FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ______________ to ________________________
Commission file number 1-11394
EDITEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3863205
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
1238 Anthony Road, Burlington, North Carolina 27215
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (910) 226-6311
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of Common Stock, $.15 par value, outstanding as of May 1,
1996 was 25,245,076.
<PAGE>
EDITEK, INC.
INDEX
Page
Part I Financial Information:
Item 1:
Balance Sheets - March 31, 1996 (Unaudited)
and December 31, 1995 ................................... 3
Statements of Operations - Three Months
Ended March 31, 1996 and 1995 (Unaudited) . ............. 5
Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995 (Unaudited) ................6
Notes to Financial Statements ......................7
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations ..........10
Part II Other Information .........................................16
Signatures .............................................17
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
EDITEK, Inc.
BALANCE SHEETS
March 31 December 31
1996 1995
(Unaudited) (Restated)
-------------------------------
(In Thousands)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 880 $ 258
Accounts receivable
Trade, less allowance for
doubtful accounts ($206,000 - 1996,
$130,000 - 1995) 4,635 977
Other - 52
Inventories:
Raw Materials 607 588
Work in process 126 169
Finished goods 624 180
-----------------------
1,357 937
Deposit on acquisition - 500
Prepaid expenses and other 531 368
-----------------------
Total current assets 7,403 3,092
Equipment and improvements
Furniture and equipment 9,532 5,857
Leasehold improvements 906 1,696
----------------------
10,438 7,553
Less accumulated depreciation
and amortization (7,483) (6,824)
----------------------
2,955 729
Goodwill 22,898 117
-----------------------
$ 33,256 $ 3,938
==========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EDITEK, Inc.
BALANCE SHEETS
(Continued)
March 31 December 31
1996 1995
(Unaudited) (Restated)
-------------------------------
(In Thousands)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 1,885 $ 1,184
Accrued expense 1,585 834
Accrued restructuring expenses 553 -
Deferred revenues 29 42
Current portion of notes payable 1,423 82
Note payable to director - 100
-----------------------------
Total current liabilities 5,475 2,242
Long term debt 2,444 -
Other liabilities 731 -
Stockholders' equity
Preferred Stock--authorized 1,000,000
shares; 407 shares issued or
outstanding - -
Common Stock, $.15 par value;
authorized - 30,000,000 shares;
issued and outstanding -
13,194,061 shares in 1996 and
10,439,775 shares in 1995 1,979 1,566
Additional paid-in capital 58,195 33,973
Accumulated deficit (35,392) (33,667)
-------------------------------
24,782 1,872
Less: Note receivable from officer (100) (100)
Treasury stock (76) (76)
-------------------------------
Total stockholders' equity 24,606 1,696
$ 33,256 $ 3,938
===============================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31 March 31
1996 1995
-------------------------------
(In Thousands)
<S> <C> <C>
Revenues
Laboratory service revenues $ 4,748 $ 863
Product sales 796 710
Royalties and fees 63 86
Interest and other income 16 68
-------------------------------
5,623 1,727
Cost of services 3,692 949
Cost of sales 656 607
-------------------------------
Gross profit 1,275 171
Operating expenses
Selling, general and administrative 1,704 858
Research and development 345 208
Interest and financing costs 93 18
Restructuring costs 858 -
-------------------------------
3,000 1,084
-------------------------------
Net loss $ (1,725) $ (913)
===============================
Loss per common share $ (0.14) $ (0.11)
===============================
Weighted average number of
common shares outstanding 12,331,721 8,208,752
===============================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
EDITEK, Inc.
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31 March 31
1996 1995
-------------------------------
(In Thousands)
<S> <C> <C>
Operating activities
Net loss $(1,725) ($913)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 398 163
Restructuring costs 858 -
Changes in operating assets & liabilities
net of effects from purchase of Medtox:
Accounts receivable (703) (99)
Inventories (57) 72
Prepaid expenses & other (26) 59
Accounts payable and accrued liabilities (7) (394)
Deferred revenues (68) (15)
Restructuring Accruals (173) -
Leases payable - (16)
-------------------------------
Net cash used in operating activities (1,502) (1,143)
Investing activities
Purchases of equipment & improvements (837) (34)
Cash used for MEDTOX acquisition (18,500) -
-------------------------------
Net cash used in investing activities (19,337) (34)
Financing activities
Payments on Debt (2,531) -
Proceeds from borrowings 4,995 -
Costs associated with borrowings/acquisition (736) -
Proceeds from issuance of stock for:
Employee stock purchase plan 4 7
Exercise of stock options and warrants - 90
Private placements 600 1,527
Preferred stock 20,350 -
Costs related to stock issuances (1,221) (54)
Conversion of note payable to common stock - 61
Increase in notes payable - 55
-------------------------------
Net cash provided by financing activities 21,461 1,686
-------------------------------
(Decrease) in cash and cash equivalents $ 622 $ 509
Cash and cash equivalents at beginning of period $ 258 $ 1,105
-------------------------------
Cash and cash equivalents at end of period $ 880 $ 1,614
===============================
</TABLE>
<PAGE>
EDITEK, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements of EDITEK, Inc. (the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of financial condition
and results of operations have been included. Operating results for the three
month period ended March 31, 1996 are not necessarily indicative of the results
that may be attained for the entire year. For further information, refer to the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K, (as amended), for the year ended December 31, 1995.
