<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997
REGISTRATION NO. 333-36429
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BIOANALYTICAL SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
3815
(PRIMARY S.I.C. CODE NUMBER)
35-1345024
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
------------------------
2701 KENT AVENUE
WEST LAFAYETTE, INDIANA 47906
(765) 463-4527
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PETER T. KISSINGER
PRESIDENT
BIOANALYTICAL SYSTEMS, INC.
2701 KENT AVENUE
WEST LAFAYETTE, INDIANA 47906
(765) 463-4527
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
BERKLEY W. DUCK
ICE MILLER DONADIO & RYAN
ONE AMERICAN SQUARE, BOX 82001
INDIANAPOLIS, INDIANA 46282-0002
(317) 236-2270
MARK SHAEVSKY
HONIGMAN MILLER SCHWARTZ & COHN
2290 FIRST NATIONAL BUILDING
660 WOODWARD AVENUE
DETROIT, MICHIGAN 48226-3583
(313) 256-7562
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares........................ 1,725,000 $11.00 $18,975,000 $5,750
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</TABLE>
(1) Includes 225,000 Common Shares that may be sold if the over-allotment option
granted to the Underwriters is exercised in full. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(3) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1997
PROSPECTUS
1,500,000 COMMON SHARES
BIOANALYTICAL SYSTEMS LOGO
BIOANALYTICAL SYSTEMS, INC.
All of the 1,500,000 Common Shares offered hereby (the "Shares") are being
sold by Bioanalytical Systems, Inc. (the "Company"). Prior to this offering
there has been no public market for the Common Shares of the Company (the
"Common Shares"). It is currently estimated that the initial public offering
price will be between $9.00 and $11.00 per share. See "Underwriting" for a
discussion of information relating to the factors to be considered in
determining the initial public offering price. The Common Shares have been
approved for quotation on the Nasdaq National Market under the symbol "BASI."
The Underwriters have reserved for sale, at the initial public offering price,
up to 30,000 of the Shares offered hereby for employees of the Company and
certain other individuals who have expressed an interest in purchasing Shares in
the offering.
SEE "RISK FACTORS" AT PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
225,000 additional Shares, on the same terms and conditions set forth above,
solely for the purpose of covering over-allotments, if any. If this option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ , and
$ , respectively. See "Underwriting."
------------------------
The Shares are offered by the several Underwriters named herein, subject to
prior sale, when, as and if accepted by them, subject to their right to reject
any orders in whole or in part and subject to certain conditions. It is expected
that delivery of certificates representing the Shares will be made at the
offices of Roney & Co., L.L.C., One Griswold, Detroit, Michigan, 48226 on or
about , 1997.
------------------------
RONEY & CO. THE OHIO COMPANY
, 1997
<PAGE> 3
The Company intends to distribute to its shareholders annual reports
containing audited financial statements and will make available copies of
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
-------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING
STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY
BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE SHARES ON NASDAQ IN ACCORDANCE WITH
RULE 103 OF REGULATION M. SEE "UNDERWRITING."
-------------------------
BAS(R) is a registered trademark of the Company. This Prospectus also includes
trade names and trademarks of other companies.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's Consolidated Financial
Statements and related notes thereto, appearing elsewhere in this Prospectus.
Except as otherwise noted, all information in this Prospectus, including
financial information, share and per share data: (i) reflects the conversion of
all of the Company's outstanding Convertible Preferred Shares (the "Convertible
Preferred Shares") into Common Shares prior to the completion of this offering;
(ii) assumes no exercise of the Underwriters' over-allotment option; and (iii)
reflects a 4.514 for 1 share split to be effected prior to the completion of
this offering. Terms used but not otherwise defined herein are defined in the
Glossary included herein.
THE COMPANY
The Company is a contract research organization providing research and
development resources through both its services and products to many of the
leading pharmaceutical, medical device and biotechnology companies in the world.
Founded in 1974, the Company has over 23 years of experience in developing
products and methodologies to support the analytical chemistry requirements of
the drug discovery process. At its inception, the Company focused on providing
new products and procedures which facilitated research progress at client sites.
Recently, pharmaceutical companies have experienced increasing pressures to
bring products to market on a cost-effective and accelerated basis. Accordingly,
many clients have requested the Company to carry out proprietary projects at the
Company's facilities. As a result, the Company now derives its revenues from (i)
research services provided to clients and (ii) the sale of its analytical
instruments and other products. The Company believes that among contract
research organizations that provide in house statistical, clinical, and medical
services, it is the only one that designs and sells analytical instrumentation
products and, on the analytical instrument side, it is one of very few firms
that maintains a separate business for contract analytical services. The Company
intends to continue to take advantage of this unique industry niche.
The Company's services are marketed to pharmaceutical and other
biotechnical companies involved in later stages of drug testing and the
Company's products are marketed to both public and private research
organizations engaged in the early stages of drug development. On the services
side, according to the Pharmaceutical Research and Manufacturing Association, in
1997 pharmaceutical and biotechnology companies will spend approximately $18.9
billion worldwide on research and development, of which approximately 18% or
$3.4 billion will be outsourced to independent contract service providers such
as the Company. On the products side, the Company competes in the $11 billion
analytical instrument industry.
Over the past five years, the Company regularly has provided its services
and/or products to all of the top 25 pharmaceutical companies in the world, as
ranked by 1996 research and development spending. In fiscal 1997, the Company
estimates that more than one-third of its total revenue was derived from these
companies. As a result of its client focus; reputation for high-quality services
and products; capital investment in state-of-the-art instrumentation and
facilities; skilled and experienced professional staff; and expertise in
performing critical development and support services, the Company believes that
it is a value-added partner in solving its clients' complex product development
problems.
The Company's operating strategies are derived from a strong base of
expertise in analytical chemistry. The Company will continue to (i) enhance the
synergy between the Company's services and products; (ii) emphasize high-end
testing services; (iii) invest in state-of-the-art instrumentation; (iv) enhance
client relationships; and (v) work with large innovator pharmaceutical companies
in the development of analytical methods for new drug candidates as early as
possible in the drug development process. A portion of the net proceeds from
this offering will be used to further implement the Company's operating
strategies.
The Company's objective is to continue to grow as a leading provider of
high-quality analytical chemistry support services to the worldwide
pharmaceutical, medical device and biotechnology industries. In order to
continue its growth, the Company intends to leverage its facilities,
technological expertise and information systems. The Company believes that it
will continue to differentiate itself from its competitors by increasing the
array of services and products offered to its clients, further enhancing the
Company's reputation of offering
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<PAGE> 5
a turnkey approach to accurately and quickly meet product development challenges
faced by clients. The Company has developed and implemented a business strategy
intended to accelerate growth and profitability, consisting of the following
five principal elements:
- Increase technical staff to expand the volume of services provided
- Implement a comprehensive marketing and sales program
- Broaden the range of complementary services provided
- Expand geographically in strategic locations
- Identify and effect key acquisitions
The Company was incorporated under the laws of Indiana in 1975. The
Company's principal executive offices are located at 2701 Kent Avenue, West
Lafayette, Indiana, 47906, and its telephone number is (765) 463-4527.
THE OFFERING
<TABLE>
<S> <C>
Shares offered by the Company................... 1,500,000 Shares
Common Shares to be outstanding after the
offering...................................... 4,500,000 Common Shares(1)
Use of proceeds................................. Repayment of indebtedness, purchase of laboratory
equipment, hiring of additional personnel, upgrade
of information systems, expansion of current
facilities, working capital and other general
corporate purposes, including potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... BASI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Product revenue $ 9,124 $ 8,903 $ 9,627 $ 9,113 $ 9,932
Services revenue............................... 1,663 1,800 2,725 3,681 4,991
------- ------- ------- ------- -------
Total revenue................................ 10,787 10,703 12,352 12,794 14,923
Operating income............................... 1,128 609 784 701 1,172
Net income available to common shareholders.... $ 886 $ 495 $ 497 $ 347 $ 657
Net income per Common Share.................... $ .30 $ .16 $ .16 $ .11 $ .21
Weighted average Common Shares outstanding..... 2,993 3,048 3,066 3,089 3,101
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 2,493 $10,848
Total assets................................................ 15,931 23,483
Long-term debt, less current portion........................ 5,045 --
Convertible Preferred Shares................................ 1,231 --
Shareholders' equity........................................ 5,651 20,282
</TABLE>
- -------------------------
(1) Based on Common Shares outstanding at September 30, 1997, excluding 272,671
Common Shares issuable upon exercise of options outstanding as of September
30, 1997, of which 236,555 were exercisable as of that date. See
"Capitalization," "Management -- Option Plans" and Note 6 of Notes to
Consolidated Financial Statements. Also reflects the conversion of all
outstanding Convertible Preferred Shares into 752,399 Common Shares to be
effected immediately prior to the issuance of the Shares offered hereby.
(2) Adjusted to reflect (i) the conversion of all outstanding Convertible
Preferred Shares into Common Shares to be effected immediately prior to the
issuance of the Shares offered hereby, and (ii) the sale of 1,500,000 Shares
offered hereby (after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company), assuming an
initial public offering price of $10.00 per share (the midpoint of the range
set forth on the cover page of this Prospectus).
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<PAGE> 6
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk.
Prospective investors should consider carefully the following risk factors, in
addition to the other information contained in this Prospectus, prior to making
an investment in the Shares.
DEPENDENCE ON CERTAIN INDUSTRIES AND CLIENTS
The Company's revenues are highly dependent on research and development
expenditures and compliance testing expenditures by the pharmaceutical,
biotechnology and medical device industries and by universities and government
research institutions worldwide. Decreases in such expenditures, including those
resulting from a general economic decline in these industries, could have a
material adverse effect on the Company. The Company has benefited from the
growing tendency of companies to engage independent organizations to conduct
development and testing projects. Any reduction in the outsourcing of research,
development or testing activities, or any reduction in public funding of science
and technology could have a material adverse effect on the Company's business,
operations and financial condition. There has been substantial consolidation in
recent years in the pharmaceutical industry, both in the United States and
Europe. It is not possible to assess the impact upon the Company of future
pharmaceutical industry consolidation since the effect may depend on an
acquiror's inclination to outsource or its existing relationship with the
Company or a competitor. See "Business -- Changing Nature of Pharmaceutical
Industry."
During 1997, a major United States-based pharmaceutical company and the
Company's Japanese distributor accounted for approximately 21% and 12%,
respectively, of the Company's total revenues. There can be no assurance that
the Company's business will not continue to be dependent on continued
relationships with certain clients or distributors or that annual results will
not be dependent upon performance of a few large projects. In addition, there
can be no assurance that significant clients or distributors in any one period
will continue to be significant clients or distributors in other periods. See
"Business -- Clients" and "-- Sales and Marketing."
NEED TO ATTRACT, DEVELOP, MANAGE AND RETAIN PROFESSIONAL STAFF
The Company's business is labor intensive and involves the delivery of
highly specialized professional services. The Company's future growth and
success depends in large part upon its ability to attract, develop, manage and
retain highly skilled professional, scientific and technical operating staff.
There is significant competition from the Company's competitors as well as from
the in-house research departments of pharmaceutical and biotechnology companies
and other enterprises for employees with the skills required to perform the
services offered by the Company. Although the Company has confidentiality
agreements with its scientific and technical operating personnel, the Company
does not have in place covenants not to compete that would directly preclude the
employees from being employed by a competitor. There can be no assurance that
the Company will be able to attract, develop, manage and retain a sufficient
number of highly skilled employees in the future or that it will continue to be
successful in training, retaining and managing its current employees. The loss
of a significant number of employees or the Company's inability to hire
sufficient numbers of qualified employees could have a material adverse effect
on the Company's business, operations and financial condition. See "Business --
Employees."
DEPENDENCE ON KEY EXECUTIVES
The Company relies to a significant extent on a number of key executives,
including Peter T. Kissinger, Ph.D., its President and Chairman of the Board.
The Company maintains key man life insurance on Dr. Kissinger in the amount of
$1.0 million. The loss of the services of any of the Company's key executives
could have a material adverse effect on the Company's business, operations and
financial condition.
DEPENDENCE ON AND POSSIBLE ADVERSE EFFECT OF GOVERNMENT REGULATION
The Company's business depends in part on government regulation of the drug
development process by the United States and foreign governments. More stringent
governmental regulation of the drug development
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process increases the need for services and products provided or produced by the
Company. Recently, legislation has been proposed that would substantially modify
the current requirements for FDA administration of the drug and device approval
process. Under the proposed legislation, applications for approval of new drugs
could be made to private accredited facilities in lieu of the FDA. As a result,
the number of clinical trials of new drugs would be reduced and other rules
administered by the FDA would be simplified. Any change in the scope of
regulatory requirements or the introduction of simplified drug or device
approval procedures could adversely affect the Company's business, operations
and financial condition.
The Company's revenues are also dependent, in part, upon continued
compliance with governmental requirements applicable to facilities and
techniques used in the manufacture of products for clinical use and the
provision of services. The Company's facilities are subject to scheduled
periodic regulatory inspections to ensure compliance with FDA requirements.
Failure on the part of the Company to comply with applicable requirements could
result in the termination of ongoing research, the discontinuance of selected
Company operations, the disqualification of data for submission to regulatory
authorities and fines and penalties being assessed against the Company, any of
which could have a material adverse effect on the Company's business, operations
and financial condition.
The Company's activities are also subject to foreign, federal, state and
local laws and regulations governing the use, storage, handling and disposal of
hazardous materials and chemicals. If the Company were held liable for an
accidental contamination or injury from these materials and chemicals, the
Company's business, operations and financial condition could be materially
adversely affected. See "Business -- Changing Nature of Pharmaceutical Industry"
and "Business -- Government Regulation."
COMPETITION
With respect to its products, the Company primarily competes with several
large equipment manufacturers and, with respect to its services, the Company
primarily competes against in-house research departments of pharmaceutical and
biotechnology companies, universities and teaching hospitals and other
full-service CROs. Many of the Company's competitors possess substantially
greater capital, technical and other resources than the Company. Competitive
factors with respect to the Company's products include quality, reliability and
price. CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of contract
research, the ability to organize and manage large-scale trials on a global
basis, medical database management capabilities, the ability to provide
statistical and regulatory services, the ability to recruit investigators, the
ability to integrate information technology with systems to improve the
efficiency of contract research, an international presence with strategically
located facilities, financial viability and price. The Company's failure to
compete effectively in any one or more of these areas could have a material
adverse effect on the Company's business, operations and financial condition.
See "Business -- Changing Nature of Pharmaceutical Industry" and "Business --
Competition."
CLIENT CONTRACTS TERMINABLE UPON NOTICE
Generally, the Company's service contracts are terminable by the client
upon notice at any time. Contracts may be terminated for a variety of reasons,
including the client's decision to forego a particular study, failure of
products to satisfy safety requirements and unexpected or undesired product
testing results. The loss of business from a significant client or the
cancellation of a major contract or series of commitments could have a material
adverse effect on the Company's business, operations and financial condition.
See "Business -- Contractual Arrangements."
UNCERTAINTY OF INTERNATIONAL MARKETS
In fiscal 1997, approximately 35% of the Company's total revenue was
derived from customers located outside the United States. The Company expects to
increase its geographical diversification outside the United States, including
entering new markets in Asia and South America. These markets tend to be much
more volatile than the United States market. Significant governmental,
regulatory, political, economic and cultural issues or changes could adversely
affect the growth or profitability of the Company's business activities in any
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<PAGE> 8
such market. In addition, although currently all of the Company's contracts are
required to be paid in United States dollars, in the event future contracts were
denominated in a foreign currency the Company could be faced with currency
fluctuations in the conversion to United States dollars.
DEPENDANCE ON PROPRIETARY TECHNOLOGY; UNPREDICTABILITY OF PATENT PROTECTION
The Company's business is dependent, in part, on its ability to obtain
patents in various jurisdictions on its current and future technologies and
products, to defend its patents and protect its trade secrets and to operate
without infringing on the proprietary rights of others. There can be no
assurance that the Company's patents will not be challenged by third parties or
that, if challenged, those patents will be held valid. In addition, there can be
no assurance that any technologies or products developed by the Company will not
be challenged by third parties owning patent rights and, if challenged, will be
held to not infringe those patent rights. The expense involved in any patent
litigation can be significant. The Company also relies on unpatented,
proprietary technology, and there can be no assurance that others will not
independently develop or obtain similar products or technologies.
FUTURE CAPITAL REQUIREMENTS MAY BE SIGNIFICANT; UNCERTAINTY OF ADDITIONAL
FUNDING
The Company expects capital and operating expenditures to increase over the
next several years. Although the Company believes that the net proceeds from
this offering, existing cash and cash equivalents and anticipated cash flow from
operations will be sufficient to support the Company's operations for the
foreseeable future, the Company's actual future capital requirements will depend
on many factors, including its future profitability, the rate of its internal
growth and the timing, size and terms of acquisitions made by the Company, if
any. The Company may require significant additional financing in the future,
which it may seek to raise through public or private equity offerings or debt
financings. There can be no assurance that additional financing will be
available when needed or that, if available, such financing can be obtained on
terms favorable to the Company. To the extent the Company raises additional
capital by issuing equity securities, ownership dilution to existing
shareholders will result and may be substantial. See "Use of Proceeds,"
"Business -- Growth Strategy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
RISK RELATED TO GROWTH THROUGH ACQUISITIONS
The Company's growth strategy includes identifying and effecting selected
acquisitions. The Company has limited acquisition experience, and growth through
acquisition involves numerous risks, including the potential inability of the
Company to effectively assimilate the operations of acquired companies, the
expenses incurred in connection with failed acquisition attempts, the diversion
of management's attention from other business concerns and, in the case of
acquisitions of foreign companies, the risks presented by language and cultural
barriers and currency exchange rate fluctuations. There can be no assurance that
the Company will complete any future acquisitions or that acquisitions, if any,
will contribute favorably to the Company's business, operations and financial
condition. See "Business -- Growth Strategy."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the Shares will experience immediate and substantial
dilution of the net tangible book value per share from the initial offering
price. See "Dilution."
VOLATILITY OF QUARTERLY OPERATING RESULTS
The Company's results of operations have been and will continue to be
subject to quarterly fluctuations, principally as a result of the commencement,
completion, cancellation or duration of large contracts, the progress of ongoing
contracts, changes in the mix of products and services, the incurrence of
significant expenses upon commencement of product or service contracts before
any significant revenues are recognized from such activities, and seasonality in
the business. For this reason, there is a risk that comparisons of quarterly
operating results on a year-to-year basis, or on a quarter-to-quarter basis,
will not provide a
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<PAGE> 9
meaningful indication of future performance. In addition, fluctuations in
quarterly results could affect the market price of the Common Shares in a manner
unrelated to the longer-term operating performance of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
LIABILITY RISKS RELATED TO PRODUCTS AND THE PROVISION OF SERVICES
Although the Company does not provide products or services directly to the
public, its business involves the sale of instruments for use by others and the
provision of contract analytical services. It is possible that claims could be
made against the Company by either its clients or the customers of its clients
for damages suffered as a result of the use of the Company's products or for
errors made in the performance of the Company's analytical services. The Company
maintains product liability and errors and omissions insurance with respect to
these risks, but there can be no assurance that the insurance would cover all
risks. The Company also seeks to reduce its exposure through indemnification
agreements with its clients. The scope of those agreements may vary from client
to client, and the performance of the clients' obligations thereunder are not
secured. There can be no assurance that these measures will be adequate to
protect the Company from damages resulting from defects in its products or
services. See "Business -- Product Liability and Insurance."
MANAGEMENT DISCRETION REGARDING NET PROCEEDS OF THE OFFERING
The Company has not yet allocated a substantial portion of the net proceeds
of the offering to specific uses. Accordingly, management will have broad
discretion as to the application of the offering proceeds. Pending the Company's
use of such proceeds, the net proceeds of the offering will be invested in
high-quality, short-term, interest-bearing investment-grade debt securities,
certificates of deposit or direct or guaranteed obligations of the United
States. It is possible that the return on such investments will be less than
that which would be realized were the Company immediately to use such funds for
other purposes. See "Use of Proceeds."
CONCENTRATION OF OWNERSHIP
Upon the completion of this offering, certain of the Company's executive
officers will beneficially own approximately 35% of the outstanding Common
Shares, and certain of the Company's non-employee directors will beneficially
own approximately 20% of the outstanding Common Shares. Accordingly, those
persons will be in a position to significantly influence the election of the
Company's directors and the outcome of corporate actions requiring shareholder
approval. This concentration of ownership may have the effect of delaying or
preventing a change in control of the Company. See "Management" and "Principal
Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
The sale of substantial amounts of the Common Shares in the public market
following the offering could have an adverse effect on prevailing market prices
of the Common Shares. Immediately after the offering, the 1,500,000 Shares
(1,725,000 Shares if the Underwriters' over-allotment option is exercised in
full) offered hereby will be freely tradeable without restriction, and
approximately 600,000 additional Common Shares will be eligible for sale in the
public market pursuant to Rule 144(k) under the Securities Act. All of the
Company's directors and executive officers and certain of the Company's
shareholders have agreed with the Underwriters not to sell an aggregate of
2,334,592 Common Shares held by them for a period of 180 days from the date of
this Prospectus without the prior consent of the Underwriters. After such time,
or earlier with the written consent of the Underwriters, those Common Shares
will be eligible for sale, subject to the volume and other restrictions under
Rule 144 promulgated under the Securities Act. See "Shares Eligible For Future
Sale."
The Company also intends to file a registration statement covering the sale
of Common Shares reserved for issuance under the Company's stock option plans
approximately 30 days following the date of this Prospectus. As of September 30,
1997, there were aggregate options outstanding under the Bioanalytical Systems,
Inc. 1990 Employee Incentive Stock Option Plan (the "1990 Employee Option Plan")
and the 1990 Bioanalytical Systems, Inc. Outside Director Stock Option Plan (the
"1990 Director Option Plan") to
8
<PAGE> 10
purchase 272,671 Common Shares at a weighted average price of $1.27 per share,
of which 236,555 Common Shares were then vested and exercisable. The holders of
171,757 of the options exercisable as of September 30, 1997 have signed Lock-Up
Agreements. The Company also may issue and sell up to 95,000 Common Shares under
the 1997 Employee Incentive Stock Option Plan (the "1997 Employee Option Plan")
and 5,000 Common Shares under the 1997 Outside Director Stock Option Plan (the
"1997 Director Option Plan", and together with the 1997 Employee Option Plan,
the 1990 Employee Option Plan and the 1990 Director Option Plan, the "Option
Plans"). See "Management -- Option Plans," and "Underwriting."
Certain shareholders have the right to require the registration of their
Common Shares under the Securities Act at any time subject to certain
limitations but those shareholders have agreed not to exercise those rights for
a period of 180 days from the date of this Prospectus. See "Description of
Capital Stock -- Registration Rights." If those shareholders were to cause a
large number of Common Shares to be registered and sold in the public market
thereafter, the market price for the Common Shares could be materially adversely
affected. Additionally, those shareholders have the right to require the Company
to include their Common Shares in any Company-related registration under the
Securities Act, and the exercise of these "piggyback" registration rights could
have a material adverse effect on the Company's ability to raise capital in the
future. See "Certain Transactions."
NO PRIOR MARKET; POTENTIAL STOCK PRICE VOLATILITY
Prior to this offering, there has been no public market for the Common
Shares and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price will be
determined through negotiations between the Company and the Underwriters and may
not represent prices that will prevail in the trading market. See
"Underwriting."
The market price of the Common Shares could be subject to wide fluctuations
in response to variations in operating results from quarter to quarter, changes
in earnings estimates by analysts, market conditions in the industry and general
economic conditions. See "Risk Factors -- Volatility of Quarterly Operating
Results." Furthermore, the stock market has experienced significant price and
volume fluctuations unrelated to the operating performance of particular
companies. These market fluctuations may have an adverse effect on the market
price of the Common Shares. Following the offering, the Company will have
approximately 4.5 million Common Shares outstanding, of which approximately 2.0
million Common Shares could be considered to be part of the "float." Based on
the anticipated initial public offering price of between $9.00 and $11.00 per
share, the market capitalization of the Company would be approximately $40.5
million to $49.5 million. As a result of the small "float" and market
capitalization, the Company's Common Shares will be subject to volatility. The
price volatility of the Common Shares could be accentuated by quarterly
fluctuations in earnings. See "Risk Factors -- Volatility of Quarterly Operating
Results."
POSSIBLE ISSUANCE OF PREFERRED SHARES
The Board of Directors of the Company has the authority to issue preferred
shares in the future without further shareholder approval and upon such terms
and conditions, and having such rights, privileges and preferences, as the Board
of Directors may determine. The issuance of preferred shares, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could adversely affect the market price of the Common Shares
and could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting securities of the Company. The Company has no present plans
to issue any preferred shares. See "Description of Capital Stock."
NO CASH DIVIDENDS
The Company has never paid any cash dividends to holders of its Common
Shares and does not anticipate paying any cash dividends in the foreseeable
future, but intends instead to retain any future earnings for reinvestment in
its business. Any future determination as to the payment of dividends will be
made at the discretion of the Board of Directors of the Company and will depend
upon the Company's operating results, financial condition, capital requirements,
general business conditions and such other factors as the Board of Directors
deems relevant. See "Dividend Policy."
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 Shares
offered hereby are estimated to be $13.4 million ($15.5 million if the
Underwriter's over-allotment option is exercised in full), assuming an initial
public offering price of $10.00 per share (the midpoint of the range set forth
on the cover page of this Prospectus) and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The Company intends to utilize approximately $5.8 million to repay bank
indebtedness and approximately $3.0 million to purchase laboratory equipment.
The Company also intends to utilize a portion of the net proceeds to hire
additional technical staff and to upgrade its information systems. These
expenditures will primarily supplement and expand capabilities for existing
services offered to clients. In addition, the Company intends to use a portion
of the proceeds from the offering to expand its present facilities as well as to
fund future geographic expansion. The Company will use the remainder of the net
proceeds for working capital and other general corporate purposes, including
potential acquisitions. Pending such uses, the Company intends to invest the
remaining proceeds of the offering in high-quality, short-term,
interest-bearing, investment-grade debt securities, certificates of deposit or
direct or guaranteed obligations of the United States.
As part of its business strategy, the Company reviews many acquisition
candidates in the ordinary course of business, although the Company currently
has no agreements or arrangements in place with respect to any future
acquisition. There can be no assurance that the Company will complete any
acquisitions.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Shares and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain any future earnings to develop and expand its
business. The Company is currently restricted from paying cash dividends under
the terms of its lines of credit without the prior written consent of the bank.
10
<PAGE> 12
DILUTION
The net tangible book value of the Company as of September 30, 1997 was
approximately $6.7 million or $2.22 per share after giving effect to the
conversion of the outstanding Convertible Preferred Shares into Common Shares
and the 4.514 for 1 share split to be effected prior to the issuance of the
Shares offered hereby. The net tangible book value per share is equal to the
book value of the Company's total tangible assets less its total liabilities,
divided by the total number of Common Shares outstanding. After giving effect to
the sale by the Company of 1,500,000 Shares offered hereby at an assumed public
offering price of $10.00 per share (resulting in estimated net proceeds of $13.4
million after deducting the estimated underwriting discounts and commissions and
estimated offering expenses), the net tangible book value of the Company as of
September 30, 1997 would be approximately $20.0 million, or $4.46 per share.
This represents an immediate increase of $2.24 per share to existing
shareholders and an immediate dilution of $5.54 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $10.00
Net tangible book value per share before the offering..... $2.22
Increase in net tangible book value per share attributable
to new investors....................................... 2.24
-----
Net tangible book value per share after offering............ 4.46
------
Dilution per share to new investors......................... $ 5.54
======
</TABLE>
To the extent that the Underwriters' over-allotment option is exercised in
full, the net tangible book value of the Company at September 30, 1997 would
have been approximately $22.2 million, or $4.69 per share, representing an
immediate increase in net tangible book value per share of $2.47 to existing
shareholders and an immediate dilution of $5.31 per share to new investors.
The following table summarizes, as of September 30, 1997, the differences
in the number of Common Shares purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing shareholders and by the new investors with respect to the Shares
offered hereby, assuming an initial public offering price of $10.00 per share
and before deduction of estimated underwriting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).................. 3,000,000 66.7% $ 1,907,350 11.3% $ 0.64
New investors............................. 1,500,000 33.3 15,000,000 88.7 10.00
--------- ----- ----------- -----
Total..................................... 4,500,000 100.0% $16,907,350 100.0%
========= ===== =========== =====
</TABLE>
- -------------------------
(1) The above computations exclude options outstanding at September 30, 1997 to
purchase a total of 272,671 Common Shares at a weighted average exercise
price of $1.27 per share. To the extent these options are exercised, there
will be further dilution to new investors. See "Capitalization," "Management
-- Option Plans" and Note 6 of Notes to Consolidated Financial Statements.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1997, on an actual basis and as adjusted (i) to give
effect to the conversion of all outstanding Convertible Preferred Shares into
Common Shares immediately prior to the issuance of the Shares offered hereby and
(ii) to reflect the sale of the 1,500,000 Shares offered hereby at an assumed
initial public offering price of $10.00 per share and the receipt of the
estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
AS
ACTUAL ADJUSTED
------ --------
(IN THOUSANDS, EXCEPT
SHARES DATA)
<S> <C> <C>
Short-term debt............................................. $ 803 $ --
======= =======
Long-term debt, less current portion........................ $ 5,045 $ --
Preferred Shares:
1,000,000 Preferred Shares authorized and
166,667 Convertible Preferred Shares outstanding
(actual),
none outstanding (as adjusted)......................... 1,231 --
Shareholders' equity:
Common Shares, 19,000,000 shares authorized and 2,247,601
shares outstanding (actual); 4,500,000 shares
outstanding (as adjusted)(1)........................... 498 997
Additional paid-in capital................................ 178 14,310
Retained earnings......................................... 4,978 4,978
Currency translation adjustment........................... (3) (3)
------- -------
Total shareholders' equity........................... 5,651 20,282
------- -------
Total capitalization................................. $11,927 $20,282
======= =======
</TABLE>
- -------------------------
(1) Does not include 272,671 Common Shares issuable upon exercise of options
outstanding as of September 30, 1997, of which 236,555 were exercisable as
of that date. See "Management -- Option Plans" and Note 6 of Notes to
Consolidated Financial Statements.
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of income data for the years
ended September 30, 1995, 1996 and 1997 and the balance sheet data as of
September 30, 1996 and 1997 are derived from and should be read in conjunction
with the financial statements and notes thereto included elsewhere herein,
audited by Ernst & Young LLP. The selected statement of income data for the
years ended September 30, 1993 and 1994 and selected balance sheet data as of
September 30, 1993, 1994 and 1995 also are derived from audited financial
statements, which are not included herein. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Product revenue.................................. $ 9,124 $ 8,903 $ 9,627 $ 9,113 $ 9,932
Services revenue................................. 1,663 1,800 2,725 3,681 4,991
------- ------- ------- ------- -------
Total revenue............................... 10,787 10,703 12,352 12,794 14,923
Cost of product revenue.......................... 3,479 3,418 3,448 3,227 3,334
Cost of services revenue......................... 833 1,039 1,834 2,141 2,986
------- ------- ------- ------- -------
Total cost of revenue....................... 4,312 4,457 5,282 5,368 6,320
------- ------- ------- ------- -------
Gross profit..................................... 6,475 6,246 7,070 7,426 8,603
------- ------- ------- ------- -------
Operating expenses:
Selling........................................ 3,366 3,531 3,940 3,937 4,225
Research and development....................... 1,099 1,122 1,124 1,424 1,568
General and administrative..................... 882 984 1,222 1,364 1,638
------- ------- ------- ------- -------
Total operating expenses.................... 5,347 5,637 6,286 6,725 7,431
------- ------- ------- ------- -------
Operating income................................. 1,128 609 784 701 1,172
Other income (expense), net...................... 28 192 111 (18) (75)
------- ------- ------- ------- -------
Income before income taxes....................... 1,156 801 895 683 1,097
Income taxes..................................... 216 253 344 283 413
------- ------- ------- ------- -------
Net income....................................... $ 940 $ 548 $ 551 $ 400 $ 684
======= ======= ======= ======= =======
Net income available to common shareholders...... $ 886 $ 495 $ 497 $ 347 $ 657
Net income per Common Share...................... $ .30 $ .16 $ .16 $ .11 $ .21
Weighted average Common Shares outstanding....... 2,993 3,048 3,066 3,089 3,101
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $3,897 $4,392 $4,080 $ 3,059 $ 2,493
Property and equipment, net....................... 2,494 2,736 3,707 6,526 10,035
Total assets...................................... 7,800 8,163 9,428 11,374 15,931
Long-term debt, less current portion.............. 239 187 416 2,512 5,045
Convertible Preferred Shares...................... 1,994 2,047 2,100 1,530 1,231
Shareholders' equity.............................. 3,547 4,056 4,609 4,956 5,651
</TABLE>
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Selected Consolidated Financial Data and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus. In addition
to the historical information contained herein, the discussions in this
Prospectus may contain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below and in the section
entitled "Risk Factors," as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
The Company provides a broad range of value-added products and services
focused on chemical analysis to the worldwide pharmaceutical, medical device and
biotechnology industries. The Company's customer-focused approach and its high
quality products and services enable it to serve as a value-added partner in
solving complex scientific problems by providing cost-effective results to its
customers on an accelerated basis. Founded in 1974 in Lansing, Michigan and
relocated to West Lafayette, Indiana in 1975, the Company has experienced growth
primarily through internal expansion, supplemented by strategic acquisitions. As
part of its internal growth strategy, the Company has developed technical
specialties in such areas as chromatography, electrochemistry, in vivo sampling
and mass spectrometry. The Company's growth has strategically positioned it to
take advantage of globalization in the marketplace and to provide new services
and areas of technical expertise to its customers. During this phase, the
Company has been continuously profitable since 1987.
Throughout its history, the Company has taken steps to position itself as a
global leader in the analytical chemistry field. Development of the Company's
infrastructure began in 1975 when it established relationships with several
customers and multiple international distributors. In 1981, the Company
increased its sphere of influence to include Japan with the creation of BAS
Japan, an independent distributor. In 1988, the Company enhanced its computer
software expertise by acquiring Interactive Microware Inc. in State College,
Pennsylvania. In 1990, the Company began offering contract services to customers
that lacked the time or expertise to perform certain analyses using the
Company's analytical products. In 1991, the Company further expanded its global
presence by establishing an office in Brussels, Belgium, and in 1995, the
Company acquired a distributor, BAS Technicol Ltd., to further solidify its
presence in the United Kingdom. While the Company derives a significant portion
of its revenues from customers in Asia, the Company does not expect that the
recent economic downturn in certain Asian markets will have a material adverse
impact on its financial condition in the short or long term, because the Company
does not derive a significant amount of its total revenue from these markets.
Revenues are derived principally from (i) the sale of the Company's
analytical instruments and other products, and (ii) analytical services provided
to customers. Both methods of generating revenue utilize the Company's ability
to identify, isolate and resolve client problems relating to the separation and
quantification of individual substances in complex mixtures. The Company's
analytical products are sold primarily to pharmaceutical firms and research
organizations. The Company supports the pharmaceutical industry by focusing on
analytical chemistry for biomedical research, diagnostics, electrochemistry and
separations science. Principal customers include scientists engaged in drug
metabolism studies, as well as those engaged in basic neuroscience research. The
Company was the first to commercialize the liquid chromatography and
electrochemistry technology which is now the worldwide standard for the
determination of neurotransmitter substances. Research products include in vivo
sampling devices, reagent chemicals, electrochemical apparatus and sensors.
Revenue from the sale of the Company's products and the related costs are
recognized upon shipment of the products to customers. The Company's
pharmaceutical service contracts generally have terms ranging from several
months to several years. A portion of the contract fee is generally payable upon
receipt of the initial samples with the balance payable in installments over the
life of the contract. The contracts are broken down into discrete units of
deliverable services for which a fixed fee for each unit is established, and
revenue
14
<PAGE> 16
and related direct costs are recognized as specific contract terms are fulfilled
under the percentage of completion method utilizing units of delivery. The
termination of a contract results in no material adjustments to revenue or
direct costs previously recognized, and the Company is entitled to payment for
all work performed through the date of notice of termination and all costs
associated with termination of a contract.
