a
registration requested under Section 2.1, RM shall pay the Registration Expenses
of such registration.
2.6 Underwriting Requirements. In connection with any offering involving
-------------------------
an underwriting of shares of Synbiotics capital stock, Synbiotics shall not be
required under either Section 2.1 or 2.2 to include any of RM's securities in
such underwriting unless RM accepts the terms of the underwriting as agreed upon
between Synbiotics and the underwriters selected or approved by it (or by other
persons entitled to select the underwriters), and then, with respect to an
offering under Section 2.2 hereof, only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by Synbiotics. If the total amount of securities, including
Registrable Securities, requested by shareholders holding registration rights to
be included in such offering exceeds the amount (in addition to the shares being
offered by Synbiotics) that the underwriters determine in their sole discretion
is compatible with the success of the offering, then Synbiotics 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. RM shall have the
right, subject to the rights of any shareholders who have registration rights
under the Investor's Rights Agreement dated October 25, 1996 between Synbiotics
and SR One, Limited, to have all of the Registrable Securities included in the
offering, and shall not be required to participate on a pro-rata basis with
other selling shareholders requesting inclusion of their shares in the offering;
provided that, unless otherwise agreed by Synbiotics, the number of shares
- --------
included by Synbiotics in such offering shall not be reduced below fifty percent
(50%) of the total number of shares included in such offering.
2.7 Delay of Registration. RM shall not 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 2.
2.8 Indemnification. In the event any Registrable Securities are included
---------------
in a Registration Statement under this Section 2:
(a) To the extent permitted by law, Synbiotics will indemnify and hold
harmless RM, any underwriter (as defined in the Act) for RM and each person, if
any, who controls RM or such 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, 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 Synbiotics of the Act, the 1934 Act,
any state securities law or any rule or regulation promulgated under the Act,
the 1934 Act or any state securities law; and Synbiotics will pay to RM, its
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 2.8(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 Synbiotics (which consent shall
not be unreasonably withheld), nor shall Synbiotics 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 RM, its underwriter or controlling person.
(b) To the extent permitted by law, RM will indemnify and hold
harmless Synbiotics, each of its directors, each of its officers who has signed
the Registration Statement, each person, if any, who controls Synbiotics within
the meaning of the Act, any underwriter, any other shareholder selling
securities in such Registration Statement and any controlling person of any such
underwriter or other shareholder, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Act, 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
4
<PAGE>
reliance upon and in conformity with written information furnished by RM
expressly for use in connection with such registration; and RM will pay any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 2.8(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 2.8(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 RM,
which consent shall not be unreasonably withheld; provided, that, in no event
shall any indemnity under this subsection 2.8(b) exceed the gross proceeds from
the offering received by RM.
(c) Promptly after receipt by an indemnified party under this Section
2.8 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 2.8, 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 notified, to assume the defense thereof with counsel reasonably
acceptable to the Indemnified Party; 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 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
2.8, 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 2.8. Each indemnified party shall provide all
reasonable cooperation in defense of the action.
(d) If the indemnification provided for in this Section 2.8 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 an underwritten public offering hereunder are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of Synbiotics and RM under this Section 2.8 shall
survive the completion of any offering of Registrable Securities in a
Registration Statement under this Section 2.
2.9 "Market Stand-Off" Agreement. RM hereby agrees that, during the
----------------------------
period of duration specified by Synbiotics and an underwriter of Common Stock or
other securities of Synbiotics, following the effective date of a Registration
Statement of Synbiotics filed under the Act, neither RM nor any of RM's
affiliates, to the extent requested by Synbiotics and such underwriter, shall
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 Synbiotics held by it at any time during such period except Common
Stock included in such Registration Statement; provided, however, that:
(a) all officers, directors and Affiliates of Synbiotics and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
5
<PAGE>
(b) such market stand-off time period shall not exceed 180 days.
In order to enforce the foregoing covenant, Synbiotics may impose
stop-transfer instructions with respect to the Registrable Securities of RM (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
2.10 Rule 144. RM shall have no right to request registration or inclusion
--------
in any Registration Statement pursuant to this Section 2 with respect to any
Registrable Securities that RM could immediately sell pursuant to Rule 144 under
the Act.
2.11 Allocation of Proceeds. In the event that at any time prior to the
----------------------
fourth anniversary of this Agreement RM sells Shares in a private sale (except
when such sale is initiated and arranged by RM) or pursuant to a Registration
Statement, the parties agree that if the price per share received by RM is
greater than five US Dollars (US$5) per share (as adjusted to reflect any stock
splits, reverse stock splits, stock dividends or other similar recapitalization
affecting the Shares) (the "Base Price"), the difference between the price
received by RM and the Base Price (the "Price Difference") shall be allocated as
follows: (x) if the sale occurs prior to April 9, 1998, the Price Difference
shall be allocated 75% to Synbiotics and 25% to RM, (y) if the sale occurs
between April 9, 1998 and January 9, 1999, the Price Difference shall be
allocated 50% to each party, and (z) if the sale occurs between January 9, 1999
and July 9, 2001, the Price Difference shall be allocated 25% to Synbiotics and
75% to RM. If the sale occurs after July 9, 2001, no proceeds of the sale shall
be allocated to Synbiotics. The Price Difference, if any, shall be allocated,
and Synbiotics shall be paid its share thereof, at the Closing of the sale of
the Shares.
3. PURCHASE OPTIONS.
----------------
3.1 Put Option.
----------
(i) Commencing on the fourth anniversary of the date of this
Agreement, RM shall have the right and option (the "RM Put Option"), exercisable
at any time thereafter during the existence of this Agreement upon forty-five
(45) days' written notice to Synbiotics (and subject to any restrictions on the
repurchase by Synbiotics of shares of Common Stock under credit agreements with
Lenders providing the funds to purchase the RM Diagnostics shares), to require
Synbiotics to purchase all or any portion of the Shares. The purchase price
(the "Put Option Purchase Price") to be paid by Synbiotics in consideration of
the sale and transfer of the Shares shall be Five US Dollars (US$5) per share
(as adjusted for any stock splits, reverse stock splits, stock dividends or
other similar recapitalization affecting the Shares).
(ii) Within forty-five (45) days following receipt of the notice by
Synbiotics of RM's exercise of the RM Put Option, Synbiotics, or its designee,
shall purchase the Shares as to which the RM Put Option has been exercised for
the Put Option Purchase Price. The payment of the Put Option Purchase Price
shall be made by Synbiotics, or its designee, in US dollars by bank or certified
check or, if requested by RM, by wire transfer to an account designated by RM,
simultaneously with the receipt by Synbiotics of the certificates representing
the Shares being purchased.
3.2 Call Option.
-----------
(i) Commencing on the date of this Agreement, Synbiotics shall have
the right and option (the "Synbiotics Call Option"), exercisable at any time
during the existence of this Agreement, upon forty-five (45) days' written
notice to RM, to require RM to sell to Synbiotics, or its designee, all or any
portion of the Shares then owned by RM. The purchase price per share (the "Call
Option Purchase Price") to be paid by Synbiotics to RM in consideration of the
sale and transfer of the Shares shall be the greater of (x) the average closing
sale price of a share of Synbiotics Common Stock on the Nasdaq National Market
(or other principal stock exchange) for the 30 day period prior to the exercise
of the Synbiotics Call Option, or (y) Five US Dollars (US$5) (as adjusted for
any stock splits, reverse stock splits, stock dividends or other similar
recapitalization affecting the Shares). Notwithstanding the foregoing, if the
Synbiotics Call Option is exercised prior to the fourth anniversary of this
Agreement and the Call
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<PAGE>
Option Purchase Price is greater than Five US Dollars (US$5) per share (as
adjusted for any stock splits, reverse stock splits, stock dividends or other
similar recapitalization affecting the Shares) (the "Call Base Price") the
difference between the Call Option Purchase Price and the Call Base Price (the
"Call Price Difference") shall be divided between Synbiotics and RM as follows:
(xx) if the Synbiotics Call Option is exercised prior to April 9, 1998, the
Synbiotics Call Price Difference shall be allocated 75% to Synbiotics and 25% to
RM; (yy) if the Synbiotics Call Option is exercised between April 9, 1998 and
January 9, 1999, the Call Price Difference shall be allocated 50% to each party;
and (zz) if the Synbiotics Call Option is exercised between January 9, 1999 and
July 9, 2001, the Call Price Difference shall be allocated 25% to Synbiotics and
75% to RM. The Call Option Purchase Price adjusted to reflect the allocation of
the Call Price Difference in accordance with the foregoing clause shall be the
"Adjusted Call Option Purchase Price."
(ii) Within thirty (30) days following delivery of the notice to RM by
Synbiotics of its exercise of the Synbiotics Call Option, Synbiotics shall
purchase the Shares as to which the Synbiotics Call Option has been exercised
for the Call Option Purchase Price or the Adjusted Call Option Purchase Price,
as applicable. The payment of the Call Option Purchase Price or the Adjusted
Call Option Purchase Price shall be made by Synbiotics, or its designee, in US
Dollars by bank or certified check, or, if requested by RM, by wire transfer to
an account designated by RM, simultaneously with the receipt by Synbiotics of
the certificates representing the Shares being purchased.
3.3 Free and Clear. It shall be the obligation of RM, in any delivery
--------------
pursuant to Section 3.1 or 3.2 above, to deliver the applicable Shares free and
clear of all pledges, security interests, liens, adverse claims, encumbrances
and legends (except for those imposed by Synbiotics pursuant to this Agreement),
with the stock certificate duly endorsed over to Synbiotics.
3.4 Irrevocability of Exercise. Any exercise of the RM Put Option or the
--------------------------
Synbiotics Call Option shall be irrevocable and binding upon both parties unless
otherwise agreed by both parties.
3.5 Subordination of Rights. If, at the time of exercise by RM of the RM
-----------------------
Put Option, the loan agreement between Synbiotics, Banque Paribas as agent, and
the Lenders from time to time thereunder (the "Senior Lenders"), dated as of the
date hereof (as the same may be amended hereafter, the "Loan Agreement") is in
effect and has not been terminated and all amounts thereunder paid in full, then
the rights of RM to receive payment for any Shares upon exercise of the RM Put
Option shall be subordinated to the rights of such Senior Lenders to receive
payments on all amounts due under the Loan Agreement. In furtherance thereof,
each of Synbiotics and RM hereby agrees to the terms of subordination set forth
in Exhibit A hereto, all of which are incorporated by reference. The terms of
this Section 3.5 and Exhibit A incorporated herein by reference are for the
benefit of the Senior Lenders and may not be waived without there prior written
consent as set forth in Exhibit A.
4. RESTRICTIVE LEGENDS.
-------------------
RM agrees that until the Shares are either registered in accordance
with Section 2 hereof or are eligible for resale under Rule 144(k) under the
Act, all certificates representing Shares owned by RM, or any legal
representatives, successors or assigns of RM bound by this Agreement, shall have
affixed thereto a legend in substantially the following form:
"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 SATISFACTORY TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT."
In addition, as long as the Shares are subject to this Agreement, they
shall bear the following legend:
"The shares of Common Stock represented by this certificate are
subject to call options and transfer restrictions under a Stock
Restriction and Rights Agreement dated July 1997."
7
<PAGE>
5. TRANSFER OF SHARES.
------------------
RM agrees that it shall not at any time transfer, sell or otherwise dispose
of any of the Shares in a private sale or transfer to any third party whom
Synbiotics reasonably believes to be a competitor of Synbiotics without the
prior written consent of Synbiotics, which consent shall not be unreasonably
withheld. Such prior written consent shall be deemed given if RM shall not have
received any notice to the contrary at the end of the second business day
following the day of deemed receipt of RM's notice that it intends to sell such
shares.
6. PURCHASE OF ADDITIONAL COMMON STOCK.
-----------------------------------
RM agrees that, for so long as it (or any of its affiliates to which it has
transferred Shares) shall own any of the Shares, neither RM nor any of RM's
affiliates shall directly or indirectly purchase, offer to purchase or contract
to purchase any shares of Common Stock either through a private sale or on the
public market without the prior written consent of Synbiotics.
7. REPRESENTATIONS AND WARRANTIES OF RM.
------------------------------------
RM represents and warrants to Synbiotics that:
7.1 RM understands and acknowledges that the Shares have not been and will
not be registered under the Act, and may not be offered or sold unless such
securities are registered under the Act in accordance with Section 2 hereof, or
such offer or sale is made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Act.
7.2 RM will acquire the Shares for its own account, for investment only,
and not with a view to any public distribution of the Shares.
