SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
incorporation 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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.15 per share
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of Common Stock of the Registrant, $.15 par value
("Common Stock"), held by non-affiliates of the Registrant is approximately
$22,068,566, as of March 26, 1996, based upon a price of $1.875 which price is
equal to the closing price for the Common Stock on the American Stock Exchange.
The number of shares of Common Stock outstanding as of March 26, 1996, was
13,193,838.
This document contains __ pages and the Exhibit Index appears at page __ hereof.
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EDITEK, INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Table of Contents
ITEM NO.
Part I
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . .
4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . .
Part II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . .
6. Selected Financial Data . . . . . . . . . . . . . . . . .
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . .
8. Financial Statements and Supplementary
Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9. Changes in and Disagreements With
Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . .
Part III
10. Directors and Executive Officers
of the Registrant. . . . . . . . . . . . . . . . . . . . . .
11. Executive Compensation. . . . . . . . . . . . . . . .
12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . .
13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . .
Part IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K. . . . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
PART I
ITEM 1. BUSINESS.
1. General.
EDITEK, Inc., a Delaware corporation, was organized in
September, 1986 to succeed the operations of a predecessor California
corporation. EDITEK, Inc. and its subsidiaries are referred to herein as "the
Company". The Company currently operates two toxicology laboratories which
provide testing services for identification of substances of abuse. The Company
also develops, manufactures and markets on-site diagnostic and screening tests
which are used to detect substances in humans, foodstuffs, animals, feed and the
environment.
The Company entered the laboratory business on February 11,
1994 when it completed the acquisition of Princeton Diagnostic Laboratories of
America, Inc. ("PDLA") which is now a wholly owned subsidiary. PDLA was
incorporated in Delaware in December, 1986. On December 22, 1986, it acquired
from Stauffer Chemical Company, a subsidiary of Cheesebrough-Pond's Inc., all of
the Common Stock of Psychiatric Diagnostic Laboratories of America, Inc.,
through which PDLA conducts most of its operations. On January 30, 1996, the
Company acquired the assets and certain liabilities of another laboratory,
MEDTOX Laboratories, Inc. ("MEDTOX").
The combination of laboratory services and the Company's other
products and services allows the Company to offer a full line of products and
services for the substance abuse testing marketplace, including (1) on-site
tests for the detection of substance of abuse drugs (EZ-SCREEN(R) and
VERDICT(R)); (2) on-site disposable qualitative determination of alcohol
intoxication; (3) Substance Abuse and Mental Health Services Administration
(SAMHSA), formerly NIDA, certified laboratory testing (screening and
confirmation); (4) accessory items (gloves, specimen containers, permanent
recording temperature strips); and (5) consultation. Sales of these substance
abuse testing products and services accounted for approximately 73% of the
revenues of the Company for the year ended December 31, 1995.
In 1993 diAGnostix, inc. was incorporated by the Company in
Delaware as a wholly-owned subsidiary to address the broadly defined
environmental testing marketplace. On June 1, 1995 the Company, through
diAGnostix, inc., acquired Bioman Products, Inc. In addition to selling the
Company's diagnostic products for the environmental and agri/food industry,
diAGnostix, inc. is currently sourcing additional products manufactured by other
companies that could be sold through diAGnostix, inc. It is also anticipated
that the first products having civilian applications resulting from the
Company's research and product development efforts with the United States
Department of Defense will be oriented towards the environmental testing
marketplace and sold through diAGnostix, inc. Sales of the products sold through
diAGnostix, inc. accounted for approximately 14% of the Company's revenues in
the year ended December 31, 1995.
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The Company also sells prepared and dehydrated culture media,
animal blood products, sera and plasma, custom antisera, and other biomedical
products and supplies, which are either produced by the Company or purchased
from other suppliers. The Company also markets contract manufacturing services
which utilize the same manufacturing equipment and processes used to manufacture
the on-site products. The Company expects sales of these products and services,
which were first introduced in 1986, to account for a smaller portion of its
future revenues due to management's decision to focus primarily on the marketing
of its laboratory services and diagnostic tests. Sales of these products and
services accounted for approximately 5% of the revenues of the Company for the
year ended December 31, 1995.
The balance of the Company's revenues are from work performed
for the U.S. Department of Defense including product sales as well as royalties,
fees and other income. This represented approximately 8% of the revenues of the
Company for the year ended December 31, 1995.
Recent Developments.
On January 30, 1996, the Company acquired the assets and
certain liabilities of MEDTOX. MEDTOX was formed in 1984 and is located in St.
Paul, Minnesota. MEDTOX was founded in 1984 by Dr. Harry G. McCoy. Dr. McCoy saw
the need for a state-of-the-art, full service, toxicology reference laboratory
that would provide timely, accurate analysis for a wide range of drugs and
toxins. From its inception, MEDTOX has fulfilled that goal by offering
broad-based toxicology services, including 24 hour emergency service at no extra
cost to the client, therapeutic drug monitoring, medico-legal investigations and
other services.
MEDTOX rapidly gained a reputation for high quality and superb
customer service in the local Minnesota medical market through the provision of
toxicology laboratory services for local hospitals, physicians and general
medical laboratories. MEDTOX then began an expanded regional program as well as
national marketing which increased revenues and expanded the customer base.
In 1987, MEDTOX purchased its largest Minneapolis competitor,
Metropolitan Medical Center ("MMC"), and gained the services of Dr. Gary
Hemphill, one of the leading scientists and laboratory directors at MEDTOX
today. Dr. Hemphill and MMC also gave MEDTOX a foothold in the emerging
employment drug screening business.
With the creation of National Institute for Drug Abuse
("NIDA") in 1988 to oversee mandated drug screening for safety sensitive
employees, MEDTOX became one of the first ten laboratories in the country on the
original list of NIDA certified laboratories. MEDTOX business then rapidly grew
in two major toxicology market segments:
1. Forensic toxicology (substance abuse testing).
2. Medical toxicology - the provision of reference toxicology testing the
areas of therapeutic drug monitoring, etc., for hospitals, physicians and
general clinical laboratories lacking the sophisticated toxicology
capabilities of MEDTOX.
<PAGE>
For the year ended December 31, 1995 MEDTOX had net revenues
of $20,219,000 with net income of $2,879,000. See Unaudited Pro Forma
Consolidated Financial Information contained herein. 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 of
MEDTOX. Also, the Company decided to down size certain administrative positions
at both PDLA and MEDTOX in order to eliminate duplicate functions. The
consolidation plan, which was put in place prior to the closing of the
acquisition of MEDTOX, will be complete by early in the second quarter of 1996.
2. Principal Services, Products, and Markets.
General. The Company's principal sources of revenues come from
the sale of drugs of abuse laboratory testing services and products including a
variety of on-site screening products.
A. Drug Abuse Laboratory Testing Services. The primary
business focus of the Company is the provision of laboratory testing services
for the identification of drugs of abuse. These tests are conducted using
methodologies such as enzyme immunoassay, radio immunoassay, gas liquid
chromatography, high pressure liquid chromatography and gas chromatography/mass
spectrometry. The Company has pioneered security and chain of custody
procedures, including sample bar coding, to help maintain the integrity of the
specimens and the confidentiality of the test results.
The Company's customers for abused substance testing include
public and private corporations. Among this customer base are Fortune
500 companies. In addition to public and private corporations, abused substance
testing is also conducted on behalf of service firms such as financial
institutions, drug treatment counseling centers and hospitals.
B. Products. The Company's test products, which were adapted
from assay technologies previously developed in the 1970's for human medical
diagnostics, are easy to use, inexpensive, on-site tests. The tests are capable
of rapidly detecting the presence of a number of substances in human urine or
blood samples, foodstuffs, animals, feed and the environment without the
necessity of instruments or technical personnel. The Company's diagnostic tests
and the disposable devices used in connection therewith are marketed under
the names EZ-SCREEN(R), QUIK-CARD(R), VERDICT(R), RECON(R) and EZ-QUANT(R),
which are registered trademarks of the Company. A QUIK-CARD together with the
necessary reagents, comprise an EZ-SCREEN test. EZ-SCREEN tests were first
introduced by the predecessor corporation of the Company in 1985. EZ-SCREEN
and VERDICT tests are utilized in agricultural diagnostics (which includes
mycotoxin detection, drug residue surveillance, feed analysis, and
regulatory compliance) and clinical diagnostics (which includes drugs of
abuse testing). VERDICT and RECON are "self-performing", one-step tests
marketed, respectively, to the drugs of abuse and Department of Defense
testing markets. The VERDICT and RECON tests were both introduced in 1993.
EZ-QUANT tests, first introduced in 1994 are microtiter, ELISA-based,
quantitative assays utilized in agricultural diagnostics.
.
<PAGE>
Clinical Diagnostics. The EZ-SCREEN tests are also used in
clinical diagnostics to detect the presence of certain drugs of abuse in humans.
The Company now has received clearance from the Food and Drug Administration
("FDA") for EZ-SCREEN tests for six of the most commonly abused substances:
cannabinoids, cocaine, opiates, barbiturates, amphetamines, and PCP. The Company
markets this product line, both domestically and internationally, to law
enforcement agencies, industrial companies for pre-employment screening,
physicians' offices, hospitals, clinics and drug abuse counseling and treatment
centers.
VERDICT tests are used to detect the presence of certain drugs
of abuse in humans. The Company is now marketing the VERDICT cocaine test, the
VERDICT THC test, and the VERDICT opiates test. The Company has received
clearance from the FDA for its VERDICT cocaine test and VERDICT opiates test.
The VERDICT THC test is being marketed for forensic use only, pending 510(K)
premarket clearance from the FDA.
Alcohol Abuse Detection. The Company distributes on-site tests
for the detection of alcohol with the EZ-SCREEN Breath Alcohol Test. The test
consists of a small tube containing chemically treated crystals that change
color in the presence of alcohol. The Company purchases these products through a
distribution agreement with WNCK, Inc.
Agridiagnostic Tests. The EZ-SCREEN and EZ-QUANT tests are
used in agricultural diagnostics to detect, among other things, mycotoxins,
which are hazardous substances produced by fungal growth. Mycotoxins frequently
contaminate corn, wheat, rye, barley, peanuts, tree nuts, cottonseed, milk,
rice, and livestock feeds. The EZ-SCREEN agridiagnostic tests are marketed to
regulatory authorities and producers of foodstuffs and feeds.
Conventional Biodiagnostic Products. The Company manufactures
and/or distributes a variety of products used by researchers, clinical testing
laboratories, government agencies and private industry for veterinary and
agricultural testing purposes. These products include prepared and dehydrated
culture media, animal blood products, sera and plasma, custom antisera
(consisting of polyclonal antibodies to a variety of antigens), immunodiagnostic
kits, species identification plates and other biomedical products and supplies.
The Company produces laboratory diagnostic kits for detection of sulfa drugs and
other antibiotics in livestock, and distributes a variety of other biomedical
products and supplies produced by other manufacturers.
3. Marketing and Sales.
The Company believes that the combined operations of the
laboratory operations and the on-site test kits manufactured by the Company have
created synergy in the marketing of comprehensive, on-site and laboratory
testing programs to a common customer base. The Company is in a position to
offer a full line of products and services for the substance abuse testing
marketplace, including (1) on-site tests for the detection of substance of abuse
drugs (EZ-SCREEN and VERDICT); (2) on-site qualitative and quantitative
determination of alcohol intoxication (both disposable and electronic instrument
detection devices); (3) SAMHSA certified laboratory testing (PDLA screening and
confirmation); (4) accessory items (gloves, specimen containers, permanent
recording temperature strips); and (5) consultation.
<PAGE>
diAGnostix, Inc. The Company currently markets its
EZ-SCREEN, EZ-QUANT, and other tests through diAGnostix, Inc. with an
internal sales and marketing department as well as through various distribution
agreements with third party distributors. The Company has current distribution
arrangements throughout Europe, Japan and other countries worldwide. Customers
for products sold through diAGnostix include livestock producers, food
processors, veterinarians, and government agencies.
Other. The Company also provides Conventional Biodiagnostic
Products. Customers for Conventional Biodiagnostic Products consist of
government agencies, testing laboratories, manufacturers of medical diagnostic
products, and researchers.
Major Customers. Sales to the United States government and its
agencies, primarily the United States Department of Agriculture ("USDA"),
amounted to approximately 4% of the Company's total revenues during 1995. The
majority of these sales are through two separate multi-year contracts with the
United States Department of Agriculture. One contract expires September 30,
1996, and the other expires September 30, 1999. Both these contracts are subject
to annual renewals by the USDA.
Sales to foreign customers, primarily distributors, amounted
to approximately 8% of the Company's total revenues during 1995. No one foreign
customer represented more than 5% of the Company's total revenues.
4. New Products.
During 1995 the primary research and development efforts of
the Company focused on the development of tests to extend the product offerings
in each of the immunoassay product lines produced by the Company. These product
lines consist of the VERDICT/RECON "self-performing" immunochromatographic
assays, the EZ-SCREEN membrane-based enzyme immunoassays, and the EZ-QUANT
microtiter immunoassays.
VERDICT Tests for Drugs of Abuse - During 1995 research and
development efforts were directed to continued support and refinement of the
currently marketed VERDICT one-step tests for the detection of cocaine, THC
(marijuana), and opiate metabolites and to the development of additional VERDICT
tests for the detection of phencyclidine (PCP), amphetamines and barbiturates.
Clinical evaluation of the VERDICT PCP test was completed in December, 1995 and
the product was released for sale for forensic use in February, 1996. Clinical
evaluation of the VERDICT Amphetamines and VERDICT Barbiturates tests will be
conducted in early 1996 with a planned product release for sale during the
second quarter, 1996. Additional efforts in 1996 will be directed toward
development of VERDICT tests for benzodiazepines and methadone and to the design
of a test device which would permit
<PAGE>
simultaneous testing of a sample for five different drugs of abuse following the
addition of a single sample.
RECON Tests for Agents of Biological Origin - In 1991 the
Company successfully completed a "proof of principle" study under contract with
the U.S. Department of Defense (DOD) to develop rapid, on-site tests for the
detection of certain biological materials. Since September 1991 the Company has
had an ongoing contract to continue this development program. The initial phase
of the ongoing contract led to development of EZ-SCREEN tests for 6 agents,
Botulinum Toxins A and B, B. anthracis, Staphylococcal Enterotoxin B, Ricin
Toxin, Spore Simulant and Botulinum Toxin E. Currently the contract calls for
the development of RECON one-step tests for nine agents of biological origin
using reagents supplied by the U.S. Government. The contract also calls for the
supply of a limited number of each of these RECON tests to agencies within the
DOD for evaluation purposes. In December 1995 production of the last of three
trial production lots of tests for four of the agents began. Shipment of these
four tests for Ricin Toxin, Plague F1, Staphylococcal Enterotoxin B and Spore
Simulant were completed during the first quarter 1996 as was delivery of the
first lot of tests for one additional agent. Additional efforts in 1996 will be
directed toward completing development of tests for three additional agents and
toward production of trial lots of the five remaining agents. As of December
31, 1995 the total value of the contract was $1,177,000 and a total of
$941,000 had been billed under the contract to date.
EZ-SCREEN Tests for Drugs of Abuse - During 1995 the primary
EZ-SCREEN research and development effort was directed toward the development
and clinical evaluation of the EZ-SCREEN PROFILE drugs of abuse test. This
product, released for sale for forensic use in February, 1996 permits
simultaneous testing of a single urine sample for THC, cocaine, opiates,
amphetamines and PCP. During 1996, the EZ-SCREEN PROFILE product will be fully
transitioned to manufacturing, development work on EZ-SCREEN Benzodiazepines
will be completed and development of an EZ-SCREEN Methadone test will be
initiated.
EZ-QUANT Tests for Mycotoxins and Antibiotic Residues - In
1995, the Company's research and development group completed the development of
an EZ-QUANT test for determining the concentration of deoxynavalenol (DON) in
various food products. The EZ-QUANT DON test, which utilizes reagents provided
to the Company under a sole distribution agreement with Agriculture Canada, was
released for sale in September 1995. Also in 1995 work was initiated on two
additional EZ-QUANT products. The EZ-QUANT Chloramphenicol test was released in
February 1996 and the EZ-QUANT Ochratoxin test will be released in 1996.
Additional effort in 1996 will be directed towards transitioning production of
the EZ-QUANT products to manufacturing and pursuing Association of Official
Analytical Chemists (AOAC) Research Institute certification of the
EZ-QUANT Aflatoxin product.
Biosensors - In March, 1995 the Company entered into a
Research Collaboration Agreement with Battelle Memorial Institute to explore the
commercial feasibility of utilizing the Company's immunoassay reagents with a
novel, state-of-the-art biosensor instrument developed
<PAGE>
by Battelle under contract with the Department of Defense. It was anticipated
that if the studies proved successful, the Company would continue working with
Battelle toward the creation of products for commercial application of the
biosensor system, initially for food safety testing purposes. At year end
studies had been completed which demonstrated detection of low levels of labeled
aflatoxin B1 conjugate with good signal to noise ratio. Studies are now underway
to determine the performance and sensitivity of the biosensor system for the
detection of aflatoxin in a corn matrix. Upon completion of these studies, data
will be analyzed and a decision made relative to potential follow-on activity.
Other Tests - The Company is assessing on a preliminary basis,
the market opportunity for and feasibility of developing other EZ-SCREEN,
EZ-QUANT and one-step tests for the detection of other mycotoxins, antibiotics,
drugs of abuse and other conditions found in humans or animals. Opportunities
for development of assays using other technologies are also assessed on an
ongoing basis.
5. Research and Development.
The markets for agridiagnostic and clinical diagnostic
products are highly competitive, and innovations and technological changes occur
frequently. For these reasons, the Company has devoted substantial funds to
research and development of its immunoassay products. During the fiscal years
ended December 31, 1995, 1994 and 1993, the Company incurred expenses of
$920,000, $729,000, and $825,000 respectively, for research and development. In
1995, $201,000, of the expenses incurred for research and development were
reimbursed by outside parties or involved charges for which outside parties had
reimbursement commitments. As of December 31, 1995, the Company employed 14
people in research and development, 6 of whom hold Ph.D.'s.
6. Raw Materials.
The raw materials required by the laboratory for urine drug
testing consist primarily of two types: specimen collection supplies and
reagents for laboratory analysis. The collection supplies include Drug Testing
Custody and Control Forms that identify the specimen and the client, as well as
document the chain-of-custody. Collection supplies also consist of specimen
bottles and shipping boxes. Reagents for drug testing are primarily immunoassay
screening products and various chemicals used for confirmation testing. The
Company believes all of these materials are available at competitive prices from
other suppliers.
The primary raw materials required for the immunoassay-based
test kits produced by the Company consist of antibodies, antigens and other
reagents, plastic injection-molded devices, glass fiber, nitrocellulose filter
materials, and packaging materials. The Company maintains an inventory of raw
materials which, to date, has been acquired primarily from third parties.