Loss Per Share: Loss per share amounts are based on the weighted average number
of shares of common stock outstanding. Common stock equivalents have not been
included in the computation as the effect would be anti-dilutive.
NOTE B -- ACQUISITION OF MEDTOX LABORATORIES, INC. ("MEDTOX")
On January 30, 1996, the Company acquired MEDTOX, a toxicology laboratory
located in St. Paul, Minnesota. The purchase price was $24 million, which
included $19 million cash and the issuance of 2,517,306 shares of common stock.
The acquisition was accounted for under the purchase method of accounting
wherein the Company recognized approximately $22 million in goodwill. The
goodwill is being amortized over a period of 20 years. The Company financed the
acquisition by issuing $20 million of convertible preferred stock and borrowing
$4 million under two $2 million term loans. The Company also entered into a
revolving line of credit of up to $7 million for working capital purposes. The
consolidated results of operations for the three months ended March 31, 1996
include the results of the MEDTOX operations from January 26, 1996 to March 31,
1996.
NOTE C -- ACQUISITION OF BIOMAN PRODUCTS, INC. ("BIOMAN")
On June 1, 1995, the Company acquired Bioman, an environmental diagnostics
company. The purchase price was $140,000, which included cash and the issuance
of 21,489 shares of common stock. The acquisition was accounted for under the
purchase method of accounting wherein the Company recognized $117,000 of
goodwill, which is being amortized over a period of 20 years. The consolidated
results of operations for the three months ended March 31, 1996 included the
results of the Bioman operations.
<PAGE>
NOTE D -- DEBT
On August 15, 1989 the Company entered into a long-term loan agreement with
North Carolina Biotechnology Center ("NCBC"), a state funded, non-profit
organization whereby the Company borrowed an aggregate of $125,000 to fund the
development cost of a test for Chlamydia, a sexually transmitted disease. The
loan originally had an interest rate of seven and one half percent (7.5%) per
annum with all principal and interest due on August 15, 1994. The Company
amended the loan agreement on the due date and issued 16,100 shares of common
stock for $62,000 of the loan. The remaining principal, $63,000, now bears
interest at a rate of nine percent (9%) per annum; this principal and interest,
which are due on August 15, 1996, are convertible into shares of common stock.
To help finance the acquisition of MEDTOX, the Company entered into revolving
and term loan facilities with Heller Financial, Inc. The debt financing is for a
total of $11,000,000 and consists of two term loans totaling $4,000,000 and up
to $7,000,000 in the form of a revolving line of credit based primarily on the
receivables of the Company. The amount of credit available to the Company varies
with the accounts receivable and the inventory of the Company. The interest
rates on the two term loans of $2,000,000 are 2.5 points above the prime rate
and 2.0 points above the prime rate, respectively. The revolving line of credit
carries an interest rate equal to 1.5 points above the prime rate.
NOTE E -- RESTATEMENT OF 1995 FINANCIAL STATEMENTS
During 1995, the Company recorded a restructuring charge in the amount of
$758,000 associated with the consolidation of the laboratory operations at
Princeton Diagnostic Laboratories of America, Inc. ("PDLA") into the laboratory
operations at MEDTOX. Subsequent to the filing of the 1995 Audited Financial
Statements, it was determined that the restructuring charge should be recorded
during the first quarter of 1996, consistent with the consummation of the MEDTOX
acquisition on January 30, 1996. Accordingly, the Company has restated the 1995
Audited Financial Statements.
<PAGE>
CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this document and any document
incorporated by reference herein, are advised that this document and documents
incorporated by reference into this document contain both statements of
historical facts and forward looking statements. Forward looking statements are
subject to certain risks and uncertainties, which could cause actual results to
differ materially from those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earnings or loss per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements and statements about the
Company or its business.
This document and any documents incorporated by reference herein also
identify important factors which could cause actual results to differ materially
from those indicated by the forward looking statements. These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products, customer acceptance of products and services, the
possible effects of the MEDTOX acquisition and its related financings and other
factors which are described herein and/or in documents incorporated by reference
herein.