7.3 RM has received all information it has requested, and all information
it considers necessary to make a fully informed decision regarding whether to
acquire the Shares.
7.4 RM agrees that in addition to any other restrictions on sale, transfer
or other disposal of the Shares it will not, directly or indirectly, voluntarily
offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to
buy, purchase or otherwise acquire or take a pledge of) its rights under this
Agreement, the Purchase Agreement or the Shares otherwise than in compliance
with the Act, any applicable state securities or blue sky laws and the
securities laws of any applicable jurisdictions outside the United States.
8. TERMINATION.
-----------
All of Synbiotics' obligations to register the Shares under this
Agreement shall terminate on the fourth anniversary of this Agreement or
immediately upon any transfer of Shares not accompanied by a permitted transfer
of rights under Section 10 below. In the event that RM transfers all or a
portion of the Shares to an unaffiliated third party, even if in accordance with
Section 5 above and Section 10 below, the RM Put Option and the Synbiotics Call
Option shall terminate upon transfer with respect to the Shares so transferred.
9. PAYMENT OF EXPENSES. Synbiotics agrees to reimburse RM for its
-------------------
reasonable costs and expenses relating to the preparation and filing with the
SEC and the principal stock market on which the Common Stock is traded of
periodic statements required to report the beneficial ownership by RM and/or its
Affiliates of Registrable Securities. The foregoing obligation shall expire on
the earlier of (a) the fourth anniversary of the date of this Agreement or (b)
the date on which RM and its Affiliates no longer own a sufficient number of
Registrable Securities to be subject to such periodic reporting requirements.
10. TRANSFER OF RIGHTS.
------------------
8
<PAGE>
Except as provided in this Section 10, neither this Agreement nor the
rights and obligations of the parties hereunder may be assigned without the
prior written consent of the other party (which may be granted or withheld in
the consenting party's sole discretion), except that Synbiotics may assign this
Agreement, and its rights and obligations hereunder, to any person that acquires
Synbiotics. Notwithstanding the foregoing, if RM transfers all of the Shares
that it then holds to a single transferee in a private sale in compliance with
Section 5 above it may transfer the piggyback registration rights provided for
in Section 2.2 above (and the related rights and obligations in Sections 2.3
through 2.11 above) to such transferee; provided that such transferee assumes
--------
in writing all of the obligations of RM under such Sections 2.2 through 2.11 as
a condition to the transfer of such rights; and provided further that any
-------- -------
transferee of such registration rights shall have no right to further transfer
such rights to any person to whom it subsequently transfers Shares.
11. GENERAL.
-------
11.1 Notices.
-------
All notices, requests, consents, and other communications under this
Agreement shall be in writing and shall be sufficiently given if delivered
personally or sent by confirmed telecopier or international courier, addressed
as follows or to such other address of which the parties may have given notice.
To: Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
U.S.A
Attention: Kenneth Cohen
(fax: (1) 619-451-5719)
Copy to: Brobeck Phleger & Harrison
550 West C Street
Suite 1300
San Diego, CA 92101
Attention: Hayden J. Trubitt
(fax: (1) 619-236-1403)
To: Rhone Merieux S.A.
29, avenue Tony Garnier
69348 - Lyon CEDEX 07
FRANCE
Attention: Mr. B. Adelus
(fax: (33) 4-272-3240)
Copy to: Jurifib S.A.
37, rue de la Republique
Lyon, 69002
FRANCE
Attention: Maitre B. Jacquet
(fax: (33) 4-7460-2516)
Notices provided in accordance with this Section 11.1 shall be deemed
received (i) on the date delivered, if delivered personally or actually received
or (ii) two business days after being sent, if sent by confirmed telecopy or
international courier.
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<PAGE>
11.2 Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous negotiations, agreements and
understandings relating to such subject matter.
11.3 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 both parties. No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
11.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
11.5 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
11.6 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York.
11.7 Language. The English language version of this Agreement shall
--------
control any version in any other language.
11.8 Drafting Party. This Agreement has been negotiated, proposed,
--------------
examined and reviewed by both parties and their lawyers. No implication shall
be drawn and no provision shall be construed against either party by virtue of
the identity of the drafter of this Agreement or of any portion thereof.
11.9 Arbitration. Any dispute arising in connection with the
-----------
present Agreement that cannot be settled between the parties shall be finally
settled under the Rules of Conciliation and Arbitration of the International
Chamber of Commerce by one or more arbitrators appointed in accordance with the
said Rules. The arbitration shall take place in Geneva, Switzerland, and shall
be conducted in the English language.
10
<PAGE>
Executed as of the date first written above.
SYNBIOTICS CORPORATION
By: /s/ Kenneth M. Cohen
-------------------------------
Title: President and Chief Executive Officer
RHONE MERIEUX S.A.S.
By: /s/ Phillipe Martin-Jarand
-------------------------------
Title:
11
<PAGE>
EXHIBIT A
---------
FORM OF SUBORDINATION
The Put Option Debt (as defined below) subject to the terms hereof is
hereby subordinated and subject in right of payment to the prior payment in full
of all Senior Debt, as defined herein. Rhone Merieux S.A.S. societe par actions
simplife ("RM"), as the obligee of the Put Option Debt (the "Creditor") agrees
to and shall be bound by all the provisions of this Subordination Form relating
to the subordination of the Put Option Debt to the Senior Debt. Unless
otherwise defined herein, capitalized terms used herein shall have the meanings
ascribed to such terms in the Credit Agreement dated July 9, 1997 by and among
Synbiotics Corporation ("Synbiotics") as Borrower, the Banks from time to time
party thereto, and Banque Paribas as Agent (the "Agreement").
a. As used herein, the term "Senior Debt" shall mean (1) all amounts
now or hereafter owing, created or incurred to the Banks, under or with respect
to the Agreement, and (2) with respect to all of the foregoing amounts, any
interest rate accruing thereon at the legal rate after the commencement of any
proceeding under the United States Bankruptcy Code (the "Bankruptcy Code") by or
against any obligor on the Senior Debt (herein, a "Proceeding"), and any
additional interest that would have accrued thereon but for the commencement of
such Proceeding. The term "Debtor" shall mean Synbiotics, and each other
present or future obligor or guarantor of the Senior Debt.
b. As used herein, the term "Put Option Debt" shall mean (1) the
obligation to pay the Put Option Purchase Price as set forth in Section 3 of the
Stock Restriction and Rights Agreement to which this exhibit is attached, (2)
all fees, expenses and other indebtedness, obligations and liabilities of
Synbiotics whether now or here after owing, incurred or created, under or with
respect to the Put Option Debt, (3) any restructuring, refinancing or refunding
of any Put Option Debt referred to in gations and liabilities incurred in
connection therewith, and (4) with respect to all of the foregoing amounts, any
interest accruing thereon at the legal rate after the commencement of any
Proceeding, and any additional interest that would have accrued thereon but for
the commencement of such Proceeding.
c. All Put Option Debt shall be and hereby is expressly made
subordinate and junior in right of payment to all Senior Debt to the extent and
in the manner provided in this Subordination Form and the Creditor agrees to be
bound by the provisions contained herein relating to the subordination of the
Put Option Debt to the Senior Debt (herein collectively, the "Subordination
Provisions"). The Subordination Provisions are made for the benefit of the
holders of the Senior Debt, and such holders are hereby made obligees hereunder
with the same effect as if their names were written as such in this
Subordination Form and any such holder or all of them may proceed to enforce the
Subordination Provisions. Senior Debt shall continue to constitute Senior Debt
for all purposes and the Subordination Provisions shall continue to apply to
such Senior Debt, notwithstanding the fact that such Senior Debt or any claim in
respect thereof shall be disallowed, avoided or subordinated pursuant to the
provisions of the Bankruptcy Code or other applicable law.
d. In the event of any Proceeding:
(1) All Senior Debt shall first be paid in full or such payment
shall have been provided for, before any payment or distribution, whether in
cash, securities or other property, shall be made to the Creditor on account of
the Put Option Debt.
(2) Any payment or distribution of any kind or character, whether
in cash, securities or other property, which would otherwise (but for the
Subordination Provisions) be payable or deliverable in respect of any Put Option
Debt shall be paid or delivered directly to the holders of Senior Debt (or to a
banking institution selected by the court or other person making the payment or
delivery or designated by any holder of any Senior Debt) for application in
payment of the Senior Debt, until all Senior Debt shall have been paid in full
or such payment shall have been provided for. Nothing in the foregoing sentence
shall be deemed to release Synbiotics from its obligations with respect to the
Put Option Debt.
(3) The holders of the Senior Debt shall be entitled to vote all
claims of the Creditor in respect of the Put Option Debt in connection with any
Proceeding, provided that in the event the holders of Senior Debt are not
--------
permitted, or elect not to, vote all or any portion of their claims in respect
of the Put Option Debt, (i) the Creditor shall
1
<PAGE>
not exercise or shall refrain from exercising any voting rights it may have
relating to such Proceeding if such action would have a Material Adverse Effect
on the rights of the holders of Senior Debt and (ii) the Creditor shall give the
holders of Senior Debt at least ten Business Days' written notice of the manner
in which it intends to exercise, or the reasons for refraining from exercising,
any such rights.
(4) In connection with any Proceeding, the Creditor irrevocably
authorizes the holders of the Senior Debt, or any of them, to demand, sue for,
collect and receive all payments and distributions to the extent required in
paragraph (d)(2) hereof, to give acquittance therefor and to take such other
actions as such holders of the Senior Debt may deem necessary or advisable for
the enforcement of the subordination provisions contained in this Subordination
Form. The Creditor further agrees duly and promptly to take such action as may
be requested at any time or from time to time by the holders of the Senior Debt
at the expense of such holders, to file appropriate proofs of claim in respect
of the Put Option Debt, and to execute and deliver such powers of attorney,
assignments or proofs of claim or other instruments as may be requested by the
holders of the Senior Debt, all as may be necessary or advisable to enable such
holders of the Senior Debt to enforce any and all claims upon or in respect of
the Put Option Debt and to receive any and all payments or distributions to the
extent required in paragraph (d)(2) hereof.
e. Upon the happening of an Event of Default (as defined in the
Agreement) (other than in circumstances when the provisions of paragraph (d) are
applicable), then, unless and until such Event of Default shall have been
remedied or waived or shall have ceased to exist, no direct or indirect payment
(in cash, property or securities or by set-off or otherwise by debtor) shall be
made or agreed to be made on account of the Put Option Debt, or as a sinking
fund for the Put Option Debt, or in respect of any redemption, retirement,
purchase or other acquisition by debtor of the Put Option Debt.
f. If any payment or distribution of any character or any security,
whether in cash, securities or other property, shall be received by the Creditor
in contravention of any of the Subordination Provisions and before all the
Senior Debt shall have been paid in full, such payment or distribution or
security shall be received in trust for the benefit of, and shall be paid over
or delivered and transferred to, the holders of the Senior Debt for application
to the payment of all Senior Debt remaining unpaid, to the extent necessary to
pay all such Senior Debt in full. In the event of the failure of the Creditor
to endorse or assign any such payment, distribution or security, each holder of
any Senior Debt is hereby irrevocably authorized to endorse or assign the same.
g. (1) The rights under the Subordination Provisions of the holders
of the Senior Debt as against the Creditor shall remain in full force and effect
without regard to, and shall not be impaired or affected by:
(A) any act or failure to act on the part of any Debtor; or
(B) any extension or indulgence in respect of any payment or
prepayment of any Senior Debt or any part thereof or in respect of any other
amount payable to any holder of any Senior Debt; or
(C) any amendment, modification or waiver of, or addition or
supplement to, or deletion from, or compromise, release, consent or other action
in respect of any of the terms of the Senior Debt or any other agreement which
may be made relating to the Senior Debt including, without limitation any
amendment, waiver or supplement (I) increasing the interest rate payable with
respect to the Senior Debt, (II) making more restrictive any covenant, default,
or event of default applicable to any Debtor under the Agreement, or any other
agreements under which the Senior Debt is outstanding, (III) effecting a
restructuring increasing the aggregate principal amount of Senior Debt
outstanding at the time of such action or failure to act over the aggregate
principal amount of the Senior Debt outstanding on the Closing Date under the
Agreement or (IV) increasing any charges or other amounts payable under or with
respect to the Senior Debt; or
(D) any exercise or non-exercise by the holder of any Senior Debt
of any right, power, privilege or remedy under or in respect of such Senior
Debt, the Agreement or the Subordination Provisions or any waiver of any such
right, power, privilege or remedy or of any default in respect of the Senior
Debt, the Agreement, any other credit document or the Subordination Provisions,
or any receipt by the holder of any Senior Debt of any security,
2
<PAGE>
or any failure by such holder to perfect a security interest in, or any release
by such holder of, any security for the payment of the Senior Debt; or
(E) any merger, amalgamation or consolidation of any Debtor or any
affiliate thereof into or with any other person or entity, or any sale, lease or
transfer of any or all of the assets of any Debtor or any partner or affiliate
thereof to any other person or entity; or
(F) absence of any notice to, or knowledge by, the Creditor of the
existence or occurrence of any of the matters or events set forth in the
foregoing subparagraphs (A) through (E); or
(G) any other circumstances except as otherwise expressly agreed
by the holders of Senior Debt in writing.