The Company's management believes that fluctuations in the Company's
quarterly results are caused by a number of factors, including the Company's
success in attracting new business, the size and duration of service contracts,
the timing of its client's decisions to enter into new contracts, the
cancellation or delays of on-going contracts, the timing of acquisitions and
other factors, many of which are beyond the Company's control. See "Risk Factors
- -- Volatility of Quarterly Operating Results."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of income data as a percentage of total revenue.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
---------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Product revenue............................................. 77.9% 71.2% 66.6%
Services revenue............................................ 22.1 28.8 33.4
----- ----- -----
Total revenue.......................................... 100.0 100.0 100.0
Cost of product revenue..................................... 27.9 25.2 22.3
Cost of services revenue.................................... 14.9 16.8 20.0
----- ----- -----
Total cost of revenue.................................. 42.8 42.0 42.3
Gross profit................................................ 57.2 58.0 57.7
Operating expenses:
Selling................................................... 31.9 30.8 28.3
Research and development.................................. 9.1 11.1 10.5
General and administrative................................ 9.9 10.7 11.0
----- ----- -----
Total operating expenses............................... 50.9 52.6 49.8
----- ----- -----
Operating income............................................ 6.3 5.4 7.9
Other income (expense), net................................. 0.9 (0.1) (0.5)
----- ----- -----
Income before income taxes.................................. 7.2 5.3 7.4
Income taxes................................................ 2.8 2.2 2.8
----- ----- -----
Net income.................................................. 4.4% 3.1% 4.6%
===== ===== =====
</TABLE>
Year ended September 30, 1997 Compared with Year ended September 30, 1996
Total revenue for the year ended September 30, 1997 increased 16.6% to
approximately $14.9 million from approximately $12.8 million in the year ended
September 30, 1996. The net increase of approximately $2.1 million related
primarily to increased revenue from services, which increased to approximately
$5.0 million in the year ended September 30, 1997 from approximately $3.7
million in the year ended September 30, 1996 as a result of the expansion of
types and volume of services provided by the Company. During this same period,
product revenue increased to approximately $9.9 million for the year ended
September 30, 1997 from approximately $9.1 million for the year ended September
30, 1996 primarily as a result of increased penetration in the electrochemistry
and the liquid chromatography market.
Costs of revenue increased 17.7% to approximately $6.3 million for the year
ended September 30, 1997 from approximately $5.4 million for the year ended
September 30, 1996. This increase of approximately $952,000 was largely due to
the hiring of additional support staff in the services unit. Costs of revenue
for the Company's products decreased to 33.6% as a percentage of product revenue
for the year ended September 30, 1997 from 35.4% of product revenue for the year
ended September 30, 1996, due to a change in product mix.
15
<PAGE> 17
Costs of revenue for the Company's services increased to approximately 59.8% as
a percentage of services revenue for the year ended September 30, 1997 from
approximately 58.2% of services revenue for the year ended September 30, 1996
due to an increase in services support staff.
Selling expenses for the year ended September 30, 1997 increased 7.3% to
approximately $4.2 million from approximately $3.9 million during the year ended
September 30, 1996 due to increased commissions on foreign sales. Research and
development expenses for the year ended September 30, 1997 increased 10.1% to
$1.6 million from approximately $1.4 million for the year ended September 30,
1996 due to the development of the in vitro product line. General and
administrative expenses for the year ended September 30, 1997 increased 20.1% to
approximately $1.6 million from approximately $1.4 million for the year ended
September 30, 1996, primarily as a result of increased property taxes incurred
in connection with the Company's purchase and construction of additional
facilities.
Other income (expense), net, was approximately $(75,000) in the year ended
September 30, 1997 as compared to approximately $(18,000) in the year ended
September 30, 1996 as a result of a reduction of interest income due to a
reduction in cash and cash equivalents resulting from the redemption of
Redeemable Preferred Shares owned by the Venture Funds in accordance with their
terms.
The Company's effective tax rate for 1997 was 37.7% as compared to 41.4%
for fiscal 1996. This decrease was primarily due to utilization of the research
and development tax credit.
Year ended September 30, 1996 Compared with Year ended September 30, 1995
Total revenue for the year ended September 30, 1996 increased 3.6% to
approximately $12.8 million from approximately $12.4 million in the year ended
September 30, 1995. The net increase of approximately $400,000 related to
increased revenue from services, which increased to approximately $3.7 million
in the year ended September 30, 1996 from approximately $2.7 million in the year
ended September 30, 1995 as a result of the expansion of types and volume of
services provided by the Company. During this same period, product revenue
decreased to approximately $9.1 million for the year ended September 30, 1996
from approximately $9.6 million for the year ended September 30, 1995 primarily
as a result of increased industry competition in the liquid chromatography
market.
Costs of revenue increased 1.6% to approximately $5.4 million for the year
ended September 30, 1996 from approximately $5.3 million for the year ended
September 30, 1995. This increase of approximately $100,000 was due to the
hiring of additional support staff in the services unit. Costs of revenue for
the Company's products decreased to 35.4% as a percentage of product revenue for
the year ended September 30, 1996 from 35.8% of product revenue for the year
ended September 30, 1995, due to a change in product mix. Costs of revenue for
the Company's services decreased to approximately 58.2% as a percentage of
service revenue for the year ended September 30, 1996 from approximately 67.3%
of services revenue for the year ended September 30, 1995 due to an increase in
the level of services revenue.
Research and development expenses for the year ended September 30, 1996
increased 26.7% to $1.4 million from approximately $1.1 million for the year
ended September 30, 1995 due to the development of the in vitro product line.
General and administrative expenses for the year ended September 30, 1996
increased 11.6% to approximately $1.4 million from approximately $1.2 million
for the year ended September 30, 1995, primarily as a result of increased
property taxes incurred in connection with the Company's purchase and
construction of additional facilities.
Other income (expense), net, was approximately $(18,000) in the year ended
September 30, 1996 as compared to approximately $111,000 in the year ended
September 30, 1995 as a result of a reduction in interest income due to a
reduction in cash and cash equivalents resulting from the redemption of
Redeemable Preferred Shares owned by the Venture Funds in accordance with their
terms.
16
<PAGE> 18
The Company's effective tax rate for 1996 was 41.4% as compared to 38.5%
for fiscal 1995. This increase was due, in part, to operating losses from
operations in the United Kingdom for which there is no corresponding income tax
deduction and to increased state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's principal sources of cash have been cash
flow generated from operations and funds received from venture capital
investments, the most recent of which was a $2.0 million financing completed in
March 1991. At September 30, 1997, the Company had cash and cash equivalents of
approximately $160,000, compared to cash and cash equivalents of approximately
$600,000 at September 30, 1996. The decrease in cash resulted primarily from
increased capital expenditures made to expand the Company's facilities and
operations. The expansion was partially financed by cash provided by operating
activities, and a $5.0 million credit facility.
The Company's net cash provided by operating activities was approximately
$842,000 for the year ended September 30, 1997. Cash provided by operations
during the year ended September 30, 1997 consisted of net income of
approximately $684,000 plus non-cash charges of approximately $584,000 partially
offset by a net increase of approximately $426,000 in operating assets and
liabilities. The most significant increase in operating assets related to trade
accounts receivable, which increased to approximately $3.0 million at September
30, 1997 from approximately $1.6 million at September 30, 1996, due primarily to
sales growth.
Cash used by investing activities increased to approximately $4.0 million
for the year ended September 30, 1997 from approximately $3.2 million for the
year ended September 30, 1996, primarily as a result of the Company's purchase
and construction of additional facilities. Cash provided by financing activities
for the fiscal 1997 was approximately $2.7 million due to an increase in the
Company's long and short term debt and offset by the redemption of Redeemable
Preferred Shares in accordance with their terms.
The Company's net cash provided by operating activities was approximately
$301,000 for the year ended September 30, 1996, resulting from approximately
$400,000 of net income and reduced by a net increase in operating assets and
liabilities which was partially offset by non-cash charges. Trade accounts
receivable remained relatively constant at approximately $1.6 million at
September 30, 1996 as compared to September 30, 1995.
Cash used by investing activities increased to approximately $3.2 million
for fiscal 1996 from approximately $1.3 million for fiscal 1995, primarily as a
result of the Company's purchase and construction of additional facilities. Cash
provided by financing activities for fiscal 1996 was approximately $1.7 million
due to an increase in the Company's long term debt incurred for the facilities
expansion and offset by the redemption of Redeemable Preferred Shares in
accordance with their terms.
Total expenditures by the Company for property and equipment were
approximately $1.3 million $3.2 million and $4.1 million in fiscal 1995, 1996
and 1997, respectively. Expenditures made in connection with the expansion of
the Company's operating facilities and purchases of laboratory equipment account
for the largest portions of these expenditures. The Company anticipates
increased levels of capital expenditures in fiscal 1998 and fiscal 1999. The
increased capital investments relate to the completion of the renovation and
construction of the additional facilities and the purchase of additional
laboratory equipment corresponding to anticipated increases in research services
to be provided by the Company. The Company also expects to make other
investments to expand its operations, through internal growth and strategic
acquisitions, alliances and joint ventures. However, the Company currently has
no firm commitments for capital expenditures other than in connection with the
expansion of the Company's facilities.
Based on its current business activities, the Company believes that cash
generated from its operations, amounts available under its existing bank lines
of credit and credit facility and the net proceeds from this offering will be
sufficient to fund the Company's working capital and capital expenditure
requirements for the next few years.
The Company has a bank line of credit agreement which expires March 1, 1998
and allows borrowings of the lesser of 50.0% of inventories plus 80.0% of
qualified accounts receivable or $2.2 million. Interest is
17
<PAGE> 19
charged at the prime rate plus .25% (8.75% at September 30, 1997). At September
30, 1997, the collateral base for this line of credit resulted in borrowing
availability of approximately $2.2 million of which $200,000 was outstanding at
September 30, 1997. The line is collateralized by inventories and accounts
receivable. The Company has a second line of credit agreement with the same bank
for capital expenditures which expires March 1, 1998 and allows borrowings of
the lesser 80% of capital expenditures or $1,000,000. Interest is charged at the
prime rate plus .25% (8.75% at September 30, 1997). At September 30, 1997,
$315,377 was outstanding on this line. The line is collateralized by fixed
assets, inventories and accounts receivable. The Company has entered into
negotiations with the bank to increase the amounts available under these lines
of credit and extend the expiration dates upon completion of the sale of the
Shares offered hereby, although there can be no assurance that such negotiations
will be successful.
During 1996, the Company entered into a credit facility for up to $5.0
million for the purchase and renovation of an adjacent building. At maturity of
this facility on January 31, 1998, the loan may be converted to a five year term
loan based upon a 20 year amortization funding on a conventional commercial
mortgage basis or with fixed principal payments plus interest. Interest is
charged at the prime rate plus .25% (8.75% at September 30, 1997). This credit
facility is collateralized by substantially all of the Company's property and
equipment. The agreement contains certain covenants which, among other things,
require the Company to maintain minimum levels of tangible net worth and debt
service coverage.
RECENT DEVELOPMENT
On October 31, 1997, the Company acquired all of the outstanding capital
stock of Vetronics, Inc. ("Vetronics"), which manufactures, markets and sells,
electrocardiograph and vital sign monitors for small to midsize animals. The
total purchase price consisted of $200,000 in cash, $150,000 in notes payable on
July 1, 1998 and a contingent amount to be based upon the profitability of sales
from products manufactured by Vetronics during the next two years. The Company
believes that the addition of these products will enhance its position as a
producer of physiology instrumentation.
INFLATION
To date, the Company believes that the effects of inflation have not had a
material adverse effect on its business, operations or financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information." Under SFAS 131, the Company will report financial and
descriptive information about its operating segments. SFAS 131 is effective for
fiscal years beginning after December 15, 1997. The Company plans to adopt SFAS
131 on October 1, 1998. The Company has not yet evaluated the impact of adoption
of SFAS 131.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting and display of comprehensive income in the financial
statements. SFAS 130 is effective for fiscal years beginning after December 15,
1997. The Company plans to adopt SFAS 130 on October 1, 1998. The Company has
not yet evaluated the impact of SFAS 130.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share," which replaces the presentation of
primary earnings per share ("EPS") with basic EPS and replaces fully diluted EPS
with diluted EPS. It also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the components of the basic EPS
computation to the components of the diluted EPS computation. SFAS No. 128 is
effective for both interim and annual periods ending after December 15, 1997.
Earlier adoption is not permitted. Upon adoption, all prior-period EPS data
presented will be restated. The Company does not anticipate the adoption of SFAS
No. 128 to have a significant effect on EPS.
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<PAGE> 20
BUSINESS
COMPANY OVERVIEW
The Company is a contract research organization providing research and
development resources to many of the leading pharmaceutical, medical device and
biotechnology companies in the world. The Company offers an efficient,
variable-cost alternative to its clients' internal product development,
compliance and quality control programs. Founded in 1974, the Company initially
focused primarily on providing new products and procedures which facilitated
research progress at client sites. Recently, as a result of increasing pressures
to bring products to market on a cost-effective and accelerated basis, many
clients have requested the Company to carry out proprietary projects at the
Company's facilities. As a result, the Company now derives its revenues from
both the sale of its analytical instruments and other products as well as
research services provided to customers. The Company provides a broad array of
both value-added products and services focused on chemical analysis, allowing
its clients to perform their R&D functions either "in-house" or at the Company.
The Company believes that among CROs that provide statistical, clinical, and
medical services, the Company is the only one that designs and sells analytical
instrumentation. Within the analytical instruments business, the Company
believes that it is one of very few firms to maintain a separate business unit
devoted to contract analytical services under the regulatory framework of GLPs
and GMPs.
The Company's products and services combine basic research with diagnostic
and therapeutic experience. One consequence of the restructuring of the
healthcare industry is the greater reliance on outsourcing research services for
both clinical trials and formulation development. The Company is capable of
supporting the analytical needs of researchers and clinicians, from small
molecule drugs and hormones through large biomolecules such as proteins. The
Company's scientists have the skills necessary in instrumentation, chemical
reagents and computer software to make the products and services it provides
increasingly valuable to the worldwide pharmaceutical, medical device and
biotechnological industries.
Over the past five years, the Company regularly has provided its products
and/or services to all of the top 25 pharmaceutical companies in the world, as
ranked by 1996 research and development spending. In fiscal 1997, the Company
estimates that more than one-third of its total revenue was derived from these
companies. As a result of its (i) client focus, (ii) reputation for high-quality
services and products, (iii) capital investment in state-of-the art
instrumentation and facilities, (iv) skilled and experienced professional staff,
and (v) expertise in performing critical development and support services, the
Company believes that it is a value-added partner in solving its clients'
complex product development problems.
The Company designs, manufactures and markets a broad range of products and
related scientific procedures that detect and quantify the presence of chemicals
in certain substances. On the products side, the Company competes in the $11
billion analytical instrument industry. The Company's focus, however, is not on
marketing hardware and software, but rather on solutions to challenging
analytical problems where the Company can utilize its talented personnel to
provide a total solution not generally available from hardware-focused
competitors. The Company's products utilize state-of-the-art scientific
technology, including liquid chromatography, electrochemistry and in vivo
sampling instrumentation. The Company's analytical instruments are sold
primarily to pharmaceutical firms and research organizations. Principal clients
include scientists engaged in drug metabolism studies, as well as scientists
engaged in basic neuroscience research.
The Company provides a wide variety of services to pharmaceutical
companies, medical device manufacturers, medical research centers, academic
institutions and others. These analytical services support screening and
pharmacological testing, toxicology/safety testing, formulation development,
laboratory testing, regulatory and compliance consulting and quality control
testing. The Company began providing services primarily in response to requests
from customers who had used or were using the Company's products. To reduce
overhead and speed drug approval requests through the FDA, pharmaceutical
companies are contracting increasing amounts of their analytical work to outside
firms like the Company. The Pharmaceutical Research and Manufacturing
Association estimates that in 1997, pharmaceutical and biotechnology companies
will spend approximately $18.9 billion worldwide on research and development, of
which approximately 18%, or $3.4 billion, will be outsourced to independent
contract service providers. The Company believes that the trend of outsourcing
will continue as a result of drug development pressures, the
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<PAGE> 21
emphasis on cost containment, patent expirations, consolidation in the
pharmaceutical industry, virtual drug company and biotechnology industry growth,
the need for technical expertise, the need for data management expertise and the
globalization of the pharmaceutical marketplace.
CHANGING NATURE OF PHARMACEUTICAL INDUSTRY
The Company provides products and services on a world wide basis to
pharmaceutical, medical device and biotechnology companies, academic
institutions and the United States government to facilitate the research and
development of drugs and medical devices. The Company's products are marketed
generally to both public and private research organizations engaged in the early
stages of drug development, while the Company's services are marketed generally
to pharmaceutical and other biotechnical companies engaged in later stages of
drug testing. The Company competes against several large equipment manufacturers
with respect to its products, while the research services industry is highly
fragmented consisting of several hundred service providers operating in various
segments of the market and a few larger companies focusing primarily on managing
clinical trials. While the markets for the Company's products and services have
distinct customers (often simply separate divisions in a large pharmaceutical
company) and requirements, the Company believes that both markets are facing
increased pressure to outsource certain facets of their research and development
activities. The Company believes that the factors identified below will
contribute to a continuing increase in outsourcing activities by its customers.
Drug Development Pressure
The pharmaceutical industry is under pressure to rapidly develop new drugs
to treat chronic illnesses and life threatening conditions such as AIDS and
Alzheimer's disease as consumers, doctors, health care providers and
pharmaceutical company shareholders continue to demand quicker and more
efficient drug development. Responding to this pressure, pharmaceutical
companies are attempting to accelerate the drug development process, including
reliance to an increasing extent on external providers of research and
development services to perform testing and analysis in all phases of the
process.
Emphasis on Cost Containment
Pharmaceutical companies are facing increasing pressure to develop more
efficient operating strategies as a result of margin pressure from market
forces, including (i) a shift toward managed care, (ii) patent expirations,
(iii) generic substitution, (iv) increased purchasing power of large buyer
groups and (v) governmental initiatives designed to reduce drug prices. The
Company believes that the pharmaceutical and medical device industries are
responding to these pressures by downsizing internal research and development
programs, favoring outsourcing as a variable-cost alternative. Further, the need
for additional capacity to increase the speed of new product development, to
maximize the period of marketing exclusivity and to increase economic returns,
has driven the need for outsourced services.
Patent Expirations
Patents on all major pharmaceuticals continue to age and expire. According
to the Pharmaceutical Research and Marketing Association, since 1984
prescriptions for generic drugs have risen from 20% to 43% of all prescriptions
written. Moving generic drugs onto the market faster can result in an estimated
2 to 5 year reduction in effective patent protection for brand name drugs.
Patent expirations are forcing drug companies to develop new products or modify
existing products to maintain market share against generic product competition.
The Company believes that the pressure to develop new products and modify
(reformulate) existing products, combined with internal capacity constraints, is
leading companies to outsource these activities.
Consolidation in the Pharmaceutical Industry
The pharmaceutical industry is increasingly consolidating as drug
development companies continue to pursue new avenues of growth and more
efficient ways of conducting business. As companies seek to combine
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<PAGE> 22
varied personnel, resources and activities, the Company believes that they will
increasingly focus on ways to reduce costs and streamline operations, leading to
the greater use of companies providing contract research services.
Biotechnology Industry and "Virtual" Drug Company Growth
The biotechnology industry has grown rapidly over the last 10 years and has
introduced a significant number of new compounds for development. As a result,
many biotechnology companies do not have the necessary in-house resources to
conduct required development and testing. Furthermore, the number of
pharmaceutical and medical device companies whose business strategy is to bring
a product far enough along to attract a strategic partner that will manufacture
and market a drug has increased. Many of these "virtual" drug development
companies, having little or no internal development or support resources, must
outsource a substantial portion of drug development and testing.
Need for Technical Expertise
The increasing complexity of new drugs requires high quality, innovative,
solution-driven contract work through all phases of the development process from
preclinical toxicology and pharmacokinetics through reformulation
pharmacokinetic studies and post-market clinical drug monitoring. The Company
believes that this need for specialized technical expertise will increasingly
lead to outsourcing of research activities.
Need for Data Management Expertise
Regulatory agencies are increasing the volume of data required for
regulatory filings, as well as requesting increased access to these data.
Furthermore, the FDA is encouraging the use of computer-assisted filings in an
effort to expedite the approval process; consequently, drug companies are
increasingly outsourcing to firms with automated data management capabilities.
Clients also are demanding access to data as it is acquired in the laboratory;
and the Company has the ability to provide clients with remote access to Company
computer systems while at the same time protecting client data from unauthorized
access.
Globalization of the Marketplace
Foreign pharmaceutical companies, particularly in Japan and Europe, are
increasingly seeking to obtain approval to market their products in the United
States. Due to a lack of familiarity with the complex United States regulatory
system and the difficulty in bringing their operating facilities into
FDA-required GMP compliance, foreign firms are relying on independent
development companies with experience in the United States to provide integrated
services through all phases of product development and to assist in preparing
regulatory submissions. The Company believes that domestic firms with
established regulatory expertise and a broad range of integrated development
services will benefit from this trend.
GROWTH STRATEGY
The Company's objective is to be the leading provider of high-quality
analytical chemistry and support services to the worldwide pharmaceutical,
medical device and biotechnology industries. The Company intends to leverage its
facilities, technological expertise and information systems to facilitate growth
and differentiate itself from its competitors. The Company has adopted a
business strategy intended to accelerate growth and profitability, which
consists of the following elements:
Increase Technical Staff to Expand Sales
The Company believes its investment in infrastructure and technical
expertise has positioned it to significantly expand the level of services it
provides to current and future clients. The Company is currently turning away
opportunities to provide services because of technical personnel and capacity
constraints. The Company intends to hire additional scientific personnel,
allowing it to take advantage of the recent expansion of the Company's
facilities and substantially increased laboratory space. The additional
personnel will allow the Company to further provide services to current and
future clients.
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<PAGE> 23
Implement Comprehensive Marketing and Sales Program
Due to the recent growth of the CRO industry and the highly fragmented
nature of the competition, the Company believes it has been difficult for many
CROs to achieve a high profile corporate identity within the marketplace. The
Company's marketing strategy is to continue to build upon its reputation as a
provider of high quality products and services. The Company has developed a
marketing plan designed to substantially increase awareness of the products
offered and services provided by the Company. The plan includes: (i) increasing
the number of sales and marketing personnel, (ii) expanding the level of
advertising and promotion, (iii) expanding strategic development relationships
with key clients, (iv) expanding global market presence through distributors and
locally focused promotion, and (v) surveying existing and potential clients to
further assess needs and buying practices. The Company also intends to expand
its technical services staff given that in the normal course of business of
responding to client inquiries regarding the Company's products and services
they have identified additional business opportunities in the services sector.
Broaden Range of Services Provided
The Company intends to expand its development capabilities by adding
services that are complementary to its product development and support services.
In addition to offering a broad range of integrated, value-added services that
span the product life cycle from new compound characterizations to market
product compliance and quality control testing, the Company plans to: (i)
provide integrated formulations development services, (ii) refine current in
vitro sampling methodologies, and (iii) broaden the range of services provided
in connection with clinical trials. Increasing the array of services offered to
clients is intended to enhance the Company's reputation for providing a turnkey
approach to accurately and quickly meet product development challenges.
Expand Geographically
The Company intends to supplement its internal growth through the opening
of offices in strategic locations. The Company believes that these offices will
be valuable in developing and maintaining important client relationships. The
Company believes that establishing a presence in certain domestic and
international markets will enable it to more effectively compete for services
from worldwide pharmaceutical, medical device and biotechnology customers that
require a rapid turnaround. The Company intends to add facilities on the West
Coast, as well as in targeted international markets. Adding facilities outside
the United States will allow the Company to provide analytical services nearer
to clinical sites and major pharmaceutical research centers located in
international markets, without certain regulatory restrictions applicable to
delivery and testing of substances in the United States. Geographic expansion
may be accomplished by internal growth, acquisitions or joint ventures.
Identify and Effect Key Acquisitions
The Company believes that significant acquisition opportunities exist in
the CRO industry due to its highly fragmented nature. The Company intends to
focus on acquisitions of businesses that would expand its geographic presence,
add to its clinical expertise in sectors in which it has significant experience
and broaden its range of services. As part of its business strategy and in a
continuing effort to enhance its capabilities to serve the global needs of its
clients, the Company is looking at strategic acquisitions on an ongoing basis.
In addition to considering the business of the candidate, the Company evaluates
the ease with which an acquisition candidate may be integrated into the
Company's organizational structure.
OPERATING STRATEGIES
The Company's operating strategies are derived from a strong base of
expertise in analytical chemistry, obtained from not only its role as a
manufacturer of state of the art instrumentation but also as a provider of
contract laboratory services. This dual role strongly differentiates the Company
from its competitors. The Company believes that among CROs that provide
statistical, clinical, and medical services, the Company is the only one that
designs and sells analytical instrumentation. Within the analytical instruments
business, the
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Company believes it is one of very few firms to maintain a separate business
unit devoted to contract analytical services under the regulatory framework of
GLP's and GMP's. The Company's operating strategies consist of the following
elements:
Continue to Focus on Analytical Chemistry
The Company will remain focused on selling products and services related to
analytical chemistry. The Company believes that this area has not been
emphasized by many of the larger CROs and that they presently do not have the
personnel or the scientific expertise to be successful in this field. The
Company has developed and will continue to develop methodologies capable of
measuring new drug substances. The Company believes that its capabilities to
make highly technical measurements in blood plasma, tissue or dosage forms, for
example, represents a significant competitive advantage.
Enhance the Synergy between Products and Services
The Company will continue to provide analytical chemistry solutions by
selling innovative products and services. Each of these business units
complements and enhances the other. For example, the Company has received
certain contract service work due to the Company's expertise in selling and
supporting liquid chromatography products. Conversely, the timely completion of
a contracted study in the services unit has subsequently led to purchase orders
from the same clients for the Company's products.
Further Emphasize High-End Assays
The Company will continue to focus on performing sophisticated analytical
techniques, distinguishing the Company from entities performing commodity-like
services. Clients with a need for specialized, sophisticated, instrumental
techniques with extremely high sensitivity seek out highly qualified CROs such
as the Company in order to maximize their likelihood of success. Many of the
newer compounds being developed are pharmacologically active at much lower
concentrations than before and require more sophisticated analytical techniques.
Due to the expertise of the Company's staff, and the sophisticated
instrumentation which it employs in its services contracts, the Company will
continue to take advantage of these high-end opportunities.
Continue to Invest in State of the Art Instrumentation
The Company has historically and will continue to invest in technologies
and products that are needed to support its customers' analytical chemistry
needs. The Company's stature in the contract services business and its ability
to distinguish itself from its competitors will be enhanced by (i) providing
more capacity through purchasing automated sample analysis systems (robotics),
(ii) increasing the number of LC/MS and GC/MS systems, (iii) increasing the
on-site storage space for stability samples, and (iv) adding other
instrument-based techniques.
Enhance Client Relationships
The Company prides itself on its strong relationships with its clients. The
Company believes that its continuous communication with clients both on the
product support side and throughout the testing process has been critical to its
success. The Company believes many clients view the Company's staff as a virtual
extension of their own department.
Emphasize the "Annuity Effect"
The Company will continue its close working relationships with large
innovator pharmaceutical companies by developing analytical methods for new drug
candidates as early as possible in the drug development process. Upon acceptance
of the new method by the client, the Company becomes the preferred provider of
the testing services and can leverage its development expenses over the analyses
of thousands of specimens generated from dozens of clinical trials and stability
testing protocols. The Company thereby generates a continuing revenue stream
extending over not only the drug development process but also over the
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<PAGE> 25
post-approval phase, where demand for testing services can actually increase as
reformulations occur and as other clients use the Company's method for drug
interaction studies.
THE COMPANY'S ROLE IN THE DRUG DEVELOPMENT PROCESS
Overview of Process
The Company has 23 years of experience in developing methodology to support
the analytical chemistry requirements of the drug discovery process. Under the
United States regulatory system, the development process for new pharmaceutical
products can be divided into three distinct phases. The preclinical phase
involves the discovery, characterization, product formulation and animal testing
necessary to prepare an Investigational New Drug ("IND") exemption for
submission to the FDA. The IND must be accepted by the FDA before the drug can
be tested in humans. The second, or clinical phase of development follows a
successful IND submission and involves the activities necessary to demonstrate
the safety, tolerability, efficacy and dosage of the substance in humans, as
well as the ability to produce the substance in accordance with the FDA's GMP
regulations. Data from these activities are compiled in a New Drug Application
("NDA"), or for biotechnology products, a Product License Application ("PLA"),
for submission to the FDA requesting approval to market the drug. The third
phase follows FDA approval of the NDA, or PLA, and involves the production and
continued analytical and clinical monitoring of the drug. The post-approval
phase also involves the development and regulatory approval of product
modifications and line extensions, including improved dosage forms.
The drug development process may be illustrated schematically as set forth
below. Although the schematic is organized in a linear fashion, many of the
stages of the process frequently overlap.
[FLOW CHART]
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Process Specifics and the Company's Role
The Preclinical Phase. The development of a new pharmaceutical agent begins
with the discovery or synthesis of an array of new molecules which may influence
a specific target such as a membrane bound receptor or an enzyme involved in the
disease under study. These libraries of molecules are screened for
pharmacological activity using various in vitro and in vivo models, with the
goal of selecting relatively few "leads" for further development. Once the
pharmacologically active molecule is fully characterized, the agent is analyzed
to confirm the integrity and quality of material produced. Development of the
initial dosage forms to be used in clinical trials is completed, together with
analytical chemistry protocols to determine their stability. Upon successful
completion of preclinical safety and efficacy studies in animals, an IND
submission is prepared and provided to the FDA for review prior to human
clinical trials.
Most of the Company's products are designed for use in the preclinical
phase of drug development, and the Company also provides its bioanalytical
services in this phase. A good example of the role of the Company's products in
the preclinical phase is the utilization of Company technology in the
development of drug substances impacting the central nervous system
neurotransmitters, including serotonin, dopamine, norepinephrine, and
acetylcholine. These drugs are used in the treatment of such conditions as
depression, Parkinson's disease, schizophrenia and Alzheimer's disease. The
Company's chromatography products have been used extensively, for example, to
study the influence of reuptake inhibitors on serotonin uptake and release in
CNS programs at universities and a major pharmaceutical company well before
1985. The Company believes that the synergy between the Company's
instrumentation products and services has been a factor in the Company being
selected by major pharmaceutical companies to determine new drug candidates in
thousands of Phase I-III clinical specimens.
The Clinical Phase. Following successful submission of an IND application,
the sponsor is permitted to conduct Phase I human clinical trials in a limited
number of healthy individuals to determine the drug's safety and tolerability.
This work requires bioanalytical assays to determine the availability and
metabolism of the active ingredient following administration. Expertise in
method development and validation is essential for this phase, particularly with
new chemical entities. Phase II clinical trials involve administering the drug
to individuals who suffer from the target disease or condition to determine the
drug's potential effectiveness and ideal dose. When further safety (toxicology),
tolerability and an ideal dosing regimen have been established, Phase III
clinical trials involving large numbers of patients are conducted to verify
efficacy and safety. After the successful completion of Phase III clinical
trials, the sponsor of the new drug submits an NDA, or PLA, to the FDA
requesting that the product be approved for marketing.
The Company's bioanalytical work is most intensive per individual in Phase
I studies where relatively few individuals are dosed. In Phase II and III the
number of individuals treated accelerates rapidly, but the number of blood
samples drawn per patient declines. Phase II and III studies are carried out
over several years with what has become a well established analytical protocol.
To maintain consistency in the analytical data, it is unusual for a sponsor to
change laboratories unless there are problems in the quality or timely delivery
of results. This tendency provides the "annuity effect" described previously.
One area of special interest to the Company is drug interaction studies.
With increasing numbers of patients receiving multiple drug therapy, it is
critical that the impact of each drug be assessed with respect to its influence
on the effectiveness and toxicology of other drugs dosed simultaneously. This
complicates and often extends clinical trials. Frequently, drugs from different
manufacturers will be used together. A CRO such as the Company can provide
services to several firms simultaneously when a potential synergy exists between
their respective products. Such firms are often competitors in one therapeutic
area and complementors in another area (e.g. the "cocktail" approach to HIV
therapy). In such a case, a given assay technology might well be of interest to
a number of clients, spreading the assay development cost. More importantly,
drug interaction studies lead to new clients in a much more cost effective
manner than advertising or an outside sales force.
The Post-approval Phase. Following approval, the drug manufacturer must
comply with quality assurance and quality control requirements throughout
production and must continue chemical analytical and stability studies of the
drug in commercial production to continue to validate production processes and
confirm
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product shelf life. The drug manufacturer's raw materials must be analyzed prior
to use in production, and samples from each manufactured batch must be tested
prior to release of the batch for distribution to the public. The Company also
provides its bioanalytical services in all areas during the post-approval phase,
concentrating on bioequivalence studies of new formulations, line extensions,
new disease indications and drug interaction studies.
COMPANY PRODUCTS AND SERVICES
Overview
The Company's products and services may be illustrated schematically as set
forth below.
[FLOW CHART]
The Company provides products and procedures for the $11 billion analytical
instrument industry, and also provides a broad array of bioanalytical services
in all phases of the drug development process. Over its 23 year history, the
Company has developed expertise in a number of core scientific technologies
which it has utilized in developing state-of-the-art procedures designed to
determine amounts of chemical substances in complex materials. These
technologies include: liquid chromatography, electrochemistry, solid phase
extraction, mass spectrometry, enzymology and fluorescence. The Company also
uses its expertise in analytical chemistry to provide a wide range of
bioanalytical services to pharmaceutical companies, academic institutions and
others involved in pharmaceutical research and development.
Products
The Company designs, manufactures and markets a broad range of products and
related scientific procedures that detect and quantify the presence of chemicals
in certain substances. The Company's products utilize state-of-the-art
scientific technology including liquid chromatography, electrochemistry and in
vivo sampling instrumentation. Presently, the Company's products and procedures
include:
- Bioanalytical separation instrumentation that utilizes liquid
chromatography and Windows(R) software to detect low concentrations of
substances in biological fluids and tissues.
- A wide-range of chemical analyzers that utilize scientific technologies
including electrochemistry, liquid chromatography and enzymology to
analyze levels of chemicals such as acetylcholine, choline, serotonin and
dopamine in biological materials. These instruments assist scientists in
the study of, among other things, Alzheimer's disease, cocaine addiction
and the effects of chemical warfare agents and strokes.
- Diagnostic kits and procedures, designed to utilize the Company's
instrumentation, that, among other things, enable clinical laboratories
and pharmaceutical researchers to determine the presence of
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<PAGE> 28
multiple drugs in blood plasma and to measure neurotransmitters and their
metabolites in plasma and urine. These kits and procedures assist
researchers in developing new drugs for diseases such as AIDS and
cardiovascular disease.
- A line of miniaturized in vivo sampling devices, marketed to veterinary
and animal research centers, pharmaceutical companies and medical
research centers, which assist in the study of a number of medical
conditions, including stroke, depression, Parkinson's disease, diabetes
and osteoporosis.
The chart below sets forth the Company's product categories, the technology
supporting each category and the applications of each category.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
PRODUCT/PROCEDURE ENABLING TECHNOLOGY APPLICATION(S)
- --------------------------------------------------------------------------------------------------------
Bioanalytical Separation - Liquid chromatography Determining low concentrations
Instrumentation - High pressure digitally of substances in biological
controlled fluids and tissues
metering pumps
- Electrochemical and optical
detectors
- Customized Windows(R) software
- Customized Internet
applications
- --------------------------------------------------------------------------------------------------------
Electrochemical Analyzers and - Electrochemistry Development of biosensors for
Accessories - Real time control and data substances, such as glucose,
acquisition software lactate, glutamate; development
- Customized Windows(R) software of batteries for electronics
- Customized Internet such as pacemakers; study of
applications corrosion of implants
- --------------------------------------------------------------------------------------------------------
Acetylcholine/Choline Analyzer - Liquid chromatography Studies of Alzheimer's disease;
- Enzymology chemical warfare agents; and
- Electrochemistry infant formula
- --------------------------------------------------------------------------------------------------------
Serotonin and Dopamine Analyzer - Liquid chromatography Developing serotonin reuptake
- Electrochemistry inhibitors; studies of the
mechanism of cocaine addiction
- --------------------------------------------------------------------------------------------------------
Amino Acid Analyzer - Derivatization chemistry Studies of aspartame, glutamate,
- Liquid chromatography and GABA in the brain; research
- Electrochemistry and/or to minimize the impact of stroke
- Fluorescence and other ischemic events in the
brain
- --------------------------------------------------------------------------------------------------------
In vivo sampling devices - Hydrophilic membrane fibers Following pharmacokinetics in
("artificial blood vessels") - Digitally controlled pumping vivo; monitoring glucose;
and auxiliary instrumentation systems, miniature fraction neurotransmitters, peptides, and
collectors, and valves amino acids; studies of stroke,
depression, Parkinson's Disease,
diabetes and calcium loss
related to osteoporosis and
weightlessness; reducing the use
of animals in research
- --------------------------------------------------------------------------------------------------------
Kits for clinical measurement of - Robotics Evaluating cardiovascular
neurotransmitters and - Liquid chromatography disease, inborn errors of
homocysteine in human blood - Electrochemistry metabolism, and cancers of
and urine - Customized Windows(R) software neurological origin
- --------------------------------------------------------------------------------------------------------
Simultaneous determination of - Robotics Cocktail therapy for AIDS; drug
multiple drugs in blood plasma - Solid phase extraction interaction studies during
- Liquid chromatography clinical trials
- Mass spectrometry
- --------------------------------------------------------------------------------------------------------
Vital signs monitoring - Electrocardiology (ECG) ECG, respiration, blood
- Temperature transducers pressure, and temperature
- Real time software monitoring in veterinary clinics
and toxicology departments in
pharmaceutical companies
- --------------------------------------------------------------------------------------------------------
</TABLE>
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Services
The Company provides a wide variety of services to pharmaceutical
companies, medical device manufacturers, medical and research centers, academic
institutions, and others. The Company's services unit has grown rapidly over the
last several years. The Company began providing services primarily in response
to requests from customers who had used or were using the Company's products. As
the Company's reputation has grown, the Company's customers increasingly have
drawn on the Company's expertise in analytical chemistry to solve complex
problems which arise in the course of drug research and development. The
Company's range of services now include: method development and validation;
product characterization; stability testing; bioanalytical testing; diagnostic
testing and in vivo sampling. The Company is poised to utilize its expertise to
provide a greater volume and broader array of services. These services involve
the application of the Company's expertise in analytical chemistry to a broad
range of challenging and complex issues, and include the services described
below.