The cautionary statements made pursuant to the Private Litigation
Securities Reform Act of 1995 above and elsewhere by the Company should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of such Act. Forward
looking statements are beyond the ability of the Company to control and in many
cases the Company cannot predict what factors would cause results to differ
materially from those indicated by the forward looking statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company commenced operations in June 1983 and until 1986 was a
development stage company. The Company became engaged in the manufacture and
sale of Conventional Biodiagnostic Products as a result of its acquisition of
Granite Technological Enterprises, Inc. in 1986. The Company began the
manufacture and sale of its EZ-SCREEN(R) diagnostic tests in 1985 and introduced
its patented one-step assays, VERDICT(R) and RECON(R), in 1993. Also in 1993,
the Company formed DIAGNOSTIX, Inc. to market its agricultural diagnostic
products. In addition, DIAGNOSTIX now markets the Company's on-site substance
abuse products to certain segments of the substance abuse marketplace. The
Company entered the laboratory testing market when it completed the acquisition
of Princeton Diagnostic Laboratories of America, Inc., (PDLA) in 1994. In 1995,
the Company acquired the former operations of Bioman through its DIAGNOSTIX,
Inc. subsidiary. On January 30, 1996 the Company completed the acquisition of
MEDTOX. The results of operations for the three months ended March 31, 1996
include the operations of MEDTOX from January 26, 1996 through the end of the
period. Since inception, the Company has financed its working capital
requirements primarily from the sale of equity securities.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Total revenues for the three months ended March 31, 1996 were
$5,623,000 as compared to $1,727,000 for the three months ended March 31, 1995.
The increase was attributable to the increase in revenues from products and
services. These revenues totaled $5,544,000 for the three months ended March 31,
1996, as compared to $1,573,000 for the three months ended March 31, 1995.
Laboratory service revenues were $4,748,000 for the three months ended
March 31, 1996 as compared to $863,000 for the three months ended March 31,
1995. This increase was primarily the result of the revenues from MEDTOX of
$3,616,000 for the three months ended March 31, 1996. Net of the revenues from
MEDTOX, laboratory service revenues were $1,132,000 for the three months ended
March 31, 1996, an increase of 31% as compared to the same period in 1995. This
31% increase was primarily the result of the continued sales and marketing
effort for these services. Laboratory service revenues of MEDTOX were $4,816,000
for the full three months ended March 31, 1996 as compared to $ 4,833,000 for
MEDTOX for the three months ended March 31, 1995.
Product sales include the sales generated from substance abuse testing
products, which incorporates the EZ-SCREEN and VERDICT on site test kits and
other ancillary products for the detection of abused substances. Sales from
these products were $325,000 for the three months ended March 31, 1996 compared
to sales of $336,000 recorded for the same period in 1995.
<PAGE>
Product sales also include sales of agricultural diagnostic products.
Sales of these products were $315,000 for the three months ended March 31 1996,
an increase of 25% compared to sales of $253,000 for the three months ended
March 31, 1995. The Company had sales of $146,000 which were generated through
the former operations of Bioman, which was acquired by the Company on June 1,
1995. Excluding these revenues, sales of agricultural diagnostic products were
$169,000 for the three months ended March 31, 1996 a decrease of 33% compared to
the same period in 1995. The Company believes that the primary reason for the
decrease was due to timing differences in orders from the USDA for the Company's
products.
Sales of Microbiological and associated product sales combined with
contract manufacturing services were $81,000 for the three months ended March
31, 1996 compared to $107,000 for the same period in 1995. This decrease of 24%
was primarily the result of the Company's decision not to market these products.
Accordingly, the Company has decided to close down the operations of the Farm
Facility during the second quarter of 1996. While this closure will decrease the
amount of revenues generated from these sales, the elimination of the costs of
the Farm Facility are expected to improve the overall gross margin from the sale
of the Company's products.
Revenues generated from the shipment of products to the U.S. Department
of Defense were $75,000 for the three months ended March 31, 1996 compared to
$14,000 for the same period in 1995. This increase was the result of modest
sales of finished products following the completion of research and development
on certain tests in late 1995 and early 1996.
Revenues from royalties and fees during the three months ended March
31, 1996 were $63,000, compared to $86,000 for the three months ended March 31,
1995. This decrease was primarily due to lower royalties from AML, as AML lost
accounts that require payment of royalties to the Company.
Revenues from interest and other income for the three months ended
March 31, 1996 were $16,000 compared to $68,000 for the three months ended March
31, 1995. The $68,000 in 1995 included the recovery of debts owed by a customer
of laboratory services which had been written off. For the same period in 1996,
there was no such recovery of debts.
The gross margin from the revenues generated from the laboratory services
was 22% for the three months ended March 31, 1996 an increase compared to the
same period in 1995, when the cost of providing laboratory services exceeded the
revenue realized from these services. The improvement in the gross margin was
primarily due to the operations of MEDTOX which realized a gross margin of 29%.
<PAGE>
Gross margins from the sales of both manufactured products and products
purchased for resale for the three months ended March 31, 1996 were 18% compared
to 15% of sales of these products during the three months ended March 31, 1995.
This increase in gross margin from product sales is primarily the result of the
sales of products to the Department of Defense, and sales of the agricultural
products sold through DIAGNOSTIX.
Selling, general and administration expenses for the three months ended
March 31, 1996 were $1,704,000, compared to $858,000 for the three months ended
March 31, 1995. Of the $846,000 increase, MEDTOX expenses totaled $470,000. Net
of MEDTOX, there was an increase of $376,000 compared to the same period in
1995. This increase is primarily due to $208,000 of amortization expense related
to the goodwill resulting from the MEDTOX acquisition.