(2) The Creditor unconditionally waives (a) notice of any of the
matters referred to in paragraph (g)(1) above, (b) all notices which may be
required, whether by statute, rule of law or otherwise, to preserve intact any
rights of any holder of any Senior Debt against any Debtor, including, without
limitation, any demand, presentment and protest, proof of notice of non-payment
under any Senior Debt, and notice of any failure on the part of any Debtor to
perform and comply with any covenant, agreement, term or condition of the Senior
Debt, (c) any right to the enforcement, assertion or exercise by any holder of
any Senior Debt of any right, power, privilege or remedy conferred in such
Senior Debt, the Agreement or any other credit document, or otherwise, (d) any
requirement of diligence on the part of any holder of any of the Senior Debt,
(e) any requirement on the part of any holder of any Senior Debt to mitigate
damages resulting from any default under the Senior Debt, the Agreement or any
other credit document, and (f) any notice of any sale, transfer or other
disposition of any Senior Debt by any holder thereof.
h. The obligations of the Creditor under the Subordination Provisions
shall continue to be effective, or be reinstated, as the case may be, if at any
time any payment in respect of any Senior Debt, or any other payment to any
holder of any Senior Debt in its capacity as such, is rescinded or must
otherwise be restored or returned by the holder of such Senior Debt upon the
occurrence of any Proceeding, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, any
Debtor or any substantial part of its property, or otherwise, all as though such
payment had not been made.
i. Subject to the rights of the holders of the Senior Debt as set
forth in the Subordination Provisions, nothing contained herein shall (i)
impair, as between any Debtor and the Creditor, the obligation of such Debtor to
pay to the Creditor, all amounts payable in respect of the Put Option Debt as
and when the same shall become due and payable in accordance with the terms of
this Subordination Form and (ii) given the prior written consent of the Required
Banks (made in their reasonable judgment taking into account the credit status
of the Borrower but otherwise not to be unreasonably withheld), prevent the
Creditor from exercising all rights, powers and remedies otherwise permitted by
applicable law or upon a default or event of default under any agreement
relating to the Put Option Debt.
j. The Creditor shall have no subrogation or other rights as the
holder of a Senior Debt, and the Creditor hereby waives all such rights of
subrogation and all rights of reimbursement or indemnity whatsoever and all
rights of recourse to any security for the Put Option Debt, until such time as
all holders of the Senior Debt shall have received payment in full and all of
the obligations of the Debtors under the Senior Debt and the other credit
documents shall have been duly performed. From and after the time at which all
holders of the Senior Debt have received payment in full, the Creditor shall be
subrogated to all rights of any holders of Senior Debt to receive any further
payments or distributions applicable to the Senior Debt until the Put Option
Debt shall have been paid in full, and for the purposes of such subrogation, no
payment or distribution received by the holders of Senior Debt of cash,
securities or other property to which the Creditor would have been entitled
except for the Subordination Provisions shall, as between such Debtor and its
other creditors other than the holders of the Senior Debt, on the one hand, and
the Creditor, on the other, be deemed to be payment or distribution by any
Debtor to or on account of the Senior Debt.
k. The Creditor agrees and undertakes that:
3
<PAGE>
(1) Without the prior written consent of the Required Banks, the
Creditor will not receive any payment in respect of the Put Option Debt,
accelerate, collect or enforce all or any portion of the Put Option Debt, take
any action to foreclose or realize upon any collateral securing the Put Option
Debt or enforce any subordinated debt agreement or other agreement to take any
action to commence a Proceeding against any Debtor; provided that anything in
the Subordination Provisions to the contrary notwithstanding:
(A) in the event that any Proceeding is commenced by or
against such Debtor, the Creditor may appear as a party in such action or
proceeding and assert and perfect its rights with respect to the Put Option
Debt; provided that, in so acting, the Creditor shall recognize the rights of
the holders of Senior Debt under the Subordination Provisions, including,
without limitation, the right to vote the claim represented by the Put Option
Debt to the extent necessary to enforce the Subordination Provisions; and
(B) so long as no Event of Default has occurred and is
continuing, the Creditor may receive payments in respect of the Put Option Debt
in accordance with the terms thereof; provided such payments are not prohibited
by the terms of the Senior Debt.
(2) If the Creditor, in violation of the provisions herein set
forth, shall commence, prosecute or participate in any suit, action, case or
proceeding against any Debtor, such Debtor may interpose as a defense or plea
the Subordination Provisions, and any holder of any Senior Debt may intervene
and interpose such defense or plea in its own name or in the name of such
Debtor, and shall, in any event, be entitled to restrain the enforcement of the
payment provisions of the Put Option Debt in its own name or in the name of such
Debtor, as the case may be, in the same suit, action, case or proceeding or in
any independent suit, action, case or proceeding.
(3) The Creditor will not take, obtain or hold (or permit anyone
acting on its behalf to take, obtain or hold) any assets of such Debtor, whether
as a result of any administrative, legal or equitable action, or otherwise, in
violation of tile Subordination Provision.
(4) Except as expressly provided in this Subordination Form,
without the prior written consent of the Required Banks, the Creditor will not
commence, prosecute or participate in (i) an administrative, legal or equitable
action against such Debtor relating to the Put Option Debt or (ii) any other
administrative, legal or equitable action relating to the Put Option Debt.
(5) The Creditor irrevocably appoints Banque Paribas (or any
successor agent on behalf of the Banks in respect of the Senior Debt) (the
"Agent") an attorney-in-fact for the Creditor with full authority in the place
and stead of the Creditor and in the name of the Creditor or otherwise, from
time to time to take any action and to execute any instrument which the Agent
may deem necessary or advisable to give effect to the Subordination Provisions.
l. For all purposes hereof, Senior Debt shall not be deemed paid in
full until all obligations in respect thereof shall have been fully satisfied in
cash denominated in U.S. dollars.
m. Synbiotics hereby agrees to provide RM with any notice that RM
might otherwise be entitled to receive but for the waiver contained in Section
g(2) of this Subordination Agreement, including, without limitation, notice of
any amendment, waiver or modification described in Section g(l)(C) of this
Subordination Agreement.
4
<PAGE>
Exhibit 10.66
- --------------------------------------------------------------------------------
SYNBIOTICS CORPORATION
Common Stock Purchase Warrant
Dated as of July 9, 1997
- --------------------------------------------------------------------------------
This Warrant and any shares acquired upon the exer cise of this Warrant
have not been registered under the Securities Act of 1933, as amended, and
may not be transferred, sold or otherwise disposed of except while a
registration under such Act is in effect or pursuant to an exemption
therefrom under such Act. This Warrant and such shares may be transferred
only in compliance with the conditions specified in this Warrant.
<PAGE>
<TABLE>
<C> <S> <C>
1. Exercise of Warrant.......................................... 1
1.1. Manner of Exercise.................................... 1
1.2. When Exercise Effective............................... 2
1.3. Delivery of Stock Certificates, etc................... 2
1.4. Company to Reaffirm Obligations....................... 2
1.5. Payment by Application of Notes....................... 2
1.6 Payment by Application of Shares Otherwise
Issuable............................................ 3
2. Adjustment of Common Stock Issuable Upon Exercise............ 3
2.1. General; Warrant Price................................ 3
2.2. Adjustment of Warrant Price........................... 4
2.2.1 Issuance of Additional Shares of
Common Stock................................. 4
2.2.2 Extraordinary Dividends and
Distributions................................ 4
2.3. Treatment of Options and
Convertible Securities.............................. 5
2.4. Treatment of Stock Dividends, Stock Splits, etc....... 8
2.5. Computation of Consideration.......................... 8
2.6. Adjustments for Combinations, etc..................... 10
2.7. Dilution in Case of Other Securities.................. 10
2.8. Minimum Adjustment of Warrant Price................... 10
3. Consolidation, Merger, etc................................... 10
3.1. Adjustments for Consolidation, Merger,
Sale of Assets, Reorganization, etc................. 10
3.2. Assumption of Obligations............................. 11
4. Other Dilutive Events........................................ 12
5. No Dilution or Impairment.................................... 12
6. Accountants' Report as to Adjustments........................ 13
7. Notices of Corporate Action.................................. 14
8. Registration of Common Stock................................. 14
9. Restrictions on Transfer..................................... 15
9.1. Restrictive Legends................................... 15
9.2. Notice of Proposed Transfer; Opinions of Counsel...... 16
9.3. Termination of Restrictions........................... 17
10. Availability of Information................................. 18
11. Reservation of Stock, etc................................... 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
12. Registration and Transfer of Warrants, etc.................. 19
12.1. Warrant Register; Ownership of Warrants............... 19
12.2. Transfer and Exchange of Warrants..................... 19
12.3. Replacement of Warrants............................... 19
13. Registration under Securities Act, etc...................... 20
13.1. Registration on Request............................... 20
13.2. Incidental Registration............................... 22
13.3. Registration Procedures............................... 24
13.4. Underwritten Offerings................................ 30
13.5. Preparation; Reasonable Investigation................. 33
13.6. Rights of Requesting Holders.......................... 33
13.7. Indemnification....................................... 34
14. Definitions................................................. 39
15. Remedies.................................................... 45
16. No Rights or Liabilities as Stockholder..................... 45
17. Notices..................................................... 45
18. Amendments.................................................. 45
19. Expiration.................................................. 45
20. Descriptive Headings........................................ 46
FORM OF SUBSCRIPTION............................................. 53
FORM OF ASSIGNMENT............................................... 54
</TABLE>
ii
<PAGE>
SYNBIOTICS CORPORATION
Common Stock Purchase Warrant
No. W-1 July 9, 1997
SYNBIOTICS CORPORATION (the "Company"), a California corporation, for
value received, hereby certifies that Banque Paribas, as agent on behalf of the
Banks named in the Credit Agreement (as defined below), or registered assigns,
is entitled to purchase from the Company 239,950 duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock, no par value per
share (the "Common Stock") of the Company at the purchase price per share of
$0.01, at any time or from time to time prior to 5:00 p.m., New York City time,
on May 31, 2007 (or such later date as may be determined pursuant to section
19), all subject to the terms, conditions and adjustments set forth below in
this Warrant.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants", such term to include any such warrants issued in substitution
therefor) originally issued in connection with the issuance by the Company of
Notes representing the obligations of the Company pursuant to the Credit
Agreement (the "Credit Agreement"), dated July 9, 1997, among Banque Paribas
(the "Purchaser"), the other Banks named therein, the Company and Banque
Paribas, acting in its capacity as agent for the Banks. The Warrants originally
so issued evidence rights to purchase an aggregate of 239,950 shares of Common
Stock subject to adjustment as provided herein. Certain capitalized terms used
in this Warrant are defined in section 14; references to an "Exhibit" are,
unless otherwise specified, to one of the Exhibits attached to this Warrant and
references to a "section" are, unless otherwise specified, to one of the
sections of this Warrant.
<PAGE>
1. Exercise of Warrant. 1.1. Manner of Exercise. This Warrant may
------------------- ------------------
be exercised by the holder hereof, with respect to all (but not less than all)
of the Common Stock subject hereto, during normal business hours on any Business
Day, by surrender of this Warrant to the Company at its principal office,
accompanied by a subscription in substantially the form attached to this Warrant
(or a reasonable facsimile thereof) duly executed by such holder and accompanied
by payment, in cash, by certified or official bank check payable to the order of
the Company, or in the manner provided in section 1.5 or section 1.6 (or by any
combination of such methods), in the amount obtained by multiplying (a) the
-
number of shares of Common Stock (without giving effect to any adjustment
thereof) designated in such subscription by (b) $0.01, and such holder shall
-
thereupon be entitled to receive the number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock (or Other Securities)
determined as provided in sections 2 through 4.