Currently, most raw materials are available from several sources. The Company
possesses the technical capability to produce its own antibodies and has
initiated production of antibodies for certain tests. However, if the Company
were to change its source of supply for
<PAGE>
raw materials used in a specific test, additional development, and the
accompanying costs, may be required to adapt the alternate material to the
specific diagnostic test.
7. Patents, Trademarks, Licensing and Other Proprietary Information.
The Company holds nine issued United States patents, eight of
which generally form the basis for the EZ-SCREEN and one-step technologies.
Additionally, the Company has one patent which relates to methods of utilizing
whole blood as a sample medium on its immunoassay devices. The Company also
holds various patents in several foreign countries. The Company also holds two
United States patents which it acquired in the acquisition of Granite
Technological Enterprises, Inc. in 1986.
Of the eight U.S. patents mentioned above which generally form
the basis for the EZ-SCREEN and one-step technologies, one expires in 2000, one
expires in 2004, five expire in 2007, and one expires in 2010. The patent which
relates to the methods of utilizing whole blood as a sample medium expires in
2012.
There can be no guarantee that there will not be a challenge
to the validity of the patents. In the event of such a challenge, the Company
might be required to spend significant funds to defend its patents, and there
can be no assurance that the Company would be successful in any such action.
The Company holds twelve registered trade names and/or
trademarks in reference to its products and corporate names. The trade names
and/or trademarks of the Company range in duration from 10 years to 20 years
with expiration dates ranging from 2001 to 2008. Applications have also been
made for additional trade names.
The Company believes that the basic technologies requisite to
the production of antibodies are in the public domain and are not patentable.
The Company intends to rely upon trade secret protection of certain proprietary
information, rather than patents, where it believes disclosure could cause the
Company to be vulnerable to competitors who could successfully replicate the
Company's production and manufacturing techniques and processes.
8. Seasonality.
The Company believes that the laboratory testing business is
subject to seasonal fluctuations in pre-employment screening which has low
points in August and December annually. The Company does not believe that
seasonality is a significant factor in sales of its on-site immunoassay tests.
However, the Company believes that sales of certain of its tests for the
agricultural markets such as its EZ-SCREEN:AFLATOXIN test coincide with the
harvesting of crops meant for human and animal consumption.
9. Backlog.
<PAGE>
At December 31, 1995, the Company did not have any significant
backlog and normally does not have any significant backlog. The Company does not
believe that recorded sales backlog is a significant factor in its business.
10. Competition.
Laboratory Services. Competition in the area of drugs of abuse
testing is intense. Competitors and potential competitors include forensic
testing units of large clinical laboratories, such as Laboratory Corporation
of America Holdings, Corning/Metpath Laboratories and SmithKline Laboratories,
Inc. and other independent laboratories, other specialized laboratories, and
in-house testing facilities maintained by hospitals.
Competitive factors include reliability and accuracy of tests,
price structure, service, transportation collection networks and the ability to
establish relationships with hospitals, physicians, and users of drug abuse
testing programs. It should be recognized, however, that many of the competitors
and potential competitors have substantially greater financial and other
resources than the Company.
The industry in which the Company competes is characterized by
service issues including turn-around time of reporting results, price, the
quality and reliability of results, and an absence of patent or other
proprietary protection. In addition, since tests performed by the Company are
not protected by patents or other proprietary rights, any of these tests could
be performed by competitors. However, there are proprietary assay protocols for
the more specialized testing that are unique to the company.
Some specific segments of the laboratory testing business are
price competitive with low margins. Other segments, which place a premium on
quality, constitute a large part of the business of MEDTOX, where, to date,
quality service has been a more important competitive factor than price. This
has allowed MEDTOX to generate positive gross margins and operating income. The
Company's ability to successfully compete in the future and maintain it margins
will be based on its ability to maintain its quality and customer service
strength while maintaining efficiencies and low cost operations. There can be no
assurance that price competitiveness will not increase in importance as a
competitive factor in the business of MEDTOX.
Immunoassay Tests. The diagnostics market has become highly
competitive with respect to the price, quality and ease of use of various tests
and is characterized by rapid technological and regulatory changes. The Company
has designed its on-site tests as inexpensive, on-site tests for use by
unskilled personnel, and has not endeavored to compete with laboratory-based
systems. Numerous large companies with greater research and development,
marketing, financial, and other capabilitied, as well as government-funded
institutions and smaller research firms, are engaged in research,
development and marketing of diagnostic assays for application in the areas
for which the Company produces its products.
<PAGE>
The Company has experienced increased competition with respect
to its immunoassay tests from systems and products developed by others, many of
whom compete solely on price. As the number of firms marketing diagnostic tests
has grown, the Company has experienced increased price competition. A further
increase in competition may have a material adverse effect on the business and
future financial prospects of the Company.
11. Government Regulations.
The products and services of the Company are subject to the
regulations of a number of governmental agencies as listed below. It is believed
that the Company is currently in compliance with all regulatory authorities. The
Company cannot predict whether future changes in governmental regulations might
significantly increase compliance costs or adversely affect the time or cost
required to develop and introduce new products. In addition, products of the
Company are or may become subject to foreign regulations.
1. United States Food and Drug Administration (FDA).
Certain tests for human diagnostic purposes must be cleared by the FDA prior
to their marketing for in vitro diagnostic use in the United States. The
FDA regulated products produced by the Company are in vitro diagnostic products
subject to FDA clearance through the 510(k) process which requires the
submission of information and data to the FDA that demonstrates that the device
to be marketed is substantially equivalent to a currently marketed device. This
data is generated by performing clinical studies comparing the results obtained
using the Company's device to those obtained using an existing test product.
Although no maximum statutory response time has been set for review of a 510(k)
submission, as a matter of policy the FDA has attempted to complete review of
510(k) submissions within 90 days. To date, the Company has received 510(k)
clearance for 10 different products and the average time for clearance was 58
days with a maximum of 141 days and a minimum of 20 days. Products subject to
510(k) regulations may not be marketed for in vitro diagnostic use until the FDA
issues a letter stating that a finding of substantial equivalence has been made.
As a registered manufacturer of FDA regulated
products, the Company is subject to a variety of FDA regulations including the
Good Manufacturing Practices (GMP) regulations which define the conditions under
which FDA regulated products are to be produced. These regulations are enforced
by FDA and failure to comply with GMP or other FDA regulations can result in the
delay of premarket product reviews, fines, civil penalties, recall, seizures,
injunctions and criminal prosecution.
2. Health Care Financing Administration (HCFA). The
Clinical Laboratory Improvement Act (CLIA) introduced in 1992 requires that all
in vitro diagnostic products be categorized as to level of complexity. A request
for CLIA categorization of any new clinical laboratory test system must be made
simultaneously with FDA 510(k) submission. The EZ-SCREEN and VERDICT drugs of
abuse tests currently marketed by EDITEK have been categorized as moderately
complex. The complexity category to which a clinical laboratory test system
is assigned may limit the number of laboratories qualified to use the test
system thus impacting product sales.
<PAGE>
3. United States Department of Agriculture (USDA).
The Company's animal facilities are subject to and comply with applicable
regulations of the USDA. The livestock related products of the Company may
become subject to state regulation but the Company does not anticipate any
difficulties in complying with these regulations, if enacted.
4. United States Department of Defense (DOD). With
reclassification of the Company's contract with the DOD from UNCLASSIFIED to
SECRET, it has been necessary to establish the appropriate security procedures
and facilities, including designation of a Facility Security Officer who is
responsible for overseeing the security system, including conduct of periodic
security audits by appropriate defense agencies. Additionally, the Company is
now subject to periodic audits of its accounting systems and records by the
Defense Audit Agency.
5. Drug Enforcement Administration (DEA). The primary
business of the Company involves either testing for drugs of abuse or developing
test kits for the detection of drugs/drug metabolites in urine. PDLA and MEDTOX
laboratories are registered with the DEA to conduct chemical analyses with
controlled substances. The EDITEK facility is registered by the DEA to
manufacture and distribute controlled substances and to conduct research with
controlled substances. Maintenance of these registrations requires that the
Company comply with applicable DEA regulations.
6. Substance Abuse and Mental Health Services
Administration (SAMHSA). Both PDLA and MEDTOX laboratories are certified by
SAMHSA, PDLA since 1989 and MEDTOX since 1988. SAMHSA certifies laboratories
meeting strict standards under Subpart C of Mandatory Guidelines for Federal
Workplace Drug Testing Programs. Continued certification is accomplished through
periodic inspection by SAMHSA to assure compliance with applicable regulations.
7. Additional Laboratory Regulations. The PDLA and
MEDTOX laboratories and certain of the laboratory personnel are licensed or
otherwise regulated by certain federal agencies, states, and localities in which
PDLA and MEDTOX conduct business. Federal, state and local laws and regulations
require PDLA and MEDTOX, among other things, to meet standards governing the
qualifications of laboratory owners and personnel, as well as the maintenance of
proper records, facilities, equipment, test materials, and quality control
programs. In addition, both laboratories are subject to a number of other
federal, state, and local requirements which provide for inspection of
laboratory facilities and participation in proficiency testing, as well as
govern the transportation, packaging, and labeling of specimens tested by either
laboratory. The laboratories are also subject to laws and regulations
prohibiting the unlawful rebate of fees and limiting the manner in which
business may be solicited.
Both laboratories receive and use small quantities of
hazardous chemicals and radioactive materials in their operations and are
licensed to handle and dispose of such chemicals and materials. Any business
handling or disposing of hazardous and radioactive waste is subject to potential
liabilities under certain of these laws.
<PAGE>
12. Product Liability.
Manufacturing and marketing of products by the Company entail
a risk of product liability claims. The exposure to product liability claims in
the past was mitigated to some extent by the fact that the Company's products
were principally directed toward food processors (as contrasted with human
diagnostics) and most of its Conventional Biodiagnostic Products were used as
components in research, testing or manufacturing by the purchaser and conformed
to the purchaser's specifications. However, a greater portion of the Company's
current revenues result from sales of human diagnostic tests, thereby
potentially increasing exposure to product liability claims. On August 13, 1993,
the Company procured insurance coverage against the risk of product liability
arising out of events after such date, but such insurance does not cover claims
made after that date based on events that occurred prior to that date.
Consequently, for uncovered claims, the Company could be required to pay any and
all costs associated with any product liability claims brought against it, the
cost of defense whatever the outcome of the action, and possible settlement or
damages if a court rendered a judgment in favor of any plaintiff asserting such
a claim against the Company. Damages may include punitive damages, which may
substantially exceed actual damages. The obligation to pay such damages could
have a material adverse effect on the Company and exceed its ability to pay such
damages. No product liability claims are pending.
The Company's laboratory testing services are primarily
diagnostic and expose the Company to the risk of liability claims. The Company's
laboratories have maintained continuous Professional and General Liability
insurance since 1985. To date, the Company has not had any substantial product
liability and no material professional service claims are currently pending.
13. Employees.
As of December 31, 1995, the Company had 106 full-time
employees compared to 100 full-time employees as of December 31, 1995. Of the
106 full-time employees, 39 were in laboratory operations and systems, 18 were
involved in research, testing, and product development activities, 20 in
production and distribution, 14 in sales and marketing, and 15 in administrative
and clerical functions. Additionally, 8 of its personnel hold Ph.D. degrees.
As of January 30, 1996, MEDTOX had 247 employees, of which 199
were involved in laboratory operations, 18 were involved in sales and marketing,
5 were involved in research and development and 25 were involved in
administrative and clerical functions. Additionally, 6 of its personnel hold
Ph.D. degrees.
The consolidation of the laboratory operations from PDLA in
New Jersey into the laboratory operations of MEDTOX will result in the
elimination of 35 positions in New Jersey and the addition of certain of the
some positions in Minnesota.
<PAGE>
The Company's employees are not covered by any collective
bargaining agreements, and the Company has not experienced any work stoppages
and the Company considers its relations with its employees to be good.
14. MEDTOX Acquisition and Capital Structure
The Company has undergone a significant change as a result of
the acquisition of MEDTOX and the associated financing. The following points
represent certain potential risk factors associated with the acquisition and
financing.
1. Dependence on Sales of Equity. As of December 31, 1995, the
Company had not achieved a positive cash flow from operations. Accordingly, the
Company relies on available credit arrangements, outside funding of research and
development and continued sales of its equity securities to fund operations
until a positive cash flow can be achieved. From January 1, 1991 through
December 31, 1995, the Company raised approximately $12 million from equity
financing and issued 6,058,699 shares of the Company's Common Stock for an
average price of $1.98 per share, all of which were issued at a discount to the
market value of the Company's Common Stock. In order to finance the acquisition
of MEDTOX, pay applicable costs and expenses and to provide working capital, the
Company raised approximately $20 million from the sale of the Preferred Stock
and Common Stock. This amount and the amount borrowed, as described below, have
allowed the Company to consummate the MEDTOX acquisition and the Company
believes should provide enough working capital to help the Company achieve
positive cash flow. If the Company is unable to achieve a positive cash flow,
additional financing will be required. There can be no assurance that additional
financing can be obtained or if obtained, that the terms will be favorable to
the Company.
2. Debt Service; Debt Seniority; No Dividends. To finance the
acquisition of MEDTOX and to provide working capital the Company borrowed $5
million in January, 1996. The debt financing consists of two term loans totaling
$4 million and up to $7 million in the form of a revolving line of credit based
on the receivables of the Company (the "Loan Agreement"). The amount of credit
available to the Company varies with the accounts receivable and the inventory
of the Company. On January 30, 1996, the receivables and inventory amounts made
$2.9 million of the credit facility available, of which the total is still
available at March 26, 1996. There can be no assurance that the Company will
have sufficient revenues to service payments of principal and interest on this
indebtedness. Failure to service this indebtedness would have a material adverse
effect on the Company. The indebtedness of the Company will be senior to the
Series A Preferred Stock and shares of Common Stock upon liquidation of the
Company. Interest payments on the indebtedness may cause there to be
insufficient cash to pay any dividends. In addition, the loan amount and the
line of credit agreement contain covenants that restrict the Company's ability
to pay dividends even if the Company has cash available from which to pay
dividends.
3. Unexpected Effects of Merger(s). The Company completed the
acquisition of the MEDTOX assets on January 30, 1996 (the "Closing Date"). The
Company also acquired the assets and operations of Bioman Products, Inc. on June
1, 1995. In February 1994, the Company acquired Princeton Diagnostic
Laboratories of America, Inc. ("PDLA"). The Company anticipates that
<PAGE>
certain synergism will arise between the Company and Bioman, PDLA and MEDTOX.
However, there can be no assurance that any synergism will arise from the
recent acquisitions. The efforts required to integrate the business of the
Company with other operations may have a material adverse effect on the
operations of either the Company or the acquired company(s).
4. Adverse Effect on Market Price of Sales of the Company
Stock. A substantial number of shares of capital stock of the Company have been
issued in transactions that are exempt from registration under the Securities
Act of 1933, as amended, either in private placements or pursuant to
Regulation S.
On January 30, 1996 and February 2, 1996, the Company sold 303
shares of Series A Preferred Stock utilizing the exemption afforded by
Regulation S of the Commission (the "Offshore Offering"), which shares are
convertible into a minimum of 5,459,459 shares of Common Stock and may be
convertible into more shares of Common Stock if the market price of the Common
Stock of the Company is less than $3.70 per share on the conversion dates. As of
March 26, 1996, the market price of the Common Stock was $1.875 per share at
which price the 303 shares of Series A Preferred Stock would be convertible into
10,744,681 shares of Common Stock, based on a conversion price of $1.41 per
share or a 25% discount to the market price on March 26, 1996.
Regulation S provides generally that offers or sales that
occur outside the United States and in compliance with the requirements thereof
are not subject to the registration requirements of the Act. Subject to certain
restrictions and conditions set forth therein, Regulation S is available for
offers and sales to investors that are not U.S. persons. Such offshore investors
who purchase the shares of Series A Preferred Stock in the Offshore Offering
pursuant to Regulation S are not permitted to transfer such shares or Conversion
Shares to a U.S. Person (defined generally as a resident of the U.S. or an
entity organized under the laws of the U.S.) for a period of at least 40 days
after February 2, 1996, the closing of the Offshore Offering (the "Restricted
Period"). Resales to buyers who are not U.S. persons are permitted at any time.
After the expiration of the Restricted Period, investors who
purchased shares of Series A Preferred Stock in the Offshore Offering may sell
such shares or Conversion Shares in the U.S., but only if such shares are
registered or an exemption from registration is available. Accordingly,
beginning on March 30, 1996 (the first day any investor will be able to convert
shares of Series A Preferred Stock into shares of Common Stock), to the extent
that any offshore investors have converted their shares of Series A Preferred
Stock into Common Stock, such offshore investors will also be able to sell such
Common Stock in the U.S. if the shares are registered or an exemption is
available.
The Company does not expect to file a registration statement
with respect to shares sold pursuant to Regulation S. Therefore, sales of
Conversion Shares for such offshore investors must be made in compliance with an
exemption from registration. The agreements between the Company and offshore
investors provide that the stock certificates for the
<PAGE>
Conversion Shares will not contain restrictive securities legends. Consequently,
if the Company complies with these agreements, the Company would not be able to
prevent illegal resales of Series A Preferred Stock or Conversion Shares by
offshore investors and each offshore investor will make its own determination
whether such sales qualify for exemptions from registration. On March 27, 1996,
the Company determined it would place legends on the certificates of shares of
Common Stock to assure that all resales of securities are made in compliance
with applicable securities laws. The Company believes such legends will not
prevent legitimate trading of its stock. A number of holders of Series A
Preferred Stock have threatened litigation over the Company's decision. The
Company and its Preferred shareholders have commenced discussions through the
placement agent for the Preferred offering about ways to address the concerns
of the Company without unduely delaying stock transfers that are in compliance
with securities laws. There can be no assurance, however, that such discussions
will result in an acceptable agreement between the Company and the holders of
its Series A Preferred Stock.
In connection with the acquisition of MEDTOX, the Company
issued 2,517,306 to the former shareholders of MEDTOX and sold 103 shares of
Series A Preferred stock, all pursuant to Regulation D. The shares issued to the
former shareholders of MEDTOX and the Common Stock issuable upon the conversion
of the 103 shares of Series A Preferred Stock were included on a Registration
Statement on Form S-3 which was filed on February 9, 1996. The 103 shares of
Series A Preferred Stock would be convertible into 3,652,482 shares of Common
Stock based on a conversion price of $1.41 per share or a 25% discount to the
market price on March 26, 1996.
If substantial sales of the Company's Common Stock occur,
whether by the investors in the Offshore Offering or by U.S. investors pursuant
to the Registration Statement or otherwise, such sales could have a material
adverse effect on the market price of the Company's Common Stock.