Research and development expenses incurred during the three months
ended March 31, 1996 were $345,000 as compared to $208,000 for the same period
in 1995. This increase of $137,000 was primarily the result of $85,000 of
research and development expenses from MEDTOX as well as increases in personnel
costs.
For the three months ended March 31, 1996, EDITEK incurred interest expense
of $93,000, compared to interest expense of $18,000 incurred during the three
months ended March 31, 1995. This increase was the result of the funds borrowed
by the Company to complete the financing for the acquisition of MEDTOX.
In connection with the acquisition of MEDTOX, the Company determined that
it would be beneficial to consolidate the laboratory operations of PDLA into the
laboratory operations at MEDTOX. In addition the Company decided to down size
certain administrative positions at both PDLA and MEDTOX in order to eliminate
duplicative functions. As a result of this restructuring plan, the Company has
taken a one time charge of $858,000 during the three months ended March 31, 1996
to cover certain costs of the restructuring, including $100,000 related to
certain severance payments (see Note E of the Financial Statements). The Company
had no such charge during the three months ended March 31, 1995.
As a result of the above, the net loss for the three months ended March 31,
1996 was $1,725,000, compared to the net loss of $913,000 for the three months
ended March 31, 1995.
Management believes the acquisition of MEDTOX and the restructuring of the
laboratory operations will significantly improve the operating results of the
Company, although there can be no assurance of the success of the consolidation
of the laboratory operations in reducing costs and improving efficiencies.
Management expects net sales to grow through both additional strategic
acquisitions and the addition of new accounts, as well as the introduction of
new products, including the recently launched EZ-SCREEN PROFILE(TM) Test Kit.
<PAGE>
Material Changes in Financial Condition
As of March 31, 1996, cash and cash equivalents were $880,000 compared
to $258,000 at December 31, 1995. This increase was the result of the proceeds
received from the sale of the 407 shares of Series A Preferred Stock, as well as
proceeds received from the issuance of debt during 1996.
As of March 31, 1996, accounts receivable were $4,635,000 compared to
$1,029,000 at December 31, 1995. Of the total increase of $3,606,000, $3,506,000
was attributable to Medtox. The $100,000 increase, net of the MEDTOX
receivables, was the result of higher sales in the quarter ended March 31, 1996
as compared to sales prior to December 31, 1995.
Inventories were $1,357,000 at March 31, 1996 as compared to $937,000
at December 31, 1995. Of the total increase of $420,000, MEDTOX inventory was
$430,000 at March 31, 1996, resulting in a decrease net of MEDTOX of $10,000.
Prepaid expenses and other assets were $531,000 at March 31, 1996 as
compared to $868,000 at December 31, 1995. This decrease of $337,000, or 39%,
was primarily the result of the January application of the $500,000 deposit the
Company had previously made towards the purchase price for the acquisition of
MEDTOX.
As of March 31, 1996, the Company had a balance of accounts payable of
$1,885,000 compared to a balance of $1,184,000 at December 31, 1995. Of the
total increase of $701,000, the payables from MEDTOX were $1,004,000 at March
31, 1996. Net of the payables from MEDTOX, the decrease of $303,000 was
primarily the result of the payment of past due expenses resulting from the
Company's improved financial condition.
Accrued expenses were $1,585,000 at March 31, 1996, as compared to
$834,000 at December 31, 1995. Of the total increase of $751,000, the accrued
expenses from MEDTOX were $929,000 at March 31, 1996. Net of the MEDTOX balance,
the decrease of $178,000 was the result of payment of certain expenses
associated with the acquisition of MEDTOX.
At March 31, 1996, the Company had accrued $604,000 for the payment of
certain restructuring costs associated with the consolidation of the laboratory
operations of PDLA with the laboratory operations of MEDTOX. In addition MEDTOX
has accrued $680,000 for the payment of a lease obligation for a facility no
longer used by MEDTOX. As a result, the Company has a total balance of accrued
restructuring costs of $1,284,000 at March 31, 1996. At December 31, 1995 the
Company had no accrual for restructuring costs (see Note E of the Financial
Statements).
<PAGE>
During the three months ended March 31, 1996, the Company repaid the
$100,000 it had borrowed from Dr. Samuel C. Powell, a director of the Company As
described more fully in the footnotes to the financial statements, at March 31,
1996, the Company had a balance of loan payable to the North Carolina
Biotechnology Center (NCBC) of $63,000. At March 31, 1996, the Company had a
total balance of $3,777,000 for its loans payable to Heller Financial, Inc.
Primarily as a result of these transactions, the total balance of notes payable
at March 31, 1996 was $3,867,000 as compared to $182,000 at December 31, 1995.
Liquidity and Capital Resources
Since its inception, the working capital requirements of the Company have
been funded primarily by cash received from equity investments in the Company.
At March 31, 1996, the Company had cash and cash equivalents of $880,000 and
borrowing capability of approximately $3,500,000 from its revolving line of
credit. The Company believes that the balance of cash and cash equivalents at
March 31, 1996 together with the revolving line of credit should be sufficient
to fund the planned operations through 1996.