1.2. When Exercise Effective. The exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in section 1.1, and at such time the Person or Persons in whose name or
names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise as provided in section 1.3
shall be deemed to have become the holder or holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as practicable
-----------------------------------
after the exercise of this Warrant and in any event within five Business Days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the holder hereof or, subject to section 9, as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of duly authorized, validly is sued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash in an amount equal to the
same fraction of the Market Price per share on the Business Day next preceding
the date of such exercise.
1.4. Company to Reaffirm Obligations. The Company will, at the time
-------------------------------
of the exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder
2
<PAGE>
all rights (including, without limitation, any rights to registration of the
shares of Common Stock or Other Securities issued upon such exercise) to which
such holder shall continue to be entitled after such exercise in accordance with
the terms of this Warrant, provided that if the holder of this Warrant shall
--------
fail to make any such request, such failure shall not affect the continuing
obligation of the Company to afford such rights to such holder.
1.5. Payment by Application of Notes. Upon the exercise of this
-------------------------------
Warrant, the holder hereof may, at its option, instruct the Company, by written
notice accompanying the surrender of this Warrant at the time of such exercise,
to apply to the payment required by section 1.1 all or any part of the unpaid
principal amount of any one or more Notes at the time held by such holder which
is at such time due, in which case the Company will accept the principal amount
specified in such notice in satisfaction of a like amount of such payment. In
case less than the entire unpaid principal amount of any Note shall be so
specified, the principal amount so specified shall be credited, as of the date
of such exercise, against the required prepayments of principal then remaining
unpaid on such Note in the inverse order of their maturity dates. Upon any
partial application of a Note, the Company at its expense shall forthwith issue
and deliver to or upon the order of the holder thereof a new Note or Notes in
principal amount equal to the unpaid principal amount of such surrendered Note
which has not been applied against such payment, such new Note or Notes to be
dated and to bear interest from the date to which interest has been paid on such
surrendered Note. Within two Business Days after receipt of any such notice, the
Company will pay to the holder of the Notes giving such notice, in the manner
provided in the Notes and in the Credit Agreement, all unpaid interest on the
principal amount so specified in such notice, accrued to the date of the
exercise of such Warrant.
1.6 Payment by Application of Shares Otherwise Issuable. Upon the
---------------------------------------------------
exercise of this Warrant, the holder hereof may, at its option, instruct the
Company, by written notice accompanying the surrender of this Warrant at the
time of such exercise, to apply to the payment required by section 1.1 such
number of the shares of Common Stock otherwise issuable to such holder upon such
exercise as shall be specified in such notice, in which case an amount equal to
the excess of the aggregate Current Market Price of such specified number of
shares on the date of exercise over the portion of the payment required by
section 1.1 attributable to such shares shall
3
<PAGE>
be deemed to have been paid to the Company and the number of shares issuable
upon such exercise shall be reduced by such specified number.
2. Adjustment of Common Stock Issuable Upon Exercise. 2.1. General;
------------------------------------------------- --------
Warrant Price. The number of shares of Common Stock which the holder of this
- -------------
Warrant shall be entitled to receive upon the exercise hereof shall be
determined by multiplying the number of shares of Common Stock which would
otherwise (but for the provisions of this section 2) be issuable upon such
exercise, as designated by the holder hereof pursuant to section 1.1, by the
fraction of which (a) the numerator is $0.01 and (b) the denominator is the
- -
Warrant Price in effect on the date of such exercise. The "Warrant Price" shall
initially be $0.01 per share, shall be adjusted and readjusted from time to time
as provided in this section 2 and, as so adjusted or readjusted, shall remain in
effect until a further adjustment or readjustment thereof is required by this
section 2.
2.2. Adjustment of Warrant Price.
---------------------------
2.2.1 Issuance of Additional Shares of Common Stock. In case the
---------------------------------------------
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to section 2.3 or 2.4) without consideration
or for a consideration per share less than the greater of the Current Market
Price and the Warrant Price in effect immediately prior to such issue or sale,
then, and in each such case, subject to section 2.8, such Warrant Price shall be
reduced, concurrently with such issue or sale, to a price (calculated to the
nearest .001 of a cent) determined by multiplying such Warrant Price by a
fraction
(a) the numerator of which shall be (i) the number of shares of Common
-
Stock (including, without limitation, the number of shares of Common Stock
convertible or exchangeable to shares of Common Stock) outstanding
immediately prior to such issue or sale plus (ii) the number of shares of
--
Common Stock which the aggregate consideration received by the Company for
the total number of such Additional Shares of Common Stock so issued or
sold would purchase at the greater of such Current Market Price and such
Warrant Price, and
(b) the denominator of which shall be the number of shares of Common
Stock (including, without limitation, the number of shares of Common Stock
4
<PAGE>
convertible or exchangeable to shares of Common Stock) outstanding
immediately after such issue or sale,
provided that, for the purposes of this section 2.2.1, (x) immediately after any
- -------- -
Additional Shares of Common Stock are deemed to have been issued pursuant to
section 2.3 or 2.4, such Additional Shares shall be deemed to be outstanding,
and (y) treasury shares shall not be deemed to be outstanding.
-
2.2.2 Extraordinary Dividends and Distributions. In case the Company
-----------------------------------------
at any time or from time to time after the date hereof shall declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock, other than (a) a dividend
payable in Additional Shares of Common Stock or (b) a dividend payable in cash
or other property and declared out of the earned surplus of the Company as at
the date hereof as increased by any credits (other than credits resulting from a
revaluation of property) and decreased by any debits made thereto after such
date or (c) a regular periodic cash dividend at a rate not in excess of 110% of
the rate of the last regular periodic cash dividend theretofore paid, then, and
in each such case, subject to section 2.8, the Warrant Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of business
on such record date, to a price (calculated to the nearest .001 of a cent)
determined by multiplying such Warrant Price by a fraction
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, less
the amount of such dividend or distribution (as determined in good faith by
the Board of Directors of the Company) applicable to one share of Common
Stock, and
(y) the denominator of which shall be such Current Market Price.
2.3. Treatment of Options and Convertible Securities. In case the
------------------------------------------------
Company at any time or from time to
5
<PAGE>
time after the date hereof shall issue, sell, grant or assume, or shall fix a
record date for the determination of holders of any class of securities entitled
to receive, any Options or Convertible Securities, then, and in each such case,
the maximum number of Additional Shares of Common Stock (as set forth in the
instrument relating thereto, without regard to any provisions contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), provided that such Additional Shares of Common Stock shall not be
--------
deemed to have been issued unless the consideration per share (determined
pursuant to section 2.5) of such shares would be less than the greater of the
Current Market Price and the Warrant Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be, and provided, further, that in any such case in
-------- -------
which Additional Shares of Common Stock are deemed to be issued
(a) no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, except in the case of any such Options or
Convertible Securities which contain provisions requiring an adjustment,
subsequent to the date of the issue or sale thereof, of the number of
Additional Shares of Common Stock issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities by
reason of (x) a change of control of the Company, (y) the acquisition by
- -
any Person or group of Persons of any specified number or percentage of the
Voting Securities of the Company or (z) any similar event or occurrence,
-
each such case to be deemed hereunder to involve a separate issuance of
Additional Shares of Common Stock, Options or Convertible Securities, as
the case may be;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or
6
<PAGE>
otherwise, for any increase in the consideration payable to the Company, or
decrease in the number of Additional Shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof (by change of rate or
otherwise), the Warrant Price computed upon the original issue, sale, grant
or assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be, with
respect thereto), and any subsequent adjustments based thereon, shall, upon
any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options, or the rights
of conversion or exchange under such Convertible Securities, which are
outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation
or retirement) of any such Options which shall not have been exercised or
the expiration of any rights of conversion or exchange under any such
Convertible Securities which (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of conversion
or exchange under which) shall not have been exercised, the Warrant Price
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration received
therefor was the consideration actually received by the Company for
the issue, sale, grant or assumption of all such Options, whether or
not exercised, plus the consideration actually received by the Company
upon such exercise, or for the issue or sale of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Company
upon such conversion or exchange, and
7
<PAGE>
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the consideration received
by the Company for the Additional Shares of Common Stock deemed to
have then been issued was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to have been
received by the Company (pursuant to section 2.5) upon the issue or
sale of such Convertible Securities with respect to which such Options
were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Warrant Price by an amount in excess of
the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Warrant Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
------------------------------------------------
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
-
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
-
on the day immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this section
----------------------------
2,
8
<PAGE>
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of such
consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any expenses
paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
(ii) insofar as it consists of property (including securities)
other than cash, be computed at the fair value thereof at the time of
such issue or sale, as determined in good faith by the Board of
Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued or
sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of such
consideration so received, computed as provided in clauses (i) and
(ii) above, allocable to such Additional Shares of Common Stock, all
as determined in good faith by the Board of Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to section 2.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share
determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjust ment of such consideration
to protect against dilution) payable to the Company upon the exercise
in full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange
9
<PAGE>
of such Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a), by
(ii) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number to
protect against dilution) issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to section 2.4, relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the outstanding
----------------------------------
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
2.7. Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in section 3) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this section 2, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments and readjustments
provided for in this section 2 with respect to the Warrant Price shall be made
as nearly as possible in the manner so provided and applied to determine the
amount of Other Securities from time to time receivable upon the exercise of the
Warrants, so as to protect the holders of the Warrants against the effect of
such dilution.
2.8. Minimum Adjustment of Warrant Price. If the amount of any
-----------------------------------
adjustment of the Warrant Price required pursuant to this section 2 would be
less than one tenth
10
<PAGE>
(1/10) of one percent (1%) of the Warrant Price in effect at the time such
adjustment is otherwise so required to be made, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate at least one tenth (1/10)
of one percent (1%) of such Warrant Price.
3. Consolidation, Merger, etc. 3.1. Adjustments for
-------------------------- ---------------
Consolidation, Merger, Sale of Assets, Reorganization, etc. In case the
- -----------------------------------------------------------
Company after the date hereof (a) shall consolidate with or merge into any other
-
Person and shall not be the continuing or surviving corporation of such
consolidation or merger, or (b) shall permit any other Person to consolidate
-
with or merge into the Company and the Company shall be the continuing or
surviving Person but, in connection with such consolidation or merger, the
Common Stock or Other Securities shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other property, or (c) shall
-
transfer all or substantially all of its properties or assets to any other
Person, or (d) shall effect a capital reorganization or reclassification of the
-
Common Stock or Other Securities (other than a capital reorganization or
reclassification resulting in the issue of Additional Shares of Common Stock for
which adjustment in the Warrant Price is provided in section 2.2.1 or 2.2.2),
then, and in the case of each such transaction, proper provision shall be made
so that, upon the basis and the terms and in the manner provided in this
Warrant, the holder of this Warrant, upon the exercise hereof at any time after
the consummation of such transaction, shall be entitled to receive (at the
aggregate Warrant Price in effect at the time of such consummation for all
Common Stock or Other Securities issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such holder would actually have been entitled as
a shareholder upon such consummation if such holder had exercised the rights
represented by this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to the
adjustments provided for in sections 2 through 4, provided that if a purchase,
--------
tender or exchange offer shall have been made to and accepted by the holders of
more than 50% of the outstanding shares of Common Stock, and if the holder of
such Warrants so designates in a notice given to the Company on or before the
date immediately preceding the date of the consummation of such transaction, the
holder
11
<PAGE>
of such Warrants shall be entitled to receive the highest amount of securities,
cash or other property to which such holder would actually have been entitled as
a shareholder if the holder of such Warrants had exercised such Warrants prior
to the expiration of such purchase, tender or exchange offer and accepted such
offer, subject to adjustments (from and after the consummation of such purchase,
tender or exchange offer) as nearly equivalent as possible to the adjustments
provided for in sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything contained
-------------------------
in the Warrants or in the Credit Agreement to the contrary, the Company will not
effect any of the transactions described in clauses (a) through (d) of section
3.1 unless, prior to the consummation thereof, each Person (other than the
Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the holder of
this Warrant, (a) the obligations of the Company under this Warrant (and if the
-
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Warrant) and (b) the obligation to deliver
-
to such holder such shares of stock, securities, cash or property as, in
accordance with the foregoing provisions of this section 3, such holder may be
entitled to receive, and such Person shall have similarly delivered to such
holder an opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including, without limitation,
all of the provisions of this section 3) shall be applicable to the stock,
securities, cash or property which such Person may be required to deliver upon
any exercise of this Warrant or the exercise of any rights pursuant hereto.
Nothing in this section 3 shall be deemed to authorize the Company to enter into
any transaction not otherwise permitted by the Credit Agreement.