5. Adverse Effect of Price Protection Provisions. The number
of shares of Common Stock issuable upon conversion of a share of Series A
Preferred Stock will equal the number derived by dividing (i) the purchase price
of the Series A Preferred Stock ($50,000 per share) by (ii) the lower of (x)
$2.775 or (y) 75% of the Market Price of the Common Stock on the day the shares
of Series A Preferred Stock are converted into Common Stock. "Market Price" is
defined for this purpose as the daily average of the closing bid prices quoted
on the American Stock Exchange or other exchange on which the Common Stock is
traded for the five trading days immediately preceding the date the shares are
converted. Accordingly, a minimum of 7,333,333 shares of Common Stock are
issuable upon conversion of the 407 shares of Series A Preferred Stock sold in
both the U.S. Offering and the Offshore Offering, but the actual number of
shares of Common Stock issuable upon conversion of the Series A Preferred Stock
will not be known until the time of issuance of the shares of Common Stock upon
conversion. As of March 26, 1996, the market price of the Common Stock was
$1.875 per share at which price the 407 shares of Series A Preferred Stock would
be convertible into 14,432,624 shares of Common Stock, based on a conversion
price of $1.41 per share or a 25% discount to the market price on
March 26, 1996.
The MEDTOX Asset Purchase Agreement provides that, if after
the Closing Date the market value of the Common Stock of the Company declines
below $1.986 per share during four specified periods (the "Repricing Periods")
following press releases by the Company, the Company will issue additional
shares of Common Stock ("Additional Shares") to shareholders of MEDTOX who
retain their shares of Common Stock through four specified dates (the "Repricing
Dates") to compensate the MEDTOX shareholders for decreases after the closing of
the MEDTOX acquisition in the market price of the Common Stock of the Company
below $1.986 per share. The Repricing Dates are the fifth trading day following
the date the Registrant issues press releases announcing its financial
performance for the fiscal
<PAGE>
quarters ending on March 31, 1996, September 30, 1996 and September 30, 1997 and
the fiscal year ending on December 31, 1996 and the Repricing Periods are the
dates between the dates of the press releases and the Repricing Dates.
Accordingly, the number of Additional Shares issuable in the future in
connection with the MEDTOX acquisition cannot be determined at this time and
will depend upon changes in the market price of the Common Stock, as well as the
extent to which MEDTOX shareholders retain the MEDTOX shares on each of the
Repricing Dates.
The price protection provisions of the Series A Preferred
Stock and the MEDTOX shareholders could result in the Company being required
to issue more shares of Common Stock than the Company is authorized to issue.
The Company's Certificate of Incorporation currently authorizes the issuance
of 30,000,000 million shares of Common Stock, of which 13,193,838 shares are
currently issued and outstanding. If all 407 outstanding shares of the Series A
Preferred Stock were to be converted at a 25% discount from the $1.875 market
price of the Company's Common Stock on March 26, 1996, 14,471,111 shares of
Common Stock would be issuable upon conversion of the Series A Preferred Stock
and only 2,335,051 shares of Common Stock would be available for future
issuances. 1,736,133 shares of Common Stock are issuable pursuant to outstanding
stock options, stock purchase plans and warrants. The Company's Certificate of
Incorporation also authorizes the issuance of 1,000,000 shares of Preferred
Stock for which the Board of Directors has the power to designate the rights
and preferences, of which only 407 shares are issued and outstanding. The
Company intends to hold a shareholders meeting to amend the Certificate of
Incorporation of the Company to increase the number of authorized shares of
Common Stock of the Company, which additional shares would be available to
satisfy the price protection provisions of the Series A Preferred Stock and the
MEDTOX shareholders and for other corporate purposes.
The price protection provisions of the Series A Preferred
Stock are transferred upon any transfer of the Series A Preferred Stock, but
terminate upon conversion of the Series A Preferred Stock. The price protection
afforded the MEDTOX shareholders terminates upon transfer of the Common Stock
issued to MEDTOX shareholders.
Other shareholders of the Company do not have the price
protection afforded holders of Series A Preferred Stock and the MEDTOX
shareholders. Accordingly, if the market price of the Common Stock of the
Company declines, the interests in the Company's other shareholders will be
diluted by the price protection provisions afforded holders of Series A
Preferred Stock and the MEDTOX shareholders. Substantial sales of shares of
Common Stock by the MEDTOX shareholders or purchasers of Series A Preferred
Stock or other shareholders may have a material adverse effect on the market
price of the Common Stock of the Company, which would increase the number of
Additional Shares issuable to MEDTOX shareholders on the Repricing Dates and the
number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock.
ITEM 2. PROPERTIES.
The Company leases approximately 33,000 square feet in
Burlington, North Carolina, where it maintains its executive offices, research
and development laboratories, production operations, and warehouse. The total
rent paid by the Company for this site during the fiscal year ended December 31,
1995 was approximately $119,000. These facilities are currently leased from Dr.
Samuel C. Powell, a member of the Board of Directors of the Company, at a
rental of approximately $10,000 per month, plus a pro rata share of utilities
and certain other expenses. In June 1989, the Company executed a lease agreement
with Dr. Powell for a term of one year ending May 31, 1990. The Company
subsequently acquired an option to extend the lease for an additional one-year
period after the expiration of such term on May 31, 1990. The option to extend
the lease has not been exercised and the Company is currently leasing the
space on a month-to-month basis. The Company intends to negotiate a new lease
with Dr. Powell in the future. The Company believes it is renting these
facilities on terms as favorable as those available from third parties for
equivalent premises. The Company also holds certain rights of first refusal to
lease additional space in the building if it becomes available (the building
contains a total of 42,900 square feet). In the opinion of management,
comparable alternative facilities could be obtained without disruption of its
business if a new lease with Dr. Powell is not negotiated. See "Item 13 -
Certain Relationships and Related Transactions."
<PAGE>
The Company also leases a farm in Warren County, North
Carolina from Warren Land Company ("WLC") a company in which Dr. Powell owns a
12% interest and certain members of Dr. Powell's family and their respective
families own the remainder for the purposes of maintaining animals to produce
antibodies and for research and development. The arrangement for use of this
facility is on a month-to-month basis at a cost of $2,797 per month. In the
opinion of management, comparable alternative facilities could be obtained
without disruption of its business if this facility were not available. See
"Item 13 - Certain Relationships and Related Transactions."
The Company leases administrative offices and laboratory
facilities in an approximately 22,000 square foot facility in South Plainfield,
New Jersey. The facility was built and equipped in 1985. The facility is rented
under a lease which expired in May of 1995. In February 1995 the Company
negotiated a modification to the current lease which extends the lease through
the year 2000 with one five year option to renew. The new rent payment which
commenced on May 1, 1995 is $170,345 per year which is a 32% reduction from the
annual rent of $250,908 prior to May 1, 1995. In addition, the Company received
$100,000 from the landlord to amend the lease in New Jersey. Upon the
completion of the transition of the laboratory operations from PDLA to MEDTOX,
the Company will utilize approximately 30% of the existing facility in New
Jersey for a courier system, customer service and other administrative
functions. The remaining 70% of the facility will become idle and has been
considered in the Company's restructuring charge. See Note 3 to the Notes of the
Consolidated Financial Statements contained herein.
The Company also leases a 1,700 square foot warehouse facility
in Mississauga, Ontario where the Canadian sales and distribution operations
of diAGnostix, inc. are based. The space is rented under a lease which expires
in July 1998. The current lease payment is approximately $4,800 per year.
The administrative offices and laboratory operations of MEDTOX
are located in a 41,017 square foot facility in St. Paul, Minnesota. The
facility is rented under a lease which expires in March 1997. The current
annual rent for the facility is $330,000 per year.
The Company believes that its existing facilities are adequate
for the purposes being used to accommodate its product development, and
manufacturing and laboratory testing requirements.
ITEM 3. LEGAL PROCEEDINGS.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The Annual Meeting (the "1994 Annual Meeting") of the
stockholders of EDITEK was held on October 26, 1995. The following individuals
were elected to serve on the Board of Directors of EDITEK, Inc. for the ensuing
year and until their respective successors are duly elected and qualified: James
D. Skinner, Samuel C. Powell, Ph.D., Gene E. Lewis and Robert J. Beckman. Also
by a vote of 6,250,643 shares in favor and 105,755 shares against, at the 1994
Annual Meeting, the stockholders of EDITEK approved the issuance of the amount
of shares of the stock of EDITEK to finance the acquisition of MEDTOX. Also, by
a vote of 6,239,995 in favor and 105,228 shares against, at the 1994 Annual
Meeting, the stockholders of EDITEK approved the adoption of an amendment to the
Certificate of the Corporation to increase the number of authorized shares of
the stock of EDITEK. Also, by a vote of 5,736,650
<PAGE>
shares in favor and 569,595 shares against, at the 1994 Annual Meeting, the
stockholders of EDITEK approved the adoption of certain amendments to the Equity
Compensation Plan. During the year ended December 31, 1995, no other matters
were submitted to a vote of securities holders.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Common Stock
Since September 27, 1993, the Common Stock has been listed on
the American Stock Exchange trading under the symbol "EDI". From September 16,
1992 to September 26, 1993 the Common Stock was traded in and quoted in the
Emerging Company Marketplace of the American Stock Exchange ("ECM") under the
trading symbol "EDI.EC". The Common Stock had historically been traded in the
over-the-counter market and was quoted in the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"). On June 5, 1992 the Common Stock
was delisted from NASDAQ as a result of non-compliance with revised listing
requirements. As a result, from June 8, 1992 through September 15, 1992 the
Common Stock was traded on and quoted in the Non-NASDAQ Over-The-Counter
Bulletin Board. As of March 19, 1996, the number of holders of record of the
Common Stock was 2,895. The following tables set forth, for the calendar
quarters indicated, the high and low closing price per share for the Common
Stock, as reported by the American Stock Exchange or the high and low bid prices
per share for the Common Stock as reported by NASDAQ. The quotations shown
represent inter dealer prices without adjustment for retail markups, markdowns
or commissions, and do not necessarily reflect actual transactions:
1996: (through March 26, 1996) High Low
First Quarter............................. 3 11/16 1 7/8
1995:
First Quarter............................. 3-5/16 2-9/16
Second Quarter........................ 3-5/8 2-1/2
Third Quarter........................... 3-9/16 2-11/16
Fourth Quarter......................... 3-13/16 2-11/16
1994:
First Quarter........................... 5- 3/8 2- 7/16
Second Quarter....................... 3 1- 15/16
Third Quarter.......................... 3- 3/16 1- 3/4
Fourth Quarter........................ 4- 5/8 1- 1/4
On March 26, 1996, the closing price of the Common Stock as
reported by the American Stock Exchange was $1.875.
No dividends have been declared or paid by the Company since
its inception.
<PAGE>
The Company's loan agreements prohibit cash dividends on the
Common Stock of the Company and limit the Company's ability to pay dividends on
the Series A Preferred Stock of the Company to dividends paid after February 1,
1997 that do not exceed one third of the excess cash flow of the Company for the
previous year as defined in the loan agreement.
Series A Preferred Stock
To help finance the acquisition of MEDTOX and provide working
capital, the Company issued 407 shares of Series A Preferred Stock.
The Series A Preferred Stock is convertible into shares of
Common Stock, at any time from March 30, 1996, the 60th day after the shares of
Series A Preferred Stock were first issued by the Company (the "Initial
Conversion Date"), until January 30, 1998, the second anniversary of the Initial
Preferred Issuance Date, at which time all conversion rights terminate and any
remaining shares of Series A Preferred Stock will be automatically converted, at
a rate determined by a formula based on a discount from the market price of the
Common Stock at the time of conversion, unless the holder of such Series A
Preferred Stock notifies the Company not to convert such shares. The Series A
Preferred Stock has no voting power and has certain liquidation preference and
dividend rights. The number of shares of Common Stock issuable upon conversion
of a share of Series A Preferred Stock will equal the number derived by dividing
(i) the purchase price of the Series A Preferred Stock ($50,000 per share) by
the lesser of (i) $2.775 or (ii) 75% of the Market Price of the Common Stock on
the day the shares of Series A Preferred Stock are converted into Common Stock.
"Market Price" is defined for this purpose as the daily average of the closing
bid prices quoted on the American Stock Exchange or other exchange on which the
Common Stock is traded for the five trading days immediately preceding the date
the shares are converted.
The Series A Preferred Stock will accrue an annual dividend of
Four Thousand Five Hundred ($4,500) Dollars per share (the "Preferred
Dividend"). Such Preferred Dividend shall be payable when and as declared by the
Board of Directors in its sole discretion. The Preferred Dividend is cumulative
until December 31, 1997. Dividends accruing after December 31, 1997 will not be
cumulative. No dividend shall be payable on shares of Common Stock of the
Company until all accrued cumulative unpaid dividends are paid to holders of the
Series A Preferred Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data are derived from
financial statements of the Company and should be read in conjunction with the
financial statements, related notes, and other financial information included
herein.
<PAGE>
Years Ended December 31
1995 1994 1993 1992 1991
(in thousands, except per share amounts)
Net revenues $7,526 $6,593 $2,633 $2,989 $2,731
Net loss (8,043) (3,546) (3,066) (1,292) ( 847)
Net loss per share (.85) ( .49) ( .56) ( .35) ( .31)
Total assets 3,806 7,378 4,005 3,188 1,254
Long term debt -0- 63 -0- 113 154
Cash dividends -0- -0- -0- -0- -0-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
General
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 culture media, animal blood products, customer antisera, and other
Conventional Biodiagnostic Products as a result of its acquisition of Granite
Technological Enterprises, Inc. in June 1986. The Company began the manufacture
and sale of its EZ-SCREEN diagnostic tests in 1985 and introduced its patented
one-step assay, VERDICT and RECON, in 1993. On February 11, 1994 the Company
completed the acquisition of PDLA, which is now a wholly-owned subsidiary of the
Company. The results of operations for the year ended December 31, 1994 include
the results from operations of PDLA for the period February 12, 1994 through
December 31, 1994. Since inception, the Company has financed its working capital
requirements primarily from the sale of equity securities.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues for year ended December 31, 1995 increased 14%
to $7,526,000, compared to $6,593,000 for the prior year. This increase is
primarily fully attributable to the increase in revenues from sales of products
and services for 1995. These revenues totaled $7,037,000, an increase of 14%
compared to $6,183,000 for the prior year.
Laboratory Service Revenues for the year ended December 31,
1995 were $4,312,000, an 18% increase compared to $3,647,000 for the prior year.
This increase was due primarily to the efforts of a full sales and marketing
force for the laboratory services of PDLA. During the year ended December 31,
1994, the company realized sales of $566,000 from laboratory services that were
transferred to American Medical Laboratories, Inc. ("AML") in January 1995 and,
as such, are not included in the sales for the year ended December 31, 1995.
Accordingly, the increase in Laboratory Service revenue excluding those sales
transferred to AML was actually $1,231,000.
Product sales include the sales generated from substance abuse
testing products, which incorporates the EZ-SCREEN and VERDICT on site tests and
other ancillary products for
<PAGE>
the detection of abused substances. Sales from these products were $1,180,000,
down 9% compared to $1,293,000 for the prior year. The Company believes this
decrease was primarily due to increased competition. This competition was caused
by the introduction of several products by competitors which compete with the
products of the Company. The decrease was also affected by the lack of a
complete product line of the VERDICT products.
Product sales also include sales of agricultural diagnostic
products which are marketed through diAGnostix, inc. Sales of these products
were $1,090,000 for the year ended December 31, 1995, an increase of 35%
compared to sales of $805,000 for the prior year. The acquisition of Bioman
Products Inc. on June 1, 1995 brought $404,000 in sales revenues to the Company
for the year ended December 31, 1995. Excluding these revenues, sales of
agricultural diagnostic products were $686,000 for 1995, a decrease of 15%
compared to 1994. The Company believes this decrease is due to decreased testing
by customers of the Company.
Sales of Microbiological and associated product sales and
contract manufacturing services were $393,000 for the year ended December 31,
1995, down 10% compared to $438,000 for these products and services in 1994.
This decrease was due to a reduced marketing effort.
In 1995, the Company completed research and development on
certain tests developed for the U.S. Department of Defense. This enabled
production to begin for the first time on products specifically manufactured
for the U.S. Department of Defense. Revenues from shipment of these products
were $62,000 for the year ended December 31, 1995.
Revenues from royalties and fees during the year ended
December 31, 1995 were $300,000, compared to $200,000 for 1994. This increase
was primarily due to the royalties received from AML pursuant to the agreement
the Company has with AML. Revenues from interest and other income for the year
ended December 31, 1995 were $189,000, compared to $210,000 for the year ended
December 31, 1994.
The overall gross margin from sales for the year ended
December 31, 1995 was 6%, compared to 2% of sales for the year ended December
31, 1994. Gross margins from the sales of both manufactured and products
purchased for resale for the year ended December 31, 1995 were 18% compared to
16% of sales of these products for the year ended December 31, 1994.
An increase in the number of samples being processed at PDLA
resulted in improved gross margins for laboratory services for the year ended
December 31, 1995. However, as in the year ended December 31, 1994, the cost of
providing laboratory services exceeded revenue realized from these services.
Since a large amount of the costs of providing laboratory services are fixed or
near fixed costs, the margins from sales of laboratory services are volume
dependent.
Selling, general and administrative expenses for the year
ended December 31, 1995 were $4,206,000, compared to $3,341,000 for the year
ended December 31, 1994. This increase of 26% was primarily a result of
increased sales and marketing expenses associated with
<PAGE>
the sale of the Substance Abuse Testing Products and Services marketed through
PDLA, the sales and marketing costs associated with former operations of Bioman,
as well as overall increases in the general expenditures resulting from the
acquisition of PDLA.
Research and development expenses incurred during the year
ended December 31, 1995 were $920,000, as compared to $729,000 for the year
ended December 31, 1994. This 26% increase was primarily due to increased
personnel costs and expenses, as well as increases in work being performed
pursuant to the DOD contract.
For the year ended December 31, 1995, the Company incurred
interest expense of $23,000, compared to interest expense of $25,000 incurred
during the year ended December 31, 1994.
Effects of MEDTOX Acquisition
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 charge of $731,000 to cover certain costs of the
restructuring. The Company had no such charge in 1994. See Note 3 of the Notes
to the Consolidated Financial Statements contained herein.
With the subsequent consolidation of the laboratory
operations, the Company has written off the remaining amount of goodwill that
was recorded from the acquisition of PDLA in 1994. This resulted in a charge of
$3,100,000 for the year ended December 31, 1995. The Company had no such charge
for the year ended December 31, 1994.
As a result of the above, the net loss for the year ended
December 31, 1995 was $8,043,000 compared to the net loss of $3,546,000 for the
year ended December 31, 1994.
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.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Total revenues for the year ended December 31, 1994 increased
150% to $6,593,000, compared to $2,633,000 for the year ended December 31, 1993.