As of March 31, 1996, the Company had not achieved a positive cash flow
from operations. Accordingly, the Company relies on available credit
arrangements to fund operations until a positive cash flow can be achieved.
Management believes that it has taken, and is prepared to continue to take, the
actions required to yield a positive cash flow from operations in the future.
The Company believes that the acquisition of MEDTOX, the subsequent
consolidation of the laboratory operations from PDLA into MEDTOX, and other
synergy that will be realized from the acquisition of MEDTOX will enable the
Company to generate positive cash flow. The Company continues to follow a plan
which includes (i) continuing to aggressively monitor and control costs, (ii)
increasing revenue from sales of the Company's products, services, and research
and development contracts, as well as (iii) continue to selectively pursue
synergistic acquisitions to increase the Company's critical mass. There can be
no assurance that costs can be controlled, revenues can be increased, financing
may be obtained, acquisitions successfully consummated, or that the Company will
be profitable.
The Company lacks sufficient shares of Common Stock to satisfy the
conversion rights of the outstanding Preferred Stock of the Company, including
conversion notices received by the Company. Consequently, the Company would lack
shares of Common Stock to sell in a future financing should it need to raise
capital or for future acquisitions, until and unless the Company's shareholders
approve an amendment to its Certificate of Incorporation increasing the number
of shares of authorized Common Stock. The Company intends to seek shareholder
approval as soon as practicable to increase the authorized Common Stock from
30,000,000 to 60,000,000. There can be no assurance the shareholders will
approve such amendment. If the Company lacks shares of Common Stock for future
financings or acquisitions, the Company will have to rely on debt financings or
sales of its Preferred Stock. There can be no assurance that the Company will be
able to obtain adequate capital or implement acquisitions through debt or
Preferred Stock financings.
<PAGE>
ITEM 2 CHANGES IN SECURITIES. Inapplicable
ITEM 3 DEFAULTS ON SENIOR SECURITIES. Inapplicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. None
ITEM 5 OTHER INFORMATION
Effective January 30, 1996, the Company entered into
employment contracts with Mr. James D. Skinner, Chairman of the Board, President
and CEO, Mr. Peter J. Heath, Vice President-Finance and CFO and Mr. Michael A.
Terretti, Vice President. These agreements cover the period January 30, 1996
through January 30, 1998. Thereafter, the agreements are renewed in one-year
increments unless otherwise terminated as specified in the agreements. In the
event of a termination of employment of the named individuals by the Company
without cause or by reason of a "change in control" of the Company, the
individual is entitled to receive a severance pay equal to the balance of the
employee's then current base salary for the remaining term of the agreement
(without any renewal) and an additional sum equal to twelve (12) months of the
employee's then current base salary.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.40, Form of employment agreement between the Company and Mr.
James D. Skinner, Mr. Peter J. Heath and Mr. Michael A. Terretti.
(b) Exhibit 27, Financial Data Schedule.
(c) Report on Form 8-K dated January 30, 1996, reporting the completion of the
acquisition of MEDTOX Laboratories, Inc.
(d) Report on Form 8-K dated March 5, 1996, reporting the consolidation to the
laboratory operations of PDLA into the laboratory operations of MEDTOX
Laboratories, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 1996
EDITEK, INC.
By:/s/ James D. Skinner
James D. Skinner, Chairman,
President and Chief Executive Officer
By:/s/ Peter J. Heath
Peter J. Heath, Vice President
of Finance and Chief Financial Officer
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as specified herein, between Editek, Inc.
("Editek") and ______________ ("Employee").
NOW, THEREFORE, in consideration of the terms and mutual undertakings
herein contained, it is agreed by and between Editek and Employee as follows:
1. Effective Date and Term of Employment: This Agreement shall become
effective on January 30, 1996, and shall remain in effect until the close of
business on January 30, 1998 (the "Agreement Expiration Date"). Effective
February 1, 1998 (the "Renewal Date") and on each anniversary of the Renewal
Date, this Agreement shall renew automatically for a period of one additional
consecutive year unless either Editek or Employee provides written notice to the
other party at least ninety (90) days prior to the Renewal Date or anniversary
of the Renewal Date, as applicable, that the Agreement shall terminate without
renewal as of the Agreement Expiration Date or anniversary of the Agreement
Expiration Date, as applicable. Upon each Renewal Date, when the Agreement
extends for a period of one additional consecutive year, the Agreement
Expiration Date shall also extend by one year.
2. Duties and Responsibilities:Employee shall be the _____of Editek and
shall be responsible for all the duties normally ascribed to such offices under
laws of the State of Delaware. Employee hereby agrees to faithfully and
competently render services on a substantially full-time basis to Editek,
subject to the provisions Section 14, and to devote his best efforts, skill and
attention (except during vacations and leaves conforming with Editek policies)
to Editek.