4. Other Dilutive Events. In case any event shall occur as to which
---------------------
the provisions of section 2 or section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of
12
<PAGE>
the Company), which shall give their opinion upon the adjustment, if any, on a
basis consistent with the essential intent and principles established in
sections 2 and 3, necessary to preserve, without dilution, the purchase rights
represented by this Warrant. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the holder of this Warrant and shall make the
adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against dilution or other impairment. Without limiting
the generality of the foregoing, the Company (a) will not permit the par value
-
of any shares of stock receivable upon the exercise of this Warrant to exceed
the amount payable therefor upon such exercise, (b) will take all such action as
-
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock on the exercise of
the Warrants from time to time outstanding, (c) will not take any action which
-
results in any adjustment of the Warrant Price if the total number of shares of
Common Stock (or Other Securities) issuable after the action upon the exercise
of all of the Warrants would exceed the total number of shares of Common Stock
(or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issue upon such exercise, and (d)
-
will not issue any capital stock of any class which is preferred as to dividends
or as to the distribution of assets upon voluntary or involuntary dissolution,
liquidation or winding-up, unless the rights of the holders thereof shall be
limited to a fixed sum or percentage of par value or a sum determined by
reference to a formula based on a published index of interest rates, an interest
rate publicly announced by a financial institution or a similar indicator of
interest rates in respect of participation in dividends and to a fixed sum or
percentage of par value in any such distribution of assets.
6. Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
13
<PAGE>
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and cause independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company) and prepare a report setting forth such adjustment or readjustment and
showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the consideration received or to be received by the Company for any
-
Additional Shares of Common Stock issued or sold or deemed to have been issued,
(b) the number of shares of Common Stock outstanding or deemed to be
-
outstanding, and (c) the Warrant Price in effect immediately prior to such issue
-
or sale and as adjusted and readjusted (if required by section 2) on account
thereof. The Company will forthwith mail a copy of each such report to each
holder of a Warrant and will, upon the written request at any time of any holder
of a Warrant, furnish to such holder a like report setting forth the Warrant
Price at the time in effect and showing in reasonable detail how it was
calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any holder of a Warrant or any
prospective purchaser of a Warrant designated by the holder thereof.
7. Notices of Corporate Action. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a regular periodic dividend
payable in cash out of earned surplus in an amount not exceeding the amount
of the immediately preceding cash dividend for such period) or other
distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation
or merger involving the Company and any other Person or any transfer of all
or substantially all the assets of the Company to any other Person, or
14
<PAGE>
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
-
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
--
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 45 days prior to the date therein specified.
8. Registration of Common Stock. If any shares of Common Stock
----------------------------
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares to be duly registered or approved, as the
case may be. At any such time as Common Stock is listed on any national
securities exchange, the Company will, at its expense, obtain promptly and
maintain the approval for listing on each such exchange, upon official notice of
issuance, the shares of Common Stock issuable upon exercise of the then
outstanding Warrants and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities exchange,
will register under the Exchange Act and will maintain such listing of, any
Other Securities that at any time are issuable upon exercise of the Warrants, if
and at the time that any securities of the same class shall be listed on such
national securities exchange by the Company.
9. Restrictions on Transfer. 9.1. Restrictive Legends. Except as
------------------------ -------------------
otherwise permitted by this section 9, each Warrant (including each Warrant
issued upon the transfer of any Warrant) shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"This Warrant and any shares acquired upon
15
<PAGE>
the exercise of this Warrant have not been registered under the Securities
Act of 1933, as amended, and may not be transferred, sold or otherwise
disposed of except while a registration under such Act is in effect or
pursuant to an exemption therefrom under such Act. This Warrant and such
shares may be transferred only in compliance with the conditions specified
in this Warrant."
Except as otherwise permitted by this section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be transferred in the absence
of such registration or an exemption therefrom under such Act. Such shares
may be transferred only in compliance with the conditions specified in
that certain Common Stock Purchase Warrant, dated July 9, 1997, between
Synbiotics Corporation and Banque Paribas. A complete and correct copy of
the form of such Warrant is available for inspection at the principal
office of Synbiotics Corporation or at the office or agency maintained by
Synbiotics Corporation as provided in such Warrants and will be furnished
to the holder of such shares upon written request and without charge."
9.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to any
------------------------------------------------
transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof
will give written notice to the Company of such holder's intention to effect
such transfer and to comply in all other respects with this section 9.2. Each
such notice (a) shall describe the manner and circumstances of the proposed
-
transfer in sufficient detail to enable counsel to render the opinions referred
to below, and (b) shall designate counsel for the holder giving such notice (who
-
may be house counsel for such holder). The holder giving such notice will
submit a copy thereof to the counsel designated in such notice and the Company
will promptly submit a copy thereof to its counsel. The following provisions
shall then apply:
(i) If (A) in the opinion of such counsel
-
16
<PAGE>
for the holder the proposed transfer may be effected without
registration of such Restricted Securities under the Securities Act,
and (B) counsel for the Company shall not have rendered an opinion
-
within 15 days after the receipt by the Company of such written notice
that such registration is required, such holder shall thereupon be
entitled to transfer such securities in accordance with the terms of
the notice delivered by such holder to the Company. Each warrant or
certificate, if any, representing such securities issued upon or in
connection with such transfer shall bear the appropriate restrictive
legend required by section 9.1, unless in the opinion of each such
counsel such legend is no longer required to insure compliance with
the Securities Act. If for any reason counsel for the Company (after
having been furnished with the information required to be furnished by
clause (a) of this section 9.2) shall fail to deliver an opinion to
the Company as aforesaid, then for all purposes of this Warrant the
opinion of counsel for the Company shall be deemed to be the same as
the opinion of counsel for such holders.
(ii) If in the opinion of either of or both such counsel the
proposed transfer may not legally be effected without registration of
such Restricted Securities under the Securities Act (such opinion or
opinions to state the basis of the legal conclusions reached therein),
the Company will promptly so notify the holder thereof and thereafter
such holder shall not be entitled to transfer such Restricted
Securities until either (x) receipt by the Company of a further notice
-
from such holder pursuant to the foregoing provisions of this section
9.2 and fulfillment of the provisions of clause (i) above or (y) such
-
shares have been effectively registered under the Securities Act.
Notwithstanding the foregoing provisions of this section 9.2(ii), the purchaser
of the Warrants shall be permitted to transfer any Restricted Securities to a
limited number of institutional investors, provided that (A) each such investor
-------- -
represents in writing that it is acquiring such Restricted Securities for
investment and not with a view to the distribution thereof (subject, however, to
any requirement of law that the disposition thereof shall at all times be within
the control of such transferee), (B) each such investor agrees in writing
-
to be bound by all
17
<PAGE>
the restrictions on transfer of such Restricted Securities contained in this
section 9.2 and (C) the purchaser of the Warrants delivers to the Company an
-
opinion of counsel satisfactory to the Company, stating that such transfer may
be effected without registration under the Securities Act. The Company will pay
the reasonable fees and disbursements of counsel (other than in-house counsel)
for any holder of Restricted Securities and of counsel for the Company in
connection with all opinions rendered by them pursuant to this section 9.2 and
pursuant to section 9.3.
9.3. Termination of Restrictions. The restrictions imposed by this
---------------------------
section 9 upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when such securities
-
shall have been effectively registered under the Securities Act, or (b) when, in
-
the opinions of both counsel for the holder thereof and counsel for the Company,
such restrictions are no longer required in order to insure compliance with the
Securities Act. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the holder thereof shall be entitled to receive from the
Company, without expense (other than applicable transfer taxes, if any), new
securities of like tenor not bearing the applicable legends required by section
9.1.
10. Availability of Information. So long as the Company shall not
---------------------------
have filed a registration statement pursuant to section 12 of the Exchange Act
or a registration statement pursuant to the requirements of the Securities
Act, the Company shall, at any time and from time to time, upon the request of
any holder of Registrable Securities and upon the request of any Person
designated by such holder as a prospective purchaser of any Registrable
Securities, furnish in writing to such holder or such prospective purchaser, as
the case may be, a statement as of a date not earlier than 12 months prior to
the date of such request of the nature of the business of the Company and the
products and services it offers and copies of the Company's most recent balance
sheet and profit and loss and retained earnings statements, together with
similar financial statements for such part of the two preceding fiscal years as
the Company shall have been in operation, all such financial statements to be
audited to the extent audited statements are reasonably available, provided
--------
that, in any event the most recent financial statements so furnished shall
include a balance sheet as of a date less than 16 months prior to the date of
such request, statements of profit and loss and retained earnings for the 12
months preceding the date of such balance sheet, and, if such balance sheet is
not as of a
18
<PAGE>
date less than 6 months prior to the date of such request, additional statements
of profit and loss and retained earnings for the period from the date of such
balance sheet to a date less than 6 months prior to the date of such request. If
the Company shall have filed a registration statement pursuant to the
requirements of section 12 of the Exchange Act or a registration statement
pursuant to the requirements of the Securities Act, the Company shall timely
file the reports required to be filed by it under the Securities Act and the
Exchange Act (including but not limited to the reports under sections 13 and
15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 adopted by
the Commission under the Securities Act) and the rules and regulations adopted
by the Commission thereunder (or, if the Company is not required to file such
reports, will, upon the request of any holder of Registrable Securities, make
publicly available other information) and will take such further action as any
holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
-
be amended from time to time, or (b) any similar rule or regulation hereafter
-
adopted by the Commission. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with the requirements of this section 10.
11. Reservation of Stock, etc. The Company will at all times reserve
--------------------------
and keep available, solely for issuance and delivery upon exercise of the
Warrants, the number of shares of Common Stock (or Other Securities) from time
to time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof.
12. Registration and Transfer of Warrants, etc.
-------------------------------------------
12.1. Warrant Register; Ownership of Warrants. The Company will keep
---------------------------------------
at its principal office a register in which the Company will provide for the
registration of Warrants and the registration of transfers of Warrants. The
Company may treat the Person in whose name any Warrant is registered on such
register as the owner thereof for
19
<PAGE>
all other purposes, and the Company shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
12.2. Transfer and Exchange of Warrants. Upon surrender of any
---------------------------------
Warrant for registration of transfer or for exchange to the Company at its
principal office, the Company at its expense will (subject to compliance with
section 9, if applicable) execute and deliver in exchange therefor a new Warrant
or Warrants of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so surrendered.
12.3. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant,
upon delivery of an indemnity bond in such reason able amount as the Company may
determine (or, in the case of any Warrant held by any Institutional Holder or
its nominee, of an indemnity agreement from such Institutional Holder reasonably
satisfactory to the Company), or, in the case of any such mutilation, upon the
surrender of such Warrant for cancellation to the Company at its principal
office, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
13. Registration under Securities Act, etc.
---------------------------------------
13.1. Registration on Request.
-----------------------
(a) Request. At any time after July 9, 1997, upon the written request
-------
of the majority of the Initiating Holders, requesting that the Company
effect the registration under the Securities Act of all or part of such
Initiating Holders' Registrable Securities and specifying the intended
method of disposition thereof, the Company will, subject to the terms of
this Agreement, promptly give written notice of such requested registration
to all registered holders of Registrable Securities, and thereupon the
Company will effect the registration under the Securities Act of
20
<PAGE>
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders for disposition in
accordance with the intended method of disposition stated in such
request, and
(ii) all other Registrable Securities the holders of which shall
have made a written request to the Company for registration thereof
within 30 days after the giving of such written notice by the Company
(which request shall specify the intended method of disposition of
such Registrable Securities), and
(iii) all shares of Common Stock which the Company may elect to
register in connection with the offering of Registrable Securities
pursuant to this section 13.1,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional shares of Common Stock, if any so to be registered. The Holder shall
be entitled to one, and only one, registration, under this Section 13.1.
(b) Registration Statement Form. Registrations under this section
---------------------------
13.1 shall be on such appropriate registration form of the Commission (i)
-
as shall be selected by the Company and as shall be reasonably acceptable
to the holders of more than 50% (by number of shares) of the Registrable
Securities so to be registered and (ii) as shall permit the disposition of
--
such Registrable Securities in accordance with the intended method or
methods of disposition specified in their request for such registration.
The Company agrees to include in any such registration statement all
information which holders of Registrable Securities being registered shall
reasonably request.
(c) Expenses. The Company will pay all Registration Expenses in
--------
connection with any registration requested pursuant to this section 13.1 by
any Initiating Holders of Registrable Securities. The Registration
Expenses (and underwriting discounts and commissions and transfer taxes, if
any) in connection with each other registration requested under this
section 13.1 shall be allocated pro rata among all Persons on whose behalf
securities of the Company are included in such registration, on the basis
of the respective amounts of the securities then being
21
<PAGE>
registered on their behalf.