- Method Development and Validation. The Company develops and validates
methods used in a broad range of laboratory testing necessary to
determine physical or chemical characteristics of compounds and finished
dosage forms. Analytical methods are developed to demonstrate potency,
purity, stability or physical attributes. These methods are validated to
ensure that the data generated are accurate, precise, reproducible and
reliable and are used throughout the drug development process and in
product support testing. Of the Company's 160 employees as of September
30, 1997, more than 30 of the Company's scientists (including nine who
hold Ph.D. degrees) are experienced with method development and
validation.
- Product Characterization. The Company has the expertise and instruments
required to identify and characterize a broad range of chemical entities.
Characterization analysis identifies the chemical composition, structure
and physical properties of a compound, and characterization data forms a
significant portion of a regulatory application. The Company uses
numerous techniques to characterize the compound, including
chromatography, spectroscopy, electrochemistry and other physical
chemistry techniques. Once appropriate test methods are developed and
validated, and appropriate reference standards (highly pure samples) are
characterized and certified, the Company can assist clients by routinely
testing compounds for clinical and commercial use.
- Stability Testing. The Company provides stability testing and secure
storage facilities necessary to establish and confirm product purity,
potency and other shelf-life characteristics. Stability testing is
required at all phases of product development, from dosage form
development through commercial production, to confirm shelf life of each
manufactured batch. The Company maintains a four-chamber, ICH validated
controlled climate GMP facility. FDA regulations require that samples of
clinical and commercial products placed in stability chambers be analyzed
in a timely fashion after scheduled "pull points" occur, based on the
date of manufacture.
- Bioanalytical Testing. The Company offers bioanalytical testing services
to support clinical trials, analyzing plasma samples to characterize the
drug's concentration and determine the rate of absorption and
elimination. Bioanalytical studies of new drugs often present challenging
and complex issues, with products being metabolized into multiple active
and inactive forms. The Company works with its clients to develop and
validate analytical methods to permit detection and measurement of the
various components to trace levels. In some cases clients expect the
Company to take responsibility to develop methodology and in other cases
methodology is transferred from the client and refined and validated by
the Company personnel. The most common technology used in such studies is
liquid chromatography coupled with various detectors, including mass
spectrometry as well as optical and electrochemical devices.
- Diagnostic Testing. The Company has manufactured bioanalytical chemistry
products since its start in 1974. The Company produces fully automated,
networkable state-of-the-art liquid chromatographs and electrochemical
analyzers based on Windows(R)software. The Company has recently developed
and now produces a line of diagnostic kits designed to fit its
instrumentation. These kits help measure neurotransmitters and their
metabolites and homocysteine, an experimental cardiovascular disease
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indicator in plasma and urine. These measurement processes are often performed
by Company personnel utilizing Company products.
- In Vivo Sampling. The Company pioneered and has commercialized
miniaturized in vivo sampling methodology, which involves the continuous
monitoring of chemical changes in live animals. This technology is sold
as both a service and a line of products. The Company is aggressively
adding new components to this line, with the goal of selling complete,
automated sampling systems. Target markets include veterinary and animal
research centers, pharmaceutical companies and medical research centers.
The Company has received two significant Phase II SBIR grants that
involve subcontracts with Purdue University and the University of Kansas
for the purpose of exploiting this emerging technology.
- Formulation Development Services. In the future, the Company plans to
provide integrated formulation development services, enabling the Company
to take a client's compound and develop a safe and stable product with
desired characteristics. The Company believes its strong academic
connections to Purdue and other universities, formulation expertise and
extensive analytical capabilities position the Company to provide a
significant contribution to this area.
CLIENTS
Over the past five years, the Company regularly has provided services and
products to all of the top 25 pharmaceutical companies in the world, as ranked
by 1996 research and development spending. In fiscal 1997, the Company estimates
that more than one-third of its total revenue was derived from these companies.
In addition, the Company products are purchased by the vast majority of medical
schools in North America, Europe and Asia. In fiscal 1997, the Company provided
products and services to approximately 300 institutions, including some of the
largest United States, European and Japanese drug companies. Approximately 35%
of the Company's revenues are generated from customers located outside the
United States.
The Company believes that a concentration of business among certain large
clients is not uncommon in the CRO industry. The Company has experienced such
concentration in the past and may do so again in the future. During 1996, four
operating groups (Quality Control, Analytical Research and Development, Clinical
Pharmacokinetics, and Drug Metabolism) of Pfizer, Inc., a major United States
pharmaceutical company, in the aggregate accounted for approximately 18% of the
Company's total revenues. These sales were derived from both the products and
the services units of the Company. During 1997, Pfizer, Inc. accounted for
approximately 21% of the Company's total revenues. Most of these sales fell
under approximately 80 contracts the Company has or had with Pfizer, Inc., the
largest of which totaled approximately $400,000. Although the Company strives to
reduce its reliance on a limited number of major clients, there can be no
assurance that the Company's business will not be dependent upon certain major
clients, the loss of which could have a material adverse effect on the Company.
In addition, due to the project-oriented nature of the Company's business, there
can be no assurance that significant clients in any one period will continue to
be significant clients in other periods. See "Risk Factors -- Dependence on
Certain Industries and Clients."
SALES AND MARKETING
Marketing and sales initiatives have been created to address both market
needs and economic reality. Services have grown primarily through direct,
internal recommendations among major pharmaceutical manufacturers. Frequently,
these customers have had prior relationships with the Company's staff and
positive experiences with the Company's products and services. The Company
recognizes that its growth and continued customer satisfaction are dependent
upon its ability to continually improve its sales and marketing functions.
In North America, products are sold directly to the end user. The Company
has approximately 20 personnel selling a range of products and an equal number
providing technical and development support. All staff members are technically
trained and all function in both capacities. The Company has also established a
highly professional collection of catalogs, training and technical support
literature, workshops, and academic publications. The Company's peer-reviewed
journal, Current Separations, describes independent research in
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technologies of interest to the Company's customers, and is distributed to
18,500 readers worldwide, many of whom are current or potential customers.
Product sales, marketing and technical support is led from the Company's
main office in West Lafayette, Indiana. The Company maintains an office in New
Jersey with a small sales and technical staff, enabling the Company to
demonstrate its products and present technical workshops near the largest
concentration of key customers. The Company also maintains sales and technical
support capabilities in Massachusetts, North Carolina, Texas, Pennsylvania and
Kansas.
The Company's marketing plan provides for new sales representation in
California and the Midwest, stronger promotion of all product lines, enhanced
workshops, training, and demonstration capabilities in the Company's new
facilities. The Company's marketing and sales strategy is to be more aggressive,
focus on customer needs and further strengthen communications with its markets.
The Company will build on its long history of innovation and technical
excellence.
BAS Technicol, Ltd., a wholly-owned subsidiary of the Company, manages most
sales in Europe, and the Company maintains sales and technical support
capabilities in Belgium. The Company has a network of more than 20 established
distributors covering Japan, the Pacific Basin, South America, the Middle East,
India, South Africa and Eastern Europe. Revenue generated from the Company's
Japanese distributor, BAS Japan, accounted for approximately 12% of the
Company's total revenue for fiscal 1997. Although the Company believes that it
could identify a suitable replacement in the event that BAS Japan discontinues
as the Company's distributor, such an event could have a material adverse effect
on the Company's business, operations and financial condition. See Note 9 of
Notes to Consolidated Financial Statements. All of these distributor
relationships are managed from the Company's headquarters. International growth
is planned through acquisitions, stronger local promotion and significantly
broadening the Company's distributor network.
CONTRACTUAL ARRANGEMENTS
The Company's service contracts typically establish an estimated fee for
identified services. While the Company is performing a contract, clients often
adjust the scope of services to be provided by the Company in light of interim
project results, at which time the amount of fees is adjusted accordingly.
Generally, the Company's fee-for-service contracts are terminable by the client
upon written notice of 30 days or less. The loss of a large contract or the loss
of multiple contracts could adversely affect the Company's future revenue and
profitability. Contracts may be terminated for a variety of reasons, including
the client's decision to forego a particular study, the failure of product
prototypes to satisfy safety requirements and unexpected or undesired results of
product testing. See "Risk Factors -- Client Contracts Terminable Upon Notice"
and "--Dependence on Certain Industries and Clients."
BACKLOG
Backlog for the Company's products consists of booked purchase orders for
products which have not been shipped. The Company rarely has a backlog for its
products of more than one month of sales. Many products are shipped within 24
hours of order receipt. Because the arrangements pursuant to which the Company
provides its services are terminable upon written notice of 30 days or less, the
Company does not calculate backlog for the services it provides and does not
believe that determining such amount would provide a meaningful indicator of the
future performance of its services unit.
COMPETITION
With respect to its products, the Company competes with several large
equipment manufacturers, including Hewlett Packard, Waters Corporation and
Perkin Elmer Corporation. Competitive factors include quality, reliability and
price. The Company believes it competes favorably in its targeted markets
because of its ability to combine quality products with technical assistance and
services to meet customer needs.
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With respect to its services, the Company competes primarily with in-house
research, development, quality control and other support service departments of
pharmaceutical and biotechnology companies, as well as university research
laboratories and teaching hospitals. In addition, there are numerous
full-service CRO's that compete in this industry. The largest CRO competitors
offering similar research services include Covance, Inc., Pharmaceutical Product
Development, Inc., Applied Analytical Industries, Inc., Phoenix International
Life Sciences Inc. and MDS Health Group Ltd. CROs generally compete on the basis
of previous experience, medical and scientific expertise in specific therapeutic
areas, the quality of contract research, the ability to organize and manage
large-scale trials on a global basis, medical database management capabilities,
the ability to provide statistical and regulatory services, the ability to
recruit investigators, the ability to integrate information technology with
systems to improve the efficiency of contract research, an international
presence with strategically located facilities, financial viability and price.
Many of the Company's competitors are much larger and have significantly
greater financial resources than the Company. See "Risk Factors -- Competition."
GOVERNMENT REGULATION
The services performed by the Company are subject to various regulatory
requirements designed to ensure the quality and integrity of pharmaceutical and
diagnostic products, primarily under the Federal Food, Drug and Cosmetic Act and
associated GLP and GMP regulations which are administered by the FDA in
accordance with current industry standards. These regulations apply to all
phases of manufacturing, testing and record keeping, including personnel,
facilities, equipment, control of materials, processes and laboratories,
packaging, labeling and distribution. Noncompliance with GLPs and GMPs by the
Company in a project could result in disqualification of data collected by the
Company in the project. Material violation of GLP or GMP requirements could
result in additional regulatory sanctions, and in severe cases could result in a
discontinuance of selected Company operations, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
To help assure compliance with applicable regulations, the Company has
established quality assurance controls at its facilities that monitor ongoing
compliance by auditing test data and regularly inspecting facilities, procedures
and other GMP compliance parameters. In addition, FDA regulations and guidelines
serve as a basis for the Company's standard operating procedures, where
applicable. Certain of the Company's development and testing activities are
subject to the Controlled Substances Act, administered by the Drug Enforcement
Agency ("DEA"), which regulates strictly all narcotic and habit-forming
substances. The Company maintains restricted-access facilities and heightened
control procedures for projects involving such substances due to the level of
security and other controls required by the DEA. In addition to FDA regulations,
the Company is subject to other federal and state regulations concerning such
matters as occupational safety and health and protection of the environment.
The Company's activities involve the controlled use of hazardous materials
and chemicals. The Company is subject to foreign, federal, state and local laws
and regulations governing the use, storage, handling and disposal of such
materials and certain waste products. The risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
which could have a material adverse effect on the Company's business and results
of operations. See "Risk Factors -- Dependence on and Possible Adverse Effect of
Government Regulation."
PRODUCT LIABILITY AND INSURANCE
The Company maintains product liability and professional errors and
omissions liability insurance, providing approximately $6.0 million in coverage
on a claims-made basis. In addition, in certain circumstances the Company seeks
to manage its liability risk through contractual provisions with clients
requiring the Company to be indemnified by the client or covered by clients'
product liability insurance policies. In addition, in certain types of
engagements, the Company seeks to limit contractual liability to its clients to
the amount of fees received by the Company. The contractual arrangements are
subject to negotiation with clients and the
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terms and scope of such indemnification, liability limitation and insurance
coverage vary from client to client and from project to project. Although most
of the Company's clients are large, well-capitalized companies, the financial
performance of these indemnities is not secured. Therefore,the Company bears the
risk that the indemnifying party may not have the financial ability to fulfill
its indemnification obligations or that liability would exceed the amount of
applicable insurance. In addition, the Company could be held liable for errors
and omissions in connection with the services it performs. There can be no
assurance that the Company's insurance coverage will be adequate or that
insurance coverage will continue to be available on terms acceptable to the
Company, or that the Company can obtain indemnification arrangements or
otherwise be able to limit its liability risk. See "Risk Factors -- Liability
Risks Related to Products and the Provision of Services."
EMPLOYEES
At September 30, 1997, the Company had 160 full-time employees, 110 of
which hold degrees, including 30 Ph.D.s. The Company believes that its relations
with its employees are good. None of the Company's employees are represented by
a union. The Company's performance depends on its ability to attract and retain
qualified professional, scientific and technical staff. The level of competition
among employers for skilled personnel is high. The Company believes that its
employee benefit plans enhance employee morale, professional commitment and work
productivity and provide an incentive for employees to remain with the Company.
While the Company has not experienced any significant problems in attracting or
retaining qualified staff, there can be no assurance that the Company will be
able to avoid these problems in the future. All employees enter into
confidentiality agreements intended to protect the Company's proprietary
information. See "Risk Factors -- Need to Attract, Develop, Manage and Retain
Professional Staff."
FACILITIES
The Company's principal executive offices are located at 2701 Kent Avenue,
West Lafayette, IN 47906 constituting approximately 100,000 square feet of
operational and administrative space. Purdue University, located in West
Lafayette, Indiana, is exceptionally strong in pharmacy, chemistry, veterinary
medicine, computer science and engineering. Its program in Analytical Chemistry
is ranked among the best in the nation. The Purdue campus provides access to
educational opportunities, high quality consultants, graduates and information
resources. The technically trained staff that the Company requires prefers a
community with the amenities of a first rate university. The Company's record
for obtaining Federal and other grants has enhanced collaborative efforts with
Purdue. The Company maintains offices which provide sales and technical support
services in New Jersey, Pennsylvania and the United Kingdom, and employs sales
and technical support service representatives in North Carolina, Texas and
Belgium. The Company believes that its facilities are adequate for the Company's
operations and that suitable additional space will be available when needed.
INFORMATION SYSTEMS
Although the Company's focus is on providing value-added products and
services, information systems are an important component of the Company's
technological leadership. The Company believes that superior information systems
are essential to expanding its operations and to providing innovative services
to clients. The Company's customized Windows(R)-based software is integral to
many of its products.
The FDA has become increasingly sophisticated with respect to information
systems and the integrity of all forms of data incorporated into regulatory
submissions. Correspondingly, the Company strives to be at the forefront of
nonclinical testing laboratories in validation of hardware and software systems.
The Company's continuing commitment to technological innovations and meeting
changing client and regulatory requirements will drive continuous improvement of
its information systems technology, maintaining a competitive advantage.
LEGAL PROCEEDINGS
The Company from time to time may be involved in various claims and legal
proceedings arising in the ordinary course of business. The Company does not
believe that any pending claims or proceedings, individually or in the
aggregate, would have a material adverse effect on the Company's financial
condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter T. Kissinger, Ph.D.(1)(2)........ 52 Chairman of the Board; President; Chief Executive
Officer
Ronald E. Shoup, Ph.D.(2).............. 45 President, Research Services Unit; Vice President,
Research and Development; Director
Craig S. Bruntlett, Ph.D............... 48 Vice President, Electrochemical Products
Donnie A. Evans........................ 51 Vice President, Engineering
Stephen Geary, Ph.D.................... 56 Vice President, United States Sales and Marketing
Candice B. Kissinger................... 45 Vice President, International Marketing; Secretary
and Director
Lina L. Reeves-Kerner.................. 47 Vice President, Human Resources
Michael P. Silvon, Ph.D................ 50 Vice President, Business Development
Denise M. Wallworth, Ph.D.............. 44 Managing Director, BAS Technicol, Ltd.
Douglas P. Wieten...................... 36 Chief Financial Officer, Controller and Treasurer
William E. Baitinger(2)(3)............. 64 Director
Michael K. Campbell(3)................. 46 Director
Thomas A. Hiatt(1)..................... 49 Director
John A. Kraeutler(1)(2)................ 49 Director
William C. Mulligan(1)(3).............. 43 Director
W. Leigh Thompson, Ph.D.(2)............ 59 Director
</TABLE>
- -------------------------
(1) Member of the Compensation and Incentive Stock Option Committee.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee.
PETER T. KISSINGER, PH.D. founded the Company in 1974 and has served as its
Chairman, President and Chief Executive Officer since 1974. He is also a
part-time Professor of Chemistry at Purdue University where he has been teaching
since 1975. Dr. Kissinger has a Bachelor of Science degree in Analytical
Chemistry from Union College and a Doctorate in Analytical Chemistry from the
University of North Carolina.
RONALD E. SHOUP, PH.D. has been Vice President, Research and Development
since 1983 and President of the Company's research services unit, BAS Analytics,
since 1990. Dr. Shoup has been instrumental in developing many of the Company's
chromatographic applications. Dr. Shoup has a Bachelor of Science degree in
Chemistry and Mathematics, and a Ph.D. in Analytical Chemistry from Purdue
University.
CRAIG S. BRUNTLETT, PH.D. has been Vice President, Electrochemical Products
since 1992 and is responsible for sales, marketing and development of the
Company's electrochemical products. From 1980 to 1990, Dr. Bruntlett was
Director of New Product Development for the Company. Dr. Bruntlett has a
Bachelor of Arts degree in Chemistry and Mathematics from St. Cloud State
University in Minnesota and a Ph.D. in Chemistry from Purdue University.
DONNIE A. EVANS was the Company's first full-time employee beginning as an
electronics engineer in 1978. Since January of 1988, he has been Vice President,
Engineering Services.
STEPHEN GEARY, PH.D. has been Vice President, United States Sales and
Marketing since January 1992. Dr. Geary is responsible for the sales efforts of
the Company's clinical products. Dr. Geary has a Bachelor of Science degree in
Biology and Chemistry from Tufts University, a Masters of Science degree in
Biology from the University of New Hampshire and a Ph.D. in Biochemistry from
Syracuse University.
CANDICE B. KISSINGER has been Vice President, International Sales and
Marketing since July 1981. Mrs. Kissinger developed the Company's international
distribution network and is responsible for managing
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the Company's advertising activities. Mrs. Kissinger has a Bachelor of Science
degree in Microbiology from Ohio Wesleyan University and a Masters of Science
degree in Food Science from the University of Massachusetts. Mrs. Kissinger is
the wife of Dr. Peter T. Kissinger.
LINA L. REEVES-KERNER has been Vice President, Human Resources since 1995
and is responsible for the administrative support functions of the Company,
including shareholder relations, human resources and community relations. From
1980 to 1990 Ms. Reeves-Kerner served as an Administrative Assistant at the
Company. Ms. Reeves-Kerner has a Bachelor of Science degree in Business
Administration from Indiana Wesleyan University.
MICHAEL P. SILVON, PH.D. has been Vice President, Business Development
since March 1997. From August 1996 until January 1997, Dr. Silvon was Manager,
Technical Services for Great Lakes Chemical responsible for commercial technical
support. From December 1994 until August 1996, Dr. Silvon was a self-employed
consultant advising various companies on technical business management. From
October 1993 until December 1994, Dr. Silvon was Vice President Sales and
Marketing at Hi-Port, Inc., a custom formulations and packaging firm in Houston,
Texas. Prior to that period, Dr. Silvon was a Regional Business Manager-Americas
for the Fine Chemicals Business of Imperial Chemical Industries, PLC/Zeneca,
responsible for outsourcing the needs of many major pharmaceutical companies
with key raw materials. Dr. Silvon has his Bachelor in Science degree in
Chemistry from Loyola University of Chicago, a Ph.D. in Chemistry from the
University of Vermont and a Masters in Business Administration from Sacred Heart
University.
DENISE M. WALLWORTH, PH.D. has been Managing Director, BAS Technicol, Ltd.
since March 1995 and is responsible for the Company's operations in the United
Kingdom. Prior to that time she was Managing Director of Technicol Ltd., which
was acquired by the Company in March 1995. Dr. Wallworth has a Bachelor of
Science degree in Chemistry and a Doctorate in Organic Chemistry from the
University of Manchester Institute of Science Technology.
DOUGLAS P. WIETEN has been Chief Financial Officer since September 1997,
corporate Controller since February 1992 and Treasurer since March 1997 and is a
certified public accountant. Prior to that time, Mr. Wieten worked at Ernst &
Whinney (now Ernst & Young LLP), where he had been employed since 1984. Mr.
Wieten has a Bachelor of Science degree in Accounting from Butler University.
WILLIAM E. BAITINGER has served as a director of the Company since 1979.
Mr. Baitinger has been Director of Technology Transfer at Purdue University
since 1988, responsible for all aspects of the program. Mr. Baitinger has a
Bachelor of Science degree in Chemistry and Physics from Marietta College and a
Masters of Science degree in Chemistry from Purdue University.
MICHAEL K. CAMPBELL has served as a director of the Company since 1991. Mr.
Campbell has been the President and Chief Executive Officer of Powerway, Inc., a
software company, since January 1993. From January 1992 until January 1993, Mr.
Campbell was Chief Financial Officer of Hurco Companies, Inc. and was president
of Hurco Manufacturing, its largest division. Mr. Campbell has a Bachelor of
Science degree in accounting from the University of Southern Indiana.
THOMAS A. HIATT has served as a director of the Company since 1991. Mr.
Hiatt has been general partner of Middlewest Ventures, a venture capital firm,
since 1986. Mr. Hiatt has a Bachelor of Arts degree in Political Science from
Wabash College and a Master of Science degree in Management from the
Massachusetts Institute of Technology. Mr. Hiatt is also a director of Fifth
Third Bank of Central Indiana, Isolab, Inc., PackageNet, Inc. and Powerway, Inc.
JOHN A. KRAEUTLER has served as a director of the Company since January
1997. Mr. Kraeutler has been President and Chief Operating Officer of Meridian
Diagnostics, Inc. since August 1992 and is also a director. Prior to that time,
Mr. Kraeutler was Executive Vice President and Chief Operating Officer of
Meridian Diagnostics, Inc. Mr. Kraeutler has a Bachelor of Science degree in
Biology from Fairleigh Dickinson University and a Masters of Science degree in
Biology and a Masters in Business Administration from Seton Hall University.
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WILLIAM C. MULLIGAN has served as a director of the Company since 1991. Mr.
Mulligan has been the managing director of Primus Venture Partners, a venture
capital firm, since January 1992. Mr. Mulligan has a Bachelor of Arts degree in
Economics from Denison University and a Masters in Business Administration from
the University of Chicago. Mr. Mulligan is also a director of Universal
Electronics.
W. LEIGH THOMPSON, PH.D., M.D., has served as a director of the Company
since January 1997. Since 1995, Dr. Thompson has been the chief executive
officer of Profound Quality Resources, Inc., a world-wide scientific consulting
firm. Prior to 1995, Dr. Thompson held various positions at Lilly Research
Laboratories. Dr. Thompson has a Bachelor of Science degree in Biology from the
College of Charleston, a Masters of Science and a Doctorate in Pharmacology from
the Medical University of South Carolina and a Medical Doctor degree from The
Johns Hopkins University. Dr. Thompson is also a director of Chrysalis
International Corporation, Corvas International, Inc., GeneMedicine, Inc., La
Jolla Pharmaceutical Company, Medarex, Inc., Ophidian Pharmaceuticals, Inc. and
Orphan Medical, Inc.
All directors are elected at the annual meeting of shareholders for a term
of one year and hold office until the election and qualification of their
successors at the next annual meeting of shareholders or until their earlier
resignation or removal. Officers of the Company serve at the discretion of the
Board of Directors.
DIRECTOR COMMITTEES
The Board of Directors has established an Audit Committee, a Compensation
and Incentive Stock Option Committee (the "Compensation Committee") and an
Executive Committee. The Audit Committee is responsible for recommending to the
Board of Directors the engagement of the independent auditors of the Company and
reviewing with the independent auditors the scope and results of the audits, the
internal accounting controls of the Company, and audit practices. Messrs.
Baitinger, Campbell and Mulligan serve on the Audit Committee. The Compensation
Committee is responsible for reviewing and approving all compensation
arrangements for the officers of the Company and for administering the Company's
Option Plans. See "Management -- Option Plans." Messrs. Kissinger, Hiatt,
Kraeutler and Mulligan serve on the Compensation and Incentive Stock Option
Committee. The Executive Committee may exercise all of the authority of the
Board of Directors, subject to certain limitations with respect to payment of
dividends, filling of vacancies on the Board, amendment of the Articles of
Incorporation or Bylaws, and issuance of shares. Messrs. Kissinger, Shoup,
Baitinger, Kraeutler and Thompson serve on the Executive Committee.
DIRECTOR COMPENSATION
Directors who are not employees of the Company, other than Messrs. Hiatt
and Mulligan, receive $500 for each Board meeting attended, plus out-of-pocket
expenses incurred in connection with attendance at such meetings. Dr. Thompson
receives an additional $6,000 annually as compensation for the services he
renders as a consultant to the Company. See "Management -- Scientific Advisory
Board." Directors who are employees of the Company do not receive any additional
compensation for their services as directors.
SCIENTIFIC ADVISORY BOARD
In 1985, the Company established a Scientific Advisory Board to assist the
Company in its research and development activities. The Scientific Advisory
Board is comprised of distinguished scientists from outside the Company who have
significant accomplishments in areas of science and technology that are
important to the Company's future. The Scientific Advisory Board interacts with
the Company's scientific and management staff. The following individuals are the
current members of the Scientific Advisory Board:
DANIEL W. ARMSTRONG, PH.D. is the Curators' Distinguished Professor of
Chemistry at the University of Missouri-Rolla. He is the Editor for Chirality;
Section Editor for Amino Acids; on the Advisory Board for Analytical Chemistry;
and is on the Editorial Board of several other journals. He is the founder and
first director of the Center for Environmental Science and Technology. He is on
the Board of Directors of Advanced Separation Technologies, has six patents and
approximately 250 publications. He received his Ph.D. in Chemistry from Texas
A&M University in 1977.
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R. GRAHAM COOKS, PH.D., is Henry Bohn Hass Distinguished Professor of
Chemistry at Purdue University. He received his Bachelor of Science degree at
the University of Natal, South Africa, in 1959; his Masters of Science and his
Doctorate from the above in 1963 and 1966, respectively, and his Doctorate from
Cambridge University in Great Britain in 1976. Prof. Cooks currently serves on
the editorial boards of ten scientific journals. He has been honored with Purdue
Cancer Research Award (1983), ACS Analytical Divisions 1984 Chemical
Instrumentation Award, Thomson Medal for International Service to Mass
Spectrometry (1985), Herbert McCoy Award (1990), NSF Special Creativity Award
(1990 & 1995), ACS award for Mass Spectrometry (1991), and ACS Award for
Analytical Chemistry (1997). He has published more than 500 scientific papers
since 1967.
WILLIAM R. HEINEMAN, PH.D., is Distinguished Research Professor in the
Department of Chemistry at the University of Cincinnati where he has served on
the faculty since 1972. He received his Doctorate in Chemistry from the
University of North Carolina in 1968. Dr. Heineman has served on the
editorial/advisory boards of Analytical Chemistry, The Analyst, Selective
Electrode Reviews, Encyclopedia of Analytical Science, Fresenius Journal of
Analytical Chemistry, Quimica Analitica, Biosensors and Bioelectronics,
Analytica Chimica Acta, and Applied Biochemistry and Biotechnology. He has
received numerous awards including the Alexander von Humboldt Senior Research
Award for U.S. Scientists, the Charles N. Reilley Award in Electroanalytical
Chemistry, and the Division of Analytical Chemistry Award for Excellence in
Teaching from the American Chemical Society. He is the Chair of the Division of
Analytical Chemistry of the American Chemical Society and a cofounder and
President of the Society for Electroanalytical Chemistry.
JEAN-MICHEL KAUFFMAN, PH.D., is Professor of Analytical Chemistry at the
Pharmaceutical Institute, University of Brussels (ULB). He received his
undergraduate degree in Pharmacy and his Doctorate in Pharmaceutical Sciences
from ULB in 1977 and 1983, respectively. Dr. Kauffman is Vice President of the
Belgian Society of Pharmaceutical Sciences and Treasurer of the International
Bioelectrochemical Society. He is Editor in Chief of the journal Talanta and
serves on five other editorial boards. Dr. Kauffman's research focuses on
pharmaceutical analysis, biosensors, and electrochemical measurement techniques.
He has published 19 review chapters and 105 scientific journal articles.
SUSAN M. LUNTE, PH.D., is Associate Professor of Pharmaceutical Chemistry
and Courtesy Associate Professor of Chemistry at the University of Kansas. She
received her Doctorate in Analytical Chemistry in 1984 from Purdue University.
She was a research scientist at Procter & Gamble, Cincinnati, OH from 1984 until
1987 when she went to the University of Kansas. Dr. Lunte has been associated
with the Center for Bioanalytical Research (CBAR) at the University of Kansas
since 1987 and served as Associate Director and Director of that center from
1994 to early 1997. Dr. Lunte serves on the editorial advisory boards of
Analytical Proceedings and Pharmaceutical Research and in 1997 was the recipient
of the Agnes Fay Morgan Research Award for Women in Chemistry from Iota Sigma
Pi, an NSF CAREER Award, and the University of Kansas Graduate Student Mentoring
Award. She is currently chair-elect of the Analytical and Pharmaceutical Quality
section of the American Association of Pharmaceutical Scientists and will serve
as chair next year.
MARK E. MEYERHOFF, PH.D. is Professor of Chemistry and Associate Chair for
Graduate Affairs in the Department of Chemistry at the University of Michigan.
He has active research programs in the areas of electrochemical sensor design,
novel immunoassay systems, and new stationary phases for liquid chromatography.
He received his Doctorate from the State University of New York at Buffalo in
1979. Since joining the faculty at Michigan, he and his collaborators have
authored more than 170 original research papers. Professor Meyerhoff serves on
the editorial/advisory boards of Biosensors & Bioelectronics; Electroanalysis;
Analytica Chimica Acta, and Applied Biochemistry and Biotechnology. He also
serves on Scientific Advisory Boards for Medtronics Blood Management,
Instrumentation Laboratory Sensor Systems, GDS Technologies, and Selective
Technologies.
W. LEIGH THOMPSON, PH.D., M.D., is retired from Eli Lilly and Company where
he served as Director of Clinical Investigation, Executive Vice President of
Lilly Research Laboratories and Chief Scientific Officer. Prior to joining Eli
Lilly in 1982, Dr. Thompson served as a Professor of Medicine at Case Western
University from 1974 until 1982, where he founded programs in clinical
pharmacology and critical care medicine. He directed live telecasts for
continuing education, developed the Northeast Ohio Poison Control Center,
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<PAGE> 38
Cleveland Drug Analysis Laboratory, and University Hospitals Drug Information
Center. As an Assistant Professor of Medicine and of Pharmaceutical and
Experimental Therapeutics at Johns Hopkins, Dr. Thompson started the advanced
nurse practitioner program and initiated computer-assisted instruction in
pharmacokinetics. He is an honorary Life Member and Past President of the
Society of Critical Care Medicine and is co-editor of the Textbook of Critical
Care and Critical Care: State of the Art.
Each of the Scientific Advisory Board members is employed by an employer
other than the Company and may have commitments to, or consulting or advisory
contracts with, other entities that may conflict or compete with his or her
obligations with the Company. Generally, members of the Scientific Advisory
Board are not expected to devote a substantial portion of their time to Company
matters.
The members of the Scientific Advisory Board do not receive any
compensation in connection with attending meetings of the Scientific Advisory
Board. They do, however, from time to time, receive compensation in connection
with consulting services they render to the Company. In fiscal 1997 Dr. Thompson
received $6,000 for consulting service rendered to the Company, and no other
member of the Scientific Advisory Board received in excess of $1,500 for
consulting services.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation provided by the Company to,
or for the account of, the Chief Executive Officer of the Company and the only
other executive officer of the Company who had annual compensation in excess of
$100,000 (the "Named Executive Officers") for the years ended September 30,
1995, 1996 and 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(S) FISCAL YEAR SALARY BONUS COMPENSATION
------------------------------ ----------- ------ ----- ------------
<S> <C> <C> <C> <C>
Peter T. Kissinger, Ph.D............................ 1997 $85,000 $21,250 $25,380(1)
Chairman of the Board; President 1996 $85,000 $ 4,250 $26,788(1)
and Chief Executive Officer 1995 $85,000 $21,250 $26,134(1)
Ronald E. Shoup, Ph.D. ............................. 1997 $84,254 $21,250 $ 4,850(2)
President, Research Services Unit; Vice President, 1996 $78,431 $ 3,932 $ 5,113(2)
Research and Development; Director 1995 $73,500 $18,375 $ 4,410(2)
</TABLE>
- -------------------------
(1) Includes $20,865 of premiums paid on a life insurance policy on the lives of
Dr. Kissinger and Mrs. Kissinger, the beneficiary of which is a trust
established for their benefit, and contributions to the Company's 401(k)
plan on Dr. Kissinger's behalf.
(2) Represents contributions to the Company's 401(k) plan on Dr. Shoup's behalf.
INCENTIVE PLAN
The Company has an incentive plan for its executive officers, the purpose
of which is to strengthen the financial condition of the Company by providing an
incentive bonus to its executive officers based upon the Company's pre-tax net
income. If the Company's pre-tax net income, calculated before the payment of
any bonuses, exceeds $500,000, each executive officer receives a bonus equal to
5% of his or her annual salary. If the Company's pre-tax net income, calculated
before the payment of any bonuses, exceeds $750,000, $1 million or $1.25
million, each executive officer will receive a bonus equal to 15%, 20% or 25%,
respectively, of his or her annual salary. In fiscal 1997, each executive
officer received a bonus equal to 25% of his or her annual salary.
OPTION PLANS
A total of 95,000 Common Shares have been reserved for issuance under the
Company's 1997 Employee Option Plan adopted October 23, 1997 and a total of
5,000 Common Shares have been reserved for issuance under the Company's 1997
Director Option Plan, of which options to purchase an aggregate of 35,000 and
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<PAGE> 39
3,000 Common Shares, respectively, have been granted at an exercise price equal
to the public offering price set forth on the cover page of this Prospectus. In
addition, at the date of this Prospectus options to purchase a total of 245,585
Common Shares were outstanding under the 1990 Employee Option Plan at a weighted
average exercise price of $1.34 per share, and 27,086 Common Shares were
outstanding under a Director Option Plan, at an exercise price of $0.66 per
share. No further options may be granted under the 1990 Employee Option Plan or
the 1990 Director Option Plan.
The 1990 and 1997 Employee Option Plans (the "Employee Plans") are
administered by the Compensation Committee. Members of the Compensation
Committee are not eligible to participate in the Employee Plans while serving on
the Compensation Committee. Participants in the Employee Plans are key employees
of the Company and its subsidiaries as may be selected from time to time by the
Compensation Committee. Subject to the terms of the Employee Plans, the
Compensation Committee is authorized to determine the number of Common Shares
subject to each option granted thereunder, the time and conditions of exercise
of such option and all other terms and conditions of such option.