This increase is primarily attributable to an increase in revenues from sales of
products and services. These revenues totaled $6,183,000, an increase of 169%
compared to $2,295,000 for the prior year. The acquisition of PDLA in February
of 1994 brought total revenues of $3,775,000 to the
<PAGE>
Company for year ended December 31, 1994 of which, $3,647,000 were laboratory
service revenues. Excluding the PDLA revenues, total revenues for 1994 were up
7% to $2,818,000 compared to $2,633,000 for 1993, and total product and service
revenues increased 11% to $2,536,000 compared to $2,295,000 for 1993.
Laboratory Service Revenues for the year ended December 31,
1994 were $3,647,000. These revenues did not exist for the Company in 1993. By
acquiring PDLA in February of 1994, the Company was able to offer laboratory
services as a complementary product to the substance abuse testing products
already marketed by the Company. As a result of the acquisition, the Company
recognized almost eleven months of revenues generated through the laboratory
services of PDLA.
Product sales include the sales generated from substance abuse
testing products. Sales from these products were $1,293,000 for the year end
December 31, 1994, an 18% increase compared to $1,093,000 for the prior year.
This increase is the result of increased sales of the on-site products,
particularly VERDICT, in 1994.
Product sales also include sales of agricultural diagnostic
products consisting of EZ-SCREEN test kits (for mycotoxin detection, drug
residue surveillance, etc.), species identification kits, other bioassay
technology products and third party products. These products are marketed
through diAGnostix, inc. Sales of these products were $805,000 for the year
ended December 31, 1994, an increase of 7% compared to sales of $751,000 during
the prior year. This increase was due to the increased purchases by the United
States Department of Agriculture ("USDA") pursuant to two contracts the Company
has with the USDA, as well as regaining the sulfa-on-site test kit business from
an international customer which did not occur during the year ended December 31,
1993.
Microbiological and associated product sales including
contract manufacturing were $438,000 for the year ended December 31, 1994
compared to $445,000 for these products in 1993. This decrease was due to a
reduced marketing effort.
Revenues from royalties and fees during the year ended
December 31, 1994 were $200,000, compared to $257,000 for 1993. These revenues
decreased 22% as a result of the termination on October 12, 1993 of the contract
the Company had with Farnam Companies, Inc.
Revenues from interest and other income for the year ended
December 31, 1994 were $210,000, compared to $81,000 for the year ended December
31, 1993. This 159% increase was due to the recovery of debts owed by a customer
of laboratory services which had previously been written off.
The gross margin from overall sales for the year ended
December 31, 1994 was 2%, compared to 12% of sales for the year ended
December 31, 1993. Excluding the effect of the PDLA acquisition for the year
ended December 31, 1994, the gross margin would have been 16%. This increase
in gross margin excluding the effect of the PDLA acquisition is overshadowed by
the impact
<PAGE>
of the laboratory services provided through PDLA. As a large amount of the costs
of providing laboratory services are fixed or near fixed costs, the margins from
the sales of laboratory services are volume dependent. The volume of testing
performed by PDLA for the period ended December 31, 1994 was adversely affected
by the loss of contracts before the acquisition of PDLA by the Company.
Selling, general and administrative expenses for the year
ended December 31, 1994 were $3,341,000, compared to $2,152,000 for the year
ended December 31, 1993. This 55% increase was primarily a result of increased
personnel from the acquisition of PDLA, increased expenses for the sales and
marketing of the substance abuse testing products, the amortization of goodwill
arising from the acquisition of PDLA, and increases in other expenses due to the
acquisition of PDLA.
The acquisition of PDLA was accounted for under the purchase
method of accounting and the Company recorded goodwill of $3,394,000. For 1994,
the Company amortized goodwill on a straight line basis over 20 years.
Research and development expenses incurred during the year
ended December 31, 1994 were $729,000, as compared to $825,000 for the year
ended December 31, 1993. This 12% decrease was primarily due to decreased
expenses, including personnel costs associated with the movement of certain
personnel from research and development to operations, and the lack of costs and
expenses associated with the Farnam contract which was terminated on October 12,
1993. Research and development efforts are directed toward enhancements of
existing products, as well as the development of new products which in some
cases have been or are funded by outside parties.
For the year ended December 31, 1994, the Company incurred
interest expense of $25,000, compared to interest expense of $9,000 incurred
during the year ended December 31, 1993. This increase was primarily a result of
the Company borrowing funds against a line of credit.
During the year ended December 31, 1993 the Company incurred
expenses of $353,000 related to its legal disputes with DDI and
Transia-Diffchamb S.A. On August 10, 1993 the arbitrator's decision in the DDI
dispute awarded to DDI certain costs and legal fees. The actual costs and fees
were later set at $336,000, bringing the total to $689,000. The Company had no
such expenditures during the year ended December 31, 1994.
As a result of the above, the net loss for the year ended
December 31, 1994 was $3,546,000, compared to the net loss of $3,066,000 for the
year ended December 31, 1993.
Material Changes in Financial Condition
At December 31, 1995, cash and cash equivalents were $258,000
compared to $1,105,000 as of December 31, 1994. The decrease of $847,000 was a
result of several factors as discussed below.
<PAGE>
At December 31, 1995, accounts receivable were $1,029,000.
This 22% increase compared to $843,000 at December 31, 1994 was primarily due to
$113,000 in receivable generated through seven months of sales from the
acquisition of Bioman Products. Excluding the Bioman receivables, accounts
receivables for the year ended December 31, 1995 increased 9% over the prior
year.
The allowance for doubtful accounts at December 31, 1995 was
$130,000, a decrease of 37% compared to $206,000 for the prior year end. This
decrease was the result of the write-off for PDLA customers for $70,000. Also,
in 1995, the Company had fewer customers with receivables due over 90 days, thus
the allowance was not significantly adjusted to reflect the increase in accounts
receivable.
Inventories were $937,000 at December 31, 1995 compared to
$853,000 at December 31, 1994. This increase of $84,000 or 10% was primarily due
to an increase in work in process inventory related to the VERDICT product line.
Prepaid expenses and other assets were $868,000 at December
31, 1995, as compared to $272,000 at December 31, 1994. This increase of
$596,000 was primarily due to the costs associated with the acquisition of
MEDTOX including a $500,000 deposit placed into an escrow account pending
closing of the acquisition of MEDTOX.
During the year ended December 31, 1995, the Company took a
charge of $3,100,000 to write off the goodwill associated with the acquisition
of PDLA. Accordingly, the amount of goodwill at December 31, 1995 was $117,000
as compared to $3,247,000 at December 31, 1994. The remaining goodwill relates
to the acquisition of Bioman in June 1995.
At December 31, 1994, the Company had an outstanding balance
of $850,000 on a line of credit with a bank. The Company repaid the total
outstanding balance during the year ended December 31, 1995.
Accrued expenses were $1,202,000 at December 31, 1995 as
compared to $347,000 at December 31, 1994. This increase of $855,000 was
primarily due to expenses associated with the acquisition of MEDTOX.
As described more fully in the notes to the financial
statements, the Company entered into a $125,021 loan agreement with the North
Carolina Biotechnology Center (NCBC). The loan, plus accrued interest, was due
August 14, 1994. On December 15, 1994, the Company and NCBC negotiated a loan
modification extending the due date to August 14, 1996. In addition, NCBC
exercised their right to convert 50%, or approximately $62,000, of the loan
amount into 16,100 shares of the Company's common stock. Accordingly, at
September 30, 1995, the Company had a balance of loan payable of $63,000 to
NCBC. In addition, during 1995 the Company borrowed $100,000 from Dr. Samuel C.
Powell in the form of a 90 day promissory note. Primarily as a result of these
transactions, the balance of notes payable at December 31, 1995 was $182,000 as
compared to $158,000 at December 31, 1994.
<PAGE>
At December 31, 1995, the Company accrued $626,000 for the
payment of certain restructuring costs associated with the consolidation of the
laboratory operations of PDLA with the laboratory operations of MEDTOX. At
December 31, 1994, the Company had no accrual for restructuring costs.
Liquidity and Capital Resources
Since its inception, the working capital requirements of the
Company have been funded by cash received from equity investments in the
Company. At December 31, 1995, the Company had cash and cash equivalents of
$258,000. The Company had also deposited $500,000 in an escrow account towards
the acquisition of MEDTOX. On January 30, 1996, the Company completed the
acquisition of MEDTOX. To finance the acquisition of MEDTOX and provide working
capital, the Company raised $20,350,000 from the sale of 407 shares of Series A
Preferred Stock and borrowed $5,000,000. The debt financing 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 "Loan
Agreement"). 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 each are 2.5 points above the prime rate and 2.0
points above the prime rate. The revolving line of credit carries an interest
rate equal to 1.5 points above the prime rate. The Company believes that the
aforementioned capital will be sufficient to fund the Company's planned
operations through 1996 and beyond, although there can be no assurance that the
available capital will be sufficient to fund the future operations of the
Company.
As of December 31, 1995, the Company had not achieved a
positive cash flow from operations. Accordingly, the Company relies on available
credit arrangements, outside funding of research and development, and continued
sales of its equity securities 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
consolidation of the laboratory operations from PDLA to MEDTOX, and other
synergies 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) pursuing 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.
During 1995, the Company sold a total of 2,140,963 shares of
common stock in 13 separate private transactions. The sale of these 2,140,963
shares generated net proceeds of $3,884,109 to the Company.
<PAGE>
As mentioned above, the Company sold 407 shares of its Series
A Preferred Stock for $20,350,000 in 1996. Also in 1996, the Company sold
235,295 shares of its common stock to a director in a private transaction. The
sale of these 235,295 shares generated proceeds of $600,002 to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the financial statements, financial
statement schedules and notes thereto included later in this report under
Item 14.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors, executive officers, their ages, offices held and
initial effective dates thereof, are as follows:
<TABLE>
<CAPTION>
Initial
Effective
Name Age Position Date
<S> <C> <C> <C>
James D. Skinner 51 Chairman of the
Board of Directors
President, Chief
Executive Officer July 1987
Samuel C. Powell, Ph.D. 43 Director November 1987
Carole A. Golden, Ph.D. 53 Vice President
Research and
Development November 1987
Gene E. Lewis 67 Director May 1990
Peter J. Heath 37 Secretary,
Vice President
Finance, Chief
Financial Officer October 1990
Robert J. Beckman 47 Director January 1994
Michael A. Terretti 45 Vice President
Sales and Marketing October 1995
George W. Masters 55 Director January 1996
Harry G. McCoy, Pharm.D. 44 Director January 1996
Vice President
President-MEDTOX
</TABLE>
James D. Skinner was elected President, Chief Executive
Officer and a Director of the Company effective July 19, 1987. On June 8, 1994,
Mr. Skinner was elected Chairman of the Board of the Company. Mr. Skinner is
currently serving as a member of the Board of Directors of both the
Biotechnology Industry Organization ("BIO") and the Emerging Companies Section
of BIO. In addition, he serves on the Board of Directors of the North Carolina
Biotechnology Center, and the Graduate School Board of Advisors of North
Carolina State University. Mr. Skinner is also a member of the Board of
Directors of Intelligent Medical Imaging, Inc., a computer software company
focusing on medical diagnostics, where he serves as Chairman of the
Compensation Committee. Mr. Skinner was also appointed by North Carolina
Governor, the Honorable James B. Hunt, to the position of Chairman of the
Entrepreneurial Development Board. Mr. Skinner is also a charter member of the
Board of Directors of the North Carolina Biosciences Organization. Mr. Skinner
also serves on the Editorial Advisory Board of IVD Technology, a new
publication of the Medical Device and Diagnostic Industry.
<PAGE>
Samuel C. Powell, Ph.D. has served as a Director of the
Company since September 1986. From January 1988 to the present, he has been
president of Powell Enterprises, Burlington, North Carolina, which engages in
the management of a variety of businesses and in commercial real estate
development. Dr. Powell served as Chairman of the Board and Chief Executive
Officer of Granite, from January 1984 until its acquisition by the Company in
June 1986. Dr. Powell served as Chairman of the Board of the Company from
November 1987 until June 1994.
Gene E. Lewis has served as a Director of the Company since
May 1990. From August 1988 to the present, Mr. Lewis has been a consultant to
the healthcare industry. From January 1985 through August 1988, Mr. Lewis served
as President and Chief Operating Officer and a member of the Board of Directors
of Baker Instruments Corporation, a wholly-owned subsidiary of Richardson-Vicks,
which later became a wholly-owned subsidiary of Procter & Gamble.
Carole A. Golden, Ph.D. was elected as Vice President-Research
and Development effective November 1987. From 1978 until she joined the Company,
Dr. Golden was Scientific Director for Microbiological Research Corporation,
Bountiful, Utah, a company engaged in the development and manufacture of
clinical diagnostic products. Dr. Golden has published numerous scientific
articles pertaining to immunodiagnostics of infectious diseases. She is a member
of various scientific societies including the New York Academy of Science and
Environmental Mutagen Society.
Peter J. Heath was appointed Vice President - Finance and
Chief Financial Officer on April 29, 1991. Mr. Heath was appointed Secretary and
Chief Accounting Officer effective October 31, 1990. Mr. Heath has held the
position of Controller of the Company since July 1986. Mr. Heath was employed as
Controller and Office Manager of Granite from January 1984 until its acquisition
by the Company in June 1986.
Michael A. Terretti was elected Vice President-Sales and
Marketing in October 1995. Mr. Terretti joined PDLA in May 1994 as Vice
President and General Manager. Prior to joining PDLA, Mr. Terretti was Vice
President of Marketing and Planning for Genetic Design, Inc. Prior to joining
Genetic Design, Mr. Terretti was Vice President of Sales and Marketing with
CompuChem Laboratories. Mr. Terretti currently serves on the Board of Directors
of the Institute for a Drug Free Workplace.
Robert J. Beckman has served as a Director of the Company
since January 1994. Mr. Beckman is President and Chief Executive Officer of
Intergen Company, a privately held biotechnology firm located in Purchase, NY.
Mr. Beckman has been at Intergen since 1987. Mr.
<PAGE>
Beckman also is on the Board of Directors and Executive Committee of BIO and is
Chairman of the Emerging Companies Section of BIO. As a founding member of the
New York Biotechnology Association, he serves on its executive committee in
addition to serving on the Commission on Biomedical Research in New York City.
George W. Masters is Vice Chairman, President and Chief
Executive Officer of Seragen, Inc. Mr. Masters has been at Seragen since 1993.
Prior to joining Seragen, Mr. Masters was President and CEO of Verax, Inc. from
1992 to 1993. From 1991 to 1992, Mr. Masters served as President of
ImmunoSystems, Inc. Mr. Masters serves as Vice Chairman and Director for
Hemosol, Inc. where he is Chairman of the Compensation Committee. Mr. Masters
also currently serves on the Board of Directors of three other companies,
ImmuCell Corporation, Intelligent Medical Imaging, Inc., where he serves as a
member of the Compensation Committee, and CME Telemetrix, where he is a member
of the Compensation Committee. Mr. Masters also serves on various boards for
industry associations and educational institutions.
Harry G. McCoy, Pharm.D., a Vice President of the Company, is
President of MEDTOX. Dr. McCoy founded MEDTOX in 1984 and served as the Clinical
Director and Executive Vice President of MEDTOX from 1984 until its acquisition
by the Company in January 1996. Dr. McCoy also served as a Director of MEDTOX
from 1993 until its acquisition by the Company. Since 1986, Dr. McCoy has
served as a Clinical Associate Professor in the College of Pharmacy at the
University of Minnesota and since 1990 has served as a Clinical Assistant
Professor in the Department of Pathology at the University of North Dakota.
Currently, all Directors are elected annually by the
stockholders of the Company. All executive officers are elected annually by the
Board of Directors of the Company. There are no familial relationships between
any Directors and executive officers of the Company, and there are no
arrangements or understandings between any Director or nominee for Director and
any other person pursuant to which any person was or is to be selected as a
Director or nominee.
ITEM 11. EXECUTIVE COMPENSATION.
The following table and the narrative text discuss the compensation
paid during 1995 and the two prior fiscal years to the Company's President and
Chief Executive Officer and to the other executive officers whose annual salary
and bonuses exceeded $100,000 during 1995.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
Name and Principal Other Restricted Options/ All Other
Position Annual Stock SAR's LTIP Compen-
Year Salary Bonus Compen- Awards (#) Payouts(2) sation
sation (1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James D. Skinner, 1995 $183,136 -- -- -- 25,000 -- $4,785(3)
President and 1994 $176,714 $20,000 -- -- 68,326 -- $4,285
Chief Executive 1993 $176,153 -- -- -- 0 -- $3,865
Officer
Carole A. Golden 1995 $131,940 -- -- -- 15,000 -- --
Vice President 1994 $124,034 -- -- -- 36,666 -- --
Research & Development 1993 $114,046 -- -- -- 0 -- --
<PAGE>
Peter J. Heath 1995 $101,541 -- -- -- 17,660 -- --
Vice President of 1994 $ 91.610 -- -- -- 28,332 -- --
Finance 1993 $71,446 -- -- -- 0 -- --
and Chief Financial
Officer
Michael Terretti 1995 132,952 -- -- -- 3,910 -- --
Vice President of 1994 90,321 -- -- -- 80,000 -- --
Sales and Marketing 1993 -- -- -- -- -- -- --
</TABLE>
(1) Other Annual Compensation for executive officers is not reported as it
is less than the required reporting threshold of the Securities and
Exchange Commission.
(2) Not applicable. No compensation of this type received.
(3) Includes $4,785 of premiums paid for by the Company for a life
insurance policy on Mr. Skinner for the benefit of his named
beneficiary. In the event of a termination of Mr. Skinner's employment
by the Company without cause or by reason of a "change in control" of
the Company, Mr. Skinner is entitled to receive severance pay equal to
his then current annual salary. No amounts were paid, payable or
accrued during 1995 pursuant to this provision. See "Employment
Contracts".
Stock Options Granted During Fiscal Year
The following table sets forth information about the stock options
granted to the named executive officers of the Company during 1995.
<TABLE>
<CAPTION>
Option Grants In Last Fiscal Year
Potential Realized
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
% of Total
Options
Number Granted to
of Employees Exercise
Options in Fiscal Price Expiration 5% ($) 10% ($)
Name Granted(3) Year (1) ($/Sh) Date (2) (2)
<S> <C> <C> <C> <C> <C> <C>
James D.
Skinner 25,000 7% $2.94 12/13/05 46,224 117,140
Carole A.
Golden 15,000 4% $2.94 12/13/05 27,734 70,284
Peter J.
Heath 2,660 1% $3.38 10/02/05 5,654 14,329
15,000 4% $2.94 12/13/05 27,734 70,284
Michael A.
Terretti 3,910 1% $3.44 7/25/05 8,459 21,436
</TABLE>
(1) Options to acquire an aggregate of 340,742 shares of Common Stock of
the Company were granted to all employees during 1995. No options to
acquire Common Stock were granted to non-employee directors of the
Company during 1995. No stock appreciation rights were granted to the
named executive officers during 1995.