(d) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this section 13.1 shall not be deemed to have been effected (i)
-
unless a registration statement with respect thereto has become effective,
provided that a registration which does not become effective after the
--------
Company has filed a registration statement with respect thereto solely by
reason of the refusal to proceed of the Initiating Holders (other than a
refusal to proceed based upon the advice of counsel relating to a matter
with respect to the Company) shall be deemed to have been effected by the
Company at the request of such Initiating Holders unless the Initiating
Holders shall have elected to pay all Registration Expenses in connection
with such registration, (ii) if, after it has become effective, such
--
registration becomes subject to any stop order, injunction or other order
or requirement of the Commission or other governmental agency or court for
any reason, or (iii) the conditions to closing specified in the purchase
---
agreement or underwriting agreement entered into in connection with such
registration are not satisfied, other than by reason of some act or
omission by such Initiating Holders.
(e) Selection of Underwriters. If a requested registration pursuant
-------------------------
to this section 13.1 involves an underwritten offering, the underwriter or
underwriters thereof shall be selected by the holders of at least a
majority (by number of shares) of the Registrable Securities as to which
registration has been requested, subject to the Company's consent (which
shall not be unreasonably withheld).
(f) Priority in Requested Registrations. If a requested registration
-----------------------------------
pursuant to this section 13.1 involves an underwritten offering, and the
managing underwriter shall advise the Company in writing (with a copy to
each holder of Registrable Securities requesting registration) that, in its
opinion, the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering within a
price range acceptable to the holders of a majority of the Registrable
Securities requested to be included in such registration, the Company will
include in such registration, to the extent of the number which the Company
is so advised can be sold in such offering, Registrable Securities
requested to be included in such registration by the holder or holders of
Registrable Securities, pro rata
--- ----
22
<PAGE>
among the holders thereof such holders requesting such registration on the
basis of the number of such securities requested to be included by such
holders. In connection with any such registration, no securities other
than Registrable Securities shall be covered by such registration.
23
<PAGE>
13.2. Incidental Registration.
-----------------------
24
<PAGE>
(a) Right to Include Registrable Securities. If the Company at any
---------------------------------------
time proposes to register any of its securities under the Securities Act
(other than by a registration on Form S-4 or S-8 or any successor or
similar forms and other than pursuant to section 13.1), whether or not for
sale for its own account, it will each such time give prompt written notice
to all holders of Registrable Securities of its intention to do so and of
such holders' rights under this section 13.2. Upon the written request of
any such holder made within 30 days after the receipt of any such notice
(which request shall specify the Registrable Securities intended to be
disposed of by such holder and the intended method of disposition thereof),
the Company will, subject to the terms of this Agreement, effect the
registration under the Securities Act of all Registrable Securities which
the Company has been so requested to register by the holders thereof, to
the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to
be registered, by inclusion of such Registrable Securities in the
registration statement which covers the securities which the Company
proposes to register, provided that if, at any time after giving written
--------
notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason either not to
register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to each holder of
Registrable Securities and, thereupon, (i) in the case of a determination
-
not to register, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith),
without prejudice, however, to the rights of any holder or holders of
Registrable Securities entitled to do so to request that such registration
be effected as a registration under section 13.1, and (ii) in the case of a
--
determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering
such other securities. No registration effected under this section 13.2
shall relieve the Company of its obligation to effect any registration upon
request under section 13.1 nor shall any such registration hereunder be
deemed to have been effected pursuant to section 13.1. The Company will pay
all Registration Expenses
25
<PAGE>
in connection with each registration of Registrable Securities requested
pursuant to this section 13.2.
(b) Priority in Incidental Registrations. If (i) a registration
------------------------------------ -
pursuant to this section 13.2 involves an underwritten offering of the
securities so being registered, whether or not for sale for the account of
the Company, to be distributed (on a firm commitment basis) by or through
one or more underwriters of recognized standing under underwriting terms
appropriate for such a transaction, (ii) the Registrable Securities so
--
requested to be registered for sale for the account of holders of
Registrable Securities are not also to be included in such under written
offering (either because the Company has not been requested so to include
such Registrable Securities pursuant to section 13.4(b) or, if requested
to do so, is not obligated to do so under section 13.4(b)), and (iii) the
---
managing underwriter of such underwritten offering shall inform the Company
and holders of the Registrable Securities requesting such registration by
letter of its belief that the distribution of all or a specified number of
such Registrable Securities concurrently with the securities being
distributed by such underwriters would interfere with the successful
marketing of the securities being distributed by such underwriters (such
writing to state the basis of such belief and the approximate number of
such Registrable Securities which may be distributed without such effect),
then the Company may, upon written notice to all holders of such
Registrable Securities, reduce pro rata (if and to the extent stated by
--------
such managing underwriter to be necessary to eliminate such effect) the
number of such Registrable Securities the registration of which shall have
been requested by each holder of Registrable Securities so that the
resultant aggregate number of such Registrable Securities so included in
such registration shall be equal to the number of shares stated in such
managing underwriter's letter.
13.3. Registration Procedures. If and whenever (a) the Company is
----------------------- -
required to effect the registration of any Registrable Securities under the
Securities Act as provided in sections 13.1 and 13.2 or (b) there is a
-
Requesting Holder in connection with any other proposed registration by the
Company under the Securities Act, the Company shall, as expeditiously as
possible:
(i) prepare and (within 60 days after the end of the period
within which requests for
26
<PAGE>
registration may be given to the Company or in any event as soon
thereafter as possible) (in the case of a registration pursuant to
section 13.1, such filing to be made within 60 days after the initial
request of one or more Initiating Holders of Registrable Securities
or in any event as soon thereafter as possible) file with the
Commission the requisite registration statement to effect such
registration (including such audited financial statements as may be
required by the Securities Act or the rules and regulations
promulgated thereunder) and there after use its best efforts to cause
such registration statement to become and remain effective, provided,
--------
however, that the Company may discontinue any registration of its
securities which are not Registrable Securities (and, under the
circumstances specified in section 13.2(a), its securities which are
Registrable Securities) at any time prior to the effective date of the
registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement until the earlier of such time
as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement or (i) in the case of a
-
registration pursuant to section 13.1, the expiration of 180 days
after such registration statement becomes effective, or (ii) in the
--
case of a registration pursuant to section 13.2, the expiration of 90
days after such registration statement becomes effective;
(iii) furnish to each seller of Registrable Securities covered
by such registration statement and each Requesting Holder and each
underwriter, if any, of the securities being sold by such seller such
number of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained in such
registration statement (including each preliminary
27
<PAGE>
prospectus and any summary prospectus) and any other prospectus filed
under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller and underwriter, if any, may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities owned by such seller;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities laws or blue sky laws of such
jurisdictions as any seller thereof and any underwriter of the
securities being sold by such seller and any Requesting Holder shall
reasonably request, to keep such registrations or qualifications in
effect for so long as such registration statement remains in effect,
and take any other action which may be reasonably necessary or
advisable to enable such seller and underwriter to consummate the
disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
this subdivision (iv) be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities and each
Requesting Holder a signed counterpart, addressed to such seller, such
Requesting Holder and the underwriters, if any, an opinion of counsel
for the Company, dated the effective date of such registration
statement (or, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the
underwriting agreement), reasonably satisfactory in form and
28
<PAGE>
substance to such seller,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to the underwriters in underwritten public
offerings of securities (with, in the case of an "agreed upon procedures"
letter, such modifications or deletions as may be required under Statement on
Auditing Standards No. 35) and, in the case of the accountants' letter, such
other financial matters, and, in the case of the legal opinion, such other
legal matters, as such seller or such Requesting Holder (or the underwriters, if
any) may reasonably request;
(vii) notify the holders of Registrable Securities and the
managing underwriter or underwriters, if any, promptly and confirm
such advice in writing promptly thereafter:
(v) when the registration statement, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the registration
statement has been filed, and, with respect to the registration statement or any
post-effective amendment thereto, when the same has become effective;
(w) of any request by the Commission for amendments or supplements to
the registration statement or the prospectus or for additional information;
(x) of the issuance by the Commission of any stop order suspending
the effectiveness of the registration statement or the initiation of any
proceedings by any Person for that purpose;
(y) if at any time the representations and warranties of the Company
made as contemplated by section 2.4 below cease to be true and correct;
(z) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale
under the securities or blue sky laws of any jurisdiction or the initiation or
threat of any proceeding for such purpose;
(viii) notify each seller of Registrable Securities covered by
such registration statement and each Requesting Holder, at any time
29
<PAGE>
when a prospectus relating thereto is required to be delivered under
the Securities Act, upon the Company's discovery that, or upon 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 any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing
under which they were made, and at the request of any such seller or
Requesting Holder promptly prepare and furnish to such seller or
Requesting Holder and each underwriter, if any, a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit 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 under which they were
made;
(ix) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first day of the Company's
first full calendar month quarter after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder, and will furnish to each such seller and each Requesting
Holder at least five business days prior to the filing thereof a copy
of any amendment or supplement to such registration statement or
prospectus and shall not file any thereof to which any such seller or
any Requesting Holder shall have reasonably objected on the grounds
that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or of the rules
or regulations thereunder;
(x) make available for inspection by a representative or
representatives of the holders of Registrable Securities, each such
representative
30
<PAGE>
representing the holders of not less than a majority of the
Registrable Securities included in the registration, any underwriter
participating in any disposition pursuant to the registration
statement and any attorney or accountant retained by such selling
holders or underwriter (each, an "Inspector"), all financial and
other records, pertinent corporate documents and properties of the
Company (the "Records"), and cause the Company's officers, directors
and employees to supply all information reasonably requested by any
such Inspector in connection with such registration in order to permit
a reasonable investigation within the meaning of Section 11 of the
Securities Act, provided that the Company shall not be required to
--------
comply with this subdivision (xi) if there is a reasonable likelihood,
in the judgment of the Company, that such delivery could result in the
loss of any attorney-client privilege related thereto; and provided
--------
further that Records which the Company determines, in good faith, to
-------
be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors (other than to any holder of
Registrable Securities) unless (x) such Records have become generally
-
available to the public or (y) the disclosure of such Records may be
-
necessary or appropriate (A) in compliance with any law, rule,
-
regulation or order applicable to any such Inspectors or holder of
Registrable Securities, (B) in response to any subpoena or other
-
legal process or (C) in connection with any litigation to which such
-
Inspectors or any holder of Registrable Securities is a party;
(xi) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement;
(xii) enter into such agreements and take such other actions as
sellers of such Registrable Securities holding 51% of the shares so
to be sold shall reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities;
(xiii) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on
31
<PAGE>
which any of the securities of the same class as the Registrable
Securities are then listed; and
(xiv) use its best efforts to provide a CUSIP number for the
Registrable Securities, not later than the effective date of the
registration statement.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (vii) of this
section 13.3, such holder will forthwith discontinue such holder's disposition
of Registrable Securities pursuant to the registration statement relating to
such Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
section 13.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the period mentioned in paragraph (ii) of
this section 13.3 shall be extended by the length of the period from and
including the date when each seller of any Registrable Securities covered by
such registration statement shall have received such notice to the date on which
each such seller has received the copies of the supplemented or amended
prospectus contemplated by paragraph (vii) of this section 13.3.
If any such registration or comparable statement refers to any holder
of Registrable Securities by name or otherwise as the holder of any securities
of the Company then such holder shall have the right to require (i) the
-
insertion therein of language, in form and substance satisfactory to such
holder, to the effect that the holding by such holder of such securities is not
to be construed as a recommendation by such holder of the investment quality of
the Company's securities covered thereby and that such holding does not imply
that such holder will assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to such holder by name or
--
otherwise is not
32
<PAGE>
required by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such holder.
13.4. Underwritten Offerings.
----------------------
(a) Requested Underwritten Offerings. If requested by the
--------------------------------
underwriters for any underwritten offering by holders of Registrable
Securities pursuant to a registration requested under section 13.1, the
Company will enter into an underwriting agreement with such underwriters
for such offering, such agreement to be satisfactory in substance and form
to the Company, each such holder and the underwriters, and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in section
13.7. The holders of the Registrable Securities will cooperate with the
Company in the negotiation of the underwriting agreement and will give
consideration to the reasonable suggestions of the Company regarding the
form thereof, provided that nothing herein contained shall diminish the
foregoing obligations of the Company. The holders of Registrable Securities
to be distributed by such underwriters shall be parties to such
underwriting agreement and may, at their option, require that any or all of
the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be
made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to
the obligations of such holders of Registrable Securities. Any such holder
of Registrable Securities shall not be required to make any representations
or warranties to or agreements with the Company or the underwriters other
than representations and warranties contained in a writing furnished by
such holder expressly for use in such registration statement or agreements
regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation
required by law.