The 1990 and 1997 Director Option Plans (the "Director Plans") are
administered by a committee consisting of three or more members of the Board of
Directors (the "Option Committee"). Participants in the Director Plans are
directors of the Company or an affiliate of the Company who are not employed by
the Company or any affiliate, as may be selected from time to time by the Option
Committee.
Options granted under the Employee Plans are incentive stock options, as
defined by Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code"). The per share exercise price of an option will be not less than 100% of
the fair market value of the Common Shares on the date of the grant, except that
the per share exercise price of options granted to employees who are holders of
10.0% or more of the total combined voting power of all outstanding classes of
shares of the Company ("10% Shareholders") will be not less than 110% of such
fair market value. In addition, for each participant who is an employee, the
maximum aggregate fair market value on the date of grant of all Common Shares
subject to options first exercisable in any one year may not exceed $100,000.
Options will expire on a date determined by the Compensation or Option
Committee, as the case may be, provided that the options will expire not more
than ten years from the date of grant (five years in the case of options issued
to 10% Shareholders). Generally, all options will terminate on the date the
holder ceases to be employed by, or to serve as a director of, the Company. If,
however, an option holder retires with the consent of the Company or becomes
permanently and totally disabled, options granted under the Option Plans will
expire three months and 12 months, respectively, after the termination of
employment. If an option holder's service with the Company is terminated as a
result of death, the options will expire 12 months after such event. Options are
not transferable other than by will or the laws of descent and distribution.
Options vest in four equal installments on the second, third, fourth and
fifth anniversary of the date of grant. If the Company is a party to any merger
or consolidation, the Company has the right to terminate any outstanding option
upon 30 days written notice to the option holder; however, if the merger or
consolidation is not consummated within 180 days from the date of such notice,
all options terminated shall be deemed to have been continuously in effect. If
the Company is dissolved or liquidated, the Company shall give each option
holder 30 days written notice and all unexercised options shall be deemed to be
terminated upon such dissolution or liquidation.
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<PAGE> 40
The following table sets forth certain information concerning exercisable
and unexercisable options held by the Named Executive Officers at September 30,
1997.
AGGREGATED OPTION EXERCISES IN LAST YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter T. Kissinger, Ph.D....................... 40,630 13,543 $334,385 $ 111,459
Ronald E. Shoup, Ph.D. ........................ 20,315 4,514 $176,876 $ 37,873
</TABLE>
- -------------------------
(1) Calculated on the basis of on assumed initial public offering price of
$10.00 per share, the mid-point of the range set forth on the cover page of
this Prospectus.
401(K) SAVINGS PLAN
The Company has a defined contribution retirement plan (the "401(k) Plan"),
qualified under Sections 401(a) and 401(k) of the Code. All employees of the
Company are eligible to enroll in the 401(k) Plan on the first April 1 or
October 1 after completing one year of employment with the Company. The 401(k)
Plan provides that the Company will contribute 2% of each eligible employee's
compensation to the 401(k) Plan. In addition, each participant may contribute
from 1% to 10% or none of their annual compensation. The Company may also make
discretionary contributions based on a certain percentage of a participant's
contributions under the 401(k) Plan, as determined by the Board of Directors.
The Board of Directors approved a matching contribution of 38% beginning October
1, 1997. The Company made contributions under the 401(k) Plan totaling
approximately $179,151 for the year ended September 30, 1997.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Indiana Business Corporation Law (the "BCL"), the
Second Restated Articles of Incorporation of the Company (the "Articles")
require the Company to indemnify its officers and directors from liabilities to
the extent allowed by the BCL. The BCL provides that a corporation may indemnify
its officers and directors, if the officer or director acted in good faith and
in a manner he reasonably believed, in the case of conduct in his official
capacity, was in the best interests of the Company and, in all other cases, was
not opposed to the best interests of the Company, and, with respect to any
criminal proceeding, the officer or director had reasonable cause to believe his
conduct was lawful or no reasonable cause to believe his conduct was unlawful.
The BCL further provides that the Company may advance to its officers and
directors expenses incurred in connection with proceedings against them for
which they may be indemnified, if the Company receives a written affirmation
from such officer or director that in his good faith belief he met the standard
of conduct described above and that he will repay all advanced expenses if it is
ultimately determined that he did not meet that standard of conduct. Pursuant to
the BCL, the Company may obtain directors' and officers' insurance. At present,
the Company is not aware of any pending or threatened litigation or proceeding
involving an officer, director, employee or agent of the Company in which
indemnification would be required or permitted.
The Company maintains directors' and officers' liability insurance with
respect to certain risks to which the Company and its directors and officers are
exposed.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Peter T. Kissinger, Thomas Hiatt, John Kraeutler and William Mulligan
served on the Compensation Committee during fiscal 1997. Dr. Kissinger, the
President and Chief Executive Officer of the Company, currently is a member of
the Compensation Committee; however, he does not participate in decisions
regarding his compensation. None of the Company's executive officers serves as a
director of, or in any compensation related capacity for, companies with which
members of the Compensation Committee are affiliated.
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<PAGE> 41
CERTAIN TRANSACTIONS
In 1991 Primus Capital Fund II, LP ("Primus") and Middlewest Ventures II,
LP ("Middlewest") purchased Redeemable Preferred Shares and Convertible
Preferred Shares of the Company. The Redeemable Preferred Shares carried an 8%
cumulative dividend, and were redeemed in accordance with their terms for an
amount equal to their purchase price in equal installments on December 31, 1995,
June 30, 1996 and December 31, 1996. See Note 6 of Notes to Consolidated
Financial Statements. The Convertible Preferred Shares were purchased for an
aggregate of $1,231,000 and will be converted into an aggregate of 752,399
Common Shares immediately prior to the issuance of the Shares offered hereby, of
which 470,250 shares and 282,149 shares are owned by Primus and Middlewest,
respectively. The Venture Funds continue to have certain rights to cause the
Company to register the Common Shares owned by the Venture Funds under the
Securities Act for sale to the public. See "Description of Capital Stock --
Registration Rights." Additionally, the Company has agreed to use its best
efforts to cause one representative from each Venture Fund to be elected to the
Company's Board of Directors as long as the respective Venture Fund owns more
than 5% of the Company's outstanding Common Shares. All other covenants between
the Company and the Venture Funds will be terminated in connection with the
conversion of the Convertible Preferred Shares to Common Shares.
40
<PAGE> 42
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Shares as of September 30, 1997 by (i) each person who
is known by the Company to own beneficially more than 5% of the outstanding
Common Shares, (ii) each director of the Company, (iii) the Named Executive
Officers, and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1)(2) OFFERING(1)(2)
-------------------- --------------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Primus Capital Fund II, L.P. ........................... 470,250 15.7% 470,250 10.5%
Middlewest Ventures II, L.P. ........................... 282,149 9.4% 282,149 6.3%
Peter T. Kissinger(3)................................... 1,261,099 42.0% 1,261,099 28.0%
Ronald E. Shoup(4)...................................... 89,453 3.0% 89,453 1.9%
Candice B. Kissinger(5)................................. 1,261,099 42.0% 1,261,099 28.0%
William E. Baitinger(6)................................. 137,734 4.6% 137,734 3.1%
Michael K. Campbell(7).................................. 27,086 * 27,086 *
Thomas A. Hiatt(8)...................................... 282,149 9.4% 282,149 6.3%
John A. Kraeutler....................................... -- -- -- --
William C. Mulligan(9).................................. 470,250 15.7% 470,250 10.5%
W. Leigh Thompson....................................... -- -- -- --
Nicholas Winograd(10)................................... 174,030 5.8% 174,030 3.9%
All executive officers and directors as a group......... 2,513,138 83.8% 2,513,138 55.8%
</TABLE>
- -------------------------
* Less than 1% of outstanding Common Shares.
(1) Unless otherwise noted, all addresses are in care of Company at 2701 Kent
Avenue, West Lafayette, Indiana 47906.
(2) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the Company believes that the persons
named in the table have sole voting and investment power with respect to
all Common Shares.
(3) Includes (i) 247,795 Common Shares beneficially owned by Candice B.
Kissinger, the wife of Dr. Kissinger, including 13,543 Common Shares
issuable upon the exercise of options granted to Mrs. Kissinger under the
1990 Employee Option Plan which are exercisable within 60 days of September
30, 1997; (ii) 595,904 Common Shares owned jointly by Dr. and Mrs.
Kissinger; and (iii) 40,630 Common Shares issuable upon the exercise of
outstanding options granted to Dr. Kissinger under the 1990 Employee Option
Plan which are exercisable within 60 days of September 30, 1997.
(4) Includes (i) 68,686 Common Shares owned jointly by Dr. Shoup and his wife
and (ii) 20,315 Common Shares beneficially owned by Dr. Shoup issuable upon
the exercise of options under the 1990 Employee Option Plan exercisable
within 60 days of September 30, 1997.
(5) Includes 417,400 Common Shares beneficially owned by Peter T. Kissinger,
including 40,630 Common Shares issuable upon the exercise of options
granted to Dr. Kissinger under the 1990 Employee Option Plan exercisable
within 60 days of September 30, 1997; (ii) 595,904 Common Shares owned
jointly by Dr. and Mrs. Kissinger; and (iii) 13,543 Common Shares
beneficially owned by Mrs. Kissinger issuable upon the exercise of options
under the 1990 Employee Option Plan exercisable within 60 days of September
30, 1997.
(6) Includes 53,089 Common Shares owned jointly by Mr. Baitinger and his wife.
(7) Includes 27,086 Common Shares issuable upon the exercise of outstanding
options granted to Mr. Campbell under the 1990 Director Option Plan which
are exercisable within 60 days of September 30, 1997.
(8) Mr. Hiatt is a general partner of Middlewest Management Company, L.P.,
which is the general partner of Middlewest Ventures II, L.P., and
accordingly may be attributed beneficial ownership of the
41
<PAGE> 43
Common Shares owned by Middlewest Ventures II, L.P. The other general
partner of Middlewest Management Company, L.P. is Marcey Shockey. Mr. Hiatt
disclaims beneficial ownership of the Common Shares beyond his ownership
interest in Middlewest Management Company, L.P. Mr. Hiatt serves as a
Director of the Company as a nominee of Middlewest Ventures II, L.P. The
address of Middlewest Ventures II, L.P. is 201 N. Illinois, Suite 300,
Indianapolis, Indiana 46204.
(9) Mr. Mulligan is a general partner of Primus Venture Partners Limited
Partnership, which, together with Primus Advisors, Inc., is the general
partner of Primus Management II. Primus Management II is the general
partner of Primus Capital Fund II, L.P. Accordingly, Mr. Mulligan may be
attributed beneficial ownership of the Common Shares owned by Primus
Capital Fund II, L.P. The other general partners of Primus Venture Partners
Limited Partnership are James T. Bartlett, Jonathan E. Dick, Kevin J.
McGinly and Loyal W. Wilson. Mr. Mulligan disclaims beneficial ownership of
the Common Shares beyond his ownership interest in Primus Venture Partners
Limited Partnership. Mr. Mulligan serves as a Director of the Company as a
nominee of Primus Capital Fund II, L.P. The address of Primus Capital Fund
II, L.P. is 1375 E. Ninth Street, Suite 2700, Cleveland, Ohio 44114.
(10) Includes 172,270 Common Shares owned jointly by Mr. Winograd and his wife.
The address of Mr. Winograd is RR1 Box 49F, Spring Mills, Pennsylvania
16875.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 19 million Common Shares, and one million preferred
shares (the "Preferred Shares") none of which will be outstanding. As of
September 30, 1997, there were 2,247,601 Common Shares issued and outstanding
held of record by 63 shareholders and the Company had outstanding options to
purchase a total of 272,671 Common Shares.
The following summary of certain provisions of the Common Shares and
Preferred Shares does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Articles of Incorporation,
which are included as an exhibit to the Registration Statement on Form S-1
(including all schedules, exhibits and amendments thereto, the "Registration
Statement"), and by the provisions of applicable law.
COMMON SHARES
Upon the completion of this offering, the Company's Articles of
Incorporation will authorize the issuance of up to 19 million Common Shares.
Holders of Common Shares are entitled to one vote for each Common Share held on
all matters submitted to a vote of shareholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the Common Shares entitled
to vote in any election of directors may elect all of the directors standing for
election. Holders of Common Shares are entitled to receive ratably such
dividends, if any, as may be declared by the Company's Board of Directors out of
funds legally available therefor and subject to any preferential dividend rights
of any then outstanding Preferred Shares. Upon the liquidation, dissolution or
winding up of the Company, the holders of Common Shares are entitled to receive
ratably the net assets of the Company available after the payment of all debts
and other liabilities and subject to any preferential dividend rights of any
then outstanding Preferred Shares. Holders of Common Shares have no preemptive,
subscription, redemption or conversion rights. The outstanding Common Shares
are, and the Shares offered by the Company in this offering will be, when issued
and paid for, fully paid and nonassessable.
PREFERRED SHARES
The Board of Directors is authorized, subject to any limitations prescribed
by Indiana law, to provide for the issuance of Preferred Shares in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the powers, designations, preferences and rights of the
shares of each wholly unissued series and any qualifications, limitations or
restrictions thereon and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
42
<PAGE> 44
without any further vote or action by the shareholders. The Board of Directors
may authorize the issuance of Preferred Shares with voting or conversion rights
that could adversely affect the voting power or other rights of the holders of
Common Shares. The issuance of Preferred Shares could have the effect of
decreasing the market price of the Shares. The issuance of Preferred Shares may
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no current plan to issue any Preferred Shares.
REGISTRATION RIGHTS
Upon the completion of this offering, the Venture Funds will have certain
rights with respect to the registration of under the Securities Act an aggregate
of 752,399 Common Shares held by them. If requested by the Venture Funds, the
Company must file a registration statement under the Securities Act covering all
Common Shares requested to be included by the Venture Funds within 60 days. The
Venture Funds may make an unlimited number of requests for registration;
provided, however, that the Company is only required to bear the expense of one
registration. The Company has the right to delay any registration for up to 90
days under certain circumstances.
In addition, if the Company proposes to register any of its Common Shares
under the Securities Act other than in connection with a Company employee
benefit plan or a corporate reorganization, the Venture Funds may require the
Company to include all or a portion of their shares in that registration,
subject to certain priorities among them, although the managing underwriter of
any such offering may limit the number of Common Shares to be offered by the
Venture Funds.
CERTAIN PROVISIONS OF INDIANA LAW
As an Indiana corporation, the Company is governed by the provisions of the
BCL.
Voting Requirements for Certain Business Combinations. Chapter 43 of the
BCL establishes a five-year period beginning with the acquisition of 10% of the
voting power of the outstanding voting shares of a "resident domestic
corporation" (which definition includes the Company) during which certain
business transactions involving the acquiring shareholder are prohibited unless,
prior to the acquisition of such interest, the board of directors approves the
acquisition of such interest or the proposed business combination. After the
five-year period expires, a business combination involving the acquiring
shareholder may take place only upon approval by a majority of the disinterested
shares, or if the other shareholders receive a formula price based on the higher
of the highest price paid by the acquiring shareholder or the market value at
the time of the announcement of the proposed transaction, whichever is higher.
The minimum price for shares other than common shares is to be determined under
criteria similar to that for common shares, except the minimum price as defined
cannot be less than the highest preferential amount to which the shares are
entitled in the event of any liquidation, dissolution or winding up of the
corporation.
Changes of Control. Under Chapter 42 of the BCL, with certain exceptions, a
person proposing to acquire or acquiring voting shares of an "issuing public
corporation" (which definition includes only corporations having at least 100
shareholders, principal place of business, office or substantial assets within
Indiana, and in which more than 10% of its shareholders are Indiana residents,
10% of its shares are owned by Indiana residents, or which have 10,000 or more
shareholders who are Indiana residents) sufficient to entitle that person to
exercise voting power within any of the ranges of one-fifth to one-third of all
voting power, more than one-third but less than one-half of all voting power, or
a majority or more of all voting power (a "control share acquisition") may give
a notice of such fact to the corporation containing certain specified data. The
acquiring person may request that the directors call a special meeting of
shareholders for the purpose of considering the voting rights to be accorded the
shares so acquired ("control shares"), and the control shares have voting rights
only to the extent granted by a resolution approved by the shareholders. The
resolution must be approved by a majority of the votes entitled to be cast by
each voting group entitled to vote separately on the proposal, excluding shares
held by the acquiring person and shares held by management. Control shares as to
which the required notice has not been filed and any control shares not accorded
full voting rights by the shareholders may be redeemed at fair market value by
the corporation if it is authorized to do so by its articles
43
<PAGE> 45
of incorporation or bylaws before a control share acquisition has occurred. The
Company has not adopted such a provision in its Articles or Bylaws. Shareholders
are entitled to dissenters rights with respect to the control share acquisition
in the event that the control shares are accorded full voting rights and the
acquiring person has acquired control shares with a majority of all voting
power.
Other Provisions of the BCL. The BCL specifically authorizes directors, in
considering the best interest of a corporation, to consider both the long- and
short-term interests of the corporation, as well as the effects of any action on
shareholders, employees, suppliers and customers of the corporation, and
communities in which offices or other facilities of the corporation are located
and any other factors the directors consider pertinent. Under the BCL, directors
are not required to approve a proposed business combination or other corporate
action if they determine in good faith that the action is not in the best
interest of the corporation. In addition, the BCL states that directors are not
required to redeem any rights under or render inapplicable a shareholder rights
plan or to take or decline to take any other action solely because of the effect
such action or inaction might have on a proposed change of control of the
corporation or the amounts to be paid to shareholders upon such a change of
control. The Delaware Supreme Court has held that defensive measures in response
to a potential takeover must be "reasonable in relation to the threat posed."
The BCL explicitly provides that the different or higher degree of scrutiny
imposed in Delaware and certain other jurisdictions upon director actions taken
in response to potential changes in control will not apply.
The BCL requires directors to discharge their duties, based on the facts
then known to them, in good faith, with the care an ordinary, prudent person in
a like position would exercise under similar circumstances and in a manner the
director reasonably believes to be in the best interest of the corporation. A
director is not liable for any action taken as a director or for failure to take
any action unless the director has breached or failed to perform the duties of
the director's office in compliance with the foregoing standard and the breach
or failure to perform constitutes willful misconduct or recklessness.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Shares is National City Bank. Its
telephone number is (216) 575-2494.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, the Company will have outstanding an
aggregate of 4,500,000 Common Shares. Of these Common Shares, all the Shares
sold in this offering be freely tradeable without restrictions or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and approximately 600,000 Common Shares owned by existing shareholders
will be eligible for sale pursuant to Rule 144(k) under the Securities Act. All
of the Company's officers and directors and certain of the Company's
shareholders have agreed with the Underwriters that, for a period of 180 days
after the date of this Prospectus, subject to certain exceptions, they will not
directly or indirectly offer, sell, contract to sell, pledge, grant any option
to purchase, establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or otherwise dispose of or grant any rights with respect to any
Common Shares (or any securities convertible into, exchangeable for or
exercisable for Common Shares), without the prior written consent of the
Underwriters (the "Lock-Up Agreements"). In its sole discretion and at any time
without notice, the Underwriters may release all or any portion of the Common
Shares subject to the Lock-Up Agreements.
Following the expiration of the 180-day lock-up period, or earlier with the
written consent of the Underwriters, 2,334,592 Common Shares will be eligible
for sale by existing shareholders of the Company subject to the volume and other
limitations of Rule 144, as discussed below.
In general, under Rule 144 any holder of restricted securities, as defined
under Rule 144, including an affiliate of the Company, as to which at least one
year has elapsed since the later of the date of acquisition of the Common Shares
from the Company or an affiliate, would be entitled beginning 90 days after the
date of this Prospectus, to sell within any three-month period a number of
Common Shares that does not exceed the
44
<PAGE> 46
greater of 1% of the then outstanding Common Shares (approximately 45,000 shares
upon the completion of this offering) or the average weekly trading volume of
the Common Shares on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are subject to certain requirements relating to manner of
sale, notice and availability of current public information about the Company.
However, a person (or persons whose Common Shares are aggregated) who is not
deemed to have been an affiliate of the Company at any time during the 90 days
immediately preceding the sale and who beneficially owned the Common Shares for
at least two years since the later of the date the Common Shares were acquired
from the Company or an affiliate of the Company may sell those shares under Rule
144(k) without regard to the limitations described above. The foregoing is a
summary of Rule 144 and is not intended to be a complete description of it.
As of September 30, 1997, there were 272,671 Common Shares subject to
outstanding options issued pursuant to the Company's Option Plans, of which
approximately 236,555 Common Shares were vested as of that date. The Company
intends to file a registration statement under the Securities Act to register
Common Shares reserved for issuance under the Option Plans, thereby permitting
the sale of those Common Shares by non-affiliates in the public market without
restriction under the Securities Act. That registration statement will become
effective immediately upon filing.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the closing of this
offering pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to options granted by the Company before this
offering, along with the Common Shares acquired upon exercise of such options.
Securities issued in reliance on Rule 701 are deemed to be Restricted Shares
and, subject to the contractual limitations described above, beginning 90 days
after the date of this Prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period
requirements. See "Risk Factors -- Shares Eligible for Future Sale; Registration
Rights."
45
<PAGE> 47
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, each of the underwriters named below (the "Underwriters") has
severally agreed to purchase, and the Company has agreed to sell to such
Underwriter, the respective number of Shares set forth opposite the name of such
Underwriter:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Roney & Co., L.L.C. ........................................
The Ohio Company............................................
------------
Total..................................................
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Shares offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all Shares
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are purchased.
The Underwriters, for whom Roney & Co., L.L.C. and The Ohio Company are
acting as representatives (the "Representatives"), propose to offer part of the
Shares directly to the public at the public offering price set forth in the
cover page of this Prospectus and part of the shares to certain dealers at a
price which represents a concession not in excess of $ per share under
the public offering price. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the offering, the offering price and other selling terms may be
changed. The Representatives have advised the Company that the Underwriters do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 225,000
additional Shares, respectively, at the public offering price set forth on the
cover page of this Prospectus minus the underwriting discounts and commissions.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the sale of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of share set forth opposite
such Underwriter's name in the preceding table bears to the total number of
share in such table.
The Company and all of its directors and executives officers, who
beneficially hold an aggregate of 2,334,592 Shares, have agreed that, for a
period of 180 days following the date of this Prospectus, they will not, without
the prior written consent of the Representatives, offer, sell, contract to sell,
or otherwise dispose of any Shares of the Company; provided, however, that the
Company may issue and sell up to 372,671 Common Shares pursuant to the Option
Plans in effect on the date of this Prospectus or to non-employee Directors.
Prior to the offering, there has not been any public market for the Common
Shares of the Company. Consequently, the initial public offering price for the
Shares included in the offering will be determined by negotiations between the
Company and the Representatives. Among the factors to be considered in
determining such price are the history of and prospects for the Company's
business and the industry in which it competes, an assessment of the Company's
management and the present state of the Company's development, the past and
present revenues and earnings of the Company, the prospects for the growth of
Company's revenues and earnings, the current state of the economy in the United
States and the current level of economic activity in the industry in which the
Company competes and in related or comparable industries,
46
<PAGE> 48
and currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies that are comparable to the
Company.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act or to
contribute to payments that the Underwriters may be required to make in respect
thereof.
The Underwriters have reserved for sale, at the initial public offering
price, up to 30,000 of the Shares offered hereby for employees of the Company
and certain other individuals who have expressed an interest in purchasing such
Shares in the offering. The number of shares available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares not so purchased will be offered by the Underwriters to the
general public on the same basis as the other shares offered hereby.
47
<PAGE> 49
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Ice Miller Donadio & Ryan, Indianapolis, Indiana. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Honigman Miller Schwartz & Cohn.
EXPERTS
The consolidated financial statements of Bioanalytical Systems, Inc. at
September 30, 1997 and 1996, and for each of the three years in the period ended
September 30, 1997, appearing in this Prospectus and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549 (the "Commission"), a Registration Statement on Form S-1
under the Securities Act with respect to the Shares offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and, in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement. Each statement is
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, is publicly available
through the Commission's World Wide Web site (http:/www.sec.gov) or may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained at prescribed
rates by writing the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549.
48
<PAGE> 50
GLOSSARY
AIDS: A fatal disease that destroys the host's immune system resulting from
infection with human immunodeficiency virus (HIV).
ASSAY: Quantitative measurement of a substance.
BIOANALYTICAL TESTING: Measurement of a drug substance, its metabolites,
and/or naturally occurring compounds in samples that are produced by or are part
of living systems. These samples could include a new drug substance in human
plasma or a neurotransmitter in rat brain tissue. Often the method is custom
built for a particular problem and requires specialized staff and
instrumentation for the procedure's development and validation for use.
CHROMATOGRAPHY: An analytical technique in which a mixture of chemicals is
separated into its discrete components, according to their differing
interactions between moving and stationary chemical phases. The stationary phase
is usually a powder contained in a tube and the moving phase is a gas or a
liquid. Several different detectors have been created to quantify each component
in the mixture after separation.
CLINICAL STUDIES: Human studies designed to distinguish a drug's effect
from other influences. Such studies conducted in the U.S. must be under an
approved IND under the guidance of an institutional review board and in accord
with FDA rules on human studies and informed consent of participants.
CNS: Central Nervous System is that portion of the nervous system having to
do with the brain and spinal cord.
COCKTAIL THERAPY: A combination of drugs generally operating with different
therapeutic mechanisms designed to attack disease hard and early. See drug
interaction studies.
COMPLIANCE: The extent to which a product developer conforms to regulatory
direction or a patient agrees to and follows a prescribed treatment.
CRO: Contract Research Organizations, which help drug companies design and
administer clinical trials.
DISSOLUTION: Release of a given amount of a drug into solution from a solid
dosage form. Dissolution is measured in vitro, under conditions which generally
simulate those which occur in vivo.
DRUG: A chemical used in the diagnosis, treatment or prevention of disease.
DRUG INTERACTION STUDIES: Patients treated with more than one drug may
experience unexpected therapeutic and/or toxic effects. Bioanalytical testing
helps understand and resolve these effects.
EFFECTIVENESS, EFFICACY: The desired measure of a drug's influence on a
disease condition designated as such by the FDA on the basis of "substantial
evidence."
ELECTROCARDIOGRAPHY: A measurement technique that detects and records the
electrical activity of the heart. The EKG detects and records the electrical
potential of the heart during the heartbeat.
ELECTROCHEMISTRY: The study of chemical reactions in which one or more
electrons are added or removed from an atom or molecule. Electrochemistry is
used in two ways for practical purposes. Electricity can alter chemicals (as in
corrosion and analysis) and chemicals can generate electricity (as in batteries
and fuel cells).
ENZYMOLOGY: The study of enzymes, which are complex proteins that catalyze
specific biochemical reactions in the body.
FDA: The Food and Drug Administration, an agency of the Department of
Health and Human Services which is responsible for ensuring compliance with the
federal Food, Drug and Cosmetic Act, as amended.
FLUORESCENCE: Light emitted by a chemical after energy is added to it. The
kind and amount of light is unique to the kind and amount of each chemical. It
can be used as an indirect method of detecting and measuring the concentration
of a chemical.
49
<PAGE> 51
GC/MS: Gas Chromatography/Mass Spectrometry. An analytical technique in
which the chemical mix is separated by heating, converting to a gas, passing the
gas over a stationary phase and detecting, identifying, and quantifying the
separated components by Mass Spectrometry.
GENERIC DRUGS: Drug formulations of identical composition with respect to
the active ingredient. Drugs may be generically equivalent but not
therapeutically equivalent.
GLP: Good Laboratory Practices. Regulations that set requirements for
facilities management, maintenance and calibration of equipment, analytical
protocol, quality assurance, data reporting, storage, retrieval and retention
and other controls.
GMP: Current Good Manufacturing Practices. Regulations that set
requirements for sanitation, inspection of raw materials and finished products
and other quality controls.
HIV: A type of retrovirus (human immunodeficiency virus) that is
responsible for the fatal illness, acquired immunodeficiency syndrome (AIDS).
ICH GUIDELINES: International Conference on Harmonization attempting to
normalize drug regulations among several countries.
IND: Investigational New Drug Application. An application that a drug
sponsor must submit to the FDA before beginning tests of a new drug on humans.
The IND contains a plan for the study and is supposed to give a complete picture
of the drug, including its structural formula, animal test results and
manufacturing information.
INDICATION: A sign or circumstance which points to or shows the cause,
pathology, treatment or issue of an attack of disease; that which serves as a
guide or warning.
IN VITRO: Literally, "in glass"; a biologic or biochemical process
occurring outside a living organism.
IN VIVO: Literally, "in life"; a biologic or biochemical process occurring
within a living organism.
KIT: A carefully designed and validated method and collection of tools and
reagents used to determine the presence of an illness or disorder.
LCEC: Liquid Chromatography/Electrochemistry. A technique in which liquid
chromatography is used to separate the components of a mixture. The chemicals
are detected and quantified in an electrochemical cell.
LC/MS: Liquid Chromatography/Mass Spectrometry. A technique in which liquid
chromatography is used to separate the components of a mixture. The separated
chemicals are detected, identified and quantified by Mass Spectrometry.
LIQUID CHROMATOGRAPHY: A chromatographic method in which the stationary
phase is packed in a tubular column and the moving phase is a liquid driven
through the column by a force such as hydraulic pressure or gravity. Components
may be separated on the basis of size, polarity, charge and/or shape.
MASS SPECTROMETRY: A gas phase analytical technique used to identify a
chemical by molecular weight and breakdown products unique to that chemical.
NDA: New Drug Application. An application requesting FDA approval to
market a new drug for human use in interstate commerce. The application must
contain, among other things, data from specific technical viewpoints for FDA
review -- including chemistry, pharmacology, medical, biopharmaceutics,
statistics and, for anti-infectives, microbiology.
NEUROTRANSMITTER: A chemical, such as acetylcholine, which is released
from the axon of one neuron and binds to a specific site in the dendrite of an
adjacent neuron, thus triggering a nerve impulse.
PHARMACOKINETICS: The science which describes, quantitatively, the uptake
of drugs by the body, their biotransformation, their distribution, metabolism,
and elimination from the body.
PHARMACOLOGY: The science that deals with the effect of drugs on living
organisms.
50
<PAGE> 52
PHYSIOLOGY: The study of how living organisms function.
PLA: Product License Application. An application that a drug sponsor must
submit to the FDA before beginning tests of a new biologic drug on humans.
Equivalent to an IND for biologically derived drugs (genetically altered
organisms etc.).
POTENCY: The power of a medicinal agent to product the desired effects.
PRECLINICAL STUDIES: Studies that test a drug on animals and other
nonhuman test systems. They must comply with FDA's Good Laboratory Practices
Regulations.
PRODUCT CHARACTERIZATIONS: Thorough analysis of a product, which may
contain a mixture of chemicals, decomposition products and other components, in
a pharmaceutical formulation.
ROBOTIC SAMPLE PREPARATION AND DISSOLUTION TESTING: Rapid, cost effective,
fully automated sample preparation and dissolution tests which are typically
quantified by liquid chromatography.
SAFETY: No drug is completely safe or without the potential for side
effects. Before a drug may be approved for marketing, the law requires the
submission of results of tests adequate to show the drug is safe under the
conditions of use in the proposed labeling. Thus, "safety" is determined case by
case and reflects the drug's risk v. benefit relationship.
SBIR GRANTS: Federal Small Business Innovation Research and Small Business
Technology Transfer Grants. These support research in topics of interest to
NASA, NIH, etc. Awards, term and degree of industry involvement vary.
SOLID PHASE EXTRACTION: An analytical separation technique in which a
mixture of chemicals is stirred with a solid, usually a powder. The solid is
chosen for its ability to bind specifically to one or more of the chemicals in
the mixture. After mixing, the solid with the bound chemicals attached is
separated from the extracted sample and washed. The chemicals are subsequently
removed with a solvent and analyzed.
SPECTROSCOPY/SPECTROMETRY: An analytical technique used to identify a
chemical by observing how it interacts with visible, infrared, or ultraviolet
light, magnetism, radio waves or other parts of the electromagnetic energy
spectrum. Each part of each chemical absorbs and/or emits this energy
differently. A spectroscope/spectrometer measures the kind and amount of energy
and in some cases the chemical breakdown products. Each chemical has a unique
energy fingerprint that enables identification.
STABILITY: The quality of maintaining a constant character in the presence
of forces which threaten to disturb it; resistance to change. In drugs,
maintaining therapeutic efficacy and chemical composition with changing time,
temperature, humidity, etc.
THERAPEUTICS: The science and techniques of restoring patients to health.
VALIDITY: The degree to which output reflects what it purports to reflect.
The degree to which output is a function of known input and it alone.
"VIRTUAL" DRUG COMPANY: A venture management technique. A "virtual"
company creates, acquires or licenses a new pharmaceutical or device. Most
development, registration, manufacture and commercialization are then carried
out through contracted parties or strategic partners. A small staff and
negligible assets are key characteristics.
51
<PAGE> 53
BIOANALYTICAL SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of September 30, 1996 and
1997...................................................... F-3
Consolidated Statements of Income for the years ended
September 30, 1995, 1996 and 1997 ........................ F-4
Consolidated Statements of Preferred Shares and
Shareholders' Equity for the years ended September 30,
1995, 1996 and 1997....................................... F-5
Consolidated Statements of Cash Flows for the years ended
September 30, 1995, 1996 and 1997......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Bioanalytical Systems, Inc.
We have audited the accompanying consolidated balance sheets of
Bioanalytical Systems, Inc. as of September 30, 1997 and 1996, and the related
consolidated statements of income, preferred shares and shareholders' equity and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bioanalytical
Systems, Inc. at September 30, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1997 in conformity with generally accepted accounting
principles.
Indianapolis, Indiana
October 31, 1997, except for Note 10,
as to which the date is November , 1997
The foregoing report is in the form that will be signed upon the effective
date of the share split described in Note 10 to the financial statements.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
November 10, 1997
F-2
<PAGE> 55
BIOANALYTICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 595,339 $ 161,338
Accounts receivable (Note 4):
Trade................................................... 1,545,843 2,361,591
Grants.................................................. 99,921 370,198
Other................................................... 6,045 281,579
Inventories (Notes 3 and 4)............................... 1,931,850 1,911,231
Deferred income taxes (Note 5)............................ 164,753 209,695
Prepaid expenses.......................................... 38,710 46,787
----------- -----------
Total current assets........................................ 4,382,461 5,342,419
Goodwill, less accumulated amortization of $18,002 in 1996
and $30,002 in 1997 (Note 2).............................. 222,030 210,030
Other assets................................................ 243,541 343,120
Property and equipment (Note 4):
Land and improvements..................................... 166,621 171,014
Buildings and improvements................................ 4,282,317 4,294,183
Machinery and equipment................................... 3,616,693 4,067,319
Office furniture and fixtures............................. 620,319 680,395
Construction in process................................... 173,241 3,625,062
----------- -----------
8,859,191 12,837,973
Less accumulated depreciation and amortization............ (2,333,356) (2,802,823)
----------- -----------
6,525,835 10,035,150
----------- -----------
Total assets................................................ $11,373,867 $15,930,719
=========== ===========
LIABILITIES, PREFERRED SHARES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 730,110 $ 1,341,181
Income taxes payable...................................... 33,562 250,153
Accrued expenses.......................................... 239,826 352,593
Customer advances......................................... 19,871 101,986
Current portion of long-term debt......................... 300,115 287,833
Lines of credit........................................... -- 515,377
----------- -----------
Total current liabilities................................... 1,323,484 2,849,123
Long-term debt, less current portion (Note 4)............... 2,512,027 5,044,875
Deferred income taxes (Note 5).............................. 1,053,144 1,154,166
Preferred shares (Note 6):
Authorized shares -- 1,000,000
Issued and outstanding shares:
Redeemable -- 22,223 in 1996............................ 298,302 --
Convertible -- 166,667.................................. 1,231,242 1,231,242
Shareholders' equity (Note 6):
Common Shares, no par value:
Authorized shares -- 19,000,000
Issued and outstanding shares -- 2,186,663 in 1996 and
2,247,601 in 1997..................................... 484,375 497,875
Additional paid-in capital................................ 151,233 178,233
Retained earnings......................................... 4,321,103 4,978,149
Currency translation adjustment........................... (1,043) (2,944)
----------- -----------
4,955,668 5,651,313
----------- -----------
Total liabilities, preferred shares and shareholders'
equity.................................................... $11,373,867 $15,930,719
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 56
BIOANALYTICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
---------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Product revenue....................................... $ 9,627,393 $ 9,113,297 $ 9,932,022
Services revenue...................................... 2,724,469 3,680,838 4,991,348
----------- ----------- -----------
Total Revenue.................................... 12,351,862 12,794,135 14,923,370
Cost of product revenue............................... 3,447,566 3,226,736 3,334,413
Cost of services revenue.............................. 1,834,349 2,141,715 2,985,858
----------- ----------- -----------
Total Cost of Revenue............................ 5,281,915 5,368,451 6,320,271
----------- ----------- -----------
Gross profit.......................................... 7,069,947 7,425,684 8,603,099
Operating expenses:
Selling............................................. 3,940,096 3,937,224 4,224,523
Research and development............................ 1,123,641 1,423,901 1,568,417
General and administrative.......................... 1,222,136 1,363,921 1,638,465
----------- ----------- -----------
Total Operating Expenses 6,285,873 6,725,046 7,431,405
----------- ----------- -----------
Operating income...................................... 784,074 700,638 1,171,694
Interest income....................................... 67,492 38,843 4,835
Interest expense...................................... (78,882) (81,396) (100,177)
Other income.......................................... 86,645 28,180 12,306
Gain (loss) on sale of property and equipment......... 35,532 (3,218) 8,831
----------- ----------- -----------
Income before income taxes............................ 894,861 683,047 1,097,489
Income taxes (Note 5)................................. 344,254 282,648 413,395
----------- ----------- -----------
Net income............................................ $ 550,607 $ 400,399 $ 684,094
=========== =========== ===========
Net income available to common shareholders........... $ 497,271 $ 347,063 $ 657,046
Net income per common share........................... 0.16 0.11 0.21
Weighted average Common Shares outstanding............ 3,065,567 3,089,308 3,101,429
</TABLE>
See accompanying notes.