3. Compensation: Editek agrees to employ Employee for the term and in the
capacities described in Sections 1 and 2 above and to compensate Employee for
such services as follows:
3.1 Employee shall be paid a base salary of $_______ per annum
("Base Salary"). Employee shall be eligible for annual increases in such Base
Salary, as determined by the Compensation Committee of the Board of Directors of
Editek (the "Compensation Committee") in its discretion. The first such
increase, if any, shall become effective on or before the first anniversary of
the above effective date of this Agreement. Said Base Salary (including any
increases as determined by the Compensation Committee in its discretion) shall
be paid in equal installments in accordance with Editek's customary pay schedule
and shall be subject to applicable withholding for federal and state income
taxes and social security and related deductions.
<PAGE>
3.2 Employee shall be entitled to participate in any Editek
employee benefit plans, fringe benefit programs including a car allowance (and
the payment by Editek of all insurance, repairs, maintenance, licenses,
gasoline, oil and other operating expenses of the automobile), and bonus or
other incentive programs that may be adopted by the Board of Directors for the
benefit of Editek senior officers or are adopted for the benefit of Editek
employees (which shall include a medical insurance plan comparable to that which
is currently in effect) unless Employee shall elect in writing not to
participate.
3.3 Employee shall be entitled to participate in any stock
option or other long-term incentive compensation program providing for awards
payable in the form of cash and/or stock as may be adopted by the Compensation
Committee for the benefit of Editek senior officers.
3.4 Employee shall be entitled to fifteen (15) work days of
vacation with pay during each year. Vacation days shall be deemed to be earned
pro rata during each year. Absences from work because of sickness, disability or
legal holidays shall not be considered as vacation time. Vacation days may be
accumulated and carried over from one year to the next; provided, that the
maximum number of days which may be carried over shall not exceed ten (10).
4. Expense Reimbursement: Editek shall pay or reimburse Employee
for all ordinary and necessary expenses reasonably incurred in the performance
of his duties hereunder. Such reimbursement shall be made against the submission
by Employee of properly signed and supported itemized expense reports in
accordance with the travel and business reimbursement policies of Editek in
effect from time-to-time.
5. Termination of Employment:
5.1 Employee Resignation: Employee may terminate his
employment prior to the termination of this Agreement by submitting a written
notice of resignation to the Chief Executive Officer of Editek (the "C.E.O."),
specifying a termination date which shall be no sooner than ninety (90) days
after the submission of said notice. During this ninety (90) day period,
Employee shall be paid current Base Salary installments and benefits but his
duties and the capacity in which he serves shall be subject to such conditions
and limitations as may be imposed by the C.E.O. Employee's resignation may
constitute the initiation of a voluntary termination of employment, as defined
in Section 5.2(b).
5.2 Termination Without Cause and Eligibility for Severance
Award: The severance payments described in Section 6 (the "Severance Award")
shall be payable to Employee if Employee's employment with Editek terminates
within the term of this Agreement (hereinafter referred to as Employee's
"Termination Date") for any of the following reasons:
<PAGE>
(a) involuntarily, other than an involuntary termination on account of
Misconduct
(b) if within ninety (90) days after the effective date of a Change
in Control, Employee voluntarily terminates.
6. Severance Award: The Severance Award, which shall be in lieu of any
other payments under this Agreement or any other payments by Editek on account
of severance, shall consist of a lump sum payment equal to the balance of
Employee's Base Salary for the remaining term of the Agreement (without any
renewal) and an additional sum equal to twelve (12) months of Employee's Base
Salary, payable as soon as administratively possible after Employee's
Termination Date, but in no event later than thirty (30) days after Employee's
Termination Date.
7. Limitations of Agreement:
7.1 Except as expressly provided by the terms of the Severance
Award, Employee shall not be entitled, solely by reason of a Severance Award, to
continue to participate in any employee benefit plans or fringe benefit programs
maintained by Editek, and the rights of Employee to continue to participate in
such other plans and programs shall be governed solely by their terms and
applicable law.
7.2 A Severance Award shall in no way be construed to extend
the period of a Employee's employment, and Employee's Termination Date shall not
be extended beyond the last official work day for which a Employee is paid for
active service.
8. Termination on Account of Death: Upon the death of Employee during the
term hereof, this Agreement shall terminate immediately and, except as expressly
set forth herein, Editek shall have no further liability hereunder to Employee
or his estate, except that Editek shall pay to the beneficiary designated in
writing by Employee, or if none, to Employee's estate, his salary through the
end of the second month following the month is which such death occurs.
9. Termination for Disability: If Employee for any reason whatsoever becomes
disabled so that he is unable to perform his duties hereunder, Editek agrees to
pay Employee his Base Salary hereunder for the first ninety (90) days of such
disability. In the event that Employee becomes totally disabled during the term
of this Agreement and such total disability continues for a period in excess of
ninety (90) consecutive calendar days, at the end of such period Employee shall
be considered as permanently disabled and this Agreement shall terminate
immediately and, except as expressly set forth herein, Editek shall have no
further liability hereunder to Employee.