(b) Incidental Underwritten Offerings. If the Company at any time
---------------------------------
proposes to register any of its securities under the Securities Act as
contemplated by section 13.2 and such securities are to be
33
<PAGE>
distributed by or through one or more underwriters, the Company will, if
requested by any holder of Registrable Securities as provided in section
13.2 and subject to the provisions of section 13.2(b), use its best efforts
to arrange for such underwriters to include all the Registrable Securities
to be offered and sold by such holder among the securities to be
distributed by such underwriters. The holders of Registrable Securities to
be distributed by such underwriters shall be parties to the underwriting
agreement between the Company and such underwriters and may, at their
option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit
of such underwriters shall also be made to and for the benefit of such
holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of such holders of
Registrable Securities. Any such holder of Registrable Securities shall not
be required to make any representations or warranties to or agreements with
the Company or the underwriters other than representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and
such holder's intended method of distribution and any other representation
required by law.
(c) Holdback Agreements.
-------------------
(i) Each holder of Registrable Securities agrees by acquisition
of such Registrable Securities, if so required by the managing under
writer, not to sell, make any short sale of, loan, grant any option
for the purchase of, effect any public sale or distribution of or
otherwise dispose of any equity securities of the Company, during the
seven days prior to and the 90 days after any underwritten
registration pursuant to section 13.1 or 13.2 has become effective,
except as part of such underwritten registration. Notwithstanding the
foregoing sentence, each holder of Registrable Securities subject to
the foregoing sentence shall be entitled to sell during the foregoing
period securities in a private sale.
(ii) The Company agrees (x) if so required by the managing
-
underwriter not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or
34
<PAGE>
distribution of or otherwise dispose of its equity securities or
securities convertible into or exchangeable or exercisable for any of
such securities during the seven days prior to and the 90 days after
any underwritten registration pursuant to section 13.1 or 13.2 has
become effective, except as part of such underwritten registration
and except pursuant to registrations on Form S-4, S-8 or any successor
or similar forms thereto, and (y) to cause each holder of its equity
securities or any securities convertible into or exchangeable or
exercisable for any of such securities, in each case purchased
directly from the Company at any time after the date of this Agreement
(other than in a public offering) to agree not to sell, make any short
sale of, loan, grant any option for the purchase of, effect any such
public sale or distribution of or otherwise dispose of such securities
during such period except as part of such underwritten registration.
(d) Participation in Underwritten Offerings. No Person may
----------------------------------------
participate in any underwritten offering hereunder unless such Person (i) agrees
-
to sell such Person's securities on the basis provided in any underwriting
arrangements approved, subject to the terms and conditions hereof, by the
Company and the holders of a majority of Registrable Securities to be included
in such underwritten offering and (ii) completes and executes all
--
questionnaires, indemnities, underwriting agreements and other documents (other
than powers of attorney) required under the terms of such underwriting
arrangements. Notwithstanding the foregoing, no underwriting agreement (or other
agreement in connection with such offering) shall require any holder of
Registrable Securities to make any representations or warranties to or
agreements with the Company or the underwriters other than representations and
warranties contained in a writing furnished by such holder expressly for use in
the related registration statement or agreements regarding such holder, such
holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
13.5. Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, each Requesting Holder and their respective counsel and accountants, the
35
<PAGE>
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
13.6. Rights of Requesting Holders. The Company will not file any
----------------------------
registration statement under the Securities Act (other than by a registration
on Form S-8), unless it shall first have given to each holder of Registrable
Securities at the time outstanding (other than any such Person who acquired all
such securities held by such Person in a public offering registered under the
Securities Act or as the direct or indirect transferee of shares initially
issued in such an offering), at least 30 days prior written notice thereof. Any
such Person who shall so request within 30 days after such notice (a "Requesting
Holder") shall have the rights of a Requesting Holder provided in sections 13.3,
13.5 and 13.7. In addition, if any such registration statement refers to any
Requesting Holder by name or otherwise as the holder of any securities
of the Company, then such holder shall have the right to require (a) the
-
insertion therein of language, in form and substance satisfactory to such
holder, to the effect that the holding by such holder of such securities does
not necessarily make such holder a "controlling person" of the Company within
the meaning of the Securities Act and is not to be construed as recommendation
by such holder of the investment quality of the Company's debt or equity
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (b)
-
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any rules and regulations promulgated
thereunder, the deletion of the reference to such holder.
13.7. Indemnification.
---------------
(a) Indemnification by the Company. In the event of any registration
------------------------------
of any securities of the Company under the Securities Act, the Company
will, and hereby does, indemnify and hold harmless (i) in the case of any
-
registration statement filed pursuant to section 13.1 or 13.2, the holder
of any Registrable Securities covered by such registration
36
<PAGE>
statement, its directors and officers, each other Person who participates
as an underwriter in the offering or sale of such securities and each other
Person, if any, who controls such holder or any such underwriter within the
meaning of the Securities Act, and (ii) in the case of any registration
--
statement of the Company, any Requesting Holder, its directors and officers
and each other Person, if any, who controls such Requesting Holder within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such holder or Requesting Holder or
any such director or officer or underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse such
holder, such Requesting Holder and each such director, officer, underwriter
and controlling person for any legal or any other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, liability, action or proceeding, provided that the Company
--------
shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by such holder or Requesting Holder, as the case may be,
specifically stating that it is for use in the preparation thereof and,
provided, further that the Company shall not be liable to any Person who
-------- -------
participates as an underwriter, in the offering or sale of Registrable
Securities or to any other Person, if any, who controls such underwriter
within the meaning of the Securities Act, in any such case to the extent
that any such loss, claim, damage,
37
<PAGE>
liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, within the
time required by the Securities Act to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to
such Person if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such holder or such Requesting
Holder or any such director, officer, underwriter or controlling person and
shall survive the transfer of such securities by such holder.
(b) Indemnification by the Sellers. The Company may require, as a
------------------------------
condition to including any Registrable Securities in any registration
statement filed pursuant to section 13.3, that the Company shall have
received an undertaking satisfactory to it from the prospective seller of
such Registrable Securities, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this
section 13.7) the Company, each director of the Company, each officer of
the Company and each other person, if any, who controls the Company within
the meaning of the Securities Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if
such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such seller
specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Any such indemnity shall remain in
full force and effect, regardless of any investigation made by or on behalf
of the Company or any such director, officer or controlling person and
shall survive the transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
-----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of
38
<PAGE>
this section 13.7, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to
the latter of the commencement of such action, provided that the failure of
any indemnified party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under the preceding subdivisions
of this section 13.7, except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to
the extent that the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the consent of
the indemnified party, consent to entry of any judgment or enter into any
settlement of any such action which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified
party of a release from all liability, or a covenant not to sue, in respect
to such claim or litigation. No indemnified party shall consent to entry of
any judgment or enter into any settlement of any such action the defense of
which has been assumed by an indemnifying party without the consent of such
indemnifying party.
(d) Other Indemnification. Indemnification similar to that specified
---------------------
in the preceding subdivisions of this section 13.7 (with appropriate
modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any Federal or state law or regulation of
any governmental authority, other than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
------------------------
section 13.7 shall be made by periodic payments of the amount thereof
during the
39
<PAGE>
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in the
------------
preceding subdivisions of this section 13.7 is unavailable to an
indemnified party in respect of any expense, loss, claim, damage or
liability referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such expense, loss, claim,
damage or liability (i) in such proportion as is appropriate to reflect the
-
relative benefits received by the Company on the one hand and the holder or
underwriter, as the case may be, on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i)
--
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand and of
the holder or underwriter, as the case may be, on the other in connection
with the statements or omissions which resulted in such expense, loss,
damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the holder or underwriter, as the case may be, on the other in
connection with the distribution of the Registrable Securities shall be
deemed to be in the same proportion as the total net proceeds received by
the Company from the initial sale of the Registrable Securities by the
Company to the purchasers pursuant to the Credit Agreement bear to the
gain, if any, realized by the selling holder or the underwriting discounts
and commissions received by the underwriter, as the case may be. The
relative fault of the Company on the one hand and of the holder or
underwriter, as the case may be, on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates
to information supplied by the Company, by the holder or by the underwriter
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, provided that
--------
the foregoing contribution agreement shall not inure to the benefit of any
indemnified party if indemnification would be unavailable to such
indemnified party by reason of the provisions contained in the
40
<PAGE>
first sentence of subdivision (a) of this section 13.7, and in no event
shall the obligation of any indemnifying party to contribute under this
subdivision (f) exceed the amount that such indemnifying party would have
been obligated to pay by way of indemnification if the indemnification
provided for under subdivisions (a) or (b) of this section 13.7 had been
available under the circumstances.
The Company and the holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this
subdivision (f) were determined by pro rata allocation (even if the
--- ----
holders, Requesting Holders and any underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in the preceding sentence and subdivision (c) of this
section 13.7, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any
amount in excess of the amount by which (i) in the case of any such holder,
-
the net proceeds received by such holder from the sale of Registrable
Securities or (ii) in the case of an underwriter, the total price at which
--
the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any
damages that such holder or underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
14. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
Acquiring Person: With reference to the
41
<PAGE>
transactions referred to in clauses (a) through (d) of section 3.1, the
continuing or surviving corporation of a consolidation or merger with the
Company (if other than the Company), the transferee of substantially all of the
properties of the Company, the corporation consolidating with or merging into
the Company in a consolidation or merger in connection with which the Common
Stock is changed into or exchanged for stock or other securities of any other
Person or cash or any other property, or, in the case of a capital
reorganization or reclassification, the Company.
Acquisition Price: As applied to the Common Stock, (a) the Market
----------------- -
Price on the date immediately preceding the date on which any transaction to
which section 3 applies is consummated, or (b) if a purchase, tender or exchange
-
offer is made by the Acquiring Person (or by any of its affiliates) to the
holders of the Common Stock and such offer is accepted by the holders of more
than 50% of the outstanding shares of Common Stock, the greater of (i) the price
-
determined in accordance with the provisions of the foregoing clause (a) of this
sentence and (ii) the Market Price on the date immediately preceding the
--
acceptance of such offer by the holders of more than 50% of the outstanding
shares of Common Stock.
Additional Shares of Common Stock: All shares (including treasury
---------------------------------
shares) of Common Stock issued or sold (or, pursuant to section 2.3 or 2.4,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company.
Business Day: Any day other than a Saturday or a Sunday or a day
------------
on which commercial banking institutions in the City of New York are authorized
by law to be closed. Any reference to "days" (unless Business Days are
specified) shall mean calendar days.
Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant,
------------
such term to include any stock into which such Common Stock shall have been
changed or any stock resulting from any reclassification of such Common Stock,
and all other stock of any class or classes (however designated) of the Company
the holders of which have the right, without limitation as to amount, either to
all or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference.
42
<PAGE>
Company: As defined in the introduction to this Warrant, such
-------
term to include any corporation which shall succeed to or assume the obligations
of the Company hereunder in compliance with section 3.
Convertible Securities: Any evidences of indebtedness, shares of
----------------------
stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
Credit Agreement: As defined in the introduction to this Warrant.
----------------
Current Market Price: On any date specified herein, the average
--------------------
daily Market Price during the period of the most recent 20 days, ending on such
date, on which the national securities exchanges were open for trading, except
that if no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current Market
Price shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar
------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Initiating Holders: Any holder or holders of Registrable
------------------
Securities holding at least (a) on or prior to the effective date of the
-
registration statement under the Securities Act of the Company's initial public
offering, 25% of the Registrable Securities (by number of shares at the time
issued and outstanding), and (b) at any time thereafter, 25% of the Registrable
-
Securities (by number of shares at the time issued and outstanding), and
initiating a request pursuant to section 13.1 for the registration of all or
part of such holder's or holders' Registrable Securities.
Institutional Holder: Any original purchaser of any Warrant, any
--------------------
insurance company, pension fund, mutual fund, investment company, bank, savings
bank, savings and loan association, broker-dealer, investment adviser,
investment banking company, trust company or any finance or credit company, any
portfolio or any investment fund managed by any of the foregoing, any other
institutional investor and any nominee of any of the foregoing.