F-4
<PAGE> 57
BIOANALYTICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF PREFERRED SHARES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE ADDITIONAL CURRENCY
PREFERRED PREFERRED COMMON PAIN-IN RETAINED TRANSLATION
SHARES SHARES SHARES CAPITAL EARNINGS ADJUSTMENT
---------- ----------- ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994....... $ 815,661 $1,231,242 $468,237 $111,060 $3,476,769 $ --
Net income.......................... -- -- -- -- 550,607 --
Accrual of cumulative dividends on
preferred shares.................. 53,336 -- -- -- (53,336) --
Retirement of 21,949 common
shares............................ -- -- (4,862) (41,327) -- --
Issuance of 67,716 common shares for
the exercise of stock options..... -- -- 15,000 34,500 -- --
Issuance of 22,572 common shares for
the acquisition of business (Note
2)................................ -- -- 5,000 45,000 -- --
Currency translation adjustment..... -- -- -- -- -- 2,309
--------- ---------- -------- -------- ---------- -------
Balance at September 30, 1995....... 868,997 1,231,242 483,375 149,233 3,974,040 2,309
Net income.......................... -- -- -- -- 400,399 --
Accrual of cumulative dividends on
preferred shares.................. 53,336 -- -- -- (53,336) --
Issuance of 4,514 common shares for
the exercise of stock options..... -- -- 1,000 2,000 -- --
Redemption of Preferred Shares...... (624,031) -- -- -- -- --
Currency translation adjustment..... -- -- -- -- -- (3,352)
--------- ---------- -------- -------- ---------- -------
Balance at September 30, 1996....... 298,302 1,231,242 484,375 151,233 4,321,103 (1,043)
Net income.......................... -- -- -- -- 684,094 --
Accrual of cumulative dividends on
preferred shares.................. 27,048 -- -- -- (27,048) --
Issuance of 60,944 common shares for
the exercise of stock options..... -- -- 13,500 27,000 -- --
Redemption of Preferred Shares...... (325,350) -- -- -- -- --
Currency translation adjustment..... -- -- -- -- -- (1,901)
--------- ---------- -------- -------- ---------- -------
Balance at September 30, 1997....... $ -- $1,231,242 $497,875 $178,233 $4,978,149 $(2,944)
========= ========== ======== ======== ========== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 58
BIOANALYTICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
---------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $ 550,607 $ 400,399 $ 684,094
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 397,619 399,797 536,389
Loss (gain) on sale of property and equipment.... (35,532) 3,218 (8,831)
Deferred income taxes............................ 107,324 100,437 56,080
Changes in operating assets and liabilities:
Accounts receivable......................... (118,978) (251) (1,361,559)
Inventories................................. 25,365 (148,617) 20,619
Prepaid expenses and other assets........... (19,367) (248,569) (107,656)
Accounts payable............................ (46,054) (75,773) 611,071
Income taxes payable........................ 106,760 (82,012) 216,591
Accrued expenses............................ (312,079) (41,509) 112,767
Customer advances........................... (36,000) (6,129) 82,115
----------- ----------- -----------
Net cash provided by operating activities............. 619,665 300,991 841,680
INVESTING ACTIVITIES
Capital expenditures.................................. (1,299,910) (3,178,499) (4,095,651)
Proceeds from sale of property and equipment.......... 61,370 21,412 70,778
Payments for purchase of net assets from Technicol
Limited, net of cash acquired....................... (92,731) -- --
----------- ----------- -----------
Net cash used by investing activities................. (1,331,271) (3,157,087) (4,024,873)
FINANCING ACTIVITIES
Borrowings of long-term debt.......................... 422,250 2,401,035 2,722,995
Payments of long-term debt............................ (128,255) (124,732) (202,429)
Borrowings on lines of credit......................... -- -- 615,377
Payments on lines of credit........................... -- -- (100,000)
Net proceeds from the exercise of stock options....... 3,311 3,000 40,500
Redemption of preferred shares........................ -- (624,031) (325,350)
Other................................................. 2,309 (3,352) (1,901)
----------- ----------- -----------
Net cash provided by financing activities............. 299,615 1,651,920 2,749,192
----------- ----------- -----------
Net decrease in cash and cash equivalents............. (411,991) (1,204,176) (434,001)
Cash and cash equivalents at beginning of year........ 2,211,506 1,799,515 595,339
----------- ----------- -----------
Cash and cash equivalents at end of year.............. $ 1,799,515 $ 595,339 $ 161,338
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 59
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Bioanalytical Systems, Inc. and its subsidiaries (the "Company")
manufacture scientific instruments for use in the determination of trace amounts
of organic compounds in biological, environmental and industrial materials. The
Company sells its equipment and software for use in industrial, governmental and
academic laboratories. The Company also engages in laboratory services,
consulting and research related to analytical chemistry and chemical
instrumentation. The Company's customers are located in the United States and
throughout the world.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated.
CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments to be cash
equivalents.
FINANCIAL INSTRUMENTS
Management has estimated that the fair value of financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
debt approximates the carrying values.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method.
GOODWILL
Goodwill represents the excess of cost of acquisitions over the fair value
of net assets acquired and is amortized by the straight-line method over a
twenty year period.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of 10 through 40 years.
Expenditures for maintenance and repairs are charged to expense as incurred.
The Financial Accounting Standards Board (FASB) issued Statement of
Accounting Standards No. 121 (SFAS 121), "Accounting for Impairment of
Long-Lived Assets and for Assets to be Disposed of," which the Company adopted
effective October 1, 1995. SFAS 121 requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for possible
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Adoption of the Statement and its
application during 1996 and 1997 did not have an impact on the Company's
financial position or results of operations.
REVENUE RECOGNITION
Revenue from the sale of the Company's products and the related costs are
recognized upon shipment of the products to customers. The Company's
pharmaceutical service contracts generally have terms ranging from several
months to several years. A portion of the contract fee is generally payable upon
receipt of the
F-7
<PAGE> 60
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
initial samples with the balance payable in installments over the life of the
contract. The Company's contracts are broken down into discrete units of
deliverable services for which a fixed fee for each unit is established and
revenue and related direct costs are recognized as specific contract terms are
fulfilled under the percentage of completion method utilizing units of delivery.
INCOME TAXES
The Company computes its income tax provision in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities. These deferred taxes are
measured by applying the provisions of tax laws in effect at the balance sheet
date.
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. Advertising expense was
$238,612, $267,184 and $275,850 for 1995, 1996, and 1997, respectively.
NET INCOME PER COMMON SHARE
Net income per common share is computed on the basis of the weighted
average number of common and common equivalent shares outstanding during each
year. Common equivalent shares include options to purchase Common Shares and
convertible preferred shares, which are assumed to be converted. In this
computation, net income is reduced by dividends accrued on the Redeemable
Preferred Shares.
Supplemental net income per share is computed by dividing supplemental net
income (which includes net income plus interest expense, net of the related
income tax benefit) by the weighted average number of shares that would have
been outstanding after giving effect to the number of shares that were required
to be sold in this public offering to repay borrowings under the Company's lines
of credit and long-term debt facilities at October 1, 1996. Supplemental net
income per share for 1997 was $0.20.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 1997, the FASB issued Statement No. 131 (SFAS 131), "Disclosures
about Segments of an Enterprise and Related Information". Under SFAS 131, the
Company will report financial and descriptive information about its operating
segments. SFAS 131 is effective for fiscal years beginning after December 15,
1997. The Company plans to adopt SFAS 131 on October 1, 1998. The Company has
not yet evaluated the impact of adoption of SFAS 131.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting and display of comprehensive income in the financial
statements. SFAS 130 is effective for fiscal years beginning after December 15,
F-8
<PAGE> 61
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
1997. The Company plans to adopt SFAS 130 on October 1, 1998. The Company has
not yet evaluated the impact of SFAS 130.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings per Share", which replaces the
presentation of primary earnings per share (EPS) with basic EPS and replaces
fully diluted EPS with diluted EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the components of
the basic EPS computation to the components of the diluted EPS computation. SFAS
128 is effective for both interim and annual periods ending after December 15,
1997. Earlier adoption is not permitted. Upon adoption, all prior-period EPS
data presented will be restated. The Company does not anticipate the adoption of
SFAS 128 to have a significant effect on EPS.
2. ACQUISITION
Effective April 3, 1995 the Company acquired all of the capital stock of
Technicol, Limited for cash approximating $97,000 and 22,572 common shares. The
acquired business was involved in the distribution of chromatography equipment
and supplies to pharmaceutical firms in the United Kingdom.
The acquisition was accounted for using the purchase method of accounting
and the results of operations have been included in the consolidated financial
statements since the date of acquisition. The purchase price was allocated to
the net assets acquired, including $240,032 to goodwill, based upon the fair
market value at the date of acquisition.
On an unaudited pro forma basis, revenue, net income and net income per
share for the year ended September 30, 1995, was $12,892,000, $510,000 and
$0.15, respectively. This pro forma data presents the consolidated results of
operations as if the acquisition had occurred on October 1, 1994, after giving
effect to certain adjustments, including amortization of goodwill, increased
interest expense and related income tax effects. The pro forma results have been
prepared for comparative purposes only and do not purport to indicate the
results of operations which would actually have occurred had the acquisition
been in effect on the date indicated, or which may occur in the future.
Pro forma amounts for the year ended September 30, 1995 include the
acquired entity's financial data for the year ended April 30, 1995 as it was not
practicable to determine the September 30, 1995 year end results.
3. INVENTORIES
Inventories at September 30 consisted of:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Raw materials............................................... $ 803,396 $ 909,258
Work in progress............................................ 292,076 278,386
Finished goods.............................................. 868,153 800,880
---------- ----------
1,963,625 1,988,524
LIFO reserve................................................ (31,775) (77,293)
---------- ----------
Total LIFO cost............................................. $1,931,850 $1,911,231
========== ==========
</TABLE>
4. DEBT ARRANGEMENTS
The Company has a bank line of credit agreement which expires March 1, 1998
and allows borrowings of the lesser of 50% of inventories plus 80% of qualified
accounts receivable or $2,200,000. Interest is charged at
F-9
<PAGE> 62
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. DEBT ARRANGEMENTS -- CONTINUED
the prime rate plus .25% (8.75% at September 30, 1997). At September 30, 1997,
the collateral base for this line of credit resulted in borrowing availability
of approximately $2,200,000, of which $200,000 was outstanding at September 30,
1997. The line is collateralized by inventories and accounts receivable.
The Company has a bank line of credit agreement for capital expenditures
which expires March 1, 1998 and allows borrowings of the lesser of 80% of
capital expenditures or $1,000,000. Interest is charged at the prime rate plus
.25% (8.75% at September 30, 1997). At September 30, 1997, $315,377 was
outstanding on this line. This line is collateralized by property and equipment,
inventories and accounts receivable.
During 1996, the Company entered into a credit facility for up to
$5,000,000 for the purchase and renovation of an adjacent building (the
"Construction loan"). At maturity (January 31, 1998), the loan may be converted
to a five year term loan based upon a 20 year amortization funding on a
conventional commercial mortgage basis or with fixed principal payments plus
interest. Interest is charged at the prime rate plus .25% (8.75% at September
30, 1997). This credit facility is collateralized by property and equipment. The
agreement contains certain covenants, which among other things require the
Company to maintain minimum levels of tangible net worth and debt service
coverage.
Long-term debt at September 30 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Construction loan........................................... $1,972,003 $4,695,000
Equipment loan, monthly payments of $8,803 including
interest at 8.50% per annum............................... 423,900 351,592
Mortgage note collateralized by certain real estate, monthly
payments of $4,827 including interest at 8.75% per
annum..................................................... 144,412 97,610
Capital lease obligations (Note 7).......................... 271,827 188,506
---------- ----------
2,812,142 5,332,708
Less current portion........................................ (300,115) (287,833)
---------- ----------
$2,512,027 $5,044,875
========== ==========
</TABLE>
The maturities of long-term debt for the five succeeding years are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
------------------------
<S> <C>
1998............................................. $ 287,833
1999............................................. 326,813
2000............................................. 198,903
2001............................................. 208,980
2002............................................. 125,703
Thereafter....................................... 4,184,476
----------
$5,332,708
==========
</TABLE>
Cash interest payments of $69,602, $99,057, and $345,018 were made in 1995,
1996 and 1997, respectively. Cash interest payments for 1996 and 1997 include
interest of $28,868 and $266,200, respectively, on the Construction loan which
was capitalized. These amounts include interest required to be paid on a portion
of the undistributed earnings of a subsidiary which qualifies as a domestic
international sales corporation (see Note 5).
F-10
<PAGE> 63
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets
as of September 30 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation................................ $ 712,032 $ 818,420
Deferred DISC income...................................... 398,280 340,642
---------- ----------
Total deferred liabilities.................................. 1,110,312 1,159,062
Deferred tax assets:
Tax credit carryforwards.................................. 91,493 --
Net operating loss carryforwards.......................... 14,876 4,526
Inventory pricing......................................... 72,669 71,199
Accrued vacation.......................................... 57,916 63,470
Other-net................................................. 34,184 75,396
---------- ----------
Total deferred tax assets................................... 271,138 214,591
Valuation allowance for deferred tax assets................. (49,217) --
---------- ----------
Net deferred tax assets..................................... 221,921 214,591
---------- ----------
Net deferred tax liabilities................................ $ 888,391 $ 944,471
========== ==========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................. $170,721 $123,625 $265,776
State............................................... 66,209 58,586 91,539
-------- -------- --------
Total current......................................... 236,930 182,211 357,315
Deferred:
Federal............................................. 100,181 81,928 54,849
State............................................... 7,143 18,509 1,231
-------- -------- --------
Total deferred........................................ 107,324 100,437 56,080
-------- -------- --------
$344,254 $282,648 $413,395
======== ======== ========
</TABLE>
The effective income tax rate varied from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 34.0% 34.0% 34.0%
Increases (decreases):
Amortization of goodwill and other nondeductible
expenses............................................... 1.0 2.1 1.2
Benefit of foreign sales corporation, net................. (6.8) (8.6) (5.8)
State income taxes, net of federal tax benefit............ 5.4 7.5 5.6
Research and development credit........................... -- -- (5.0)
Nondeductible foreign losses.............................. 6.3 10.0 7.6
Other..................................................... (1.4) (3.6) 0.1
---- ---- ----
38.5% 41.4% 37.7%
==== ==== ====
</TABLE>
F-11
<PAGE> 64
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. INCOME TAXES -- CONTINUED
]Net operating loss carryforwards were generated by a subsidiary of the Company
prior to its acquisition by the Company and the carryforwards are restricted to
use by that subsidiary. These carryforwards expire through the year 2004.
In fiscal 1996 and 1997, the Company's foreign operations generated losses
before income taxes of $200,145 and $245,800, respectively.
Payments made in 1995, 1996 and 1997 for federal and state income taxes
amounted to $163,950, $160,000 and $140,000, respectively.
6. PREFERRED SHARES AND SHAREHOLDERS' EQUITY
PREFERRED SHARES
On February 27, 1991 the Board of Directors approved the issuance of up to
1,000,000 shares of Preferred Shares. The Board of Directors designated 105,000
shares as Redeemable Preferred Shares ($10.00 stated value) and designated
250,000 shares as Convertible Preferred Shares ($8.00 stated value).
The Redeemable Preferred Shares have preference over all other outstanding
classes of capital shares of the Company with respect to payment of dividends.
Holders of Redeemable Preferred Shares are entitled to receive, when and as
declared by the Board of Directors, cumulative preferential cash dividends at
the rate of $.80 per share per annum payable quarterly in arrears, however, they
do not participate with respect to other dividends declared by the Company.
Although such dividends have not been declared, the Company has recorded the
dividends as a charge to Retained Earnings and an increase to Redeemable
Preferred Shares. The Redeemable Preferred Shares were redeemed by the Company
in three equal installments on December 31, 1995, June 30, 1996 and December 1,
1996 at $10.00 per share plus accrued unpaid dividends.
The holders of the Convertible Preferred Shares have the right at any time
to convert those shares, in whole or in part and without additional
consideration, into fully paid Common Shares. The conversion rate is one Common
Shares for each Convertible Preferred Share at September 30, 1997 (4.514 Common
Shares for each Convertible Preferred Share after the share split described in
Note 10). Holders of Convertible Preferred Shares are entitled to one vote per
share on any matter submitted to a vote of the holders of Common Shares. No cash
dividends may be declared and paid with respect to the Common Shares unless
equivalent dividends are also declared and paid with respect to the Convertible
Preferred Shares. These shares are redeemable, at the option of the holders, in
three equal installments on December 31, 1995, June 30, 1996 and December 31,
1996, at a redemption price of $8.00 per share plus any accrued unpaid
dividends. No redemption requests were made by the holders during 1997.
Alternatively, the holders of the Convertible Preferred Shares may require
the Company to purchase all or any portion of the Convertible Preferred Shares
and any Common Shares obtained through the conversion of the Convertible
Preferred Shares at a price equal to the greater of the amount such shares are
entitled to receive upon liquidation of the Company or fair market value. The
fair market value could exceed the $8 optional redemption price. As of September
30, 1997, the holders of the Convertible Preferred Shares have executed
agreements to convert these shares into Common Shares concurrent with the
Company's initial public offering.
The Company must maintain certain restrictive covenants in accordance with
the preferred stock agreement, including net worth and indebtedness
requirements, restrictions on the declaration of dividends, redemption of Common
Shares, issuance of Preferred and Common Shares and capital expenditure levels.
F-12
<PAGE> 65
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. PREFERRED SHARES AND SHAREHOLDERS' EQUITY -- CONTINUED
STOCK OPTION PLANS
During 1990, the Company established an Employee Incentive Stock Option
Plan whereby options to purchase shares of the Company's Common Shares at fair
market value can be granted to employees of the Company. Options granted become
exercisable in four equal installments beginning two years after the date of the
grant. The plan terminates in the year 2000.
During fiscal 1989, the Company established an Outside Director Stock
Option Plan whereby options to purchase shares of the Company's Common Shares at
fair market value can be granted to outside directors. Options granted become
exercisable in four equal installments beginning two years after the date of
grant. The plan terminates in 1999.
The Company has adopted new stock option plans in connection with its
initial public offering and accordingly does not plan to grant any more options
pursuant to the plans discussed above.
The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under SFAS 123, "Accounting for
Stock-Based Compensation," requires use of opinion valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the estimated
market price of the underlying shares on the date of grant, no compensation
expense is recognized.
A summary of the Company's stock option activity, and related information
for the years ended September 30 follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of year...... 410,359 $1.08 342,643 $1.15 338,129 $1.16
Exercised............................. 67,716 0.73 4,514 0.66 60,944 0.66
Terminated............................ -- -- -- -- 4,514 1.32
------- ------- -------
Outstanding -- end of year............ 342,643 $1.15 338,129 $1.16 272,671 $1.27
======= ======= =======
Exercisable at end of year............ 224,140 $0.87 262,512 $1.00 236,555 $1.19
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
RANGE OF NUMBER WEIGHTED NUMBER
EXERCISE OUTSTANDING AT AVERAGE REMAINING WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
PRICES SEPTEMBER 30, 1997 CONTRACTUAL LIFE EXERCISE PRICE SEPTEMBER 30, 1997 EXERCISE PRICE
-------- ------------------ ----------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$0.66-$1.00 105,637 2.01 $0.66 105,637 $0.66
$1.01-$1.50 36,116 4.14 $1.31 36,116 $1.31
$1.51-$2.10 130,918 5.38 $1.75 94,802 $1.73
------- -------
272,671 236,555
======= =======
</TABLE>
No options were granted in fiscal 1995, 1996 or 1997.
A special non-qualified option was granted for 4,514 Common Shares at $1.27
per share to a consultant to the Company in August 1991. This options remains
outstanding at September 30, 1997.
F-13
<PAGE> 66
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. CAPITAL LEASE
The Company has a capital lease arrangement to finance the acquisition of
equipment. Future minimum lease payments, based upon scheduled payments under
the lease arrangement, as of September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $102,504
1999........................................................ 102,504
--------
Total minimum lease payments................................ 205,008
Amounts representing interest............................... (16,502)
--------
Present value of minimum lease payments..................... $188,506
========
</TABLE>
The total amount of property and equipment capitalized under capital lease
obligations as of both September 30, 1996 and 1997 was $486,043. Accumulated
amortization at September 30, 1996 and 1997 was $121,191 and $169,795,
respectively. The amortization is included in depreciation expense.
At September 30, 1997, the Company has a commitment to purchase $546,400 of
equipment which it currently intends to finance using an operating lease with
monthly payments approximating $9,000.
8. RETIREMENT PLAN
Effective July 1, 1984, the Company established an Internal Revenue Code
Section 401(k) Retirement Plan covering all employees over twenty-one years of
age with at least one year of service. Under the terms of the Plan, the Company
contributes 2% of each participant's total wages to the Plan. The Plan also
includes provisions for various contributions which may be instituted at the
discretion of the Board of Directors. The contribution made by the participant
may not exceed 10% of the participant's annual wages. Contribution expense was
$110,489, $138,142 and $158,924 in 1995, 1996 and 1997, respectively.
9. SEGMENT INFORMATION
The Company operates in two principal segments -- analytical services and
analytical products. The Company's analytical services unit provides analytical
chemistry support on a contract basis directly to pharmaceutical companies. The
Company's analytical products unit provides liquid chromatography,
electrochemical, and physiological monitoring products to pharmaceutical
companies, universities, government research centers and medical research
institutions.
F-14
<PAGE> 67
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9. SEGMENT INFORMATION -- CONTINUED
INDUSTRY SEGMENT DATA:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE
Products.................................................... $ 9,627 $ 9,113 $ 9,932
Services.................................................... 2,725 3,681 4,991
------- ------- -------
Total Revenue............................................... $12,352 $12,794 $14,923
======= ======= =======
OPERATING INCOME (LOSS)
Products.................................................... $ 320 $ (366) $ (107)
Services.................................................... 464 1,067 1,279
------- ------- -------
Total Operating Income...................................... 784 701 1,172
Corporate income (expenses)................................. 111 (18) (75)
------- ------- -------
Income before income taxes.................................. $ 895 $ 683 $ 1,097
======= ======= =======
IDENTIFIABLE ASSETS
Products.................................................... $ 6,993 $ 6,116 $ 6,221
Services.................................................... 2,435 5,258 9,710
------- ------- -------
Total Assets................................................ $ 9,428 $11,374 $15,931
======= ======= =======
DEPRECIATION AND AMORTIZATION
Products.................................................... $ 266 $ 224 $ 244
Services.................................................... 132 176 292
------- ------- -------
$ 398 $ 400 $ 536
======= ======= =======
CAPITAL EXPENDITURES
Products.................................................... $ 468 $ 324 $ 153
Services.................................................... 832 2,854 3,943
------- ------- -------
$ 1,300 $ 3,178 $ 4,096
======= ======= =======
</TABLE>
EXPORT SALES:
Export sales to unaffiliated customers by destination of sales are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Pacific Rim:
Japan..................................................... $1,739 $1,769 $1,740
Other..................................................... 1,159 1,134 1,215
------ ------ ------
2,898 2,903 2,955
Europe...................................................... 933 1,144 1,105
Other....................................................... 836 556 1,037
------ ------ ------
$4,667 $4,603 $5,097
====== ====== ======
</TABLE>
F-15
<PAGE> 68
BIOANALYTICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9. SEGMENT INFORMATION -- CONTINUED
MAJOR CUSTOMERS:
During 1996 and 1997, a major United States-based pharmaceutical company
accounted for approximately 18.3% and 20.9%, respectively, of the Company's
total revenues.
The Company sells its products through international distributors, one of
which represents 18%, 19% and 17% of 1995, 1996 and 1997 product sales,
respectively. Accounts receivable from this foreign distributor are $196,416 and
$124,104 at September 30, 1996 and 1997, respectively.
10. SUBSEQUENT EVENT (UNAUDITED)
On September 24, 1997, the Company's Board of Directors approved a 4.514
for 1 share split of common shares to be effective upon completion of the
Company's initial public offering. All common share and per share amounts and
information concerning stock option plans have been adjusted retroactively to
give effect to this share split. Immediately prior to the share split, the
Convertible Preferred Shares will be converted to Common Shares on a one-for-one
basis in accordance with the terms of the Convertible Preferred Shares.
F-16
<PAGE> 69
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS OR AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 10
Dividend Policy....................... 10
Dilution.............................. 11
Capitalization........................ 12
Selected Consolidated Financial
Data................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 19
Management............................ 33
Certain Transactions.................. 40
Principal Shareholders................ 41
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 44
Underwriting.......................... 46
Legal Matters......................... 48
Experts............................... 48
Additional Information................ 48
Glossary.............................. 49
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN COMMON SHARES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENTS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITER WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
1,500,000 COMMON SHARES
[BIOANALYTICAL SYSTEMS LOGO]
BIOANALYTICAL SYSTEMS, INC.
-----------------------------
PROSPECTUS
-----------------------------
RONEY & CO.
THE OHIO COMPANY
, 1997
======================================================
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of the estimated expenses to be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<CAPTION>
EXPENSES AMOUNT*
-------- -------
<S> <C>
Securities and Exchange Commission registration fee......... $ 5,750
National Association of Securities Dealers, Inc. fee........ 2,398
NASDAQ fee.................................................. 27,500
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 100,000
Blue Sky fees and expenses (including fees of counsel)...... 10,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 149,352
--------
Total.................................................. $500,000
========
</TABLE>
- -------------------------
* All of the expenses, except the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. fee and
the Nasdaq fee, are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Business Corporation Law ("BCL"), the provisions of which
govern the Registrant, empowers an Indiana corporation to indemnify present and
former directors, officers, employees, or agents or any person who may have
served at the request of the corporation as a director, officer, employee, or
agent of another corporation ("Eligible Persons") against liability incurred in
any proceeding, civil or criminal, in which the Eligible Person is made a party
by reason of being or having been in any such capacity, or arising out of his
status as such, if the individual acted in good faith and reasonable believed
that (a) the individual was acting in the best interests of the corporation, or
(b) if the challenged action was taken other than in the individual's official
capacity as an officer, director, employee or agent, the individual's conduct
was at least not opposed to the corporation's best interests, or (c) if in a
criminal proceeding, either the individual had reasonable cause to believe his
conduct was lawful or no reasonable cause to believe his conduct was unlawful.
The BCL further empowers a corporation to pay or reimburse the reasonable
expenses incurred by an Eligible Person in connection with the defense of any
such claim, including counsel fees; and, unless limited by its articles of
incorporation, the corporation is required to indemnify an Eligible Person
against reasonable expenses if he is wholly successful in any such proceeding,
on the merits or otherwise. Under certain circumstances, a corporation may pay
or reimburse an Eligible Person for reasonable expenses prior to final
disposition of the matter. Unless a corporation's articles of incorporation
otherwise provide, an Eligible Person may apply for indemnification to a court
which may order indemnification upon a determination that the Eligible Person is
entitled to mandatory indemnification for reasonable expenses or that the
Eligible Person is fairly and reasonably entitled to indemnification in view of
all the relevant circumstances without regard to whether his actions satisfied
the appropriate standard of conduct.
Before a corporation may indemnify any Eligible Person against liability or
reasonable expenses under the BCL, a quorum consisting of directors who are not
parties to the proceeding must (1) determine that indemnification is permissible
in the specific circumstances because the Eligible Person met the requisite
standard of conduct, (2) authorize the corporation to indemnify the Eligible
Person and (3) if appropriate, evaluate the reasonableness of expenses for which
indemnification is sought. If it is not possible to obtain a quorum of
uninvolved directors, the foregoing action may be taken by a committee of two or
more directors
II-1
<PAGE> 71
who are not parties to the proceeding, special legal counsel selected by the
Board or such a committee, or by the shareholders of the corporation.
In addition to the foregoing, the BCL states that the indemnification it
provides shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any provision of the articles of incorporation
or bylaws, resolution of the board of directors or shareholders, or any other
authorization adopted after notice by a majority vote of all the voting shares
then issued and outstanding. The BCL also empowers an Indiana corporation to
purchase and maintain insurance on behalf of any Eligible Person against any
liability asserted against or incurred by him in any capacity as such, or
arising out of his status as such, whether or not the corporation would have had
the power to indemnify him against such liability.
Reference is made to Article V of the Amended and Restated Articles of
Incorporation of the Registrant concerning indemnification of directors,
officers, employees and agents.
The Registrant has obtained directors' and officers' liability insurance,
the effect of which is to indemnify the directors and officers of the
corporation and its subsidiaries against certain losses caused by errors,
misleading statements, wrongful acts, omissions, neglect or breach of duty by
them or any matter claimed against them in their capacities as directors and
officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has issued the following securities during the three year
period ended September 24, 1997:
1. An aggregate of 142,560 Common Shares were issued to five key
employees at various times upon the exercise of options granted pursuant to
the Registrant's 1990 Employee Stock Option Plan for consideration equal to
the fair market value of the shares purchased on the date of the option
grant. The issuance of these Common Shares was exempt from registration
under the Securities Act by reason of Rule 701 of the Commission and
Section 4(2) thereof.
2. An aggregate of 22,572 Common Shares were issued on April 3, 1995,
to a single individual in connection with and as partial consideration for
the acquisition by the Registrant of all of the outstanding shares of
Technicol Ltd. The issuance of these Common Shares was exempt from
registration under the Securities Act by reason of Section 4(2) thereof.
The share data set forth above has been adjusted for the 4.514 for 1 share
split described in the Prospectus.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The list of exhibits is incorporated herein by reference to the Index to
Exhibits.
(b) Financial Statement Schedules:
No schedules have been provided because the required information is not
applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification for such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the
II-2
<PAGE> 72
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liabilities under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus to be filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 73
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WEST LAFAYETTE, STATE OF
INDIANA, ON THE 7TH DAY OF NOVEMBER, 1997.
BIOANALYTICAL SYSTEMS, INC.
By: /s/ PETER T. KISSINGER
------------------------------------
Peter T. Kissinger,
President and Chief Executive
Officer
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ PETER T. KISSINGER President and Chief Executive Officer November 7, 1997
- ------------------------------------------ (Principal Executive Officer) and
Peter T. Kissinger Director
/s/ CANDICE B. KISSINGER* Director November 7, 1997
- ------------------------------------------
Candice B. Kissinger
/s/ RONALD E. SHOUP* Director November 7, 1997
- ------------------------------------------
Ronald E. Shoup
/s/ WILLIAM BAITINGER* Director November 7, 1997
- ------------------------------------------
William Baitinger
/s/ THOMAS A. HIATT* Director November 7, 1997
- ------------------------------------------
Thomas Hiatt
/s/ JOHN KRAEUTLER* Director November 7, 1997
- ------------------------------------------
John Kraeutler
/s/ W. LEIGH THOMPSON* Director November 7, 1997
- ------------------------------------------
W. Leigh Thompson
/s/ William Mulligan* Director November 7, 1997
- ------------------------------------------
William Mulligan
/s/ MICHAEL CAMPBELL* Director November 7, 1997
- ------------------------------------------
Mike Campbell
/s/ DOUGLAS P. WIETEN* (Principal Financial Officer and November 7, 1997
- ------------------------------------------ Accounting Officer)
Douglas Wieten
</TABLE>
- -------------------------
* Signed by Peter T. Kissinger, Attorney-in-fact.
II-4
<PAGE> 74
BIOANALYTICAL SYSTEMS, INC.
REGISTRATION STATEMENT
ON
FORM S-1
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER ASSIGNED IN
REGULATION S-K EXHIBIT
ITEM 601 NUMBER DESCRIPTION OF EXHIBIT
- ------------------ ------- ----------------------
<C> <C> <S>
(1) 1.1 Form of Underwriting Agreement*
(2) No Exhibit
(3) 3.1 Form of Second Restated Articles of Incorporation of
Bioanalytical Systems, Inc.*
3.2 Form of Second Restated Bylaws of Bioanalytical Systems,
Inc.*
(4) 4.1 Form of Specimen Certificate for Common Shares
4.2 See Exhibits 3.1 and 3.2
4.3 Letter Agreement dated October 10, 1997, by and among
Bioanalytical Systems, Inc., Primus Capital Fund II, L.P.
and Middlewest Ventures II, L.P.
(5) 5.1 Opinion of Ice Miller Donadio & Ryan*
(6) No Exhibit
(7) No Exhibit
(8) No Exhibit
(9) No Exhibit
(10) 10.1 Form of Employee Confidentially Agreement*
10.2 Bioanalytical Systems, Inc. Outside Director Stock Option
Plan*
10.3 Form of Bioanalytical Systems, Inc. Outside Director Stock
Option Agreement*
10.4 Bioanalytical Systems, Inc. 1990 Employee Incentive Stock
Option Plan*
10.5 Form of Bioanalytical Systems, Inc. 1990 Employee Incentive
Stock Option Agreement*
10.6 Letter/Loan Agreement by and between Bioanalytical Systems,
Inc. and Bank One, Lafayette, N.A. dated May 31, 1997 for up
to $5,000,000 Construction Loan*
10.7 Note for $4,720,000 executed by Bioanalytical Systems, Inc.,
in favor of Bank One, Lafayette, N.A., dated July 19, 1996*
10.8 Loan Agreement by and between Bioanalytical Systems, Inc.
and Bank One, Lafayette, N.A., dated July 22, 1992 for up to
$700,000*
10.9 Credit Agreement by and between Bioanalytical Systems, Inc.
and Bank One, Lafayette, N.A., dated July 24, 1992 relating
to loan of up to $300,000*
10.10 Promissory Note for $300,000 executed by Bioanalytical
Systems, Inc. in favor of Bank One, Lafayette, N.A. dated
July 24, 1992.*
10.11 Letter Loan Agreement by and between Bioanalytical Systems,
Inc. and Bank One, Indiana, N.A., dated April 15, 1997.*
10.12 Promissory Note for $2,200,000 executed by Bioanalytical
Systems, Inc. in favor of Bank One, Indiana, N.A. dated May
9, 1997*
10.13 [Reserved]
10.14 Indemnifying Mortgage by and between Bioanalytical Systems,
Inc. and Bank One, Lafayette, N.A. dated January 23, 1987.*
</TABLE>
- -------------------------
* Previously Filed.
II-5
<PAGE> 75
<TABLE>
<CAPTION>
NUMBER ASSIGNED IN
REGULATION S-K EXHIBIT
ITEM 601 NUMBER DESCRIPTION OF EXHIBIT
- ------------------ ------- ----------------------
<S> <C> <C>
10.15 Real Estate Mortgage by and between Bioanalytical Systems,
Inc. and Bank One, Lafayette, N.A., dated July 19, 1996*
10.16 Security Agreement by and between Bioanalytical System, Inc.
and Bank One, Lafayette, N.A., dated April 22, 1991*
10.17 Security Agreement by and between Bioanalytical Systems,
Inc. and Bank One, Lafayette, N.A., dated August 22, 1996.*
10.18 Master Lease Agreement by and between Bioanalytical Systems,
Inc. and Banc One Leasing Corporation, dated November 9,
1994*
10.19 Financing Lease by and between Bioanalytical Systems, Inc.
and Banc One Leasing Corporation, dated November 9, 1994
10.20 Purchase Agreement Commercial-Industrial Real Estate by and
between Great Lakes Chemical Corporation and Bioanalytical
Systems, Inc.*
10.21 Letter Loan Agreement by and between Bioanalytical Systems,
Inc. and Bank One, Indiana N.A. dated September 22, 1997 for
up to a $1,000,000 non-revolving line of credit to support
capital expenditures
10.22 Note for $1,000,000 executed by Bioanalytical Systems, Inc.
in favor of Bank One, Indiana N.A. dated September 22, 1997
10.23 Credit Agreement by and between Bioanalytical Systems, Inc.
and Bank One, Indiana, N.A. dated July 24, 1997
10.24 Credit Agreement by and between Bioanalytical Systems, Inc.
and Bank One, Indiana, N.A. dated August 30, 1996
10.25 Real Estate Mortgage by and between Bioanalytical Systems,
Inc. and Bank One Lafayette N.A. dated July 24, 1992.