<PAGE>
(2) The potential realizable value of the options reported above was
calculated by assuming 5% and 10% annual rates of appreciation of the
Common Stock of the Company from the date of grant of the options until
the expiration of the options. These assumed annual rates of
appreciation were used in compliance with the rules of the Securities
and Exchange Commission and are not intended to forecast future price
appreciation of the Common Stock of the Company. The Company chose not
to report the present value of the options, which is an alternative
under Securities and Exchange Commission rules, because the Company
does not believe any formula will determine with reasonable accuracy a
present value based on unknown or volatile factors. The actual value
realized from the options could be substantially higher or lower than
the values reported above, depending upon the future appreciation or
depreciation of the Common Stock during the option period and the
timing of exercise of the options.
(3) Options were granted on July 25, 1995, October 2, 1995, and December
13, 1995. 25,000 of the options granted to Mr. Skinner, 15,000 of the
options granted to Dr. Golden, 17,660 of the options granted to Mr.
Heath, and 3,190 of the options granted to Mr. Terretti became
vested and exercisable quarterly over a three year period in twelve
equal installments commencing three months after the grant date.
Stock Options Exercised During Fiscal Year and Year-End Values of Unexercised
Options
The following table sets forth information about the stock options held
by the named executive officers of the Company at December 31, 1995. No stock
options or stock appreciation rights were exercised by the named executive
officers of the Company during 1995.
Number of Unexercised Value of Unexercised In-the-
Options at FY-End Money Options at FY-End
Name Exercisable/Unexercisable Exercisable/Unexercisable (1)
James D. Skinner 241,033/53,458 $159,431/$0
Carole A. Golden 8,861/30,272 $ 66,111/$0
Peter J. Heath 55,534/29,461 $ 14,700/$0
Michael A. Terretti 47,006/36,904 $ 0/$0
(1) The closing price of the Common Stock of the Company at December 31, 1995
was $2.88 per share.
Long-Term Incentive Plans and Pension Plans
The Company does not contribute to any Long-Term Incentive Plan or
Pension Plan for its executive officers as those terms are defined in the rules
of the Securities and Exchange Commission. The Company relies on its stock
option plans to provide long-term incentives for executive officers. The Company
has two stock option plans, an equity compensation plan which was adopted by the
shareholders of the annual meeting in 1993 to replace the 1983 Incentive Stock
Option Plan which expired on June 23, 1993 and a 1991 Non-Employee Director's
Plan for members of the Board of Directors who are not employees of the Company.
The Company has also granted options to James D. Skinner outside these plans.
Compensation of Directors
<PAGE>
In 1995 each director who is not an employee of the Company received
$10,000 as a payment for the year 1995. All directors are also reimbursed for
expenses incurred in attending Board of Directors meetings and participating in
other activities.
Employment Contracts
James D. Skinner, the Chairman of the Board, President and Chief
Executive Officer of the Company, has an employment agreement with the Company
covering the period ending June 30, 1990, which by its terms is extended
thereafter in one-year increments unless otherwise terminated due to death,
permanent disability, change in control of the Company or for "cause". The
employment agreement, as amended on July 1, 1988, provides for an annual salary
of at least $135,000 and certain fringe benefits including a disability
insurance policy, a life insurance policy on Mr. Skinner for the benefit of his
named beneficiary in the amount of $1,000,000 and automotive expenses. During
1994, the Company paid insurance premiums aggregating $4,078 for Mr. Skinner's
disability insurance and $4,285 for Mr. Skinner's life insurance and paid Mr.
Skinner an auto allowance of $8,800, none of which are included under Annual
Compensation in the Summary Compensation Table set forth above. In the event of
a termination of Mr. Skinner's employment by the Company without cause or by
reason of a "change in control" of the Company, Mr. Skinner is entitled to
receive severance pay equal to his then current annual salary. A "change in
control" is defined as (i) the acquisition of control by any person or group of
capital stock representing 50% or more of the Company's voting stock, (ii) the
approval of the Company of a merger or consolidation in which the Company is not
the surviving entity, (iii) the agreement by the Company to sell substantially
all of its assets to a third party unless the third party is controlled by the
Company and Mr. Skinner continues as its President and Chief Executive Officer,
(iv) the approval by the Company of a plan of liquidation of the Company, or (v)
the election of directors constituting more than one-half of the Board who,
prior to their election, were not elected or nominated for election by at least
a majority of the Board of Directors.
Upon a change of control or termination of Mr. Skinner's employment for
any reason other than death or permanent disability, the non-qualified stock
options granted to Mr. Skinner pursuant to the terms of his employment agreement
will immediately vest. On September 10, 1988 Mr. Skinner borrowed funds from the
Company to exercise nonqualified stock options to purchase 13,334 shares of
Common Stock for an exercise price of $7.50 per share granted to him pursuant to
his employment arrangement. The terms of the loan are described under "Certain
Relationships and Related Transactions - Loan to James D. Skinner." Pursuant to
his employment arrangement, Mr. Skinner holds nonqualified stock options to
purchase 26,666 shares of Common Stock for an exercise price of $3.75 per share
which expire on May 4, 2000 and 33,334 shares of Common Stock for an exercise
price of $3.75 per share which expire on May 4, 2000. Mr. Skinner has the right
to require the Company to loan him the exercise price for 26,666 shares on the
same terms as the loan described above.
Compensation Committee and Decision Making
<PAGE>
The compensation (other than stock options) of executive
officers of the Company was determined by the Compensation Committee consisting
of Gene E. Lewis, and Samuel C. Powell. Mr. James D. Skinner, the Chairman,
President and Chief Executive Officer of the Company participated in
deliberation of the Board of Directors concerning compensation for executive
officers other than himself. Messrs. Powell and Skinner have also entered into
other transactions with the Company. See "Certain Relationships and Related
Transactions."
Stock options are awarded under the Company's 1983 Stock Option Plan,
the Equity Compensation Plan and Non-Employee Director Plan by a stock option
committee consisting of the nonemployee members of the Board of Directors:
Samuel C. Powell, and Gene E. Lewis, who are eligible to receive stock options
under the Company's 1991 Non-Employee Director Plan. The number of shares
issuable pursuant to options granted under the Non-Employee Stock Option Plan is
determined by dividing the aggregate award of $10,000 by the exercise price of
the options, which was the fair market value of the Company's Common Stock on
the date of the award.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information available to the Company as of March
19, 1996, regarding the beneficial ownership of the Common Stock by (i) each
person known by the Company to beneficially own more than Five Percent (5%) of
the outstanding Common Stock, and beneficial ownership of the Common Stock and
the Series A Convertible Preferred Stock, par value $1.00 per share (the "Series
A Stock"), by (i) each of the Directors of the Company, (ii) the Chief Executive
Office and all executive officers whose compensation was $100,000 or greater
during 1995 and (iii) all executive officers and Directors of the Company as a
group:
Number of Shares Percent of Common
Name Beneficially Owned Stock Outstanding
Morgan Capital, L.L.C. 1,742,222 (1) 11.66%
Harlan Kleiman 906,667 (2) 6.43%
Leitinger Corp. 924,444 (3) 6.55%
Magal Company 888,889 (4) 6.31%
Mifal Klita 960,000 (5) 6.78%
Executive Officers and Directors:
James D. Skinner, Chairman, President
and Chief Executive Officer 484,365 (6) 3.56%
Samuel C. Powell, Ph.D., Director 536,209 (7) 4.05%
Gene E. Lewis, Director 46,675 (8) *
<PAGE>
Robert J. Beckman, Director 9,976 (9) *
Harry G. McCoy, Director
and Vice President 817,956 (10) 6.20%
George W. Masters, Director 1,109 (11) *
Peter J. Heath, Vice President Finance 160,779 (12) 1.21%
Michael A. Terretti, Vice President
Sales and Marketing 119,248 (13) *
Carole A. Golden, Ph.D., Vice President
Research and Development 83,166 (14) *
All directors and executive officers as a
group (9 in number) 2,246,483 (15) 15.72%
- ----------
* Less than one percent (1%)
(1) Includes 1,742,222 shares issuable upon conversion of shares of Series
A Stock which will become convertible within the next 60 days. The
conversion rate for the Series A Stock fluctuates based on the market
price of the Common Stock. Consequently, the number of shares of Common
Stock listed as beneficially owned by Morgan Capital, L.L.C. has been
calculated based on the closing bid price of the Common Stock for March
26, 1995.
(2) Includes 906,667 shares issuable under Common Stock Purchase Warrants,
which are or will become exercisable within the next 60 days.
(3) Includes 924,444 shares issuable upon conversion of shares of Series A
Stock which will become convertible within the next 60 days. The
conversion rate for the Series A Stock fluctuates based on the market
price of the Common Stock. Consequently, the number of shares of Common
Stock listed as beneficially owned by Leitinger Corp. has been
calculated based on the closing bid price of the Common Stock for March
26, 1995.
(4) Includes 888,889 shares issuable upon conversion of shares of Series A
Stock which will become convertible within the next 60 days. The
conversion rate for the Series A Stock fluctuates based on the market
price of the Common Stock. Consequently, the number of shares of Common
Stock listed as beneficially owned by Magal Company has been calculated
based on the closing bid price of the Common Stock for March 26, 1995.
(5) Includes 960,000 shares issuable upon conversion of shares of Series A
Stock which will become convertible within the next 60 days. The
conversion rate for the Series A Stock fluctuates based on the market
price of the Common Stock. Consequently, the number of
<PAGE>
shares of Common Stock listed as beneficially owned by Mifal Klita has
been calculated based on the closing bid price of the Common Stock for
March 26, 1995.
(6) Includes 216,492 shares of Common Stock issuable under options granted
under the Company's stock option plans, 132,317 shares of Common Stock
issuable under Non-Qualified Stock Options, and 50,000 shares of Common
Stock issuable under Common Stock Purchase Warrants purchased in a
private sale by Mr. Skinner, all of which are or will become
exercisable within the next 60 days.
(7) Includes 13,334 shares of Common Stock issuable under stock options,
5,000 shares of Common Stock issuable under Non-Qualified Stock
Options, and 32,679 shares of Common Stock issuable under Common Stock
Purchase Warrants which are or will become exercisable within the next
60 days.
(8) Includes 29,564 shares of Common Stock issuable under options which are
or will become exercisable within the next 60 days.
(9) Includes 9,976 shares of Common Stock issuable under options which are
or which will become exercisable within the next 60 days.
(10) Includes 451,712 shares with contractually provided price protection.
See "Amendment of Incorporation to Increase Number of Authorized Shares
of Common Stock."
(11) Includes 1,109 shares of Common Stock issuable under options which are
or which will become exercisable within the next 60 days.
(12) Includes 78,156 shares of Common Stock issuable under stock options,
56,432 shares of Common Stock issuable under Non-Qualified Stock
Options, and 10,000 shares of Common Stock issuable under Common Stock
Purchase Warrants which are or will become exercisable within the next
60 days.
(13) Includes 60,992 shares of Common Stock issuable under stock options and
43,330 Common Stock issuable under Non-Qualified Stock Options, which
are or will become exercisable within the next 60 days.
(14) Includes 83,166 shares of Common Stock issuable under options which are
or will become exercisable within the next 60 days.
(15) Includes 492,789 shares issuable under stock options, 237,079 shares of
Common Stock issuable under Non-Qualified Stock Options and 92,679
shares of Common Stock issuable under Common Stock Purchase Warrants
which are or will become exercisable within the next 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
<PAGE>
Lease Agreement with Dr. Samuel C. Powell
In July 1986, the Company executed a lease agreement with Dr. Powell
providing for a lease to the Company of approximately 16,743 square feet of
space at 1238 Anthony Road, Burlington, North Carolina. Since 1986, the Company
has expanded the space rented under the lease to approximately 22,272 square
feet. Upon the expiration of the original lease, the Company entered into a new
lease with Dr. Powell for the same space and at the same base rental rate for a
term of one year ending on May 31, 1990. Effective June 1, 1990, the Company has
been leasing the space on a month-to-month basis. The Company is currently
leasing space at a rate of approximately $10,000 per month. The Company intends
to negotiate a new lease with Dr. Powell in the near future. The Company holds
certain rights of first refusal to lease additional space in the building if it
becomes available (the building contains a total of 42,900 square feet). The
total rent paid by the Company to Dr. Powell during the fiscal year ended
December 31, 1995 was approximately $121,000.
Lease Agreement with Warren Land Company (WLC)
The Company leases a farm in Warren County, North Carolina from WLC for
the purposes of maintaining animals to produce antibodies and for research and
development. Dr. Powell owns a 12% interest in WLC, and the remainder of WLC is
owned by certain of Dr. Powell's family members and their respective families.
The arrangement for use of the Warren County facility is on a month-to-month
basis at a rental of $2,797 per month. The Company intends to negotiate a new
lease with WLC in the near future. The total rent paid by the Company to WLC
during the fiscal year ended December 31, 1995 was approximately $34,000.
Loan to Mr. James D. Skinner
The provisions of non-qualified stock options granted to Mr. Skinner
provide that the Company will lend the funds necessary to exercise such stock
options. The loans for this purpose will not exceed a term of 36 months and will
bear interest at a rate equal to the prime lending rate of Wachovia Bank & Trust
Company, N.A. and will be secured by a pledge of the shares purchased with the
proceeds of the loan. During 1988, Mr. Skinner exercised non-qualified stock
options exercisable into 13,334 shares of Common Stock at an exercise price of
$7.50 per share. At Mr. Skinner's request, the Company loaned $100,000 to Mr.
Skinner to be used to exercise such options. The loan was secured solely by a
pledge of, and as recourse only with respect to, the shares of Common Stock
purchased with the proceeds of the loan. Effective May 3, 1990, the Company
modified the loan agreement with Mr. Skinner to defer interest payments on such
loan until the date upon which the principal comes due. In 1995, the Company
modified the loan agreement with Mr. Skinner to extend the maturity date of the
loan to September 28, 1996. The outstanding balance of such loan as of December
31, 1995, was $100,000, excluding accrued interest thereon.
Loan From Dr. Samuel C. Powell
<PAGE>
On December 18, 1995, the Company borrowed $100,000 from Dr. Samuel C. Powell in
the form of a 90 day loan. The loan had an interest rate of 10.5%. The Company
repaid the principal and interest in February, 1996.
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
<S> <C>
a. (i) Financial Statements
Report of Independent Auditors...................
Consolidated Balance Sheets at December
31, 1995 and 1994...............................
Consolidated Statements of Operations
for the years ended December 31,
1995, 1994 and 1993.............................
Consolidated Statements of Stockholders'
Equity for the years
ended December 31, 1995,
1994 and 1993...................................
Consolidated Statements of Cash
Flows for the years ended
December 31, 1995, 1994 and 1993...........
Notes to Consolidated Financial
Statements........................................
(ii) Consolidated Financial Statement Schedules
Schedule V - Valuation and
Qualifying Accounts ...............................
(iii) MEDTOX Financial Statements
Report of Independent Auditors.......................
Consolidated Balance Sheets at December
31, 1995 and 1994...................................
Consolidated Statements of Operations
for the years ended December 31, 1995,
1994 and 1993.......................................
Consolidated Statements of Stockholders'
Equity for the years ended
December 31, 1995, 1994 and 1993....................
Consolidated Statements of Cash
Flows for the years ended
December 31, 1995, 1994, 1993.......................
Notes to Consolidated Financial
Statements........................................
(iv) Unaudited Pro Forma Consolidated Financial Information
Introduction.........................................
Unaudited Pro Forma Consolidated Balance Sheet at
December 31, 1995..................................
Unaudited Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1995....
Notes to Unaudited Pro Forma Consolidated Financial
Statements.........................................
All other financial statement schedules normally required
under Regulation S-X are omitted as the required information is inapplicable.
(v) Exhibits
3.1 Bylaws of the Registrant (incorporated by
reference to Exhibit 4.2 filed with the
Registrant's Report on Form 10-Q for the
quarter ended September 30, 1986).
3.2 Restated Certificate of Incorporation of the
Registrant filed with the Delaware Secretary
of State on July 29, 1994 (incorporated by
reference to Exhibit 3.8 filed with the
Registrant's Form 10-K for fiscal year ended
December 31, 1994).
3.3 Certificate of Amendment of Certificate of
Incorporation of the Registrant, filed with
the Delaware Secretary of State on
November 27, 1995.
3.4 Amended Certificate of Designations of
Preferred Stock (Series A Convertible
Preferred Stock) of the Registrant, filed
with the Delaware Secretary of State on
<PAGE>
January 29, 1996 (incorporated by reference
to Exhibit 3.1 filed with the Registrant's
report on Form 8-K dated January 30, 1996.)
10.1 Lease Agreement dated as of June 1, 1986
between Samuel C. Powell, as lessor, and
Environmental Diagnostics, Inc. as lessee,
relating to premises at 1238 Anthony Road,
Burlington, North Carolina (incorporated by
reference to Exhibit 1.5 filed with the
Registrant's Report on Form 8-K dated July
18, 1986).
10.2 Registrant's Stock Option Plan (as amended
and restated) (incorporated by reference to
Exhibit 10.2 filed with the Registrant's
Report on Form 10-K for the fiscal year
ended December 30, 1990).
10.3 Second Amendment dated December 31, 1986 to
Exclusive License Agreement amending and
restating exclusive license granted by the
Registrant to Disease Detection
International, Inc. (incorporated by
reference to Exhibit 10.25 filed with the
Registration Statement on Form S-1 dated
August 26, 1987, Commission File No.
33-15543).
10.4 Employment Agreement between the Registrant
and James D. Skinner dated as of July 1,
1987 (incorporated by reference to Exhibit
10.15 filed with the Registrant's Form 10-K
for the fiscal year ended December 31,
1988).
10.5 Non-Qualified Stock Option Agreement between
the Registrant and James D. Skinner dated as
of July 1, 1987 (incorporated by reference
to Exhibit 10.26 filed with the Registrant's
Registration Statement on Form S-1 dated
August 26, 1987, Commission File No.
33-15543).
10.6 Non-Qualified Stock Option Agreement between
the Registrant and James D. Skinner
(incorporated by reference to Exhibit 10.17
filed with the Registrant's Form 10-K for
the fiscal year ended December 31, 1988).
10.7 Non-Qualified Stock Option Agreement between
the Registrant and James D. Skinner dated as
of August 10, 1988 (incorporated by
reference to Exhibit 10.18 filed with the
Registrant's Form 10-K for the fiscal year
ended December 31, 1987).
10.8 Lease Agreement, dated as of June 1, 1989
between Samuel C. Powell, as lessor, and
EDITEK, as lessee relating to premises
located at 1238 Anthony Road, Burlington,
North Carolina (incorporated by reference as
filed with the Registrant's report on Form
10-Q for the quarter ended June 30, 1989).
10.9 Promissory Note dated as of September 10,
1988 by James D. Skinner to the Registrant
(incorporated by reference to Exhibit 10.27
filed with the Registrant's Form 10-K for
the fiscal year ended December 31, 1989).