Market Price: On any date specified herein, the amount per share
------------
of the Common Stock, equal to (a) the last sale price of such Common Stock,
-
regular way, on such
43
<PAGE>
date or, if no such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as officially reported
on the principal national securities exchange on which such Common Stock is then
listed or admitted to trading, or (b) if such Common Stock is not then listed or
-
admitted to trading on any national securities exchange but is designated as a
national market system security by the NASD, the last trading price of the
Common Stock on such date, or (c) if there shall have been no trading on such
-
date or if the Common Stock is not so designated, the average of the closing bid
and asked prices of the Common Stock on such date as shown by the NASD automated
quotation system, or (d) if such Common Stock is not then listed or admitted to
-
trading on any national exchange or quoted in the over-the-counter market, the
higher of (x) the book value thereof as determined by any firm of independent
-
public accountants of recognized standing selected by the Board of Directors of
the Company as of the last day of any month ending within 60 days preceding the
date as of which the determination is to be made or (y) the fair value thereof
-
determined in good faith by the Board of Directors of the Company as of a date
which is within 18 days of the date as of which the determination is to be made.
Market Value: Per share of common stock (or equivalent equity
------------
interests) of the Acquiring Person or its Parent on any date specified herein,
(a) the average of the last sale prices, regular way, on the 20 consecutive
- --
business days immediately preceding such date or, if there shall have been no
sale on any such day, the average of the closing bid and asked prices on such
date, in each case as officially reported on the principal national securities
exchange on which such common stock is at the time listed or admitted to
trading, or (b) if such common stock is not then listed or admitted to trading
-
on any national securities exchange, but is designated as a national market
system security by the NASD, the last trading price of the common stock on such
date, or if there shall have been no trading on such date or if the common stock
is not so designated, the average of the reported closing bid and asked prices
on such 20 days as shown by the NASD automated quotation system.
NASD: The National Association of Securities Dealers, Inc.
----
Notes: Collectively, the Tranche A Notes, due May 31, 2002, of
-----
the Company originally issued in the aggregate principal amount of $5 million,
the Tranche B Notes, due May 31, 2003, of the Company originally issued
44
<PAGE>
in the aggregate amount of $5 million, and the Revolving Notes, issued
originally due May 31, 2002, of the Company in the aggregate amount of $5
million, in each case issued pursuant to the Credit Agreement, and such term to
include any such notes issued in substitution for such notes.
Options: Rights, options or warrants to subscribe for, purchase
-------
or otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
Other Securities: Any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
section 3 or otherwise.
Parent: As to any Acquiring Person any corporation which (a)
------ -
controls the Acquiring Person directly or indirectly through one or more
intermediaries, (b) is required to include the Acquiring Person in the
-
consolidated financial statements contained in such Parent's Annual Report on
Form 10-K and (c) is not itself included in the consolidated financial
-
statements of any other person (other than its consolidated subsidiaries).
Person: A corporation, an association, a partnership, an
------
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
Purchaser: As defined in the introduction to this Warrant.
---------
Registrable Securities: (a) Any shares of Common Stock or Other
---------------------- -
Securities issued or issuable upon exercise of this Warrant and (b) any
-
securities issued or issuable with respect to any securities referred to in the
foregoing subdivision by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (a) a
-
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
-
been
45
<PAGE>
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (c) they shall have been otherwise transferred, new
-
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force, or (d) they shall have ceased to be
-
outstanding.
Registration Expenses: All expenses incident to the Company's
---------------------
performance of or compliance with section 13, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, the fees and disbursements of one counsel
and accountants retained by the holder or holders of more than 25% of the
Registrable Securities being registered, premiums and other costs of policies
of insurance against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, provided
--------
that, in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees, premiums or other
expenses relating to liability insurance required by underwriters of the Company
or other expenses for the preparation of financial statements or other data
normally prepared by the Company in the ordinary course of its business or which
the Company would have incurred in any event.
Requesting Holder: As defined in section 13.6.
-----------------
Restricted Securities: (a) any Warrants bearing the applicable
--------------------- -
legend set forth in section 9.2, (b) any shares of Common Stock (or Other
-
Securities) issued upon the exercise of Warrants which are evidenced by a
certificate or certificates bearing the applicable legend set forth in such
section, (c) any shares of Common Stock (or Other Securities) issued subsequent
-
to the exercise of any of the Warrants as a dividend or other distribution with
respect to, or resulting from a subdivision of the out standing shares of Common
Stock (or Other Securities) into
46
<PAGE>
a greater number of shares by reclassification, stock splits or otherwise, or in
exchange for or in replacement of the Common Stock (or Other Securities) issued
upon such exercise, which are evidenced by a certificate or certificates
bearing the applicable legend set forth in such section, and (d) unless the
-
context otherwise requires, any shares of Common Stock (or Other Securities)
issuable upon the exercise of Warrants, which, when so issued, will be evidenced
by a certificate or certificates bearing the applicable legend set forth in such
section.
Securities Act: The Securities Act of 1933, or any similar
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Transfer: Any sale, assignment, pledge or other disposition of
--------
any security, or of any interest therein, which could constitute a "sale" as
that term is defined in section 2(3) of the Securities Act.
Voting Securities: Stock of any class or classes (or equivalent
-----------------
interests), if the holders of the stock of such class or classes (or equivalent
interests) are ordinarily, in the absence of contingencies, entitled to vote for
the election of the directors (or persons per forming similar functions) of such
business entity, even though the right so to vote has been suspended by the
happening of such a contingency.
Warrant Price: As defined in section 2.1.
-------------
Warrants: As defined in the introduction to this Warrant.
--------
Weighted Average Warrant Price: As to any holder of Restricted
------------------------------
Securities, the price determined by dividing (a) the sum of the aggregate
-
consideration previously paid by such holder upon the exercise of Warrants plus
the consideration payable upon the exercise of all Warrants held by such holder
by (b) the sum of (i) the aggregate number of shares previously received by such
- -
holder upon the exercise of Warrants plus (ii) the number of shares which would
--
be received by such holder upon the exercise of all Warrants held by such
holder, based upon the Warrant Price in effect on the effective date of the
registration statement in respect of which the Weighted Average Warrant Price is
being determined.
15. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the
47
<PAGE>
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate and that, to the fullest extent permitted by law, such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
16. No Rights or Liabilities as Stockholder. Nothing contained in
---------------------------------------
this Warrant shall be construed as conferring upon the holder hereof any rights
as a stock holder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
17. Notices. All notices and other communications under this
-------
Warrant shall be in writing and shall be delivered, or mailed by registered or
certified mail, return receipt requested, by a nationally recognized overnight
courier, postage prepaid, addressed (a) if to any holder of any Warrant, at the
-
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if to the Company, to the attention of
-
its President at its principal office, provided that the exercise of any Warrant
--------
shall be effective in the manner provided in section 1.
18. Amendments. This Warrant and any term hereof may be changed,
----------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
19. Expiration. The Company will give the holder of this Warrant not
----------
less than six weeks nor more than nine months notice of the expiration of the
right to exercise this Warrant. The right to exercise this Warrant shall expire
at 5:00 p.m., New York City time, on the later of May 31, 2007 and the date of
the effectiveness of a registration statement covering shares of Common Stock,
unless the Company shall fail to give such notice as aforesaid, in which event
the right to exercise this Warrant shall not expire until a date six weeks after
the date on which the Company shall give the holder hereof notice of the
expiration of the right to exercise this Warrant.
20. Descriptive Headings. The headings in this Agreement are for
--------------------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
48
<PAGE>
21. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED
------------- ---------------------------------------------
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW
- -------------------------------------------------------------------------------
OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
- -----------------------------------------------------------------------------
22. Judicial Proceedings; Waiver of Jury. Any judicial proceeding
------------------------------------
brought against the Company with respect to this Warrant may be brought in any
court of competent jurisdiction in the State of California or of the United
States of America for the Central District of California and, by execution and
delivery of this Agreement, the Company (a) accepts, generally and
-
unconditionally, the nonexclusive jurisdiction of such courts and any related
appellate court, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Warrant, subject to any rights of appeal, and
(b) irrevocably waives any objection the Company may now or hereafter have as to
-
the venue of any such suit, action or proceeding brought in such a court or that
such court is an inconvenient forum. The Company hereby waives personal service
of process and consents, that service of process upon it may be made by
certified or registered mail, return receipt requested, at its address specified
or determined in accordance with the provisions of section 17, and service so
made shall be deemed completed on the third Business Day after such service is
deposited in the mail or, if earlier, when delivered. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of any holder of any Warrant to bring proceedings against the
Company in the courts of any other jurisdiction. THE COMPANY HEREBY WAIVES
-------------------------
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY, OR INDIRECTLY, ANY
- --------------------------------------------------------------------------------
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
- -------------------------------------------------------------------------------
OF, RELATED TO, OR CONNECTED WITH THIS WARRANT OR THE RELATION SHIP ESTABLISHED
- -------------------------------------------------------------------------------
HEREUNDER.
- ---------
49
<PAGE>
SYNBIOTICS CORPORATION
By: /s/ Kenneth M. Cohen
----------------------------
Name: Kenneth M. Cohen
Title: President and Chief
Executive Officer
50
<PAGE>
FORM OF SUBSCRIPTION
--------------------
[To be executed only upon exercise of Warrant]
To [NAME OF ISSUER]
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, ______ shares of Common
Stock of [NAME OF ISSUER] and herewith makes payment of $ therefor,
and requests that the certificates for such shares be issued in the name of, and
delivered to , whose address is .
Dated:
--------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of Warrant)
---------------------------
(Street Address)
---------------------------
(City)(State)(Zip Code)
51
<PAGE>
FORM OF ASSIGNMENT
------------------
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto the right represented by
such Warrant to purchase shares of [Common Stock] of [NAME OF ISSUER] to
which such Warrant relates, and appoints Attorney to make such
transfer on the books of [NAME OF ISSUER] maintained for such purpose, with full
power of substitution in the premises.
Dated:
--------------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of Warrant)
-----------------------------
(Street Address)
-----------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- -------------------------
52
<PAGE>
EXHIBIT 11.1
------------
Synbiotics Corporation
Computation of Earnings (Loss) Per Share
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary Earnings (Loss) Per Share:
Net income (loss) per statement of operations $ (120,000) $ (395,000) $ 725,000 $2,773,000
========== ========== ========== ==========
Weighted average number of shares outstanding 7,790,000 6,000,000 7,759,000 6,013,000
========== ========== ========== ==========
Primary earnings (loss) per share $ (.02) $ (.07) $ .09 $ .46
========== ========== ========== ==========
Fully Diluted Earnings (Loss) Per Share:/(1)/
Net income (loss) per statement of operations $ (120,000) $ (395,000) $ 725,000 $2,773,000
========== ========== ========== ==========
Reconciliation of weighted average number of
shares per primary computation above, to
amount used for fully diluted computation:
Weighted average number of shares outstanding,
per primary computation 7,790,000 6,000,000 7,759,000 6,013,000
Add-effect of outstanding options (as
determined by the application of the
treasury method) 255,000 153,000 10,000 26,000
---------- ---------- ---------- ----------
Weighted average number of shares, as adjusted 8,045,000 6,153,000 7,769,000 6,039,000
========== ========== ========== ==========
Fully diluted earnings (loss) per share $ (.02) $ (.06) $ .09 $ .46
========== ========== ========== ==========
</TABLE>
/(1)/ This computation is submitted, for the three months ended September 30,
1997 and 1996, in accordance with Regulation S-B Item 601(b)(11) although
it is contrary to paragraph 40 of APB Opinion No. 15 because it produces
an anti-dilutive result.
-1-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE RELATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 CONTAINED ELSEWHERE IN THIS FORM 10-QSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,032
<SECURITIES> 3,060
<RECEIVABLES> 3,332
<ALLOWANCES> 51
<INVENTORY> 5,592
<CURRENT-ASSETS> 16,660
<PP&E> 4,761
<DEPRECIATION> 3,847
<TOTAL-ASSETS> 41,025
<CURRENT-LIABILITIES> 4,581
<BONDS> 7,029
2,754
0
<COMMON> 35,613
<OTHER-SE> (8,952)
<TOTAL-LIABILITY-AND-EQUITY> 41,025
<SALES> 17,929
<TOTAL-REVENUES> 18,331
<CGS> 9,648
<TOTAL-COSTS> 9,648
<OTHER-EXPENSES> 6,674
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 386
<INCOME-PRETAX> 1,623
<INCOME-TAX> 898
<INCOME-CONTINUING> 725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 725
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