10.26 Bioanalytical Systems, Inc. 1997 Employee Incentive Stock
Option Plan
10.27 Form of Bioanalytical Systems, Inc. 1997 Employee Incentive
Stock Option Agreement
10.28 1997 Bioanalytical Systems, Inc. Outside Director Stock
Option Plan
10.29 Form of Bioanalytical Systems, Inc. 1997 Outside Director
Stock Option Agreement
(11) 11.1 Statement Regarding Computation of Per Share Earnings
(12) No Exhibit
(14) No Exhibit
(15) No Exhibit
(16) No Exhibit
(21) 21.1 List of Subsidiaries
(23) 23.1 Consent of Ice Miller Donadio & Ryan (included in Exhibit
5.1)*
23.2 Consent of Ernst & Young LLP, independent auditors
(24) 24.1 See Signature Page*
(25) No Exhibit
(26) No Exhibit
(27) 27.1 Financial Data Schedule
(28) No Exhibit
(99) No Exhibit
</TABLE>
- -------------------------
* Previously Filed.
II-6
<PAGE> 1
EXHIBIT 4.1
SPECIMEN
NUMBER SHARES
------ ------
COMMON SHARES
BIOANALYTICAL SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA
CUSIP 09058M 10 3
SEE REVERSE FOR CERTAIN DEFINITIONS
This certifies that
is the OWNER of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF,
Bioanalytical Systems, Inc.
(hereinafter referred to as the "Corporation"), transferable on the books of
the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed. This Certificate and the
Common Shares represented hereby are issued and shall be held subject to all of
the provisions of the Second Restated Articles of Incorporation, as amended
from time to time, of the Corporation, to all of which the holder, by
acceptance hereof, assents. This Certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile signatures of its duly authorized officers.
DATED:
Countersigned and Registered:
/s/ NATIONAL CITY BANK
Transfer Agent and Registrar,
/s/ PETER T. KISSINGER By:
President
/s/ CANDICE B. KISSINGER
Secretary
Authorized Signature
<PAGE> 2
Bioanalytical Systems, Inc.
THE SECOND RESTATED ARTICLES OF INCORPORATION OF THE CORPORATION PROVIDE FOR
THE ISSUANCE OF PREFERRED SHARES WITH SUCH RIGHTS AS MAY BE DETERMINED, IN
WHOLE OR IN PART, BY THE BOARD OF DIRECTORS PRIOR TO THE ISSUANCE THEREOF. THE
CORPORATION SHALL FURNISH TO THE HOLDER OF THIS CERTIFICATE, ON REQUEST IN
WRITING AND WITHOUT CHARGE, A SUMMARY OF THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES, AND LIMITATIONS APPLICABLE TO EACH CLASS OF SHARES OF THE
CORPORATION, AND VARIATIONS AND RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED
FOR EACH SERIES, IF ANY, WITHIN A CLASS (AND THE AUTHORITY OF THE BOARD OF
DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES, IF ANY).
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to the applicable laws or regulations:
<TABLE>
<CAPTION>
<S><C>
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants in common
UNIF GIFT MIN ACT - _______Custodian ________ under Uniform Gifts to Minors Act ___________
(Cust) (Minor) (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received __________ hereby sell, assign and transfer unto
- --------------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER INDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE
OF ASSIGNEE
____________ Shares of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint ______________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated: ________________________
_____________________________
Signature
_____________________________
Signature
Signature Guaranteed: NOTICE: THE SIGNATURES TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE
EXACTLY, WITHOUT ANY CHANGE
WHATEVER.
By: _________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANK, STOCK BROKER, SAVINGS AND LOAN
ASSOCIATION OR CREDIT UNION WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17 Ad-15.
<PAGE> 1
EXHIBIT 4.3
Bioanalytical Systems, Inc.
2701 Kent Avenue
West Lafayette, Indiana 47906
Primus Capital Fund II Limited Partnership
Suite 2700
One Cleveland Center
Cleveland, Ohio 44114
Attention: William C. Mulligan
Middlewest Ventures II, L.P.
20 North Meridian Street
Indianapolis, Indiana 46204
Attention: Thomas A. Hiatt
Dear Bill and Tom:
As you are aware, Bioanalytical Systems, Inc. (the "Company") intends to file
a registration statement on Form S-1 for the purpose of registering an
aggregate of 1.725 million shares of its Common Shares for sale to the public
(the "Offering") through underwriters led by Roney & Co. L.L.C. and The Ohio
Company (the "Underwriters"). The Common Shares being registered include
Common Shares subject to an over-allotment option to be granted to the
Underwriters. It is anticipated that the registration statement will be filed
with the Securities and Exchange Commission on or about September 26, 1997, and
that the Offering will be made on or about November 25, 1997. I have enclosed a
draft of the registration statement and schedules showing the pro forma share
capitalization of the Company prior to and after giving effect to the Offering.
It is anticipated that the public offering price of the Common Shares will be
between $9 and $11 per share.
This purpose of this letter is to confirm our agreement that:
1. Effective immediately prior to the time of the closing of the underwriting
agreement to be entered into between the Company and the Underwriters with
respect to the Offering (the "Underwriting Agreement") and without the
necessity of any further action on your part or on the part of the Company
(other that those actions required to deliver to you the certificates
representing the Common Shares to which you will be entitled as a result of the
conversion of the Convertible Preferred Shares and the split of the Common
Shares contemplated in connection with the Offering):
(a) All of the Convertible Preferred Shares of the Company held by each of
Primus Capital Fund II Limited Partnership ("Primus") and Middlewest
Ventures II, L.P. ("Middlewest"), aggregating 104,167 and 62,500 shares,
respectively will be converted into Common Shares in accordance with the
terms set forth in Section
<PAGE> 2
2.3(c) of the Articles of Incorporation of the Company, as amended (the
"Preferred Share Terms"), and you as holders of Convertible Preferred
Shares shall not have any rights under the Preferred Share Terms with
respect to the transactions contemplated by the Underwriting Agreement.
Simultaneously with your execution of this letter, you will deliver to the
Company: (i) the certificates representing the Convertible Preferred
Shares, (ii) written notice of conversion and (iii) a proper assignment of
the certificates to the Company, as contemplated by Paragraph 5 of the
Preferred Share Terms, to be held by the Company in escrow pending the
satisfaction of the conditions to the conversion of the shares described
herein or returned to you if those conditions are not met. We hereby
confirm to you that, based upon the current share capitalization of the
Company, each outstanding Convertible Preferred Share is convertible into
one Common Share of the Company, based upon the Preferred Share Terms.
(b) The Share Purchase Agreement between Primus, Middlewest and the Company
dated as of March 15, 1991, shall be terminated and of no further force or
effect. In consideration of your agreement to terminate the Share
Purchase Agreement, the Company hereby grants to you the registration
rights set forth on Exhibit A attached hereto (the "Registration Rights
Agreement"). You agree, however, that you will not exercise your rights
under Section 1 of the Registration Rights Agreement at any time prior to
the expiration of the period set forth in the lock-up agreement required
pursuant to the Underwriting Agreement and that you will not exercise your
rights under Section 2 of the Registration Rights Agreement with respect
to the Offering.
(c) The Shareholders Agreement between you and the "Management Shareholders"
of the Company named therein, dated as of March 15, 1991, shall be
terminated and of no further force or effect. The Company agrees that,
for so long as either of you hold more than 5% of the outstanding Common
Shares of the Company, it will use its best efforts to cause one person
designated by that shareholder to be nominated for election to the Board
of Directors of the Company upon the expiration of the term of office of
the directorships now held by you or any successive term. Consistent with
the Company's past practice, service on the Board would not entail
compensation beyond out of pocket expenses.
2. You will vote all of the Convertible Preferred Shares held by you in favor
of the approval of an amendment to the Articles of Incorporation of the Company
that, among other things, will (a) delete the current provisions of Section
2.3(c) thereof, and (b) increase the number of authorized Preferred Shares of
the Company to 1,000,000 shares (the "Amended Articles of Incorporation"). To
that end, you hereby appoint Peter T. Kissinger and Ronald E. Shoup, and either
of them, with power of substitution, as your proxy and agent with full power to
attend any meeting of shareholders of the Company and to vote on your behalf
all of the Convertible Preferred Shares outstanding in your names in favor of
the approval of the Amended Articles of Incorporation as described herein (or
to execute a consent to shareholder action in lieu of a meeting), and this
proxy
- 2 -
<PAGE> 3
shall be deemed to be coupled with an interest and shall not be subject to
revocation by you without the consent of the Company.
3. You agree to execute the lock-up agreement as required pursuant to the
Underwriting Agreement.
In the event that the Offering is not made on or before December 31, 1997,
then your agreements set forth in paragraph 1 above shall terminate at the
close of business on that date. The Company agrees that the Amended Articles
of Incorporation described in paragraph 2 above shall not be filed with the
Secretary of State of Indiana and will not become effective until immediately
prior to the effective time of the closing of the Underwriting Agreement.
If this letter correctly sets forth the terms of our agreements, I would
appreciate it if you would sign and return the copy provided for that purpose,
and the documents described in paragraph 1(a) above (forms of which are
provided herewith). Thank you for your cooperation in this matter.
Very truly yours,
Bioanalytical Systems, Inc.
By: /s/ PETER T. KISSINGER
----------------------------
Peter T. Kissinger, President
Accepted and agreed to:
Primus Capital Fund II, L.P.
By: Primus Management II, General Partner
By: Primus Venture Partners, General Partner
By: /s/ WILLIAM C. MULLIGAN
----------------------------------
General Partner
Date: October 10, 1997
- 3 -
<PAGE> 4
Middlewest Ventures II, L.P.
By: Middlewest Management Company, a General Partner
By: /s/ THOMAS A. HIATT
----------------------------
Generall Partner
Date: October 9, 1997
- 4 -
<PAGE> 5
EXHIBIT A
Registration of Common Shares
1. Required Registration. At any time and from time to time,
upon the receipt by the Company from Primus or Middewest (collectively, the
"Investors") of a written request for the registration of all or any portion of
the Common Shares owned by such Investor, the Company shall prepare and file
within 60 days of receipt of such request a registration statement under the
Securities Act of 1933 (the "1933 Act") covering the Common Shares which are
subject to such request and shall use its best efforts to cause such
registration statement to become effective within 120 days of receipt of such
request. The Investors shall be entitled to an unlimited number of
registrations under this Section 1; provided, however, that the Company shall
not be required to bear the expense of more than one such registration for all
the Investors and the Investor making the request shall bear the expense of any
additional registrations. In the event that an Investor determines for any
reason not to proceed with a registration of Common Shares requested pursuant
to this Section 1 at any time before the registration statement has been
declared effective by the Securities and Exchange Commission ("SEC"), and such
registration statement, if theretofore filed with the SEC, is withdrawn with
respect to the Common Shares covered thereby, and such Investor agrees to bear
its own expenses incurred in connection therewith and to reimburse the Company
for the expenses incurred by it attributable to the registration of such Common
Shares, then the Investors shall not be deemed to have exercised their right to
require the Company to register Common Shares pursuant to this Section 1 at the
expense of the Company. The Company shall not effect any registration of its
securities (other than on Forms S-4 or S-8, or any successor or similar form)
from the date of a request to register Common Shares pursuant to this Section 1
until the earlier of (i) 90 days after the date on which all securities covered
by such registration statement have been sold or (ii) 180 days after the
effective date of such registration statement.
2. Incidental Registration. Each time the Company shall
determine to proceed with the preparation and filing of a registration
statement under the 1933 Act in connection with the proposed offer and sale for
money of any of its securities by the Company or any of its security holders
(other than on Forms S-4 or S-8, or any successor or similar form), the Company
will give written notice of its determination to the Investors. Upon the
written request of an Investor given to the Company within 20 days after the
mailing of any such notice by the Company as provided in this Section 2, the
Company shall, subject to Sections 5 and 9 hereof, cause all such Common Shares
which such Investor has requested to be registered to be included in such
registration statement. Neither the delivery of a notice under this Section 2
nor a request by an Investor under this Section 2 shall, in any way, obligate
the Company to file any registration statement and notwithstanding the filing
of a registration statement, the Company may, at any time before the effective
date thereof, elect to terminate the entire registration process without any
further obligation to the Investors.
3. Short Form Registration. In addition to the registration
rights provided in Sections 1 and 2 hereof, if the Company qualifies for the
use of Form S-3 or any similar short form registration then in force, the
Company shall, at its expense, register Common Shares on behalf of the
Investors at the request of an Investor from time to time on such form.
<PAGE> 6
4. Limitations. Notwithstanding the provisions of Sections l and
3 hereof, (i) the Company shall have the right to delay or suspend the
preparation and filing of a registration statement for up to 90 days if in the
reasonable judgment of a majority of the Board of Directors of the Company such
preparation or filing would harm or hinder in any material fashion the ability
of the Company to conduct its affairs or would have a material adverse effect
on the business, properties or financial condition of the Company, provided,
that the Company shall use its best efforts to cause any such registration
statement to become effective within 150 days of receipt of an Investor's
request therefor; and (ii) if, prior to an Investor's request for registration,
the Company has given notice under Section 2 hereof that it intends to prepare
and file a registration statement ("Section 2 Registration Statement"), then
the Company shall have the right to delay or suspend the filing of the
registration statement requested by an Investor, provided, that the Company
shall use its best efforts to cause any such registration statement requested
by an Investor to become effective within 90 days after the date on which all
securities covered by the Section 2 Registration Statement have been sold.
5. Proration. If Common Shares, including any Common Shares of
the Company to be issued and sold by it, are to be included under Sections 1, 2
or 3 above in a registration statement which pertains to one or more
underwritten public offerings and the managing underwriters advise the Company
in writing that in their opinion the number of Common Shares requested to be
included exceeds the number of Common Shares which can be sold in such
offering, the Company will include in such registration (i) first, such Common
Shares as to which demand registration rights have been exercised under Section
1 or 3, as the case may be (the "Demand Shares"), on a pro rata basis among the
holders of Demand Shares based on the number of Common Shares with respect to
which demand is made; (ii) second, the Common Shares which the Company proposes
to issue and sell; and (iii) third, the number of Common Shares requested by
the Investors (to the extent their request was not pursuant to Section 1 or 3)
to be included which in the opinion of such underwriters can be sold (the
"Secondary Shares"), on a pro rata basis among holders of such Secondary Shares
according to the relation the number of Common Shares owned by any such holder
bears to the total number of Common Shares owned by all such holders (exclusive
of Demand Shares in each case).
6. Registration Procedures. If and whenever the Company is
required by the provisions of Sections 1, 2 or 3 to effect the registration of
Common Shares under the 1933 Act, the Company will:
(a) prepare and file with the SEC, within 60 days of receipt of an
Investor's request thereof or, a registration statement with
respect to such securities, and use its best efforts to cause
such registration statement to become effective within 120
days of receipt of such request and remain effective for such
period as may be reasonably necessary to effect the sale of
such securities, not to exceed six months;
(b) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus
contained therein as may be necessary to keep such
registration statement effective until the earlier of (i) the
date on which all securities covered by such registration
statement have been sold and (ii) 180 days after the
effective date of such registration statement;
<PAGE> 7
(c) use its best efforts to register or qualify the Common Shares
for sale under such other securities or blue sky laws of such
jurisdictions as the Investors may reasonably request and do
any and all other acts and things which may be reasonably
necessary or desirable to enable the Investors to consummate
the disposition of the Common Shares in such jurisdictions;
provided, however, that the Company shall not be required to
qualify to do business or to file a general consent to service
of process in any such jurisdictions;
(d) furnish to the Investors and to the underwriters of the
securities being registered a reasonable number of copies of
the registration statement, preliminary prospectus, final
prospectus, and such other documents as the Investors or
underwriters may reasonably request in order to facilitate the
public offering of such securities;
(e) notify the participating Investors, promptly after it shall
receive notice thereof, of the time when such registration
statement has become effective or a supplement to any
prospectus forming a part of such registration statement has
been filed;
(f) notify the Investors promptly of any request by the SEC for
the amending or supplementing of such registration statement
or prospectus or for additional information;
(g) prepare and file with the SEC, promptly upon the request of
the Investors, any amendments or supplements to such
registration statement or prospectus which, in the opinion of
counsel for the Investors (and concurred in by counsel for the
Company), is required under the 1933 Act or the rules and
regulations thereunder in connection with the distribution of
the Common Shares by the Investors;
(h) prepare and promptly file with the SEC, and promptly notify
the Investors of the filing of, any amendment or supplement to
such registration statement or prospectus as may be necessary
to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be
delivered under the 1933 Act, any event shall have occurred as
the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement
of a material fact or omit to state any material fact
necessary to make the statement therein, in the light of the
circumstances in which they were made, not misleading;
(i) advise the Investors, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order
by the SEC suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding
for that purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued;
(j) at least three days prior to the filing of any amendment or
supplement to such registration statement or prospectus,
furnish copies thereof to the Investors and
<PAGE> 8
refrain from filing any such amendment or supplement to which
the Investors shall have reasonably objected on the grounds
that such amendment or supplement does not comply in all
material respects with the requirements of the 1933 Act or the
rules and regulations thereunder, unless in the opinion of
counsel for the Company the filing of such amendment or
supplement is reasonably necessary to protect the Company from
any liabilities under any applicable federal or state law and
such filing will not violate applicable law; and
(k) at the request of the Investors, furnish on the date or dates
provided for in the underwriting agreement: (i) an opinion of
counsel addressed to the Investor's underwriters, if any,
opining as to such matters as may be reasonably agreed to by
such underwriters and the Company; and (ii) a letter or
letters from the independent certified public accountants of
the Company, addressed to the underwriters, if any, and to the
Investors, covering such matters as such underwriters and the
Investors reasonably request, in which letters such
accountants shall state (without limiting the generality of
the foregoing) that they are independent certified public
accountants within the meaning of the 1933 Act and that in the
opinion of such accountants the financial statements and other
financial data of the Company included in the registration
statement or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements
of the 1933 Act.
7. Expenses. With respect to the registrations requested
pursuant to Section 1 hereof which are to be at the expense of the Company, and
with respect to each inclusion of Common Shares in a registration statement
pursuant to Section 2 hereof and with respect to all registrations requested
pursuant to Section 3 hereof, the Company shall bear the following fees, costs,
and expenses: all registration, filing, and stock exchange fees, printing
expenses, fees and disbursements of counsel and accountants for the Company,
fees and disbursements of counsel for the underwriter or underwriters of such
securities retained by the Company, and all legal fees and disbursements and
other expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be registered or
qualified. Fees and disbursements of counsel and accountants for the Investors
and for any counsel for underwriters retained solely by the Investors,
underwriting discounts and commissions and transfer taxes for the Investors,
and any other expenses incurred by the Investors not expressly included above
shall be borne by the Investors.
8. Indemnification
(a) By the Company. The Company shall indemnify and hold harmless
each Investor and any underwriter (as defined in the 1933 Act)
for such Investor and each person, if any, who controls such
Investor or such underwriter within the meaning of the 1933
Act, from and against any and all loss, damage, liability or
claim to which such Investor or any such underwriter or
controlling person becomes subject under the 1933 Act or
otherwise, and to reimburse them, from time to time upon
request, for any legal or other costs or expenses reasonably
incurred by them in connection with investigating any claims
or defending any actions, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any
<PAGE> 9
material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not
misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such loss,
damage, liability, cost or expense arises out of or is based
upon (i) an untrue statement or alleged untrue statement or
omission or alleged omission (other than a statement or
omission about the Company) made in conformity with
information furnished by the Investors in writing specifically
for use in the preparation of a registration statement or (ii)
an untrue or alleged untrue statement or omission or alleged
omission (other than a statement or omission about the
Company) made in any preliminary prospectus made in conformity
with information furnished by the Investors where the
prospectus contained in the registration statement in the form
filed by the Company with the SEC pursuant to Rule 424 under
the 1933 Act shall have corrected such statement or omission
and a copy of such prospectus shall, through no fault of the
Company, not have been sent or given to the person bringing
the claim at or prior to the confirmation of such sale to him.
(b) By the Investors. Each Investor shall indemnify and hold
harmless the Company, the other Investor, any underwriter and
each person, if any, who controls the Company, the other
Investor or such underwriter, from and against any and all
loss, damage, liability or claim, to which the Company or such
other Investor or any controlling person and/or any
underwriter becomes subject under the 1933 Act or otherwise
and to reimburse them, from time to time upon request, for any
legal or other costs or expenses reasonably incurred by them
in connection with investigating any claims or defending any
actions, insofar as such losses, damages, liabilities, costs,
or expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such registration
statement, any prospectus contained therein, or any amendment
or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made
in reliance upon and in strict conformity with written
information furnished by such Investor specifically for use in
the preparation thereof.
(c) Notice. Promptly after receipt by an indemnified party
pursuant to the provisions of paragraph (a) or (b) of this
Section 8 of notice of the commencement of any action
involving the subject matter of the foregoing indemnity
provision, such indemnified party will, if a claim thereof is
to be made against the indemnifying party pursuant to the
provisions of said paragraph (a) or (b), promptly notify the
indemnifying party in writing of the commencement thereof; but
the omission to so notify the indemnifying party will not
relieve it from any liability which it may have to any
indemnified party otherwise than hereunder. In case such
action is brought against any indemnified
<PAGE> 10
party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if
the defendants in any action include both the indemnified
party and the indemnifying party and there is a conflict of
interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the
indemnified party or parties shall have the right to elect
separate counsel to participate in the defense of such action
on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party pursuant to
the provisions of said paragraph (a) or (b) for any legal or
other expense subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable
costs of investigation, unless (i) the indemnified party shall
have employed counsel in accordance with the proviso of the
preceding sentence, (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after
the notice of the commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying
party.
(d) Contribution. If for any reason the indemnification provided
for paragraphs (a) and (b) is unavailable to an indemnified
party or insufficient to hold it harmless as contemplated by
such paragraphs, then the indemnifying party shall contribute
to the amount paid or payable by the indemnified party as a
result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the
indemnified party and the indemnifying party, as well as any
other relevant equitable considerations; provided, however,
that, in any such case, (i) no Investor will be required to
contribute any amount in excess of the purchase price of all
such Common Shares sold by such Investor pursuant to such
registration statement, and (ii) no Investor guilty of a
fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) will be entitled to contribution from
any Investor who was not guilty of such fraudulent
misrepresentation.
Promptly after receipt by an Investor of notice of
the commencement of any action, suit or proceeding in
connection with a public offering of Common Shares, such
holder will, if a claim for contribution in respect thereof is
able to be made against another party, notify the contributing
party of the commencement thereof. The omission so to notify
the contributing party will not relieve it from any liability
which it may have to any other party other than for
contribution under the Act. In case any such action, suit or
proceeding is brought against any party, and such party
notifies a contributing party of the commencement thereof, the
contributing party will be entitled to participate therein
with the notifying party and any other contributing party
similarly notified.
<PAGE> 11
9. Limitation of Market Activity. In connection with any
registration of Common Shares pursuant to Sections 1, 2 or 3 hereof, each
Investor, in consideration of such grant, will agree in writing prior to the
date on which the registration statement becomes effective not to offer or sell
any Common Shares for a period of up to 120 days following the date upon which
such registration statement becomes effective under the 1933 Act if the
managing underwriter so requests.
10. Transfer of Registration Rights. The registration rights and
related obligations provided herein may be transferred with the securities to
which they relate; provided, however, that (i) the Company shall be given
written notice by the transferor thereof at the time of such transfer stating
the name and address of the transferee and identifying the securities with
regard to which such rights are being transferred, and (ii) the transferee
shall agree in writing to assume the obligations of the transferor hereunder.
11. Investors to Provide Information. In the event the Investors
request a registration of Common Shares, the Investors shall provide all such
information and materials and shall take all such actions as may be reasonably
required in order to permit the Company to comply with all applicable
requirements of the SEC and to obtain any desired acceleration of the effective
date of such registration statement. Specifically, the Company may require the
Investors to furnish the Company with such information regarding the Investors
and the distribution of its securities as the Company may from time to time
reasonably request in writing and as shall be required by law or the SEC.
12. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Common Shares to the public without registration, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the 1933 Act, at all
times from and after 90 days following the effective date of
the first registration under the 1933 Act filed by the Company
for an offering of its securities to the general public;
(b) Use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under
the 1933 Act and the Securities Exchange Act of 1934 (the
"1934 Act");
(c) So long as an Investor owns any Common Shares, furnish to the
Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements
of Rule 144 and of the 1933 Act and the 1934 Act, a copy of
the most recent annual or quarterly report of the Company, and
such other reports and documents so filed as an Investor may
reasonably request in availing itself of any rule or
regulation of the SEC allowing an Investor to sell any such
securities without registration.
13. Definition of Common Shares. For the purposes of this Exhibit
A, the term "Common Shares" shall mean the Common Shares of the Company.
<PAGE> 1
EXHIBIT 10.19
FINANCIAL LEASE
LEASE SCHEDULE NO. 1000035355
LESSOR: BANC ONE LEASING CORPORATION
LESSEE: Bioanalytical Systems, Inc.
1. GENERAL. Reference is made to the Master Lease Agreement dated as of
11/9/94 as amended from time to time ("Master Lease"), between the above Lessee
and Lessor. This Lease Schedule is signed and delivered under the Master
Lease. Unless otherwise defined herein, capitalized terms defined in the Master
Lease will have the same meaning when used in this Schedule.
2. FINANCING. Lessor finances for Lessee, and Lessee finances with Lessor,
all of the property ("Equipment") described below:
<TABLE>
<CAPTION>
Quantity: Description (New Unless specified as Used) Amount Financed
<S> <C> <C>
See Attached Schedule A-1 Equip. Cost 422,250.00
Filing Fee 200.00
TOTAL $ 422,450.00
</TABLE>
3. FINANCING TERM AND INSTALLMENT PAYMENTS. The Lease Term for
the Equipment begins on the earlier of the Acceptance Date or the Commencement
Date and continues for the Number of months after the Commencement Date as
stated in the Lease Term box below. The Acceptance Date is the date that
Lessor accepts this Schedule as stated below Lessor's signature. The
Commencement Date is the [ ] 1st [ ] 15th day of the month in which the
Acceptance Date occurs.
<TABLE>
<CAPTION>
Lease Term Number of Payments Installment Payments (excluding taxes)
<S> <C> <C>
60 60
8,542.02
Months
</TABLE>
PAYMENT DUE DATES: On the Commencement Date and on the same day of each Month
thereafter until paid in full. Total Advance Payment of $8,542.02 to be
applied as follows:
<TABLE>
<S> <C> <C> <C>
$ Security Deposit $8,542.02 First and Last 0 Payment(s)
$ Set-up/Filing/Search Fees $ Other (Specify)
</TABLE>
Lessee shall pay to Lessor all amounts stated above on the dates stated above,
except that the Total Advance Payment is due on the Commencement Date. There
shall be added to each installment payment all applicable Taxes as in effect
from time to time.
4. SECURITY INTEREST. This Schedule is not intended to be a true
lease, but is intended to be a secured debt financing transaction. As
collateral security for payment and performance of all Secured Obligations (as
defined in Paragraph A on the reverse side of this Schedule)and to induce
Lessor to extend credit from time to time to Lessee (under the Lessor
otherwise), Lessee hereby grants to Lessor a first priority security interest
in all of Lessee's right, title and interest in the Equipment, whether now
existing or hereafter acquired, and in all Proceeds (as defined in Paragraph A
on the reserve side of this Schedule). Lessee represents, warrants and agrees
that Lessee currently is the lawful owner of the Equipment and that good and
marketable title to the Equipment shall remain with Lessee at all times.
Lessee represents, warrants and agrees: that Lessee has granted to Lessor a
first priority security interest in the Equipment and all Proceeds; and that
the Equipment and all Proceeds are, and at all times shall be, free and clear
of any Liens other than Lessor's security interest therein. Lessee at its sole
expense will protect and defend Lessor's first priority security interest in
the Equipment against all claims and demands whatsoever.
5. LESSEE'S ASSURANCES. Lessee irrevocably and unconditionally:
(a) reaffirms all of the terms and conditions of the Master Lease and agrees
that the Master Lease remains in full force and effect; (b) agrees that the
Equipment is and will be used at all times solely for commercial purposes, and
not for personal, family or household purposes; and (c) incorporates all of the
terms and conditions of the Master Lease as if fully set forth in this
Schedule.
6. PURCHASE ORDERS AND ACCEPTANCE OF EQUIPMENT. Lessee agrees
that (i) Lessor has not selected, manufactured, sold or supplied any of the
Equipment, (ii) Lessee has selected all of the Equipment and its suppliers; and
(iii) Lessee has received a copy of, and approved, the purchase orders or
purchase contracts for the Equipment. AS BETWEEN LESSEE AND LESSOR, LESSEE
AGREES THAT: (A) LESSEE HAS RECEIVED, INSPECTED AND APPROVED ALL OF THE
EQUIPMENT; (B) ALL EQUIPMENT IS IN GOOD WORKING ORDER AND COMPLIES WITH ALL
PURCHASE ORDERS OR CONTRACTS AND ALL APPLICABLE SPECIFICATIONS; (C) LESSEE
IRREVOCABLY ACCEPTS ALL EQUIPMENT FOR PURPOSES OF THE LEASE "AS-IS, WHERE-IS"
WITH ALL FAULTS; AND (D) LESSEE UNCONDITIONALLY WAIVES ANY RIGHT THAT IT MAY
HAVE TO REVOKE ITS ACCEPTANCE OF THE EQUIPMENT.
7. MISCELLANEOUS:.
LESSEE HAS READ AND UNDERSTOOD ALL OF THE TERMS OF THIS SCHEDULE. LESSEE
AGREES THAT THERE ARE NO ORAL OR UNWRITTEN AGREEMENTS WITH LESSOR REGARDING THE
EQUIPMENT OR THIS SCHEDULE. THIS SCHEDULE IS EXPRESSLY SUBJECT TO THE TERMS
AND CONDITIONS ON THE REVERSE SIDE OF THIS SCHEDULE.
<TABLE>
<S> <C>
Accepted by: BIOANALYTICAL SYSTEMS, INC.
BANC ONE LEASING CORPORATION (Name of Lessee)
By: Illegible By: /s/ PETER T. KISSINGER
Title: AVP Title: PRESIDENT
Acceptance Date: 11/15/94 Witness Signature: Illegible
</TABLE>
<PAGE> 2
ADDITIONAL TERMS AND CONDITIONS
The following terms and conditions are expressly made a part of and
incorporated in the Schedule on the front side hereof.
A. CERTAIN DEFINITIONS. "Second Obligations" means (i) all payments
and other obligations of Lessee under or in connection with this Schedule, and
(ii) all payments and other obligations of Lessee (whether now existing or
hereafter incurred) under or in connection with the Master Lease and all present
and future Lease Schedules thereto, and (iii) all other leases, indebtedness,
liabilities and/or obligations of any kind (whether now existing or hereafter
incurred, absolute or continent, direct or indirect) of Lessee to Lessor or to
any affiliate of either Lessor or Banc One Corporation. "Proceeds" means all
cash and non-cash proceeds of the Equipment including, without limitation,
insurance proceeds and warranty proceeds.
B. AMENDMENTS TO MASTER LEASE. FOR PURPOSES OF THIS SCHEDULE ONLY,
Lessee and Lessor agree to amend the Master Lease as follows: (i) public
liability or property insurance as described in the second sentence of Section 8
will not be required; (ii) the definition of "Stipulated Loss Value" in clause
(b) of Section 9 is deleted and replaced by Paragraph C below of this Schedule;
(iii) the text of Section 10 is deleted in its entirety; (iv) Subsections 23(a)
and 23(c) are deleted; (v) Subsection 23(b) and the last sentence of Section 4
will apply only if an event of default occurs; and (vi) all references in the
Lease as it relates to this Schedule to "Lessee" and "Lessor" shall be amended
to "Borrower" and "Lender" respectively.
C. STIPULATED LOSS VALUE. FOR PURPOSES OF THIS SCHEDULE ONLY, the
"Stipulated Loss Value" of any item of Equipment during its Lease Term equals
the aggregate of the following as of the date specified by Lessor; (i) all
accrued and unpaid interest, late charges and other amounts due under this
Schedule and the Master Lease to the extent it relates to this Schedule as of
such specified date, plus (ii) the remaining principal balance due and payable
by Lessee under this Schedule as of such specified date, plus (iii) interest on
the total described in the foregoing clauses (i) and (ii) at the Overdue Rate
commencing with the specified date; provided, that the foregoing calculation
shall not exceed the maximum amount which may be collected by Lessor from Lessee
under applicable law in connection with enforcement of Lessor's rights under
this Schedule and the Master Lease to the extent it relates to this Schedule.
D. CONDITIONS. No lease of Equipment under this Schedule shall be
binding on Lessor unless: (a) Lessor has received evidence of all required
insurance; (b) in Lessor's sole judgment, there has been no material adverse
change in the financial condition or business of Lessee or any guarantor; (c)
Lessee has signed and delivered to Lessor this Schedule, which must be
satisfactory to Lessor, and Lessor has signed and accepted this Schedule ;(d)
Lessor has received, in form and substance satisfactory to Lessor, such other
documents and information as Lessor shall reasonably request; and (e) Lessee has
satisfied all other reasonable conditions established by Lessor.
E. OTHER DOCUMENTS: EXPENSES. Lessee agrees to sign and deliver to
Lessor any additional documents deemed desirable by Lessor to effect the terms
of the Master Lease or this Schedule including, without limitation, Uniform
Commercial Code financing statements which Lessor is authorized to file with
the appropriate filing officers. Lessee hereby irrevocably appoints Lessor as
Lessee's attorney-in-fact with full power and authority in the place of Lessee
and in the name of Lessee to prepare, sign, amend, file or record any Uniform
Commercial Code financing statements or other documents deemed desirable by
Lessor to perfect, establish or give notice of Lessor's security interest in
the Equipment or in any other collateral as to which Lessee has granted Lessor
a security interest. Lessee shall pay upon Lessor's written request any actual
out-of-pocket costs and expenses paid or incurred by Lessor in connection with
the above terms of this section or the funding and closing of this Schedule.
F. SECURITY DEPOSIT. As collateral for Lessee's obligations under the
Lease, Lessee hereby grants to Lessor a security interest in the sums specified
in this Schedule as a "Security Deposit". As its option, Lessor may apply all
or any part of said Security Deposit to cure any default of Lessee under the
Lease. If upon final termination of this Schedule, Lessee has fulfilled all of
the terms and conditions hereof, then Lessor shall pay to Lessee any remaining
balance of the Security Deposit for this Schedule, without interest.
G. REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants
that: (a) Lessee is a corporation, partnership or proprietorship duly organized,
validly existing and in good standing under the laws of the state of its
organization and is qualified to do business and is in good standing under the
laws of each other state in which the Equipment is or will be located; (b)
Lessee has full power, authority and legal right to sign, deliver and perform
the Master Lease, this Schedule and all related documents and such actions have
been duly authorized by all necessary corporate, partnership or proprietorship
action; and (c) the Master Lease, this Schedule and each related document has
been duly signed and delivered by Lessee and each such document constitutes a
legal, valid and binding obligation of Lessee enforceable in accordance with its
terms.
H. LESSEE TO PAY ALL TAXES. FOR PURPOSES OF THIS SCHEDULE AND ITS
EQUIPMENT ONLY: Lessee shall pay any and all Taxes relating to this Schedule and
its Equipment directly to the applicable taxing authority; Lessee shall prepare
and file all reports or returns concerning any such Taxes as may be required by
applicable law or regulation (provided, that Lessor shall not be identified as
the owner of the Equipment in such reports or returns); and Lessee shall, upon
Lessor's request, send Lessor evidence of payment of such Taxes and copies of
any such reports or returns.