10.10 Pledge Agreement dated as of September 10,
1988 between the Registrant and James D.
Skinner (incorporated by reference to
Exhibit 10.28 filed with the Registrant's
Form 10-K for the fiscal year ended December
31, 1989).
10.11 Stock Option Agreement between the
Registrant and Gene E. Lewis dated as of May
4, 1990. (Incorporated by reference to
Exhibit 10.33 filed with the Registrant's
Form 10-K for the fiscal year ended December
31, 1990).
<PAGE>
10.12 Stock Option Agreement dated May 4, 1990
between the Registrant and Samuel C. Powell
amending and restating the Non-Qualified
Stock Option Agreement between the
Registrant and Samuel C. Powell dated as of
May 23, 1988. (Incorporated by reference to
Exhibit 10.34 filed with the Registrant's
Form 10-K for the fiscal year ended December
31, 1990).
10.13 Loan Modification Agreement dated May 3,
1990 between the Registrant and James D.
Skinner regarding the Promissory Note dated
as of September 10, 1988 by James D. Skinner
to the Registrant. (Incorporated by
reference to Exhibit 10.36 filed with the
Registrant's Form 10-K for the fiscal year
ended December 31, 1990).
10.14 Stock Purchase Agreements dated as of July
19, 1991 between the Registrant and Walter
O. Fredericks, Peter J. Heath, Samuel C.
Powell, and James D. Skinner. (Incorporated
by reference to Exhibit (a) filed with the
Registrant's Form 10-Q for the quarter ended
June 30, 1991).
10.15 Form of Stock Purchase Agreement dated as of
September 3, 1992 between the Registrant and
Purchasers of EDITEK's common stock in a
private placement on September 3, 1992.
(Incorporated by reference in Exhibit 10.46
filed with the Registrant's Form 10-K for
the fiscal year ended December 31, 1992).
10.16 Agreement and Plan of Merger between the
Registrant, PDLA Acquisition Corporation,
and Princeton Diagnostic Laboratories of
America, Inc. dated October 12, 1993.
(Incorporated by reference to Exhibit (a)
filed with the Registrant's Form 10-Q for
the quarter ended September 30, 1993.)
10.17 Registrant's Amended and Restated Stock
Option Plan for non-employee directors
(incorporated by reference to Exhibit 4
filed with the Registrant's Registration
Statement on Form S-8 dated February 21,
1995, Commission File No. 33-89646).
10.18 Registrant's Equity Compensation Plan
(incorporated by reference to Exhibit 4
filed with the Registrant's Registration
Statement on Form S-8 dated November 11,
1993, Commission File No. 33-71490).
10.19 Registrant's Amended and Restated Qualified
Employee Stock Purchase Plan (incorporated
by reference to Exhibit 4 filed with the
Registrant's Registration Statement on Form
S-8 dated November 11, 1993, Commission File
No. 33-71596).
10.20 Non-Qualified Stock Option Agreement between
the Registrant an Mark D. Dibner dated
January 14, 1993 (incorporated by reference
to Exhibit 4.2 filed with the Registrant's
Registration Statement on Form S-8 dated
February 21, 1995, Commission File No.
33-89646).
10.21 Loan Modification Agreement dated December
15, 1994 between the Registrant and the
North Carolina Biotechnology Center.
10.22 Asset Purchase Agreement dated as of July 1,
1995 between the Registrant and MEDTOX
Laboratories, Inc. (incorporated by
reference to Exhibit 10.1 filed with the
Registrant's Report on Form 8-K dated
January 30, 1996).
<PAGE>
10.23 Amendment Agreement dated as of January 2,
1996 between the Registrant and MEDTOX
Laboratories, Inc. (incorporated by
reference to Exhibit 10.2 filed with the
Registrant's Report on Form 8-K dated
January 30, 1996).
10.24 Assignment Agreement dated as of January 10,
1996 between and among the Registrant,
MEDTOX Laboratories, Inc. and Psychiatric
Diagnostic Laboratories of America, Inc.
(incorporated by reference to Exhibit 10.3
filed with the Registrant's Report on Form
8-K dated January 30, 1996).
10.25 Amendment Agreement dated as of January 30,
1996 among the Registrant, MEDTOX
Laboratories, Inc. and Psychiatric
Diagnostic Laboratories of America, Inc.
10.26 Loan and Security Agreement (together with
the Exhibits and Schedules thereto) by and
between the Registrant, Psychiatric
Diagnostic Laboratories of America, Inc.,
diAGnostix, inc. and Heller Financial, Inc.
dated January 30, 1996 (incorporated by
reference to Exhibit 10.4 filed with the
Registrant's Report on form 8-K dated
January 30, 1996).
10.27 Term Note A executed by the Registrant,
Psychiatric Diagnostic Laboratories of
America, Inc. and diAGnostix in favor of
Heller Financial, Inc. dated January 30,
1996 (incorporated by reference to Exhibit
10.5 filed with the Registrant's Report on
Form 8-K dated January 30, 1996).
10.28 Term Note B executed by the Registrant,
Psychiatric Diagnostic Laboratories of
America, Inc. and diAGnostix in favor of
Heller Financial, Inc., dated January 30,
1996 (incorporated by reference to Exhibit
10.6 filed with the Registrant's Report on
Form 8-K dated January 30, 1996).
10.29 Assignment for Security (Patents) executed
by the Registrant in favor of Heller
Financial, Inc., dated January 30, 1996
(incorporated by reference to Exhibit 10.7
filed with the Registrant's Report on Form
8-K dated January 30, 1996).
10.30 Assignment for Security - EDITEK
(Trademarks) executed by the Registrant in
favor of Heller Financial, Inc., dated
January 30, 1996 (incorporated by reference
to Exhibit 10.8 filed with the Registrant's
Report on Form 8-K dated January 30, 1996).
10.31 Assignment for Security - Princeton
(Trademarks) executed by Princeton
Diagnostic Laboratories of America, Inc. in
favor of Heller Financial, Inc., dated
January 30, 1996 (incorporated by reference
to Exhibit 10.9 filed with the Registrant's
Report on Form 8-K dated January 30, 1996).
10.32 Lease Agreement between MEDTOX Laboratories,
Inc. and Phoenix Home Life Mutual Ins. Co.
dated April 1, 1992, and amendments thereto
(incorporated by reference to Exhibit 10.10
filed with the Registrant's Report on Form
8-K dated January 30, 1996).
10.33 Employment Agreement between the Registrant
and Harry G. McCoy dated January 30, 1996.
10.34 Registrant's Amended and Restated Equity
Compensation Plan (increasing shares to
3,000,000).
<PAGE>
10.35 Asset Purchase Agreement dated as of May 31,
1995 between the Registrant, Bioman
Products, Inc. and NOVAMANN International,
Inc.
10.36 Securities Purchase Agreement dated January
31, 1996 between the Registrant and Harry G.
McCoy.
10.37 Registration Rights Agreement dated February
1, 1996 between the Registrant and Harry G.
McCoy.
10.38 Agreement regarding rights to "MEDTOX" name
dated as of January 30, 1996 between the
Registrant and Harry G. McCoy.
10.39 Warrant Agreement dated as of December 18,
1995 between Samuel C. Powell and the
Registrant.
24.1 Consent of Ernst & Young LLP
27 Financial Data Schedule
99.0 Report of KPMG Peat Marwick LLP
b. Reports on Form 8-K
There was no report on Form 8-K filed for the three months
ended December 31, 1995.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EDITEK, INC.
Report on Form 10-K
for year ended December 31, 1995
INDEX TO EXHIBITS FILED SEPARATELY WITH FORM 10-K
EXHIBIT # DESCRIPTION OF EXHIBIT
10.33 Employment Agreement between the
Registrant and Harry G. McCoy dated
January 30, 1996.
10.34 Registrant's Amended and Restated Equity
Compensation Plan (increasing shares to
3,000,000).
10.35 Asset Purchase Agreement dated as of
May 31, 1995 between the Registrant,
Bioman Products, Inc. and NOVAMANN
International, Inc.
10.36 Securities Purchase Agreement dated
January 31, 1996 between the Registrant
and Harry G. McCoy.
10.37 Registration Rights Agreement dated
February 1, 1996 between the Registrant
and Harry G. McCoy.
10.38 Agreement regarding rights to "MEDTOX"
name dated as of January 30, 1996 between
the Registrant and Harry G. McCoy.
10.39 Warrant Agreement dated as of December 18, 1995
between Samuel C. Powell and the Registrant.
24.1 Consent of Ernst & Young LLP
27 Financial Data Schedule
99.0 Report of KPMG Peat Marwick LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized on the 27th
day of March 1996.
EDITEK, Inc.
Registrant
By: /s/ James D. Skinner
James D. Skinner
President,
Principal Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1934, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ James D. Skinner President, March 27, 1996
James D. Skinner Principal Executive
Officer, and
Chairman of the Board
/s/ Samuel C. Powell Director March 27, 1996
Samuel C. Powell, Ph.D.
/s/ Peter J. Heath Vice President of March 27, 1996
Peter J. Heath Finance and Chief
Financial Officer
/s/ Gene E. Lewis Director March 27, 1996
Gene E. Lewis
/s/ Robert J. Beckman Director March 27, 1996
Robert J. Beckman
/s/ Harry G. McCoy, Pharm.D. Director March 27, 1996
Harry G. McCoy, Pharm.D.
/s/ George W. Masters Director March 27, 1996
George W. Masters
<PAGE>
EDITEK, Inc.
Consolidated Financial Statements
Years ended December 31, 1995 and 1994
CONTENTS
Report of Independent Auditors............................1
Consolidated Financial Statements
Consolidated Balance Sheets...............................2
Consolidated Statements of Operations.....................4
Consolidated Statements of Stockholders' Equity...........5
Consolidated Statements of Cash Flows.....................6
Notes to Consolidated Financial Statements................7
<PAGE>
Report of Independent Auditors
The Board of Directors
EDITEK, Inc.
We have audited the accompanying consolidated balance sheets of EDITEK, Inc. as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of EDITEK,
Inc. at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Ernst & Young LLP
February 23, 1996
1
<PAGE>
EDITEK, Inc.
Consolidated Balance Sheets
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 258 $ 1,105
Accounts receivable:
Trade, less allowance for doubtful accounts (1995--
$130,000; 1994--$206,000) 977 737
Other 52 106
1,029 843
Inventories:
Raw materials 588 532
Work in process 169 64
Finished goods 180 257
937 853
Deposit on acquisition (NOTE 2) 500 --
Prepaid expenses and other 368 272
Total current assets 3,092 3,073
Equipment and improvements:
Furniture and equipment 2,945 5,689
Leasehold improvements 282 1,692
3,227 7,381
Less accumulated depreciation and amortization (2,630) (6,326)
597 1,055
Goodwill, net of amortization of $7,000 in 1995 and $147,000
in 1994 (NOTES 2 AND 3) 117 3,247
Other assets -- 3
Total assets
$ 3,806 $ 7,378
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (NOTE 4) $ -- $ 850
Accounts payable 1,184 1,105
Accrued expenses 834 347
Accrued restructuring expenses (NOTE 3) 368 --
Deferred revenues 42 39
Current portion of long-term debt (NOTE 4) 82 95
Note payable to director 100 --
Current portion of capital lease -- 23
Total current liabilities 2,610 2,459
Long-term debt (NOTE 4) -- 63
Other liabilities (NOTE 3) 258 --
Stockholders' equity (NOTES 5 AND 6):
Preferred Stock--authorized 1,000,000 shares; no shares
issued or outstanding -- --
Common Stock, $.15 par value; authorized--30,000,000
shares; issued and outstanding--10,439,775 shares in
1995 and 8,075,339 shares in 1994
1,566 1,211
Additional paid-in capital 33,973 30,132
Accumulated deficit (34,425) (26,382)
1,114 4,961
Less: Note receivable from officer (100) (100)
Treasury stock (76) (5)
938 4,856
Total liabilities and stockholders' equity
$ 3,806 $ 7,378
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
EDITEK, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Laboratory service revenues $ 4,312 $ 3,647 $ --
Product sales 2,725 2,536 2,295
Royalties and fees 300 200 257
Interest and other income 189 210 81
7,526 6,593 2,633
Costs and expenses:
Cost of services 4,349 3,902 --
Cost of sales 2,240 2,142 2,024
Selling, general and administrative 4,206 3,341 2,152
Research and development 920 729 825
Interest and financing costs 23 25 9
Arbitration costs (NOTE 9) -- -- 689
Restructuring costs (NOTE 3) 3,831 -- --
15,569 10,139 5,699
Net loss $ (8,043) $ (3,546) $ (3,066)
Loss per share of common stock $ (.85) $ (.49) $ (.56)
Weighted average number of shares of common stock
outstanding 9,445,707 7,204,244 5,429,128
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
EDITEK, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
NOTE
ADDITIONAL RECEIVABLE
PAID-IN ACCUMULATED FROM TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDER STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 4,885,629 $ 733 $21,467 $ (19,770) $ (100) $ (5) $ 2,325
Exercise of stock options and warrants 217,194 32 268 -- -- -- 300
Sale of stock 10,754 2 38 -- -- -- 40
Private placement of common stock 955,654 143 3,489 -- -- -- 3,632
Net loss -- -- -- (3,066) -- -- (3,066)
Balances at December 31, 1993 6,069,231 910 25,262 (22,836) (100) (5) 3,231
Exercise of stock options and warrants 23,019 4 43 -- -- -- 47
Stock issued for PDLA acquisition 1,167,729 175 3,803 -- -- -- 3,978
Sale of stock 15,360 2 31 -- -- -- 33
Private placement of common stock 800,000 120 993 -- -- -- 1,113
Net loss -- -- -- (3,546) -- -- (3,546)
Balances at December 31, 1994 8,075,339 1,211 30,132 (26,382) (100) (5) 4,856
Exercise of stock options and warrants 156,347 23 170 -- -- -- 193
Stock issued for Bioman acquisition 21,489 3 58 -- -- -- 61
Sale of stock 12,037 2 25 -- -- -- 27
Stock issued for conversion of debt 16,100 3 59 -- -- -- 62
Purchase of treasury stock -- -- -- -- -- (71) (71)
Private placement of common stock 2,158,463 324 3,529 -- -- -- 3,853
Net loss -- -- -- (8,043) -- -- (8,043)
Balances at December 31, 1995 10,439,775 $1,566 $33,973 $ (34,425) $ (100) $ (76) $ 938
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
EDITEK, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(8,043) $(3,546) $(3,066)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 644 633 318
Restructuring charge 3,831 -- --
Provision for losses on accounts receivable (54) 58 (6)
Provision for obsolete inventory (13) 5 5
Gain on sale or retirement of equipment -- -- (16)
Changes in operating assets and liabilities, net of
acquisition:
Accounts receivable (22) 31 34
Inventories (58) (306) (84)
Prepaid expenses and other (589) (19) (26)
Accounts payable and accrued expenses 453 116 (121)
Deferred revenues 3 (17) 19
Leases payable (23) (37) --
Net cash used in operating activities (3,871) (3,082) (2,943)
INVESTING ACTIVITIES
Purchase of equipment and improvements (177) (505) (339)
Proceeds from sale of equipment -- -- 41
Purchase of PDLA, net of cash acquired -- 89 --
Cash used for Bioman acquisition (37) -- --
Net cash used in investing activities (214) (416) (298)
FINANCING ACTIVITIES
Proceeds from issuance of stock for:
Private placement 4,115 1,159 3,656
Costs related to private placement (262) (46) (24)
Sale of stock 27 33 40
Exercise of stock warrants and options 193 47 300
Purchase of treasury stock (71) -- --
Proceeds from line of credit, loan payable and note
payable 119 850 13
Principal payments on line-of-credit and loan payable (883) -- --
Net cash provided by financing activities 3,238 2,043 3,985
(Decrease) increase in cash and cash equivalents (847) (1,455) 744
Cash and cash equivalents at beginning of year 1,105 2,560 1,816
Cash and cash equivalents at end of year $ 258 $ 1,105 $ 2,560
</TABLE>
SUPPLEMENTAL NONCASH ACTIVITIES
During 1995, the Company issued $62,000 of common stock related to the
conversion of debt and issued $61,000 of common stock in connection with the
acquisition of Bioman.
6
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The consolidated financial statements include the accounts of EDITEK, Inc.
("EDITEK") and its wholly-owned subsidiaries, Princeton Diagnostic Laboratories
of America, Inc. ("PDLA") and diAGnostix, Inc. (collectively referred to as "the
Company"). EDITEK is engaged in the research, development and sale of products
based upon enzyme immunoassay technology for the detection of antibiotic
residues, mycotoxins, drugs of abuse and other hazardous substances. PDLA
provides clinical testing services for the detection of substances of abuse and
diAGnostix, Inc. distributes agridiagnostic and food safety testing products.
All significant intercompany transactions and balances have been eliminated.
TRADE ACCOUNTS RECEIVABLE
Sales are made to local, national and international customers including
livestock producers, food processors, veterinarians, government agencies,
medical professionals, corporations, law enforcement agencies and healthcare
facilities. Concentration of credit risk is limited due to the large number of
customers to which the Company sells its products and services. The Company
extends credit based on an evaluation of the customer's financial condition and
receivables are generally unsecured. The Company provides an allowance for
doubtful accounts equal to the estimated losses expected to be incurred in the
collection of accounts receivable.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market. At December 31, 1995 and 1994, the inventory included a reserve of
$12,000 and $25,000, respectively, for lower of cost or market and for
obsolescence.
EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are stated at cost. Provisions for depreciation have
been computed using the straight-line method to amortize the cost of depreciable
assets over their estimated useful lives. Leasehold improvements are amortized
over the lesser of the lease term or the economic useful lives of the
improvements.
7
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Sales are recognized in the statement of operations when products are shipped or
services are rendered.
ROYALTIES AND FEES
The Company receives reimbursement for certain research and development costs.
The reimbursement is recorded as royalties and fees.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to expense as incurred.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and highly liquid investments maturing
within three months when purchased.
LOSS PER SHARE OF COMMON STOCK
Loss per share of common stock amounts are based on the weighted average number
of shares of common stock outstanding. All other common stock equivalents,
including convertible debt disclosed in Note 4, were anti-dilutive and therefore
were not included in the computation of loss per share, for all periods
presented.
RELATED PARTY TRANSACTIONS
The Company has transactions with related parties. The specific transactions are
disclosed in the applicable notes to the financial statements.
8
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill is amortized on a straight-line basis over 20 years. The carrying value
of goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the Company's carrying value of the goodwill is
reduced by the estimated shortfall of cash flows (see Note 3).
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 STANDARD
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the effect of adoption will be material.
RECLASSIFICATIONS
Certain reclassifications have been made to the years 1994 and 1993 to conform
with the 1995 presentation. Such reclassifications had no effect on previously
reported net loss or accumulated deficit.
9
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS
In January, 1996, the Company acquired MEDTOX Laboratories, Inc., ("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 of goodwill.