<PAGE>
For purposes of this Agreement, Employee shall be considered totally
disabled if, and when, because of injury, illness or physical or mental
disability, he is prevented from efficiently or effectively performing the
duties of his employment. The determination of total disability shall be made by
the Board of Directors of Editek, but said decision shall not be unreasonable or
arbitrary and shall be supported by the opinion (at Editek's expense) of two (2)
licensed physicians unless Employee shall without justification fail to submit
to the necessary physical or mental examinations. It is understood that
Employee's occasional sickness of short duration shall not result in Employee
being considered totally disabled, and Employee shall continue to be compensated
hereunder during such periods of occasional sickness so long as they shall not
exceed ninety (90) days in a calendar year.
10. Misconduct: For purposes of this Agreement, "Misconduct" shall mean (i)
the conviction of, or the entering of a plea of, nolo contendere by Employee for
any felony arising out of acts of fraud or dishonesty reasonably determined to
result in harm to Editek; or (ii) the intentional or willful breach of duties by
Employee in a material respect and failure to cure same within thirty (30) days
after receiving written notice of such breach from the C.E.O.
The determination as to whether Employee's employment has been
terminated for Misconduct shall be made by the C.E.O. Advance written notice of
a tentative determination of Misconduct shall be provided to Employee and
Employee shall have a reasonable opportunity to cure. Such written notice shall
set forth in reasonable detail the facts and circumstances that are claimed to
constitute Misconduct. If the C.E.O. shall determine that Employee cannot cure
the Misconduct or that the cure is not acceptable to the C.E.O., then the
termination shall be final.
11. Change in Control: For purposes of this Agreement, "Change in
Control" shall be deemed to have occurred if:
i) Any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934 (the "Act"), including a "group" (as that term is used
in Sections 13(d)(3) and 14(d)(2) of the Act), but excluding Editek and any
employee benefit plan sponsored or maintained by Editek, including any
trustee of such plan acting as trustee, who:
(A) makes a tender or exchange offer, pursuant to which any shares of
Editek stock are purchased, for a number of shares of Editek stock representing
more than fifty percent (50%) of the voting power of all outstanding Editek
stock at the time of such offer; or
(B) together with its "affiliates" and "associates" (as those terms are
defined in Rule 12b-2 under the Act) becomes the "beneficial owner" (within the
meaning of Rule 13d-3 under the Act) of at least fifty percent (50%) of the
voting rights of Editek's stock;
<PAGE>
(ii) The shareholders of Editek approve a definitive agreement or plan
to merge or consolidate Editek with or into another corporation whereby
Editek is not the surviving entity;
(iii) Editek enters into a definitive agreement or plan to sell or
otherwise dispose of all or substantially all of its assets to a third
party, unless (x) such corporation is controlled by Editek, and (y)
Employee serves as the Vice President of Finance, Chief Financial Officer
and Secretary of the third party;
(iv) The approval by the stockholders of Editek of a plan of
liquidation of Editek; or
(v) The election of directors constituting more than one-half (1/2) of the
Board of Directors who, prior to their election, were not elected or nominated
for election by at least a majority of the Board of Directors.
12. Termination - Records: In the event of the termination or
resignation of Employee pursuant to this Agreement, whether the termination is
voluntary or without cause or for Misconduct, Employee will transfer all books,
records, documents, and other memoranda of Editek, including all materials which
have come into his custody, possession and control as a result of employment
with Editek, to whomsoever Editek shall designate. Employee shall not, any time
after the resignation or termination of his employment hereunder, divulge to any
person any information or fact relating to the conduct and management of Editek,
which shall have come to his knowledge in the course of his employment and the
disclosure of which would cause damage or loss to Editek or result in the
disclosure of confidential or proprietary information regarding Editek or any of
its members.
13. Restrictive Covenant and Exceptions: So long as this Agreement remains
in effect, Employee shall not take part in any other employment or enterprise
which (1) is in competition with Editek; or (2) otherwise conflicts or
interferes with the full performance of his duties hereunder, without the prior
written consent of the C.E.O. The C.E.O. shall determine the propriety and
acceptability of such additional employment or enterprise at its sole
discretion.
14. Disclosure of Information: Employee recognizes and acknowledges that
Editek's trade secrets and proprietary processes as they may exist from time to
time are valuable, special and unique assets of Editek's business, access to and
knowledge of which are essential to the performance of Employee's duties
hereunder. Employee will not, during or after the term of his employment,
disclose such secrets or processes to any person, firm, corporation, association
or other entity for any reason or purpose whatsoever, nor shall Employee make
use of any such secrets or processes for his own purposes or for the benefit of
any person, firm, corporation, or other entity (except Editek) under any
circumstances during or after the term of his employment, provided that after
the term of his employment these restrictions shall not apply to such secrets
and processes which are then, or from time to time thereafter, in the public
domain (provided that he was not responsible, directly or indirectly, for
permitting such secrets or processes to enter the public domain without Editek's
consent) or which are obtained from a third party which is not obliged under an
agreement of confidentiality with Editek.
<PAGE>
15. Covenants not to Compete or Interfere: Employee agrees that during
the term of this Agreement and for a period of one (1) year after the date of
termination of this Agreement, but in no event less than the period for which a
Severance Award is payable pursuant to Section 6, Employee will not
intentionally interfere with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Editek and any customer, or supplier of Editek
or any of its subsidiaries.