-2-
<PAGE> 3
BANC ONE LEASING CORPORATION
SCHEDULE A-1 EQUIPMENT LEASED HEREUNDER
QUANTITY DESCRIPTION PAGE 1
========== ===================================================================
LOCATION:
2701 KENT AVENUE
TIPPECANOE COUNTY
WEST LAFAYETTE, IN 47906
COST $422,250.00
1 MASS SPECTROMETER, INCLUDING BUT NOT LIMITED TO:
S/N: _____________________________________________
FINNIGAN MAT MODEL TSQ-7000 GC/MS/MS/DS
ATMOSPHERIC PRESSURE CHEMICAL IONIZATION (APCI)
AND ELECTROSPRAY IONIZATION (ESI) SOURCES AND
WITH SYRINGE PUMP AND LOOP INJECTOR
SOLVENT DIVERT VALVE KIT
ADDITIONAL 16 MB MEMORY FOR DEC 3000/300LX AND
3000/300X ALPHA WORKSTATIONS
ICIS II OPERATION (TSQ-SSZ AND MAT 90) TRAINING
COURSE
EXTENDED WARRANTY
WITHOUT HIGH PERFORMANCE EI/CI ION SOURCE WITH
INTERCHANGEABLE ION VOLUMES AND SOURCE PLUMBING
FROM TSQ-7000
WITHOUT VARIAN 3400 GC WITH SPLIT/SPLITLESS
INJECTOR AND INTERFACE
TOGETHER WITH ALL ATTACHMENTS, ADDITIONS,
ACCESSIONS, PARTS, REPAIRS, IMPROVEMENTS,
REPLACEMENTS AND SUBSTITUTIONS THERETO.
This Schedule A-1 is attached to and made a part of Lease Number 1000035-355
and constitutes a true and accurate description of the equipment.
Bioanalytical Systems, Inc.
- -------------------------------------------------------------------------------
Peter T. Kissinger 11-9-94
- --------------------------------- ----------------------------------------
(Lessee) (Date)
<PAGE> 1
EXHIBIT 10.21
[BANK ONE LETTERHEAD]
September 22, 1997
Peter T. Kissinger, President
Bioanalytical Systems, Inc.
2701 Kent Avenue
West Lafayette, IN 47906
Dear Pete:
I am pleased to inform you that BANK ONE, INDIANA, NA has approved the
following credit facility subject to the terms and conditions detailed below:
(Note: this commitment letter replaces and supersedes a commitment letter dated
April 15, 1997).
BORROWER Bioanalytical Systems, Inc.
AMOUNT Up to One Million and 00/100 Dollars ($1,000,000.00).
FACILITY TYPE Non-Revolving Line of credit to support capital expenditures.
COLLATERAL A Security Agreement covering a priority lien on purchased
equipment and a Security Agreement dated April 22, 1991
(receivables and inventory) and a Security Agreement dated
August 22, 1996 (mass-spectrometer) and a Security Agreement
dated August 30, 1996 (computer equipment) and a Security
Agreement dated July 24, 1997 (range hood equipment) and a
Mortgage dated January 23, 1987 (1205 Kent Avenue) and a
Mortgage dated July 19, 1996 and Modification of Mortgage dated
September 22, 1997 (2701 & 2801 Kent Avenue).
TERM Through March 1, 1998. At maturity the outstanding principal
will be converted to a seven (7) year term loan.
INTEREST RATE BANK ONE, INDIANA, NA prime rate, floating plus one-quarter of
one percent (1/4%), calculated on a 360 day basis with interest
payable monthly based upon the principal balance outstanding.
GUARANTOR None
<PAGE> 2
Bioanalytical Systems, Inc.
September 22, 1997
Page 2 3209009006(489/487)
GENERAL COVENANTS AND CONDITIONS
Availability of borrowing under this credit facility is conditional upon the
following covenants and conditions which shall survive the loan closing:
1. The Borrower certifies that their financial statements dated September 20,
1996 are true and correct in all aspects and that no material adverse
change has taken place as of this date.
2. The Borrower agrees to maintain their main deposit account at BANK ONE,
INDIANA, NA until all indebtedness hereunder has been repaid.
3. The Borrower agrees to submit its annual financial report prepared by an
independent Certified Public Accountant on an audited basis within 120
days of its year end until all indebtedness has been repaid.
4. The Borrower agrees to provide quarterly interim financial statements
prepared on a compiled basis within 45 days of quarter end.
5. The Borrower agrees, prior to closing, to provide and maintain fire and
casualty insurance acceptable to BANK ONE, INDIANA, NA on all tangible
collateral with a loss payable endorsement in favor of BANK ONE, INDIANA,
NA.
6. The Borrower agrees to promptly pay and discharge all taxes and
assessments levied and assessed or imposed upon its property or upon its
income as well as other claims that, if unpaid, might by law become a
lien or charge upon that property.
7. The Borrower agrees not to guaranty the indebtedness of any individual,
corporation, or subsidiary.
8. The Borrower agrees to execute any additional documents that the Bank or
the Bank's Legal Counsel deem necessary to perfect the Bank's collateral
lien position.
9. The Borrower agrees that all costs associated with originating, perfecting
and documenting any and all terms of this commitment will be at its
expense.
10. Tangible Net Worth. Maintain its shareholders' equity (less allowance for
goodwill, patents, trademarks, and other intangible assets) at a level not
less than $4,700,000.00.
11. Debt to Tangible Net Worth. Maintain the ratio of its total liabilities
to its shareholders' equity (less allowance for goodwill, patents,
trademarks, and other intangible assets) at a level not greater than 1.80
to 1.0.
<PAGE> 3
Bioanalytical Systems, Inc.
September 22, 1997
Page 3 3209009006(489/487)
12. Debt Service Coverage. For each period of four consecutive fiscal quarters,
the Company shall maintain a debt service coverage ratio of not less than
1.2 to 1.0. For purposes of this covenant the phrase "debt service coverage
ratio" means the ratio of the sum of net income plus depreciation,
amortization and interest expense over the sum of current maturities of
term debt, including current capital lease payments, plus interest expense
and cash expenditures for fixed assets.
EVENTS OF DEFAULT/TERMINATION OF COMMITMENT.
If the Borrower fails to pay any sum to the Bank when due, if any
representation or warranty made by the Borrower to the Bank in any document or
agreement relating to this financing proves to be in any material sense false
or misleading, if the Borrower fails to comply with any other conditions,
covenants or obligations contained herein or in any agreements or instruments
relating hereto, if any default occurs under any other agreement involving the
extension of credit to which the Borrower is a party and if such default gives
the holder of the obligation the right to accelerate the indebtedness, or if
any bankruptcy, reorganization, arrangement, insolvency, dissolution or similar
proceedings are instituted by or against the Borrower under the laws of any
jurisdiction, or if there should be a material adverse change in the Borrower's
financial condition, the Bank's commitment to extend credit and to make these
Loans shall terminate and, at the Bank's option, all sums outstanding hereunder
shall become immediately due and payable together with all accrued interest
thereon.
Pete, it is my pleasure to offer Bioanalytical Systems Inc. the above
commitment on behalf of BANK ONE, INDIANA, NA. If the terms of this commitment
are acceptable, please acknowledge your acceptance by signing this original
below and returning it in the envelope provided. If you should have any
questions about any of the terms or conditions detailed in this commitment
letter, please feel free to contact me at 423-0490.
Sincerely yours,
/s/ Tony S. Albrecht
Tony S. Albrecht
Vice President
ACCEPTANCE
The above terms and conditions are hereby effective this 24 day of Sept 1997.
BIOANALYTICAL SYSTEMS INC.
By: Lena Reeves Kerner, Vice President
----------------------------------
Lena Reeves Kerner, Corporate Controller
<PAGE> 1
EXHIBIT 10.22
<TABLE>
<CAPTION>
<S> <C> <C>
Bioanalytical Systems, Inc. Bank One, Indiana, NA Loan Number
2701 Kent Avenue 201 Main Street Date: September 22, 1997
West Lafayette, IN 47906 Lafayette, IN 47902 Maturity Date: March 1, 1998
35-1345024 Loan Amount: $1,000,000.00
Renewal Of 489/487
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS
"I" includes each borrower above, joint and severally. "You" means the lender, its successors and assigns.
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of One Million and 00/100 Dollars $1,000,000.00.
SINGLE ADVANCE: I will receive all of this principal sum on
_____________________________. No additional advances are contemplated under
this note.
[x] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On September 22, 1997 I will
receive the amount of $0.00 and future principal advances are contemplated.
CONDITIONS: The conditions for future advances are
-----------------------------
OPEN END CREDIT: You and I agree that I may borrow up to the maximum amount of principal more than
one time. This feature is subject to all other conditions and expires on ___________________.
[x] CLOSED END CREDIT: You and I agree that I may borrow up to the maximum only one time
(and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from September 22, 1997 at the rate of 8.75%.
[x] VARIABLE RATE: This rate may then change as stated below.
[x] INDEX RATE: The future rate will be 1/4% above the following index rate: Bank One, Indiana, NA Prime Rate
_ NO INDEX: The future rate will not be subject to any internal or external index. It will be entirely in your
control.
[x] FREQUENCY AND TIMING: The rate on this note may change as often as daily. A change in the interest rate will take
effect on the same day Bank One, Indiana, NA Prime Rate changes.
_ LIMITATIONS: During the term of the loan, the applicable annual interest rate will not be more than _________% or
less than __________%. The rate may not change more than ______________% each __________________.
EFFECT OF VARIABLE RATE: A change in the interest rate will have the following effect on the payments:
_ The amount of each scheduled payment will change. [X] The amount of the final payment will change.
_ ______________________________________
ACCRUAL METHOD: Interest will be calculated on a 360 day basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note owing after maturity, and until paid in full, as
stated below:
_ on the same fixed or variable rate basis in effect before maturity (as indicated above).
[X] at a rate equal to (3 1/4%) above Bank One, Indiana, NA Prime Rate
[X] LATE CHARGE: If a payment is made more than 15 days after it is due, I agree to pay a late charge of five (5.0%) of the
payment amount, subject to minimum of $25.00 and a maximum of $250.00.
_ ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which ____ are ____are not included in the
principal amount above.
PAYMENTS: I agree to pay this note as follows:
[X] INTEREST: I agree to pay accrued interest commencing November 1, 1997 and continuing on the 1st day of each month thereafter.
[X] PRINCIPAL: I agree to pay the principal March 1, 1998
[X] INSTALLMENTS: I agree to pay this note in _______ payments. The first payment will be in the amount of $______________
and will be due ___________________. A payment of $______________ will be due
________________________________________________ thereafter. The final payment of the entire unpaid balance of principal and
interest will be due ______________________________.
ADDITIONAL TERMS:
This loan is issued under the provisions of a Commitment Letter dated September 22, 1997.
Secured:
Mortgage dated January 23, 1987 (1205 Kent Avenue) and Mortgage dated July 19, 1996 and Mortgage Modification dated September 22,
1997 (2701 & 2801 Kent Avenue) Security Agreement dated April 22, 1991 (receivables & inventory) and Security Agreement dated August
22, 1996 (mass-spectrometer) and Security Agreement dated July 24, 1997 (range hoods)
Additionally, secured by equipment to be purchased and a Security Agreement dated August 30, 1996 (computer equipment)
[x] SECURITY: This note is separately secured by (describe separate document by type and date): PURPOSE: The purpose of this loan
is support capital expenditures.
SEE ABOVE SIGNATURES: I AGREE TO
THE TERMS OF THIS NOTE (INCLUDING
THOSE ON PAGE 2). I have received a
copy on today's date.
(This section is for your internal use. Failure to list a separate security document does not
mean the agreement will not secure this note.)
Signature for Lender Bioanalytical Systems, Inc.
---------------------------
Bank One, Indiana, NA By: /s/ LINA REEVES-KERNER
- --------------------------- ---------------------------
By: /s/ TONY S. ALBRECHT
</TABLE>
<PAGE> 1
Exhibit 10.23
Bioanalytical Systems, Inc. Bank One Indiana, NA
West Lafayette, IN 47906 201 Main Street
35-1345024 Lafayette, IN 47902
DEBTOR'S NAME, ADDRESS AND SSN OR TIN SECURED PARTY'S NAME AND ADDRESS
("I" means each Debtor who signs.) ("You" means the Secured Party,
its successors and assigns.)
- -------------------------------------------------------------------------------
I am entering into this security agreement with you on July 24, 1997 (date).
SECURED DEBTS: I agree that this security agreement will secure the payment and
performance of the debts, liabilities or obligations described below that
(Check one) /___/ /_X_/ (name) Bioanalytical Systems, Inc.
________________________________________ owe(s) to you now or in the future:
(Check one below):
/___/ SPECIFIC DEBT(S). The debt(s), liability or obligations evidenced by
(describe): _________________________________________________________
_____________________________________________________________________
and all extensions, renewals, refinancings, modifications and
replacements of the debt, liability or obligation.
/_X_/ ALL DEBT(S). Except in those cases listed in the "LIMITATIONS"
paragraph on page 2, each and every debt, liability and obligation
of every type and description (whether such debt, liability or
obligation now exists or is incurred or created in the future and
whether it is or may be direct or indirect, due or to become due,
absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several).
SECURITY INTEREST. To secure the payment and performance of the above
described Secured Debts, liabilities and obligations, I give you a security
interest in all of the property described below that I now own and that I may
own in the future (including, but not limited to, all parts, accessories,
repairs, improvements, and accessions to the property), wherever the property
is or may be located, and all proceeds and products from the property.
/___/ INVENTORY: All inventory which I hold for ultimate sale or lease, or
which has been or will be supplied under contracts of service, or which are
raw materials, work in process, or materials used or consumed in my business.
/___/ EQUIPMENT: All equipment including, but not limited to, all machinery,
vehicles, furniture, fixtures, manufacturing equipment, farm machinery and
equipment, shop equipment, office and recordkeeping equipment, and parts and
tools. All equipment described in a list or scheduled which I give to you
will also be included in the secured property, but such a list is not
necessary for a valid security interest in my equipment.
/___/ FARM PRODUCTS: All farm products including, but not limited to:
(a) all poultry and livestock and their young, along with their
products, produce and replacements;
(b) all crops, annual or perennial, and all products of the crops; and
(c) all feed, seed, fertilizer, medicines, and other supplies used or
produced in my farming operations.
/___/ ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO
PAYMENT: All rights I have now and that I may have in the future to the
payment of money including, but not limited to: (a) payment for goods
and other property sold or leased or for services rendered,
whether or not I have earned such payment by performance; and (b)
rights to payment arising out of all present and future debt
instruments, chattel paper and loans and obligations receivable. The
above include any rights and interests (including all liens and
security interests) which I may have by law or agreement against any
account debtor or obligor of mine.
/___/ GENERAL INTANGIBLES: All general intangibles including, but not
limited to, tax refunds, applications for patents, patents, copyrights,
trademarks, trade secrets, good will, trade names, customer lists,
permits and franchises, and the right to use my name.
/___/ GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts, general
intangibles, or other benefits (including, but not limited to, payments
in kind, deficiency payments, letters of entitlement, warehouse
receipts, storage payments, emergency assistance payments,
diversion payments, and conservation reserve payments) in which I now
have and in the future may have any rights or interest and which arise
under or as a result of any preexisting, current or future Federal or
state governmental program (including, but not limited to, all programs
administered by the Commodity Credit Corporation and the ASCS).
/ X / THE SECURED PROPERTY INCLUDES, BUT IS NOT LIMITED BY, THE FOLLOWING:
--- SEE ATTACHED EXHIBIT "A"
If this agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description is:
- -------------------------------------------------------------------------------
I am a(n) / / individual I AGREE TO THE TERMS SET OUT ON BOTH
--- PAGE 1 AND PAGE 2 OF THIS AGREEMENT. I
/ / partnership have received a copy of this document
--- on today's date.
/ X / corporation
---
/ /
--- ---------------------
/ / If checked, file this agreement
---
in the real estate records.
Record Owner (if not me): Bioanalytical Systems, Inc.
-------------- -------------------------------------
- --------------------------------------- Debtor's Name
- ---------------------------------------
The property will be used for By: Lena Reeves-Kerner
/ / personal ----------------------------------
--- LKK
/ X / business
---
/ / agricultural
---
/ / reasons.
--- -------------------
Bank One, Indiana, NA Title: Vice President
- --------------------------------------- -------------------------------------
(Secured Party's Name)
By: /s/ Tony S. Albrecht By:
----------------------------------- ---------------------------------
Tony S. Albrecht
Title: Vice President Title:
--------------------------------- ------------------------------
(page 1 of 2)
<PAGE> 2
Exhibit "A"
<TABLE>
<CAPTION>
QTY MODEL DESCRIPTION
=======================================================================================================
<S> <C> <C>
lot Casework, hoods, tops, sinks, fixtures, panels, fillers
(all items less #14, 16, 25, 29) Phase I & Phase II
lot Demo Lab (part of Phase I)
lot Items #14 & #16 (Phase III)
Credit for H Jayaratna Hood Purchase
2 Deduct for 2 emerg Showers
1 32L401cw Deduct for deck cold water fixture
33 32L577 Deduct hood and deck DI fixture
14 32L577 Deduct DI in phase III hoods only
3 Deduct 3 wall cases
15 Add for factory pre-wire Phase I & Phase II
11 Add for factory pre-wire Phase III
8 32L658cw Add for cold water at hood Phase I & II
7 32L658cw Add for cold water at hood Phase III
6 30L805v Add for vacuum at hood Phase I
15 Add for field cutting TSI openings Phase I & II
11 Add for field cutting TSI openings Phase III
3 Add for ORION recir DI in lieu of std
1 Epoxy top in lieu of Chemsurf item 4
lot Provide duplexs in wall and panels as drawn
</TABLE>
The above includes freight, non-mechanical installation. The above excludes
exhause blowers, TSI devices, blower switches, wiring, basemolding, wall
biosking, tax (of any kind)
Debtors:
By: Lena L. Reeves-Kerner, Vice President
-------------------------------------
<PAGE> 1
EXHIBIT 10.24
Bioanalytical Systems, Inc. Bank One Indiana, NA
West Lafayette, IN 47906 210 Main Street
Lafayette, IN 47901
35-1345024 SECURED PARTY'S NAME AND ADDRESS
DEBTOR'S NAME, ADDRESS AND SSN OR TIN ("You" means the Secured Party,
("I" means each Debtor who signs.) its successors and assigns.)
- -------------------------------------------------------------------------------
I am entering into this security agreement with you on August 30, 1996 (date).
SECURED DEBTS. I agree that this security agreement will secure the payment and
performance of the debts, liabilities or obligations described below that
(Check one) / / /X/ (name) Bioanalytical Systems, Inc. owe(s) to you now or
in the future:
(Check one below):
/ / SPECIFIC DEBT(S). The debt(s), liability or obligations evidenced by
(describe):
-------------------------------------------------------
and all extensions, renewals, refinancings, modifications and
replacements of the debt, liability or obligation.
/X/ ALL DEBT(S). Except in those cases listed in the "LIMITATIONS"
paragraph on page 2, each and every debt, liability and obligation
of every type and description (whether such debt, liability or
obligation now exists or is incurred or created in the future and
whether it is or may be direct to indirect, due or to become due,
absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several).
SECURITY INTEREST. To secure the payment and performance of the above described
Secured Debts, liabilities and obligations, I give you a security interest
in all of the property described below that I now own and that I may own in
the future (including, but not limited to, all parts, accessories, repairs,
improvements, and accessions to the property), wherever the property is or
may be located, and all proceeds and products from the property.
/ / INVENTORY: All inventory which I hold for ultimate sale or lease, or
which has been or will be supplied under contracts of service, or which
are raw materials, work in process, or materials used or consumed in my
business.
/ / EQUIPMENT: All equipment including, but not limited to, all machinery,
vehicles, furniture, fixtures, manufacturing equipment, farm machinery
and equipment, shop equipment, office and recordkeeping equipment, and
parts and tools. All equipment described in a list or scheduled which I
give to you will also be included in the secured property, but such a
list is not necessary for a valid security interest in my equipment.
/ / FARM PRODUCTS: All farm products including, but not limited to:
(a) all poultry and livestock and their young, along with their
products, produce and replacements;
(b) all crops, annual or perennial, and all products of the crops; and
(c) all feed, seed, fertilizer, medicines, and other supplies used or
produced in my farming operations.
/ / ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO
PAYMENT: All rights I have now and that I may have in the future to the
payment of money including, but not limited to:
(a) payment for goods and other property sold or leased or for services
rendered, whether or not I have earned such payment by performance;
and
(b) rights to payment arising out of all present and future debt
instruments, chattel paper and loans and obligations receivable.
The above include any rights and interests (including all liens and
security interests) which I may have by law or agreement against any
account debtor or obligor of mine.
/ / GENERAL INTANGIBLES: All general intangibles including, but not limited
to, tax refunds, applications for patents, patents, copyrights,
trademarks, trade secrets, good will, trade names, customer lists,
permits and franchises, and the right to use my name.
/ / GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts, general
intangibles, or other benefits (including, but not limited to, payments
in kind, deficiency payments, letters of entitlement, warehouse
receipts, storage payments, emergency assistance payments, diversion
payments, and conservation reserve payments) in which I now have and in
the future may have any rights or interest and which arise under or as a
result of any preexisting, current or future Federal or state
governmental program (including, but not limited to, all programs
administered by the Commodity Credit Corporation and the ASCS).
/X/ THE SECURED PROPERTY INCLUDES BUT IS NOT LIMITED BY, THE FOLLOWING:
Please see the attached Exhibit "A"
If this agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description is:
- -------------------------------------------------------------------------------
I am a(n) / / individual I AGREE TO THE TERMS SET OUT ON BOTH
--- PAGE 1 AND PAGE 2 OF THIS AGREEMENT. I
/ / partnership have received a copy of this document
--- on today's date.
/ X / corporation
---
/ /
--- ---------------------
/ / If checked, file this agreement
---
in the real estate records.
Record Owner (if not me): Bioanalytical Systems, Inc.
-------------- -------------------------------------
- --------------------------------------- (Debtor's Name)
- ---------------------------------------
The property will be used for By: Lena Reeves-Kerner
/ / personal ----------------------------------
--- LKK
/ X / business
---
/ / agricultural
---
/ / reasons.
--- -------------------
Bank One, Indiana, NA Title: Vice President
- --------------------------------------- -------------------------------------
(Secured Party's Name)
By: /s/ Murray N. Marshall By:
----------------------------------- ---------------------------------
Murray N. Marshall
Title: Vice President Title:
--------------------------------- ------------------------------
(page 1 of 2)
<PAGE> 2
EXHIBIT "A"
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION
<S> <C>
1 TSQ 7000 Basic System
1 APCI/ESI Source
1 TSQ 7000 Extended Warranty
1 Enhanced Alpha Workstation
1 Special as outlined below
Second copy of ICIS Software
1 B480-BA Alpha Station
1 RC21-WA VRC21-WA
</TABLE>
Bioanalytical Systems, Inc.
By: Lena L. Reeves-Kerner
---------------------------
Vice President - Title
Date: 8/30/96
------------
<PAGE> 1
EXHIBIT 10.25
BANK ONE LOGO
------------------------------------------------
MORTGAGE
------------------------------------------------
Bioanalytical Systems, Inc.,
an Indiana Corporation
To
BANK ONE, LAFAYETTE, NA
201 Main Street, P.O. Box 380
Lafayette, IN 47901
BANK ONE is an affiliate of BANC ONE CORPORATION Calumet, Ohio
==============================================================
Received for Record
RECORDED IN RECORD
92-16462
3:35 O'CLOCK PM FEE 12.00
---- -----
JUL 28 1992
Ruth E. Shedd
REGISTER TIPPECANOE CO., IN
REAL ESTATE MORTGAGE
THIS INDENTURE WITNESSETH: That Bioanalytical Systems, Inc., an Indiana
Corporation, (hereinafter referred to as "Mortgagor") of Tippecanoe County,
State of Indiana MORTGAGE AND WARRANT TO BANK ONE, LAFAYETTE, MA, a national
banking association with its main banking office at 201 Main Street, Lafayette,
IN 47901 (hereinafter referred to as "Bank"), the following described real
estate (hereinafter referred to as "Mortgaged Premises") in Tippecanoe
County, State of Indiana:
Lot 1 in Replat of Part of Lot 1 McClure Park Subdivision
Part Two per the plat thereof dated March 30, 1983, recorded
April 18, 1983, Plat Cabinet C, Slide C-59, Document #8302918
in the Office of the Recorder of Tippecanoe County, Indiana.
Located in the City of West Lafayette, Wabash Township,
Tippecanoe County, Indiana.
together with all rights, privileges, interest easements, hereditaments,
appurtenances, fixtures and improvements now or hereafter belonging,
appertaining, attached to, or used in connection with, the Mortgaged Premises,
and the rents, issues, income and profits thereof.
1
<PAGE> 2
This Mortgage is given to secure the performance of the provisions and the
payment of:
A. That certain promissory note from Bioanalytical Systems, Inc., an
Indiana Corp, to Bank dated July 24, 1992 in the principal sum of
Three hundred thousand and 00/100 ($300,000.00) with interest as
therein stated and with a final maturity date of July 24, 1997,
together with any future modifications, extensions, and renewals
thereof, and any and all notes or other instrument(s) given in
substitution therefore and/or replacement thereof (such note(s) or
other instruments all included in the term "note"); and
B. Any other indebtedness now or hereafter owing Bank by the Mortgagor
when evidenced by a promissory note(s), guaranty, hypothecation(s), or
any other instrument(s) reciting that they are secured by this
Mortgage.
In all cases the debt secured hereby includes advancements to protect the
security, costs of collection and reasonable attorney's fees. This
Mortgage shall secure payment of the note(s) whether the entire amount
shall have been advanced to the Mortgagor at the date hereof or at a later
date, or having been advanced, shall have been repaid in part and further
advances made at a later date. The note(s) and this Mortgage, including
the terms of repayment thereof, may from time to time be modified or
amended in writing to include any future advance or advances whether or not
related to the original advances together with the specified interest
thereon. It is agreed that this Mortgage shall secure the unpaid balance
of loans or advances made by Bank not to exceed $600,000.00 in the
aggregate and exclusive of interest, advances to protect the security,
costs of collection and reasonable attorney's fees. If the unpaid balance
at any time exceeds such amount, then this Mortgage shall secure that
portion of the outstanding balance which does not exceed such amount.
The Mortgagor, jointly and severally if more than one, covenant and agree with
the Bank that:
1. Mortgagor will pay when due all indebtedness secured hereby, on the dates
and in the amounts, respectively, as provided in any note or other evidence of
indebtedness secured by this Mortgage and in this Mortgage, with attorneys'
fees, and without relief from valuation or appraisements laws.
2. Mortgagor will not permit any lien of mechanics or materialmen to attach
to the Mortgaged Premises.
3. Mortgagor will keep the Mortgaged Premises in good repair, and will not
commit or permit waste thereon, and will pay when due all taxes and assessments
levied or assessed against the Mortgaged Premises or any part thereof. The Bank
may enter upon and inspect the Mortgaged Premises at any reasonable time.
4. Mortgagor will procure and maintain in effect at all times adequate
insurance from reliable insurance companies acceptable to the Bank against loss
or destruction of the Mortgaged Premises on account of fire, windstorm and
such other hazards and in such amounts as the Bank may require from time to
time, and all such policies of insurance shall contain proper clauses making
all sums recoverable upon such policies payable to the Bank and to the
Mortgagor as their respective interests may appear; all such policies of
insurance and all abstracts of title or title insurance policies with respect
to the Mortgaged Premises shall be delivered to and retained by the Bank until
the indebtedness secured hereby is fully paid.
5. Bank may, at its option, advance and pay all sums necessary to protect and
preserve the security intended to be given by this Mortgage; and all sums so
advanced and paid by Bank shall become a part of the indebtedness secured
hereby and shall bear interest from date of payment at the same rate or rates
as the principal indebtedness evidenced by any note or other evidence of
indebtedness; and such sums may include, but not by way of limitation, (i)
insurance premiums, taxes and assessments, and liens which maybe or become
prior and senior to this Mortgage as a lien on the Mortgaged Premises, or
any part thereof, (ii) the cost of any title insurance, surveys, or other
evidence which in the discretion of Bank may be required to establish and
preserve the lien of this Mortgage; (iii) all costs, expenses and attorneys'
fees incurred by Bank in respect of any and all legal or equitable actions
which relate to this Mortgage or to the Mortgaged Premises, during the
existence of the indebtedness secured by this Mortgage; and (iv) the cost of
any repairs deemed necessary and advisable by Bank to be made to the Mortgaged
Premises.
2
<PAGE> 3
6. Bank shall be subrogated to the rights of the holder of each lien or claim
paid with monies secured hereby; and Bank at its option, and on such terms as
it may desire, may extend the time of payment of any part or all of the
indebtedness secured hereby without in any way impairing the lien of its
Mortgage or releasing Mortgagor or any of them from liability under this
Mortgage or under any note or other evidence of indebtedness.
7. If any default shall occur in the payment of any of the indebtedness
secured hereby, or in the performance of any covenant or agreement of Mortgagor
in the loan commitment(s), loan agreement(s) or hereunder, or if Mortgagor shall
abandon the Mortgaged Premises, or shall be adjudged bankrupt, or if a trustee
or receiver shall be appointed for Mortgagor or for any part of the Mortgaged
Premises, then and in any such event all Indebtedness secured hereby shall, at
the option of Bank, become immediately due and payable without notice to
mortgagor, and this Mortgage may be foreclosed accordingly. The waiver by Bank
of any default of Mortgagor shall not operate as a waiver of other defaults.
Notice by Bank of its intention to exercise any right or option hereunder is
hereby expressly waived by Mortgagor, and any one or more of Bank's rights or
remedies hereunder may be enforced successively or concurrently. Any delay in
enforcing any such right or remedy shall not prevent its later enforcement while
Mortgagor shall be in default hereunder. In the event of the foreclosure of
this Mortgage, all abstracts of title and all title insurance policies for the
Mortgaged Premises shall become the absolute property of Bank.
8. Unless otherwise agreed in writing, the Bank shall be entitled to all
compensation, awards, damages, claims, rights of action and proceeds of, or on
account of, any damage or taking through condemnation or eminent domain
regarding the Mortgaged Premises, with any excess over all sums due hereunder
paid to Mortgagor.
9. Mortgagor shall not sell, convey, transfer, lease or further encumber any
interest in or any part of the Mortgaged Premises, nor shall a voluntary sale,
pledge or other transfer of the beneficial interest in Mortgagor be effected
without the prior written consent of the Bank having been obtained to the
purchase, transfer, lease or pledge, to the purchaser, transferee, leasee or
pledge and to the form and substance of any instrument evidencing any such
purchase, transfer, lease or pledge. Any such sale, conveyance, transfer,
pledge, lease or encumbrance made without the Bank's prior written consent
shall be void.
10. Upon default hereunder, the Bank, to the extent permitted by law and
without regard to the value or occupancy of the Mortgaged Premises, shall be
entitled as a matter of right if it so elects to the appointment of a receiver
to enter upon and take possession of the Mortgaged Premises and to collect all
rents, revenues, issues, income, on profits thereof and apply the same as the
court may direct.
11. Mortgagor has no actual or constructive knowledge of the existence,
release, or threatened release at the Mortgaged Premises of any substance deemed
toxic or hazardous under any applicable federal, state, or local laws. And that
the Mortgagor will not allow or cause the release or threatened release of
hazardous or toxic substances or waste on the Mortgaged Premises and agrees to
indemnify and hold the Bank harmless from all costs and damage caused by
Mortgagor, or those claiming by and through Mortgagor, releasing or dumping any
such hazardous waste. Bank may, at its option, advance all sums necessary to
protect and preserve the security, which sums shall become part of the
indebtedness, including the cost of any necessary environmental inspection
performed on the Mortgaged Premises; the cost of cleaning up any release or
threatened release of hazardous or toxic material or waste at the Mortgaged
Premises. And Mortgagor is, and shall remain, in compliance with all
environmental laws and shall not use, store, or dispose of hazardous substances,
other than has been disclosed in writing to the Bank at the time the loan is
made. And Mortgagor shall immediately inform the Bank of any notices,
complaints, governmental investigations, fines or penalties imposed for
noncompliance in regard to environmental statutes.
12. No right, power or remedy conferred upon or reserved to the Bank by any
note, this Mortgage or any other instrument is exclusive of any other right,
power, or remedy but each and every such right, power, and remedy shall be
cumulative and concurrent and shall be in addition to any other right, power,
and remedy given hereunder or under a note or any other instrument securing the
note, or now or hereafter existing at law, in equity or by statute.
13. If any term or provision of the note or this Mortgage shall be deemed
invalid, illegal or unenforceable in any respect, the validity of the remaining
terms or provisions shall not be affected or prejudiced; and if the application
of any term or provision of the note or this Mortgage shall be deemed invalid,
illegal or unforeseeable, the application of the remaining terms or provisions
shall not be affected or prejudiced.
3
<PAGE> 4
unenforceable, the application of the remaining terms or provisions shall not be
affected or prejudiced.
14. All rights and obligations of Mortgagor hereunder shall extend to and be
binding upon the several heirs, representatives, successors and assigns of
Mortgagor, and shall inure to the benefit of Bank, its successors and assigns.
In the event this Mortgage is executed by more than one person, corporation,
or other entity, the word "Mortgagor" as used herein shall be construed to mean
and include each of them, and the terms and provisions of this Mortgage
construed accordingly.
15. This Mortgage is is not X a "purchase money mortgage".
IN WITNESS WHEREOF, the Mortgagor has executed this instrument on this
24th day of July, 1992.
Bioanalytical Systems, Inc., an Indiana Corporation
---------------------------------------------------
By: Peter T. Kissinger President
---------------------------------------------------
Peter T. Kissinger
---------------------------------------------------
---------------------------------------------------
STATE OF INDIANA )
) SS: (Individual Acknowledgment)
COUNTY OF TIPPECANOE )
Before me, a Notary Public in and for said County and State, personally
appeared who acknowledged the
execution of the above and foregoing Real Estate Mortgage this day of
, 19 .
My Commission Expires: Signature
-----------------------------------
Printed:
- ---------------------------- ------------------------------------
Notary Public
County of Residence:
- ----------------------------
STATE OF INDIANA )
) SS: (Corporate Acknowledgment)
COUNTY OF TIPPECANOE )
Before me, a Notary Public in and for said County and State, personally
appeared Peter T. Kissinger and , the President and ,
respectively of Bioanalytical Systems, Inc., an Ind. Corp. who acknowledged the
execution of the above and foregoing Real Estate Mortgage for and on behalf of
said corporation this 24th day of July, 1992.
My Commission Expires: Signature: Beverly A. Howieson
----------------------------------
Mar 14, 1995 Printed: Beverly A. Howieson
- ---------------------------- ------------------------------------
Notary Public
County of Residence:
Tippecanoe
- ---------------------------- [NOTARY PUBLIC SEAL]
This instrument prepared by: Murray N. Marshall
-------------------------
4
<PAGE> 1
EXHIBIT 10.26
BIOANALYTICAL SYSTEMS, INC.
1997 EMPLOYEE INCENTIVE STOCK OPTION PLAN
ADOPTED OCTOBER 23,1997
1. PURPOSE. This 1997 Employee Incentive Stock Option Plan
(hereinafter referred to as the "Plan") is intended to be an incentive to, and
to encourage share ownership by, key employees of Bioanalytical Systems, Inc.
and its subsidiaries (hereinafter collectively referred to as the "Employer")
in the manner contemplated by Section 422 of the Internal Revenue Code of 1986,
as amended ("Code"), in order to provide such employees with a more direct and
proprietary interest in the welfare and success of the Employer and to insure
their continuation as employees of the Employer.
2. ADMINISTRATION. The Plan shall be administered by an Incentive
Stock Option Committee (hereinafter referred to as the "Committee") consisting
of three (3) or more members of the Board of Directors of Bioanalytical
Systems, Inc. (the "Company") who are appointed from time to time by the Board
of Directors of the Company. The Board of Directors of the Company may from
time to time remove members from, or add members to, the Committee. Vacancies
on the Committee, howsoever caused, shall be filled by the Board of Directors
of the Company. The Committee shall have the power to interpret and construe
the provisions of the Plan or any option granted under it, and such
interpretation or construction shall be final and binding. The Committee may
prescribe, amend and rescind rules and regulations relative to the Plan or its
construction or interpretation. A majority of the Committee shall constitute a
quorum. All determinations of the Committee shall be made by not less than a
majority of its members. No member of the Committee shall be liable for any
action or determination made in good faith.
3. ELIGIBILITY. Only those persons who are employees of the
Employer shall be eligible to participate in the Plan. The Committee shall
determine from time to time the particular employees of the Employer who shall
be eligible to participate in the Plan and the extent of their participation
therein. No option shall be granted under the Plan to any employee of the
Employer who, at the time such option is granted, owns shares possessing more
than ten percent (10%) of the total combined voting power of all classes of
shares of the Company or of any parent or subsidiary corporation of the Company
or any parent or subsidiary corporation of any of the foregoing (such employee
being hereinafter referred to as a "10% Shareholder"), except as provided
below. In determining whether the percentage limitations of this paragraph are
met, an employee shall be considered as owning any shares owned, directly or
indirectly, by or for his brothers or sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants. For purposes of this
paragraph 3, shares owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust shall be considered as being owned
proportionately by or for its shareholders, partners, or beneficiaries. The
percentage limitations of this paragraph 3 shall not apply, however, if at the
time such option is granted the option price is at least one hundred ten
percent (110%) of the fair market value of the shares subject to the option and
such option by its terms is not exercisable after the expiration of five (5)
years from the date such option is granted.