The goodwill is being amortized over a period of 20 years.
The Company financed the acquisition by issuing $19 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.
At December 31, 1995, the Company had $500,000 in an escrow account as a
required deposit toward the MEDTOX acquisition.
The following unaudited proforma information presents the results of operations
of the Company and MEDTOX for the year ended December 31, 1995, as if the
acquisition had been consummated as of January 1, 1995.
Revenues $27,745
Net loss $ 4,459
Net loss per share $ (.37)
On June 1, 1995, the Company acquired Bioman Products, Inc., ("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 year ended December 31,
1995 included the results of the Bioman operations from June 1, 1995 to December
31, 1995.
The Company acquired PDLA on February 11, 1994 by issuing 826,790 shares of its
common stock in exchange for all of the outstanding shares of PDLA's stock. The
total value of the exchange was $3,876,000. The acquisition was accounted for
under the purchase method of accounting and the Company recorded goodwill of
$3,394,000. Additional shares of common stock were subsequently issued to former
major shareholders of PDLA through price protection agreements. The consolidated
results of operations for the year ended December 31, 1994 include the results
of the PDLA
10
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
operations from February 12, 1994 to December 31, 1994. As further discussed in
Note 3, the Company plans to consolidate the PDLA operations into a newly
acquired Company. The remaining PDLA goodwill of $3.1 million was written-off
during the fourth quarter.
3. RESTRUCTURING CHARGES
During the fourth quarter of 1995, the Company recorded a restructuring charge
of $3,831,000, primarily relating to the consolidation of all laboratory testing
services into the recently acquired MEDTOX laboratory. The laboratory services
performed at PDLA will be discontinued and sample testing will be transitioned
to MEDTOX. The Company will maintain client services, the courier network and
certain sales/administrative functions in the reduced PDLA facility.
The restructuring charge includes a $3,100,000 cost of the write-off of the
goodwill associated with the PDLA acquisition. An additional $731,000 of the
charge is for the write-off of net assets and future minimum lease obligations
at PDLA. A liability of $258,000 related to future minimum lease payments for
the period 1997 through 2000 has been classified as noncurrent.
4. DEBT
On August 15, 1989, the Company entered into a long-term loan agreement with 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 as repayment for $62,000 of the loan. The remaining
principal, $63,000, now bears interest at the 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.
On March 1, 1994, the Company entered into a line of credit arrangement for up
to $1,000,000 at an interest rate of 5.82%. The line-of-credit was repaid and
terminated in 1995.
On December 18, 1995, the Company borrowed $100,000 from a Director at an
interest rate of 10.5%. The Company repaid the principal and interest in
February, 1996.
11
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
4. DEBT (CONTINUED)
Interest paid for all outstanding debt was $19,000, $19,000 and $9,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
5. STOCKHOLDERS' EQUITY
The Company has sold its common stock in various private transactions as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PRICE NET
PER SHARE PROCEEDS
<S> <C> <C> <C>
1995 2,158,463 $1.63 to $2.25 $3,853,000
1994 800,000 $1.01 to $2.03 $1,113,000
1993 955,654 $3.01 to $5.20 $3,632,000
</TABLE>
At December 31, 1995, shares of common stock reserved for future issuance are as
follows:
Common stock warrants:
Series J 60,000
Series K 50,000
Series L 320,000
Series M 10,550
Series N 32,679
Common stock options:
Incentive 449,406
Non-Employee Director 239,540
Nonqualified 41,093
Qualified Employee Stock Purchase Plan 76,241
Equity Compensation Plan 2,998,333
Convertible Debt 21,856
4,299,698
6. STOCK OPTION AND PURCHASE PLANS
INCENTIVE STOCK OPTION PLAN
The Company has an Incentive Stock Option Plan (the "Plan") under which options
to purchase shares of common stock may be granted to officers, directors and
employees at a price which is not less than fair market value at the date of
grant. Options generally become exercisable in installments over a period of one
to five years. Under the incentive plan, no additional options may be granted
subsequent to June 23, 1993.
12
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
Following is a summary of transactions:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
1995 1994 1993
<S> <C> <C> <C>
Outstanding, beginning of year 461,657 483,262 500,860
Granted during the year -- -- 13,414
Canceled during the year (12,251) (17,105) (5,965)
Exercised during the year (1994--$1.41 per share;
1993--$.55 to $6.25 per share) -- (4,500) (25,047)
Outstanding, end of year (1995--$.45 to $10.38 per
share; 1994--$.45 to $10.38 per share; 1993--$.45 to
$10.38 per share) 449,406 461,657 483,262
Exercisable, end of year (1995--$.45 to $10.38 per
share; 1994--$.45 to $10.38 per share; 1993--$.45 to
$10.38 per share) 448,536 442,182 374,867
</TABLE>
EQUITY COMPENSATION PLAN
Effective October 26, 1993 the Company adopted an equity compensation plan that
includes incentive stock options, non-qualified stock options, stock
appreciation rights, restricted and unrestricted stock awards, performance
shares, and other stock-based awards. A total of 3,000,000 shares have been
authorized for the plan. As of December 31, 1995, 721,039 options are
outstanding and 298,436 have vested.
NON-EMPLOYEE DIRECTOR PLAN
The Company maintains a stock option plan for non-employee directors under which
options to purchase shares of common stock may be granted to directors of the
Company who are not employees of the Company. At December 31, 1995, 47,864
options that have been granted are outstanding.
NONQUALIFIED STOCK OPTIONS
On July 1, 1987, the Company granted nonqualified options to purchase 66,667
shares of common stock to an officer at $14.70 per share. Subsequently, 26,667
of the options were canceled and reissued under the Incentive Stock Option Plan
and the remaining 40,000 options were canceled and reissued at $7.50 per share.
In September 1988 the officer exercised options to purchase 13,334 shares of
common stock. Pursuant to the terms of the option agreement, the Company
provided a loan to the officer for the amount of the funds necessary to exercise
the options. The stock acquired is held by the Company as collateral for the
loan and the officer is to pay interest on the borrowed funds
13
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
at a rate equal to the prime rate in effect from time to time with adjustments
in the interest accrual rate to occur on the same date that the prime rate
changes. In May 1990 the remaining 26,666 options were canceled and reissued at
$3.75 per share.
On August 10, 1988, the Company granted nonqualified options to purchase 6,667
shares of common stock to an officer at $3.75 per share. At December 31, 1995,
6,667 options are exercisable.
On January 14, 1993, the Company granted nonqualified options to purchase 7,760
shares of common stock to a director at $8.19 per share. At December 31, 1995,
the 7,760 options are exercisable.
The shares of common stock covered by these nonqualified options are restricted
as to transfer under applicable securities laws.
QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
The Company has a Qualified Employee Stock Purchase Plan (the "Purchase Plan")
under which all regular employees meeting certain criteria may subscribe to and
purchase shares of common stock. The number of shares of common stock authorized
to be issued under the Purchase Plan is 150,000, subject to adjustment for any
future stock splits or dividends. The subscription price of the shares is 85% of
the fair market value of the common stock on the day the executed subscription
form is received by the Company. The purchase price for the shares is the lesser
of the subscription price or 85% of the fair market value of the shares on the
day the right to purchase is exercised. Payment for common stock is made through
a payroll deduction plan. Following is a summary of transactions:
<TABLE>
<CAPTION>
SHARES SUBSCRIBED
1995 1994 1993
<S> <C> <C> <C>
Outstanding, beginning of year 13,725 7,943 18,829
Subscribed during the year 4,942 23,005 6,386
Canceled during the year (3,128) (1,863) (6,518)
Purchased during the year (1995--$1.70 to $2.55 per
share; 1994--$1.60 to $3.63 per share; 1993--$2.19 to
$6.96 per share) (12,037) (15,360) (10,754)
Outstanding, end of year (1995--$1.70 to $3.09 per
share; 1994--$1.70 to $3.94 per share;1993--$2.17 to
$6.96 per share) 3,502 13,725 7,943
</TABLE>
14
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock issued to Employees," and intends to
continue to do so.
7. LEASES
The Company leases office and research facilities from a director under an
operating lease. The lease is currently a month to month lease. Rental payments
to this director were approximately $121,000, $119,000, and $109,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
The Company leases farm facilities for production of certain of its products
from a company of which a director owns a 12% interest. The lease is currently a
month to month lease. Rental payments to this company were approximately $34,000
for the years ended December 31, 1995, 1994 and 1993.
The Company leases certain office equipment and facilities under operating
leases. As of December 31, 1995, the Company is obligated for minimum lease
payments under noncancellable leases as follows:
1996 $178,000
1997 174,000
1998 171,000
1999 170,000
2000 and thereafter 57,000
$750,000
Rent expense (including amounts to the director for the leased facilities)
amounted to $435,000, $410,000 and $151,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
15
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets at
December 31 are as follows:
1995 1994
Deferred tax liabilities:
Capital leased assets $ (6,000) $ (7,000)
Total deferred tax liabilities (6,000) (7,000)
Deferred tax assets:
Excess fixed asset basis 153,000 34,000
Allowance for bad debts 49,000 78,000
Accrued vacation pay 48,000 43,000
Net acquisition costs 241,000 241,000
Net operating loss carryforwards 11,271,000 9,805,000
Research and experimental credit carryforwards 456,000 426,000
Uniform capitalization reserve 22,000 --
Restructuring costs 157,000 --
Other 63,000 26,000
Total deferred tax assets 12,460,000 10,653,000
Valuation allowance for deferred assets (12,454,000) (10,646,000)
Total deferred tax assets 6,000 7,000
Net deferred tax assets(liabilities) $ -- $ --
During 1995 and 1994, the valuation allowance increased by $1,808,000 and
$2,644,000, respectively.
At December 31, 1995, the Company has available to offset future taxable income
for financial reporting and federal tax purposes, operating loss carryforwards
of approximately $29,488,000 expiring in 1998 through 2009. Research and
experimental credits of approximately $456,000, expiring in 1998 through 2009,
are also available to offset future income tax liabilities.
The Company acquired approximately $2,473,000 in net operating loss
carryforwards when it purchased PDLA. This amount is included in total net
operating loss carryforwards described in the preceding paragraph. Future use of
this carryforward will be limited based on the Separate Return Limitation Year
("SRLY") Rules found in Proposed Treasury Regulation 1.1502-21(c). These rules
limit the use of a net operating
16
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
loss carryforward into consolidated return years. The limitation, computed
annually, limits the use of the SRLY net operating loss carryforward to the
cumulative annual taxable income generated by the purchased company since its
admittance into the consolidated group.
The annual usage of the Company's net operating loss carryforwards has been
limited by provisions of the Tax Reform Act of 1986 ("TRA"). Under TRA, if a
company experiences a change in ownership of more than 50% (by value) of its
outstanding stock over a three year period, the use of its pre-change in
ownership net operating loss carryforwards will be limited each year until the
loss is exhausted or the carryover period expires. Such a change in ownership
occurred at the time of the Company's 1987 public stock offering.
The amount of pre-change in ownership net operating loss carryforwards of
$8,500,000 which can be utilized to offset future federal taxable income will be
approximately $2,300,000 per year. TRA does not limit annual usage of
post-change in ownership net operating loss carryforwards.
9. ARBITRATION COSTS
During the latter part of 1993 and through 1994, the Company was involved in
arbitration matters with Transia-Diffchamb and Disease Detection International
("DDI"). In the Transia-Diffchamb arbitration case, the arbitrator ruled on July
30, 1994 in favor of the Company; however, the Company was not able to recover
any legal fees. In the DDI arbitration case, the arbitrator ruled against the
Company. The arbitrator also ruled that DDI was entitled to recover costs and
related legal fees. The Company has recognized an expense of $689,000 for these
costs and fees.
10. MAJOR CUSTOMERS
Sales to major customers and foreign sales amounted to the following percentages
of total revenue:
YEAR ENDED DECEMBER 31
1995 1994 1993
United States Government and agencies 4% 5% 11%
Foreign sales 8% 7% 15%
17
<PAGE>
EDITEK, Inc.
Notes to Consolidated Financial Statements (continued)
11. SUBSEQUENT EVENTS
On January 30, 1996, the Company completed the acquisition of MEDTOX and has
approximately $6 million available on its revolving line of credit (see Note 2).
On January 31, 1996, the Company sold 235,295 shares of common stock to a
Director of the Company. Proceeds from the sale were $600,000.
18
<PAGE>
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged Charged Balance at
Beginning to Costs and to Other the End
of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Deducted from Asset Accounts
Allowance for Doubtful Accounts $ 206,000 $ 89,000 $ - $ 165,000 (2) $ 130,000
Allowance for Excess and
Obsolete Inventory $ 25,000 $ 2,000 $ - $ 15,000 $ 12,000
Year Ended December 31, 1994:
Deducted from Asset Accounts
Allowance for Doubtful Accounts $ 19,000 $ 58,000 $ 286,000 (1) $ 157,000 $ 206,000
Allowance for Excess and
Obsolete Inventory $ 20,000 $ 5,000 $ - $ - $ 25,000
Year Ended December 31, 1993:
Deducted from Asset Accounts
Allowance for Doubtful Accounts $ 25,000 $ - $ - $ 6,000 $ 19,000
Allowance for Excess and
Obsolete Inventory $ 15,000 $ 5,000 $ - $ - $ 20,000
</TABLE>
(1) $286,000 charged to Other Expenses represents
the amount acquired thru the PDLA aquisition
(2) Includes $36,000 of Accounts Receivable determined
to be uncollectible which were written off
<PAGE>
Financial Statements
Medtox Laboratories, Inc.
Years ended December 31, 1995, 1994 and 1993
<PAGE>
Medtox Laboratories, Inc.
Financial Statements
Years ended December 31, 1995, 1994 and 1993
Contents
Report of Independent Auditors.......................................1
Financial Statements
Balance Sheets.......................................................2
Statements of Operations.............................................4
Statement of Stockholders' Equity....................................5
Statements of Cash Flows.............................................6
Notes to Financial Statements........................................7
<PAGE>
ERNST & YOUNG LLP [ ] 1400 Phillsbury Center [ ] Phone: 612 343 1000
Minneapolis, Minnesota 55402
Report of Independent Auditors
Board of Directors and Stockholders
Medtox Laboratories, Inc.
We have audited the accompanying balance sheet of Medtox Laboratories, Inc. as
of December 31, 1995, and the related statements of operations, stockholders'
equity and cash flows for the year then ended. 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 audit. The financial
statements of Medtox Laboratories, Inc. for each of the two years in the period
ended December 31, 1994 were audited by other auditors whose reported dated
January 31, 1995, expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Medtox Laboratories, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
March 6, 1996
1
<PAGE>
Medtox Laboratories, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31
1995 1994
------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,272,928 $ 526,512
Accounts receivable, less allowance for doubtful accounts of
$100,000 in 1995 and $110,500 in 1994 3,053,698 2,966,466
Inventories 395,672 413,301
Prepaid expenses and other assets 71,816 107,622
------------------------------------
Total current assets 4,794,114 4,013,901
Property and equipment:
Laboratory equipment 5,137,105 4,435,080
Office furniture and fixtures 372,764 370,685
Leasehold improvements 543,270 426,017
Transportation equipment 320,434 304,891
------------------------------------
6,373,573 5,536,673
Less accumulated depreciation 4,617,568 3,942,521
------------------------------------
1,756,005 1,594,152
Other 22,729 28,618
====================================
Total assets $6,572,848 $5,636,671
====================================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
December 31
1995 1994
------------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 407,715 $ 98,428
Accrued payroll 139,161 335,120
Accrued expenses 464,108 568,130
Accrued collection site expenses 200,000 193,570
Current portion of restructuring accrual 258,070 258,070
Current portion of long-term debt 498,690 437,755
------------------------------------
Total current liabilities 1,967,744 1,891,073
Restructuring accrual 472,837 659,795
Long-term debt 465,452 518,563
Commitments
Stockholders' equity:
Common stock, $1.00 par value:
Authorized shares - 50,000
Issued and outstanding shares - 29,658 29,658 29,658
Additional paid-in capital 600,032 600,032
Retained earnings 3,037,125 1,937,550
------------------------------------
Total stockholders' equity 3,666,815 2,567,240
------------------------------------
Total liabilities and stockholders' equity $6,572,848 $5,636,671
====================================
</TABLE>
See accompanying notes.
3
<PAGE>
Medtox Laboratories, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
Net revenues $20,219,030 $19,650,830 $18,494,396
Cost of revenues 9,499,755 8,713,689 10,415,836
------------------------------------------------------
Gross profit 10,719,275 10,937,141 8,078,560
Operating expenses:
Sales, marketing and distribution 3,480,919 3,487,235 4,252,725
General and administrative 4,240,062 4,088,924 4,523,546
Restructuring costs - 567,700 1,162,033
------------------------------------------------------
7,720,981 8,143,859 9,938,304
------------------------------------------------------
Operating income (loss) 2,998,294 2,793,282 (1,859,744)
Other expenses:
Interest 91,186 181,178 204,668
Other 28,053 18,294 20,662
------------------------------------------------------
119,239 199,472 225,330
======================================================
Net income (loss) $ 2,879,055 $ 2,593,810 $ (2,085,074)
======================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Medtox Laboratories, Inc.
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
---------------------------
Shares Amount Capital Earnings Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 27,958 $27,958 $545,532 $2,318,553 $2,892,043
Issuance of Common Stock at
$50 per share 500 500 24,500 - 25,000
Net loss - - - (2,085,074) (2,085,074)
-------------------------------------------------------------------
Balance at December 31, 1993 28,458 28,458 570,032 233,479 831,969
Exercise of stock options 1,200 1,200 30,000 - 31,200
Net income - - - 2,593,810 2,593,810
Distributions to stockholders - - - (889,739) (889,739)
-------------------------------------------------------------------
Balance at December 31, 1994 29,658 29,658 600,032 1,937,550 2,567,240
Net income - - - 2,879,055 2,879,055
Distributions to stockholders - - - (1,779,480) (1,779,480)
===================================================================
Balance at December 31, 1995 29,658 $29,658 $600,032 $3,037,125 $3,666,815
===================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Medtox Laboratories, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $2,879,055 $2,593,810 $(2,085,074)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 720,622 601,760 893,651
(Gain) loss on sale of assets (1,112) 11,269 18,210
Changes in operating assets and liabilities
net of assets sold and liabilities assumed
by buyer in sale of California Division:
Accounts receivable (87,232) 63,671 (725,433)
Inventories 17,629 (5,560) 515,630
Prepaid expenses and other assets 35,806 (14,292) (1,183)
Accounts payable 309,287 (1,011,943) 525,615
Accrued payroll and accrued expenses (299,981) 139,069 294,435
Accrued collection site expenses 6,430 193,570 -
Restructuring accrual (186,958) 388,865 1,162,033
-----------------------------------------------
Net cash provided by operating activities 3,393,546 2,960,219 597,884
Investing activities
Decrease in note receivable - 150,000 150,000
Purchases of property and equipment (433,463) (514,089) (398,914)
Proceeds from sale of property and equipment 30,100 20,563 -
Decrease in other assets 5,889 17,517 3,355
-----------------------------------------------
Net cash used in investing activities (397,474) (326,009) (245,559)
Financing activities
Proceeds from long-term debt - - 2,068,439
Payments on long-term debt (470,176) (777,136) (2,507,670)
Net increase (decrease) in line of credit - (500,000) 103
Proceeds from the issuance of Common Stock - 31,200 25,000
Distributions to stockholders (1,779,480) (889,739) -
-----------------------------------------------
Net cash used in financing activities (2,249,656) (2,135,675) (414,128)
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents 746,416 498,535 (61,803)
Cash and cash equivalents at beginning of year 526,512 27,977 89,780
===============================================
Cash and cash equivalents at end of year $1,272,928 $ 526,512 $ 27,977
===============================================
Supplemental schedule of non-cash investing and
financing activities
Equipment acquired through notes payable $ 478,000 $ 70,268 $ 64,421
Note receivable from sale of California division - - 300,000
Note payable assumed by buyer in sale of California
division - - 10,520
</TABLE>
See accompanying notes.