16. Inventions: Employee hereby sells, transfers and assigns to Editek
or to any person or entity designated by Editek, all of the entire right, title
and interest of Employee in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and copyrightable material made or
conceived by Employee, solely or jointly during the term hereof which relate to
methods, apparatus, designs, products, process or devices, sold, leased, used or
under consideration or development by Editek, or which otherwise relate to or
pertain to the business, functions or operations of Editek. Employee agrees to
communicate promptly and to disclose to Editek in such form as Employee may be
required to do so, all information, details, and data pertaining to the
aforementioned inventions, ideas, disclosures, and improvements and to execute
and deliver to Editek such formal transfers and assignments and such other
papers and documents as may be required of Employee to permit Editek or any
person or entity designated by Editek to file and prosecute the patent
applications and, as to copyrightable material, to obtain copyright thereof.
For the purposes of this Agreement, an invention shall be deemed to
have been made during the term of Employee's employment if, during such period,
the invention was conceived or first actually reduced to practice by Editek, and
Employee agrees that any patent application filed within one (1) year after
termination of employment shall be presumed to relate to an invention which was
made during the term of Employee's employment, unless Employee can provide
conclusive evidence to the contrary.
17. Indemnification: Editek agrees to indemnify and hold harmless
Employee for any liability, including reasonable attorneys fees, or court
expenses he may incur while acting within the proper scope of his employment,
which right of indemnification and agreement to hold harmless shall continue in
effect subsequent to any termination under this Agreement, other than
termination on account of Misconduct, so long as any claim or expense relates to
services provided by Employee during his employment.
<PAGE>
18. Binding Effect: This Agreement shall be binding upon the
successors and assigns of Editek, including those that may result from merger
or reorganization.
19. Non-Assignability: Employee's rights and benefits under this
Agreement are personal to him and such right and benefits shall not be subject
to voluntary or involuntary assignment, alienation or transfer, except to the
extent such rights and benefits are lawfully available to Employee's spouse,
estate or beneficiary upon his death.
20. Governing Law: This Agreement shall be governed by the laws of the
State of North Carolina without regard to its conflicts of law principles,
provided that the duties of Employee as described in Section 2 hereof shall be
interpreted in accordance with the laws of the State of Delaware.
21. Binding Arbitration: Any dispute involving this Agreement, other
than an action by Editek to enforce its rights pursuant to Section 16 hereof, or
to enforce the payment of a Severance Award, shall be resolved through binding
arbitration. Any such resolution shall include a determination as to the portion
of the costs of arbitration that shall be borne by Editek and by Employee.
Except if Employee is terminated for Misconduct, if Editek contests the payment
of a Severance Award or the calculation of the Severance Award, Editek shall
continue to pay Employee a periodic amount equal to what otherwise would have
been his Base Salary until such dispute is resolved. To the extent Employee
shall be entitled to additional payments following a resolution of the dispute,
Employee shall be entitled to interest on such payments at one hundred twenty
percent (120%) of the applicable Federal rate as of Employee's Termination Date,
determined under Section 1274(d) of the Code, compounded semi-annually,
determined as of Employee's Termination Date, which interest shall be payable
from the date beginning thirty (30) days after Employee's Termination Date.
22. Notices: All notices, requests, demands or other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given when delivered in person or deposited in the United States mail, postage
prepaid, by registered or certified mail, return receipt requested, to the party
to whom such notice is given, as follows:
As to Editek: Post Office Box 908
Burlington, North Carolina 27215
Attention: James D. Skinner
As to Employee: ______________
Either party may change his or its address or the name of the person to whose
attention the notice or other communication shall be directed from time to time
by serving notice thereof upon the other party as provided herein.
<PAGE>
23. Severability: In the event any of the provisions of this Agreement
are held to be unenforceable, it is understood that the provision(s) affected
thereby shall not be terminated, but shall be deemed amended to the extent
required to render them valid and enforceable, and the validity and
enforceability of the other provisions of this Agreement shall not be affected
thereby.
24. Waiver: Either party's failure to demand strict performance and
compliance with any part of this Agreement shall not be deemed to be a waiver of
any of such party's rights under this Agreement or by operation of law. The
waiver by either party of any breach of any provisions of this Agreement by the
other party shall not operate or be construed as a waiver of any subsequent
breach of this Agreement by such other party.
25. Entire Agreement: Employee and Editek acknowledge that this
Agreement contains the full and complete agreement between them with respect to
the subject matter hereof and that there are no oral or implied agreements or
other modifications not specifically set forth herein. Employee and Editek
further agree that no modification of this Agreement may be made except by means
of a written agreement or memorandum signed by both of them.
IN WITNESS WHEREOF, Editek and Employee have each dated, executed and
delivered this Agreement on the day and year indicated by their signatures.
EDITEK:
Date: By:_________________
Authorized Officer
EMPLOYEE:
____________________
Date:
<PAGE>
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