<PAGE> 2
4. SHARES. The shares subject to the options and other provisions
of the Plan shall be shares of the Company's authorized, but unissued, or
reacquired Common Shares (the "Common Shares"). The total amount of the Common
Shares on which options may be granted shall not exceed in the aggregate
Ninety-Five Thousand (95,000) shares, except as such number of shares shall be
adjusted in accordance with the provisions set forth in paragraph 6(g) hereof.
In the event any outstanding option under the Plan expires or is terminated for
any reason prior to the end of the period during which options may be granted,
the Common Shares allocable to the unexercised portion of such option may again
be subject to an option under the Plan. During the period that any options
granted hereunder are outstanding, the Employer shall reserve and keep
available such number of Common Shares as will be sufficient to satisfy all
outstanding, unexercised options.
5. MAXIMUM EXERCISE RULE
The aggregate fair market value (determined at the time the option is
granted) of the shares with respect to which incentive stock options are
exercisable for the first time by an employee during any calendar year under
all such plans of the Employer and any parent or subsidiary corporation of the
Employer shall not exceed One Hundred Thousand Dollars ($100,000.00).
6. TERMS AND CONDITIONS OF OPTIONS. Options granted pursuant to
the Plan shall be evidenced by agreements in such form as the Committee shall
from time to time prescribe, which agreements shall comply with and be subject
to the following terms and conditions:
(a) MEDIUM AND TIME OF PAYMENT. The option price shall be
payable in United States dollars upon the exercise of the
option and shall be paid (i) in cash; (ii) by certified check or by
bank cashier's check; (iii) through the tender to the Company of
Common Shares of the Company or through the withholding of Common
Shares of the Company that are subject to the option, which Common
Shares shall be valued, for purposes of determining the extent to
which the purchase price has been paid, at their fair market value on
the date of exercise as determined in Section 6(c); or (iv) by a
combination of the methods described in (i), (ii), or (iii); provided,
however, that the Committee may in its discretion impose and set forth
in the option agreement pertaining to an option such limitations or
prohibitions on the use of Common Shares to exercise options as it
deems appropriate. Fair market value of the Common Shares shall be
determined by the Committee in the same manner that it is determined
in establishing option prices. Payment of the option price shall be
accompanied by a written subscription agreement in a form to be
prescribed by the Committee.
(b) NUMBER OF SHARES. The option agreement shall state
the total number of shares to which it pertains, and the date of
the grant of the option. The Committee may prescribe in the option
agreement a minimum number of Common Shares with respect to which an
option may be exercised, in whole or in part.
(c) OPTION PRICE. The option price shall be an amount per
share not less than the fair market value per share of the
Common Shares on the date of granting of the option.
-2-
<PAGE> 3
In the case of options granted to an employee of the Employer
who is a 10% Shareholder, the option price shall be an amount per
share not less than one hundred ten percent (110%) of the fair market
value per share of the Common Shares on the date of the granting of
the option. Fair market value shall mean, if the price of the Common
Shares is so reported, the closing price for the Common Shares on the
National Association of Securities Dealers Automated Quotation System
or any exchange on which the Common Shares are then traded, as
reported in The Wall Street Journal (Midwest Edition). If the price
of Common Shares is not so reported, fair market value shall be
determined, in good faith, by the Committee in accordance with such
procedures as the Committee shall from time to time prescribe.
(d) TERM OF OPTIONS. The term of each option granted
under the Plan shall expire within the period prescribed in the
agreement relating thereto, which shall not be more than five (5)
years from the date the option is granted if the optionee is a 10%
Shareholder and not more than ten (10) years from the date the option
is granted if the optionee is not a 10% Shareholder.
(e) DATE OF EXERCISE. Each option shall be exercisable as
determined by the Committee and set forth in an option
agreement, provided, however, that any such limitation on the exercise
of an option contained in an option agreement may be rescinded,
modified, or waived by the Committee, in its sole discretion, at any
time and from time to time after the date of grant of such option so
as to accelerate the time in which the option may be exercised. Except
as specifically restricted by the Committee, any option may be
exercised in whole at any time or in part from time to time during its
term.
(f) TERMINATION OF EMPLOYMENT. In the event an optionee
shall cease to be employed by the Employer, a parent corporation
of the Employer, or a corporation or a parent or a subsidiary
corporation of such corporation issuing or assuming an
option in a transaction to which Section 424(g) of the Code applies,
all options outstanding in the hands of the optionee shall terminate
immediately as to any unexercised portion thereof; provided, however,
that if any cessation of employment is due to retirement with the
consent of the Employer or permanent and total disability, the
optionee shall have the right, subject to the provisions of paragraph
6(d) and paragraph 6(e) hereof, to exercise the option, with respect
to the shares for which it could have been exercised on the effective
date of his cessation of employment, at any time within three (3)
months after such cessation of employment due to retirement with the
consent of the Employer or at any time within twelve (12) months after
such cessation of employment due to permanent and total disability;
and provided further, that if the employee shall die while in the
employ of the Employer, the employee's personal representative shall
have the right, subject to the provisions of paragraph 6(d) and
paragraph 6(e) hereof, to exercise the option with respect to the
shares for which it could have been exercised on the date of death, at
any time within twelve (12) months from the date of death. Whether a
cessation of employment is to be considered a retirement with the
consent of the Employer or due to permanent and total disability, and
whether an authorized leave of absence or absence on military or
government service shall be deemed to constitute
-3-
<PAGE> 4
termination of employment, for the purposes of the Plan, shall
be determined by the Committee, which determination shall be final and
conclusive.
(g) RECAPITALIZATION. The aggregate number of Common
Shares on which options may be granted hereunder, the number
of shares thereof covered by each outstanding option, and the price
per share thereof in each such option, shall all be proportionately
adjusted for any increase or decrease in the number of issued Common
Shares resulting from a subdivision or consolidation of shares or any
other capital adjustment, the payment of a share dividend, or other
increase or decrease in the Common Shares effected without receipt of
consideration by the Employer. In the event that, prior to the
delivery by the Employer of the Common Shares remaining under any
outstanding option hereunder, there shall be a capital reorganization
or reclassification of the capital of the Employer resulting in a
substitution of other shares for the Common Shares, there shall be
substituted the number of substitute shares which would have been
issued in exchange for the Common Shares then remaining under the
option if such Common Shares had been then issued and outstanding.
(h) MERGER, DISSOLUTION. If the Employer shall be a party
to any merger or consolidation, the Employer shall have the
right to terminate any option outstanding on thirty (30) days written
notice; provided, however, if such merger or consolidation is not
consummated within 180 days from the date of the aforementioned
notice, all options terminated shall be deemed to have been
continuously in effect since the date of execution thereof. In the
event of a dissolution or liquidation of the Employer, the Employer
shall give each optionee thirty (30) days written notice thereof;
every unexercised option outstanding hereunder shall be deemed to be
terminated upon such dissolution or liquidation.
(i) ASSIGNABILITY. No option shall be assignable or
transferable except by will or under the laws of descent and
distribution. During the lifetime of an optionee, the option shall be
exercisable only by the optionee.
(i) ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES
LAWS. The Employer may postpone the issuance and delivery of
certificates representing shares until (a) the admission of
such shares to listing on any stock exchange on which shares of the
Employer of the same class are then listed and (b) the completion of
such registration or other qualification of such shares under any
state or federal law, rule or regulation as the Employer shall
determine to be necessary or advisable, which registration or other
qualification the Employer shall use its best efforts to complete;
provided, however, a person purchasing shares pursuant to the Plan has
no right to require the Employer to register the Common Shares under
federal or state securities laws at any time. Any person purchasing
shares pursuant to the Plan may be required to make such
representations and furnish such information as may, in the opinion of
counsel for the Employer, be appropriate to permit the Employer, in
light of the existence or non-existence with respect to such shares of
an effective registration under the Securities Act of 1933, as
amended, or any similar state statute, to issue the shares in
compliance with the provisions of those or any comparable acts.
-4-
<PAGE> 5
(k) RIGHTS AS A SHAREHOLDER. An optionee shall have no
rights as a shareholder with respect to shares covered by an
option until the date of issuance of a certificate to him and only
after such shares are fully paid. No adjustment will be made for
dividends or other rights for which the record date is prior to the
date such certificate is issued.
(l) OTHER PROVISIONS. The option agreements entered into
under the Plan shall contain such other provisions as the Committee
shall deem advisable.
7. TERM OF PLAN. The Plan shall become effective upon the
approval by the holders of a majority of the issued and outstanding shares of
each class of the voting shares of the Company voting in person or by proxy at
a duly held shareholders' meeting; provided, however, that the Plan shall
become effective only if approved by such shareholders within twelve (12)
months before or after the date the Plan is adopted by the Company's Board of
Directors. The Board of Directors may, in its sole discretion, terminate the
Plan at any time with respect to any shares as to which options have not been
granted. No option shall be granted under the Plan thereafter.
8. AMENDMENT OF THE PLAN. The Board of Directors of the Company
may from time to time, alter, amend, suspend, or discontinue the Plan with
respect to any shares as to which options have not been granted; provided,
however, that the Board of Directors may not, without further approval by the
holders of a majority of the issued and outstanding shares of each class of
voting shares of the Company:
(a) increase the maximum number of shares as to which
options may be granted under the Plan (other than to reflect a stock
split or stock dividend);
(b) change the class of shares for which options may be
granted under the Plan; or
(c) change the provisions of paragraph 6(c) concerning the
option price.
9. APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of shares pursuant to options granted hereunder will be used for
general corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION. The granting of an option
hereunder shall impose no obligation upon the optionee to exercise such an
option.
11. CONTINUANCE OF EMPLOYMENT. Neither the adoption of the Plan
nor the granting of an option hereunder shall impose any obligation on the
Employer to continue the employment of an optionee.
12. APPLICABILITY OF AMENDMENTS. All outstanding options shall be
deemed to be amended so as to include, to the extent applicable thereto, any
amendments made to the Plan subsequent to the granting of such options.
-5-
<PAGE> 6
13. WITHHOLDINGS. The Committee shall have the right to require
optionees to remit to the Company amounts sufficient to satisfy any federal,
state or local income tax withholding requirements (or make other arrangements
satisfactory to the Company with regard to such taxes) at such times as the
Company deems necessary or appropriate for compliance with such laws.
-6-
<PAGE> 1
EXHIBIT 10.27
BIOANALYTICAL SYSTEMS, INC.
1997 EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ____ day of ______________, _____, by and
between Bioanalytical Systems, Inc., an Indiana corporation with its principal
office at 2701 Kent Avenue, West Lafayette, Indiana (hereinafter called
"Company"), and_________________________, residing at__________________________
(hereinafter called the "Grantee"), pursuant to the terms, conditions and
limitations contained in the Company's 1997 Employee Incentive Stock Option Plan
(hereinafter called the "Plan"), a copy of which is attached hereto as Exhibit
A.
WITNESSETH THAT:
WHEREAS, in the interests of affording an incentive to the Grantee to
give his best efforts to the Company as a key employee, the Company wishes to
provide that the Grantee shall have an option to buy Common Shares of the
Company:
NOW, THEREFORE, it is hereby mutually agreed as follows:
1. The Company hereby grants to the Grantee the right and option
to purchase, on the terms and conditions hereinafter set forth, all or any part
of an aggregate of __________shares (hereinafter called "Subject Shares") of
the presently authorized, but unissued, or treasury, Common Shares of the
Company (hereinafter called the "Common Shares"), at a purchase price of
$______ per share, exercisable in whole or in part from time to time subject to
the limitation that no option may be exercised with respect to fewer than
twenty-five (25) shares unless there are fewer than twenty-five (25) shares
then subject to option hereunder, in which event any exercise must be as to all
such shares and subject to the further limitation that the options represented
by this Agreement
<PAGE> 2
shall be exercisable in four equal installments as set forth in Section 6(e) of
the Plan. The option shall expire as to all shares subject to purchase
hereunder on the ______ anniversary date of this Agreement if not exercised on
or before such date.
2. Subject to the limitation specified in Section 1 hereof and in
Section 6(e) of the Plan, the Grantee may from time to time exercise this
option by delivering a written notice of exercise and subscription agreement to
the Secretary of the Company specifying the number of whole shares to be
purchased, accompanied by payment (i) in cash, (ii) by certified check or bank
cashier's check, (iii) through the tender to the Company of Common Shares of
the Company owned by the optionee or by withholding of Common Shares of the
Company that are subject to the option, which Common Shares shall be valued,
for purposes of determining the extent to which the purchase price has been
paid, at their fair market value on the date of exercise as determined in
Section 6(c) of the Plan; or (iv) by a combination of the methods described in
(i), (ii), or (iii). The Company may, in its sole discretion, refuse to
withhold Common Shares of the Company as payment of the exercise price of the
option. Such exercise shall be effective upon receipt by the Secretary of such
written notice, subscription agreement and payment of the purchase price. Only
the Grantee may exercise the option during the lifetime of the Grantee. No
fractional shares may be purchased at any time hereunder.
3. Upon the effective exercise of the option, or any part
thereof, certificates representing the shares so purchased, marked fully paid
and non-assessable, shall be delivered to the person who exercised the option,
except as provided in Section 6(j) of the Plan. Until certificates
representing such shares shall have been issued and delivered, the Grantee
shall not have any of the rights or privileges of a shareholder of the Company
in respect of any of such shares.
-2-
<PAGE> 3
4. In the event that, prior to the delivery by the Company of all
the Subject Shares, there shall be an increase or reduction in the number of
Common Shares of the Company issued and outstanding by reason of any
subdivision or consolidation of Common Shares or any other capital adjustment,
the number of shares then subject to this option shall be increased or
decreased as provided in Section 6(g) of the Plan.
5. The option and the rights and privileges conferred by this
Option Agreement shall not be assigned or transferred by the Grantee in any
manner except by will or under the laws of descent and distribution. In the
event of any attempted assignment or transfer in violation of this Section 5,
the option, rights and privileges conferred by this Option Agreement shall
become null and void.
6. Nothing herein contained shall be deemed to create any
limitation or restriction upon such rights as the Company would otherwise have
to terminate a person as an employee of the Company.
7. The option, rights and privileges herein conferred are granted
subject to the terms and conditions set forth herein and in the Plan.
8. Any notices to be given or served under the terms of this
Option Agreement shall be addressed to the Secretary of the Company at 2701
Kent Avenue, West Lafayette, Indiana, and to the Grantee at the address set
forth on page one of this Option Agreement, or such other address or addresses
as either party may hereafter designate in writing to the other. Any such
notice shall be deemed to have been duly given or served, if and when enclosed
in a properly sealed envelope or wrapper addressed as aforesaid, postage
prepaid, and deposited in the United States mail.
-3-
<PAGE> 4
9. The interpretation by the Incentive Stock Option Committee,
appointed by the Company's Board of Directors, of any provisions of the Plan or
of this Option Agreement shall be final and binding on the Grantee unless
otherwise determined by the Company's Board of Directors.
10. This Option Agreement shall be governed by the laws of the
State of Indiana.
IN WITNESS WHEREOF, the Company and the Grantee have signed this
Option Agreement as of the day and year first above written.
"COMPANY"
BIOANALYTICAL SYSTEMS, INC.
By:
-----------------------------
ATTEST:
- -------------------------
"GRANTEE"
By:
-----------------------------
-4-
<PAGE> 1
EXHIBIT 10.28
1997 BIOANALYTICAL SYSTEMS, INC.
OUTSIDE DIRECTOR STOCK OPTION PLAN
1. DEFINITIONS. The following terms shall have the meanings
hereinafter set forth:
(a) "Affiliate" means a corporation which is a parent or
subsidiary corporation of the Company, or a corporation or a
parent or a subsidiary corporation of the Company issuing or assuming
the options issued under the Plan in a transaction in which Section
424(g) of the Code applies.
(b) "Board of Directors" means the board of directors of
the Company, as it shall exist from time to time.
(c) "Code" means the Internal Revenue Code of 1986, as it
shall be amended from time to time.
(d) "Committee" means the director stock option committee
administering the Plan as provided in paragraph 3 hereof.
(e) "Common Shares" means the Common Shares of the Company.
(f) "Company" means Bioanalytical Systems, Inc., an
Indiana corporation.
(g) "Nonstatutory Stock Option" means an option
which is not an incentive stock option within the meaning of
Section 422 of the Code and which is governed by Section 83 of the
Code for Federal income tax purposes.
(h) "Optionee" means an Outside Director granted an option
under the Plan.
(i) "Outside Director" means any director of the Company
or an Affiliate who is not employed by the Company or any Affiliate in
any capacity.
(j) "Plan" means this 1997 Bioanalytical Systems, Inc.
Outside Director Stock Option Plan.
2. PURPOSE. This Plan is intended to be an incentive to, and to
encourage ownership of the Common Shares by, Outside Directors of the Company
and its Affiliates in order to provide such Outside Directors with a more
direct and proprietary interest in the welfare and success of the Company and
to encourage their continuation as directors of the Company. The Plan is
further intended to promote continuity of membership on the Board of Directors
and to increase the incentive to promote the welfare of the Company by those
who are primarily responsible for shaping and
<PAGE> 2
carrying out the long-term plans and objectives of the Company, thereby
furthering and securing the Company's continued growth and financial success.
It is contemplated that only Nonstatutory Stock Options will be granted under
the Plan.
3. ADMINISTRATION. The Plan shall be administered by the
Committee which shall consist of three or more members of the Board of
Directors who are appointed from time to time by the Board of Directors. The
Board of Directors may from time to time remove members from, or add members
to, the Committee. Vacancies on the Committee, howsoever caused, shall be
filled by the Board of Directors. The Committee shall have the power (a) to
interpret and construe the provisions of the Plan or any option granted under
it, and such interpretation or construction shall be final and binding; (b) to
select Outside Directors to whom grants of options under the Plan shall be made
as more particularly set forth in paragraph 4 hereof; (c) to determine the
terms and conditions of each option granted hereunder; (d) to determine the
time at which such grants shall be made and the number of Common Shares to be
optioned under such grant; and (e) to make any other determinations regarding
the Plan which are not otherwise expressly provided herein. The Committee may
prescribe, amend and rescind rules and regulations relative to the Plan or its
construction or interpretation. A majority of the Committee shall constitute a
quorum. All determinations of the Committee shall be made by the vote of a
majority of its members; provided, however, that if there are fewer than three
(3) members of the Committee at any time, all determinations shall be a joint
determination of its members. No member of the Committee shall be liable for
any action or determination made in good faith.
4. ELIGIBILITY. Only those persons who are Outside Directors
shall be eligible to participate in the Plan. The Committee shall determine
from time to time the particular Outside Directors who shall be eligible to
participate in the Plan and the extent of their participation therein.
5. SHARES. The shares subject to the options and other provisions
of the Plan shall be the Company's authorized, but unissued, or reacquired
Common Shares. The total number of the Common Shares on which options may be
granted under the Plan shall not exceed in the aggregate five thousand (5,000)
shares, except as such number of shares shall be adjusted in accordance with
the provisions set forth in paragraph 6(g) hereof. In the event any
outstanding option under the Plan expires or is terminated for any reason prior
to the end of the period during which options may be granted, the Common Shares
allocable to the unexercised portion of such option may again be subject to an
option under the Plan. During the period that any options granted hereunder
are outstanding, the Company shall reserve and keep available such number of
Common Shares as will be sufficient to satisfy all outstanding, unexercised
options.
6. TERMS AND CONDITIONS OF OPTIONS. Options granted pursuant to
the Plan shall be evidenced by agreements in such form as the Committee shall
from time to time prescribe, which agreements shall comply with and be subject
to the following terms and conditions:
(a) MEDIUM AND TIME OF PAYMENT. The option price
shall be payable in United States dollars upon the exercise of the
option and shall be paid (i) in cash; (ii) by
-2-
<PAGE> 3
certified check or by bank cashier's check; (iii) through the
tender to the Company of Common Shares of the Company or through the
withholding of Common Shares of the Company that are subject to the
option, which Common Shares shall be valued, for purposes of
determining the extent to which the purchase price has been paid, at
their fair market value on the date of exercise as determined in
Section 6(c); or (iv) or by a combination of (i), (ii) or (iii);
provided, however, that the Committee may in its discretion impose and
set forth in the option agreement pertaining to an option such
limitations or prohibitions on the use of Common Shares to exercise
options as it deems appropriate. Fair market value of any Common
Shares surrendered or withheld shall be determined by the Committee in
the same manner that it is determined in establishing option prices.
Payment of the option price shall be accompanied by a written
subscription agreement in a form to be prescribed by the Committee.
(b) NUMBER OF SHARES; DATE OF GRANT. The option
agreement shall state the total number of shares to which it
pertains, and the date of the grant of the option. The Committee may
prescribe in the option agreement a minimum number of Common Shares
with respect to which an option may be exercised, in whole or in part.
(c) OPTION PRICE. The option price shall be an
amount per share not less than the fair market value per share
of the Common Shares on the date of grant of the option. Fair market
value shall mean, if the price is so reported, the closing price for
the Common Shares on the National Association of Securities Dealers
Automated Quotation System or any exchange on which the Common Shares
are then traded, as reported in The Wall Street Journal (Midwest
Edition). If the price of Common Shares is not so reported, fair
market value shall be determined, in good faith, by the Committee in
accordance with such procedures as the Committee shall from time to
time prescribe.
(d) TERM OF OPTIONS. Each option granted under
the Plan shall expire within the period prescribed in the
agreement relating thereto, which shall not be more than ten (10)
years from the date the option is granted.
(e) TIME OF EXERCISE. Each option granted pursuant to the
Plan shall be exercisable in four equal installments. The option
may be exercised as to the shares covered by the first installment
from and after the second anniversary of the grant of the option, with
second, third and fourth installments becoming exercisable on the
three succeeding anniversary dates; provided, however, that any such
limitation on the exercise of an option contained in an option
agreement may be rescinded, modified or waived by the Committee, in
its sole discretion, at any time and from time to time after the date
of grant of such option so as to accelerate the time in which the
option may be exercised. Except as specifically restricted by the
provisions of this paragraph 6(e) or by the Committee acting
hereunder, any option may be exercised in whole at any time or in part
from time to time during its term.
-3-
<PAGE> 4
(f) CESSATION OF SERVICE AS A DIRECTOR. In the event an
Optionee ceases to serve as a director of the Company or an
Affiliate all options outstanding in the hands of the Optionee shall
terminate immediately as to any unexercised portion thereof; provided,
however, that if any cessation of service is due to retirement with
the consent of the Company or is due to permanent and total
disability, the Optionee shall have the right, subject to the
provisions of paragraphs 6(d) and 6(e) hereof, to exercise the option,
with respect to the Common Shares for which it could have been
exercised on the effective date of the Optionee's cessation of
service, at any time within three (3) months after such cessation of
service due to retirement with the consent of the Company or at any
time within twelve (12) months after such cessation of service due to
permanent and total disability; and provided further, that if the
Optionee shall die while serving as a director of the Company or an
Affiliate, the Optionee's personal representative shall have the
right, subject to the provisions of paragraphs 6(d) and 6(e) hereof,
to exercise the option with respect to the Common Shares for which the
option could have been exercised on the date of death, at any time
within twelve (12) months from the date of the Optionee's death.
Whether a cessation of service is a retirement with the consent of the
Company or due to permanent and total disability, and whether an
authorized leave of absence or absence on military or government
service shall be deemed to constitute cessation of service for the
purposes of the Plan, shall be determined by the Committee in its sole
discretion, which determination shall be final and conclusive.
(g) RECAPITALIZATION. The aggregate number of Common
Shares on which options may be granted hereunder, the number of
Common Shares covered by each outstanding option, and the price per
share set forth in each option agreement, shall all be proportionately
adjusted for any increase or decrease in the number of issued Common
Shares resulting from a subdivision or consolidation of shares of the
Company or any other capital adjustment of the Company, the payment of
a share dividend, a share split or any other increase or decrease in
the Common Shares effected without receipt of consideration by the
Company. In the event that, prior to the delivery by the Company of
the Common Shares remaining unexercised under any outstanding option
hereunder, there shall be a capital reorganization or reclassification
of the capital of the Company resulting in a substitution of other
shares for the Common Shares, there shall be substituted the number of
substitute shares which would have been issued in exchange for the
Common Shares then remaining under the option if such Common Shares
had been then issued and outstanding.
(h) MERGER, DISSOLUTION. If the Company shall be a party
to any merger or consolidation, the Company shall have the
right to terminate any option outstanding on thirty (30) days' written
notice; provided, however, if such merger or consolidation is not
consummated within 180 days from the date of the aforementioned
notice, all options terminated shall be deemed to have been
continuously in effect since the date of execution thereof. In the
event of a dissolution or liquidation of the Company, the Company
shall give each optionee thirty (30) days written notice specifying
the effective date thereof. Every unexercised option outstanding
hereunder on the date set by the Company as the effective
-4-
<PAGE> 5
date of the dissolution or liquidation shall be deemed to be
terminated upon such dissolution or liquidation.
(i) NONASSIGNABILITY. No option granted under the Plan
shall be assignable or transferable except by will or under the
laws of descent and distribution. During the lifetime of an Optionee,
the option shall be exercisable only by the Optionee.
(j) ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES
LAWS.
The Company may postpone the issuance and delivery of
certificates representing Common Shares until (a) the admission of
such shares to listing on any stock exchange on which shares of the
Company of the same class are then listed and (b) the completion of
such registration or other qualification of such shares under any
state or Federal law, rule or regulation or the rules and regulations
of any exchange upon which the Common Shares are treated as the
Company shall determine to be necessary or advisable, which
registration or other qualification the Company shall use its best
efforts to complete; provided, however, a person purchasing Common
Shares pursuant to the Plan has no right to require the Company to
register the Common Shares under federal or state securities laws at
any time. Any person purchasing Common Shares pursuant to the Plan
may be required to make such representations and furnish such
information as may, in the opinion of counsel for the Company, be
appropriate to permit the Company, in light of the existence or
non-existence with respect to such shares of an effective registration
under the Securities Act of 1933, as amended, or any similar state
statute, to issue the shares in compliance with the provisions of
those or any comparable acts.
(k) RIGHTS AS A SHAREHOLDER. An Optionee shall have no
rights as a shareholder with respect to Common Shares covered
by an option until the date of issuance of a certificate to the
Optionee. The certificate shall not be issued until the Optionee has
exercised the option and has fully paid for the Common Shares acquired
thereby. No adjustment will be made for dividends or other rights for
which the record date is prior to the date such certificate is issued.
(l) OTHER PROVISIONS. The option agreements entered into
under the Plan shall contain such other provisions,
limitations, restrictions and requirements as the Committee shall deem
advisable.
7. TERM OF PLAN. The Plan shall become effective upon the date
the Plan is adopted by the Board of Directors. The Plan shall terminate ten
(10) years after the date the Plan is adopted by the Board of Directors, or on
such earlier date as the Board of Directors may determine. No option shall be
granted under the Plan after such termination date.
8. AMENDMENT OF THE PLAN. The Board of Directors may from time to
time, alter, amend, suspend, or discontinue the Plan with respect to any Common
Shares as to which options have not been granted; provided, however, that no
action may be taken hereunder which
-5-
<PAGE> 6
would alter or impair any of the rights or obligations of the Company or any
Optionee with respect to any outstanding option without the consent of the
Optionee thereof.
9. APPLICATION OF FUNDS. The proceeds received by the Company
from the sale of Common Shares pursuant to options granted hereunder will be
used for general corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION. The granting of an option
hereunder shall impose no obligation upon the Optionee to exercise such an
option.
11. NO RIGHT TO REELECTION. Neither the adoption of the Plan, the
granting of an option hereunder, nor any other action taken relating to the
Plan shall impose any obligation on the Company or any Affiliate or the Board
of Directors of either to nominate any Outside Director for reelection as a
director by the shareholders of the Company or any Affiliate.
12. APPLICABILITY OF AMENDMENTS. All outstanding options shall be
deemed to be amended so as to include, to the extent applicable thereto, any
amendments made to the Plan subsequent to the granting of such options.
13. WITHHOLDINGS. The Committee shall have the right to require
the Optionee to remit to the Company amounts sufficient to satisfy any
applicable withholding requirements set forth in the Code or under state or
local law relating to options granted to the Optionee. The Company shall have
the right, to the extent permitted by law, to deduct from any payment of any
kind otherwise due to an Optionee who exercises an option any federal, state or
local taxes of any kind required by law to be withheld with respect to the
Common Shares subject to such option.
-6-
<PAGE> 1
EXHIBIT 10.29
BIOANALYTICAL SYSTEMS, INC.
1997 OUTSIDE DIRECTOR STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ____ day of ______________, _____, by and
between Bioanalytical Systems, Inc., an Indiana corporation with its principal
office at 2701 Kent Avenue, West Lafayette, Indiana (hereinafter called
"Company"), and_________________________, residing
at_____________________________________________________________ (hereinafter
called the "Grantee"), pursuant to the terms, conditions and limitations
contained in the Company's 1997 Outside Director Stock Option Plan (hereinafter
called the "Plan"), a copy of which is attached hereto as Exhibit A.
WITNESSETH THAT:
WHEREAS, in the interests of affording an incentive to the Grantee to
give his best efforts to the Company as a key employee, the Company wishes to
provide that the Grantee shall have an option to buy Common Shares of the
Company:
NOW, THEREFORE, it is hereby mutually agreed as follows:
1. The Company hereby grants to the Grantee the right and option
to purchase, on the terms and conditions hereinafter set forth, all or any part
of an aggregate of __________shares (hereinafter called "Subject Shares") of
the presently authorized, but unissued, or treasury, Common Shares of the
Company (hereinafter called the "Common Shares"), at a purchase price of
$______ per share, exercisable in whole or in part from time to time subject to
the limitation that no option may be exercised with respect to fewer than
twenty-five (25) shares unless there are fewer than twenty-five (25) shares
then subject to option hereunder, in which event any exercise must be as to all
such shares and subject to the further limitation that the options represented
by this Agreement shall be exercisable in four equal installments as set forth
in Section 6(e) of the Plan. The option shall expire as to all shares subject
to
<PAGE> 2
purchase hereunder on the ______ anniversary date of this Agreement if not
exercised on or before such date.
2. Subject to the limitation specified in Section 1 hereof and in
Section 6(e) of the Plan, the Grantee may from time to time exercise this
option by delivering a written notice of exercise and subscription agreement to
the Secretary of the Company specifying the number of whole shares to be
purchased, accompanied by payment (i) in cash, (ii) by certified check or bank
cashier's check, (iii) through the tender to the Company of Common Shares of
the Company owned by the Optionee or by withholding of Common Shares of the
Company that are subject to the option, which Common Shares shall be valued,
for purposes of determining the extent to which the purchase price has been
paid, at their fair market value on the date of exercise as determined in
Section 6(c) of the Plan; or (iv) by a combination of the methods described in
(i), (ii), or (iii). The Company may, in its sole discretion, refuse to
withhold Common Shares of the Company as payment of the exercise price of the
option. Such exercise shall be effective upon receipt by the Secretary of such
written notice, subscription agreement and payment of the purchase price. Only
the Grantee may exercise the option during the lifetime of the Grantee. No
fractional shares may be purchased at any time hereunder.
3. Upon the effective exercise of the option, or any part
thereof, certificates representing the shares so purchased, marked fully paid
and non-assessable, shall be delivered to the person who exercised the option,
except as provided in Section 6(j) of the Plan. Until certificates
representing such shares shall have been issued and delivered, the Grantee
shall not have any of the rights or privileges of a shareholder of the Company
in respect of any of such shares.
4. In the event that, prior to the delivery by the Company of all
the Subject Shares, there shall be an increase or reduction in the number of
Common Shares of
<PAGE> 3
the Company issued and outstanding by reason of any subdivision or
consolidation of Common Shares or any other capital adjustment, the number of
shares then subject to this option shall be increased or decreased as provided
in Section 6(g) of the Plan.
5. The option and the rights and privileges conferred by this
Option Agreement shall not be assigned or transferred by the Grantee in any
manner except by will or under the laws of descent and distribution. In the
event of any attempted assignment or transfer in violation of this Section 5,
the option, rights and privileges conferred by this Option Agreement shall
become null and void.
6. Nothing herein contained shall be deemed to create any
limitation or restriction upon such rights as the Company would otherwise have
to terminate a person as an employee of the Company.
7. The option, rights and privileges herein conferred are granted
subject to the terms and conditions set forth herein and in the Plan.
8. Any notices to be given or served under the terms of this
Option Agreement shall be addressed to the Secretary of the Company at 2701
Kent Avenue, West Lafayette, Indiana, and to the Grantee at the address set
forth on page one of this Option Agreement, or such other address or addresses
as either party may hereafter designate in writing to the other. Any such
notice shall be deemed to have been duly given or served, if and when enclosed
in a properly sealed envelope or wrapper addressed as aforesaid, postage
prepaid, and deposited in the United States mail.
9. The interpretation by the outside director stock option
committee, appointed by the Company's Board of Directors to administer the
Plan, of any provisions of the Plan or of this Option Agreement shall be final
and binding on the Grantee unless otherwise determined by the Company's Board
of Directors.
<PAGE> 4
10. This Option Agreement shall be governed by the laws of the
State of Indiana.
IN WITNESS WHEREOF, the Company and the Grantee have signed this
Option Agreement as of the day and year first above written.
"COMPANY"
BIOANALYTICAL SYSTEMS, INC.
By:
-----------------------------
ATTEST:
- ------------------------
"GRANTEE"
By:
-----------------------------
<PAGE> 1
EXHIBIT 11.1
Exhibit 11--Statement Re: Computation of Per share Earnings
<TABLE>
<CAPTION>
Year Ended September 30
--------------------------------------
1995 1996 1997
------ ------ ------
(In Thousands, except per share data)
<S> <C> <C> <C>
Primary
Average Common shares outstanding 2,159 2,185 2,221
Net effect of dilutive stock options--based
on the treasury stock method using average
market price 155 152 128
Assumed conversion of preferred shares 752 752 752
------ ------ ------
Total 3,066 3,089 3,101
====== ====== ======
Net income available to common shareholders $ 497 $ 346 $ 657
====== ====== ======
Per share amount $ 0.16 $ 0.11 $ 0.21
====== ====== ======
Fully Diluted
Average Common shares outstanding 2,159 2,185 2,221
Net effect of dilutive stock options--based
on the treasury stock method using the
period-end market price, if higher than average
market price 155 152 128
Assumed conversion of preferred shares 752 752 752
------ ------ ------
Total 3,066 3,089 3,101
====== ====== ======
Net income available to common shareholders $ 497 $ 347 $ 657
====== ====== ======
Per share amount $ 0.16 $ 0.11 $ 0.21
====== ====== ======
</TABLE>
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
NAME JURISDICTION OF ORGANIZATION
---- ----------------------------
1. BAS Technicol, Ltd. United Kingdom
2. IMI Acquisition Corporation Indiana
3. Vetronics, Inc. Indiana
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
October 31, 1997 (except for Note 10, as to which the date is __________) in
Amendment No. 1 to Registration Statement (Form S-1 No. 333-36429) and related
Prospectus of Bioanalytical Systems, Inc. for the registration of 1,500,000 of
its common shares.
/s/ Ernst & Young LLP
Indianapolis, Indiana
The foregoing consent is in the form that will be signed upon the effective
date of the share split described in Note 10 to the financial statements.
Indianapolis, Indiana
November 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BIOANALYTICAL SYSTEMS, INC. CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE
COMPANY'S REGISTRATION STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-START> OCT-01-1996 OCT-01-1995
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 161 595
<SECURITIES> 0 0
<RECEIVABLES> 3,013 1,652
<ALLOWANCES> 0 0
<INVENTORY> 1,911 1,932
<CURRENT-ASSETS> 5,342 4,382
<PP&E> 12,838 8,859
<DEPRECIATION> 2,803 2,333
<TOTAL-ASSETS> 15,931 11,374
<CURRENT-LIABILITIES> 2,849 1,323
<BONDS> 0 0
0 298
1,231 1,231
<COMMON> 498 484
<OTHER-SE> 5,156 4,472
<TOTAL-LIABILITY-AND-EQUITY> 15,931 11,374
<SALES> 9,932 9,113
<TOTAL-REVENUES> 14,923 12,794
<CGS> 3,334 3,227
<TOTAL-COSTS> 6,320 5,368
<OTHER-EXPENSES> 7,431 6,725
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 100 81
<INCOME-PRETAX> 1,097 683
<INCOME-TAX> 413 283
<INCOME-CONTINUING> 684 400
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 657 347
<EPS-PRIMARY> .21 .11
<EPS-DILUTED> .21 .11
</TABLE>