6
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements
December 31, 1995
1. Business Activity
Medtox Laboratories, Inc. (the Company) is a toxicology reference laboratory
offering therapeutic drug monitoring, drugs of abuse screening, clinical
analyses, research analyses and emergency toxicology. The Company is certified
by the Substance Abuse and Mental Health Services Administration (SAMHSA) and
the College of American Pathologists (CAP). The Company operates a medical
laboratory in St. Paul, Minnesota with customers throughout the United States.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, which approximates the first-in,
first-out basis, or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
accelerated and straight-line methods based on estimated useful lives of five to
seven years. Leasehold improvements are amortized over the related lease term or
estimated useful life, whichever is shorter.
Net Revenues
Net revenues consist of gross billings less collection site and medical review
officer costs and send-outs, all of which are billed back to the customer.
Income Taxes
The Company elected to be taxed as an S corporation for income tax purposes
whereby all items of tax consequences are passed through to the stockholders.
7
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The Company reports its income or loss on the cash basis for tax purposes. If
the Company terminated its S corporation status and changed to a C corporation,
the Company will be required to use the accrual basis for tax purposes resulting
in the recognition of approximately $2,600,000 of taxable income that was
previously deferred.
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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
3. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1995 1994
----------------------------
<S> <C> <C>
Note payable to bank, interest rate at prime (8.5% at December
31, 1995), monthly payments excluding interest of $29,045,
due March 1997 $435,459 $784,152
Notes payable to bank, interest rates ranging from
7.75% to 10%, monthly payments including interest of $3,424 to
$10,200, due at various dates through June 2000
528,683 172,166
----------------------------
964,142 956,318
Less current portion 498,690 437,755
============================
$465,452 $518,563
============================
</TABLE>
The above notes are secured by substantially all of the Company's assets. The
carrying amounts reported in the balance sheets for the Company's long-term debt
approximate their fair values.
8
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements (continued)
3. Long-Term Debt (continued)
Maturities of long-term debt as of December 31, 1995 are as follows:
1996 $498,690
1997 196,732
1998 100,092
1999 110,573
2000 58,055
==========
$964,142
==========
In 1995, the Company entered into a $500,000 revolving line of credit with a
bank which accrues interest at the prime rate (8.5% at December 31, 1995) and is
secured by a portion of the Company's assets. The Company must repay all amounts
owed under the line of credit by June 30, 1996. Interest on the line of credit
is payable monthly. The Company had no borrowings against this facility at
December 31, 1995. Certain financing agreements contain various restrictions and
provisions including maintaining certain financial ratios.
Cash paid for interest was $177,391, $178,829 and $213,972 for the years ended
December 31, 1995, 1994 and 1993, respectively.
4. Commitments
The Company leases office and other facilities under certain operating leases
which expire on various dates through April 2000. Under the terms of the leases,
a pro rata share of operating expenses and real estate taxes are charged as
additional rent. The Company subleases one of its facilities to another party
(see Note 8). The amount of sublease payments to be received is $131,217 and
$124,608 for the years ended December 31, 1996 and 1997, respectively.
Future minimum lease commitments under all operating leases without
regard to sublease payments as of December 31, 1995 are as follows:
1996 $ 507,248
1997 266,591
1998 186,372
1999 186,372
2000 62,124
=============
$ 1,208,707
=============
9
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements (continued)
4. Commitments (continued)
Rent expense charged to operations was $464,696, $463,299 and $771,796
for the years ended December 31, 1995, 1994 and 1993, respectively.
5. Stock Options
The Company issued stock options to certain key employees which allow for the
purchase of an aggregate of 1,200 shares of Common Stock. These options were
exercised at $26 per share during 1994. There were no options outstanding at
December 31, 1995 or 1994.
6. Benefit Plan
The Company has a defined contribution profit sharing Plan, with a 401(k)
provision, that covers substantially all employees who meet certain age and
length of service requirements. Contributions to the plan are at the discretion
of the Board of Directors. The 401(k) expense for the years ended December 31,
1995, 1994 and 1993 was $78,038 $68,857 and $70,700, respectively.
7. Related Party Transactions
The Company provided laboratory services to an entity owned by certain
stockholders and employees of the Company through December 31, 1994. These
laboratory services were bundled with other services which the Company did not
offer, and sold as a package to certain clients. Total sales to the entity for
1994 and 1993 were $372,741 and $431,955, respectively.
The Company also purchased services, including collection site and medical
review officer services, and customized specimen collection supplies from that
same entity through December 31, 1994. Purchases for 1994 and 1993 were $231,604
and $1,169,731, respectively.
10
<PAGE>
Medtox Laboratories, Inc.
Notes to Financial Statements (continued)
8. Restructuring Accrual
Effective October 31, 1993, the Company sold substantially all of its California
operations to a third party for $300,000. In addition, the buyer assumed certain
liabilities of the operation and entered into an assignment of the related
lease. The sale of the assets resulted in a loss of approximately $457,000 which
was reflected in restructuring costs for the year ended December 31, 1993.
The Company closed its Illinois division on December 31, 1993. In connection
with this closing, the Company recorded restructuring expenses as of December
31, 1993 of approximately $705,000. The expenses included lease obligations,
severance and vacation costs and other miscellaneous expenses directly related
to the closing of the facility. During 1994, the Company was not successful in
subleasing the Illinois facility as a laboratory. Accordingly, the Company
revised the estimate of sublease payments based on reconfiguring the space for
general office use at a lower lease rate and expensed an additional $567,700 for
the year ended December 31, 1994. At December 31, 1995 and 1994, the
restructuring accrual of $730,907 and $917,865, respectively, represents the
present value of future lease obligations through the lease term of April 2000.
9. Subsequent Event
On January 30, 1996, the Company sold substantially all of its assets and
liabilities other than cash and cash equivalents to a publicly-held company (the
Purchaser) for $24 million, consisting of $19 million in cash and $5 million in
the form of 2,517,306 shares of common stock of the Purchaser.
11
<PAGE>
The following unaudited pro forma consolidated balance sheet
as of December 31, 1995, and the unaudited pro forma consolidated statements of
operations for the year ended December 31, 1995 gives effect to the acquisition
of MEDTOX by EDITEK using the purchase method. The unaudited pro forma
consolidated financial information is based on the historical financial
information of EDITEK and MEDTOX as of December 31, 1995 and the pro forma
adjustments described in the notes thereto. There are no pro forma adjustments
to other amounts reflected in the historical financial statements of MEDTOX as
management believes that the historical costs assigned to MEDTOX assets and
liabilities approximate fair value.
Information was prepared as if the acquisition was effected as
of December 31, 1995 in the case of the unaudited pro forma consolidated balance
sheet and as of January 1, 1995 in the case of the unaudited pro forma
statements of operations. The unaudited pro forma financial statements may not
be indicative of the results that actually would have occurred if the
acquisition had been in effect on the dates indicated or which may be obtained
in the future. The unaudited pro forma financial information should be read in
conjunction with the financial statements and other financial data of EDITEK and
MEDTOX included herein.
EDITEK AND MEDTOX
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1995
(In Thousands except per share amounts)
<TABLE>
<CAPTION>
Historical Proforma
------------------------------ ---------------------------------------
EDITEK MEDTOX Adjustments Consolidated
------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents $ 258 $ 1,273 $ 3,095(a) $ 4,626
Accounts Receivable, net 1,029 3,054 - 4,083
Inventory and Supplies 937 395 - 1,332
Other Current Assets 868 72 (500)(a) 440
------------------------------ ---------------- ----------------
Total Current Assets 3,092 4,794 2,595 10,481
Property and Equipment 3,227 6,374 - 9,601
Accumulated Depreciation (2,630) (4,618) - (7,248)
------------------------------ ---------------- ----------------
Property & Equipment, net 597 1,756 - 2,353
Other Assets
- - - -
Goodwill, net 117 23 22,237 (c) 22,377
------------------------------ ---------------- ----------------
Total Non-Current Assets 714 1,779 22,237 24,730
------------------------------ ---------------- ----------------
Total Assets $ 3,806 $ 6,573 $ 24,832 $ 35,211
============= ============== ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Revolving line of credit $ - $ - $ 990 (a),(b) $ 990
Accounts Payable 1,184 408 - 1,592
Accrued Expenses 834 803 631 (h) 2,268
Current Maturities of Long Term Debt 182 499 834 (b) 1,515
Restructuring Accrual, Current Portion 368 258 - 626
Other Current Liabilities 42 - - 42
------------- -------------- ---------------- ----------------
Total Current Liabilities 2,610 1,968 2,455 7,033
Long Term Debt Obligations - 465 2,202 (b) 2,667
Restructuring Accrual, Long Term Portion 258 473 - 731
Other Long Term Liabilities - - - -
------------- -------------- ---------------- ----------------
Total Liabilities 2,868 2,906 4,657 10,431
Common Stock 1,566 30 348 (e) 1,944
Addt. Paid-in Capital 33,973 600 2,514 (e) 37,087
Preferred Stock - - 20,350 (e) 20,350
Retained Earnings (Deficit) (34,425) 3,037 (3,037)(e) (34,425)
------------- -------------- ---------------- ----------------
1,114 3,667 20,175 24,956
Less: Treasury Stock and Other Contra Equity
(176) - - (176)
------------- -------------- ---------------- ----------------
Total Stockholders' Equity 938 3,667 20,175 24,780
------------- -------------- ---------------- ----------------
Total Liabilities and Shareholders' Equity $ 3,806 $ 6,573 $ 24,832 $ 35,211
============= ============== ================ ================
</TABLE>
See notes to unaudited pro forma consolidated financial statements
<PAGE>
EDITEK AND MEDTOX
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
(In Thousands except per share amounts)
<TABLE>
<CAPTION>
Historical Proforma
--------------------------------- ----------------------------------------
EDITEK MEDTOX Adjustments Consolidated
--------------------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues $ 7,526 $ 20,219 $ - 27,745
Cost of sales
6,589 9,500 - 16,089
--------------------------------- ----------------- ------------------
Gross margin 937 10,719 - 11,656
Operating expenses
Research and development 920 - - 920
Selling, general and administrative 4,030 7,721 - 11,751
Amortization 176 - 936 (d) 1,112
Restructuring costs 3,831 - (3,831) (i) -
--------------------------------- ----------------- ------------------
Total operating expenses 8,957 7,721 (2,895) 13,783
Income (loss) before interest
and other income (8,020) 2,998 2,895 (2,127)
Other income - - - -
Interest and other expense (23) (119) (358) (b) (500)
--------------------------------- ----------------- ------------------
Net income (loss) (8,043) 2,879 2,537 (2,627)
Preferred stock dividend - - 1,832 (f) 1,832
--------------------------------- ----------------- ------------------
Net income (loss) applicable to common
shareholders $ (8,043) $ 2,879 $ 705 $ (4,459)
================================= ================= ==================
Income (Loss) per common share $ (0.85) $ 97.10 $ (0.37)
================================= ==================
Weighted average number of common
shares outstanding 9,445,707 29,650 11,963,013
================================= ==================
</TABLE>
See notes to unaudited pro forma consolidated financial statements
<PAGE>
EDITEK AND MEDTOX
NOTES TO UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
a) EDITEK closed the $24 million acquisition of MEDTOX and raised additional
working capital by raising approximately $20 million from the issuance of
407 shares of Preferred Stock, borrowing approximately $5 million in the
form of two term loans and a revolving line of credit and issuing $5
million of Common Stock of the Company to the shareholders of MEDTOX in the
form of 2,517,306 shares of Common Stock. The Company did not acquire the
cash on hand of MEDTOX at December 31, 1995 and was required to pay off the
existing loans of MEDTOX and approximately $1.3 million in financing costs.
Cash and Cash Equivalents
(dollar amounts in thousands)
Proceeds from issuance of
Series A Preferred Stock $20,350
Proceeds from debt:
Term Loans 4,000
Credit Facility 990
Compensation to Investment
Bankers ( 1,343)
Compensation for Placement
of Debt ( 165)
Payment of MEDTOX Notes:
Current Portion ( 499)
Long Term Portion ( 465)
Payment to MEDTOX
Shareholders (18,500)
MEDTOX distribution of cash
on hand at MEDTOX ( 1,273)
---------
$ 3,095
The reduction of $500 in Other Current Assets represents the deposit
previously paid to MEDTOX which was held in escrow.
<PAGE>
b) Pro Forma adjustment to long term debt accounts are summarized as follows:
Current Long Term
Portion Portion
Elimination of MEDTOX's
long term debt $ (499) $ (465)
Issuance of term loans 1,333 2,667
-----------------
$ 834 $ 2,202
The interest rates on the loans are as follows:
Term Loan A 2.0% above Prime Rate
Term Loan B 2.5% above Prime Rate
Credit Facility 1.5% above Prime Rate
c) Goodwill representing the excess of the purchase price of $24 million over
the fair value of the identifiable net assets of MEDTOX has been reflected
and is comprised of the following:
(dollar amounts in thousands)
Purchase price $24,000
Costs related to acquisition 770
Net assets acquired @ 12/31/95 (2,533)
$22,237
The allocation of the total amount of excess purchase price over the fair
value of the assets is a preliminary allocation absent an appraisal of
certain intangible assets.
d) Amortization is based on an effective date of the acquisition of MEDTOX of
January 1, 1995 amortized over a twenty year period.
e) Pro Forma adjustment to stockholder's equity accounts are summarized as
follows:
<TABLE>
<CAPTION>
(dollar amounts in thousands)
Additional
Common Preferred Paid In Retained
Stock Stock Capital Earnings
<S> <C> <C> <C> <C>
Elimination of MEDTOX's equity accounts $ (30) $ - $ (600) $ (3,037)
Issuance of Preferred Stock - 20,350 (1,508) -
Issuance of Common Stock 378 - 4,622 -
------------ ----------- ------------- -----------
$ 348 $ 20,350 $ 2,514 $ ( 3,037)
</TABLE>
<PAGE>
f) Dividend of 9% declared for $20,350,000 of Preferred Stock issued and
outstanding.
g) Adjustments to reclassify certain expenses of MEDTOX, including
distribution expenses to conform with the historical presentation of the
financial statements of EDITEK. These reclassifications have no impact on
the operating income of MEDTOX.
h) Adjustment to reflect acquisition costs which are expected to approximate
$400,000, certain severance payments of $370,000, less the accrued payroll
of MEDTOX of $139,000, which was not purchased by the Company.
i) Adjustment to reflect the restructuring charge of $3,800,000 which consists
of the write-off of the remaining goodwill of $3,100,000 and $700,000 of
certain other restructuring costs. (The Company believes that the
restructuring charge should be reflected in the pro forma statement of
operations as the restructuring was a direct result of the MEDTOX
acquisition.)
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as specified herein, between Medtox
Laboratories, Inc., a Minnesota corporation ("Medtox") (substantially all of the
assets of Medtox are to be acquired by Psychiatric Diagnostic Laboratories of
America, Inc. ("PDLA"), a wholly-owned subsidiary of Editek, Inc. ("Editek"),
pursuant to which transaction this Agreement shall be assumed) and Harry G.
McCoy ("Employee").
NOW, THEREFORE, in consideration of the terms and mutual undertakings
herein contained, it is agreed by and between Medtox and Employee as follows:
1. Effective Date and Term of Employment: This Agreement shall become
effective on January 30, 1996, the date of the asset acquisition transaction
between Medtox and Editek (the "Acquisition"), and shall supersede the Change in
Control Agreement between Employee and Medtox effective as of December 30, 1994.
The Agreement shall remain in effect until the close of business two years from
such effective date (the "Agreement Expiration Date"); provided, however, that
on the Agreement Expiration Date and on each anniversary of the Agreement
Expiration Date (a "Renewal Date"), this Agreement shall be renewed for a period
of one additional consecutive year unless either Medtox or Employee provides
written notice to the other party at least ninety (90) days prior to a Renewal
Date that the Agreement shall terminate without renewal as of the corresponding
Agreement Expiration 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 is the President of Laboratory
Operations of Medtox and, following the Acquisition, Employee shall have a
comparable position, subject to such changes in level of responsibility,
position, authority or duty as are consistent with the Acquisition (without
prejudice to seek a Severance Award pursuant to Sectoin 5.2). Employee hereby
agrees to faithfully and competently render services on a full-time basis to
Medtox in the foregoing capacity and to devote his best efforts, skill and
attention (except during vacations and leaves conforming with Medtox policies)
to Medtox.
3. Compensation: Medtox 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 one hundred
sixty-seven thousand dollars ($167,000) per annum ("Base Salary"). Employee
shall be eligible for annual increases in such Base Salary; and the first such
increase, if any, shall become effective on or before the first anniversary of
the most recent change in Base Salary. Said Base Salary, including any
increases, shall be paid in equal installments in accordance with
Page 1 of 14
<PAGE>
Medtox's customary pay schedule and shall be subject to applicable withholding
for federal and state income taxes and social security and related deductions.
3.2 Benefit Plans: During the term of this Agreement, Employee
shall be entitled to participate in the benefit plans or bonus programs
established by Medtox for its senior management as in effect from time to time.
Nothing in this Section 3.2 shall be construed as limiting the ability of Medtox
to amend or terminate any of its benefit plans or bonus programs, or to afford
Employee greater rights than exist pursuant to the terms and provisions of the
benefit plans or bonus programs.
4. Expense Reimbursement: Medtox 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 Medtox 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, unless Employee and C.E.O. shall agree to a
shorter notice period. During this ninety (90) day period, Employee shall
receive current Base Salary installments and benefits in accordance with
Medtox's customary pay schedule and policies, 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. If Employee and C.E.O. agreement to a shorter notice
period, payments to Employee shall continue only for the notice period. The
termination of Employee's employment that does not result in the payment of a
Severance Award as defined in Section 5.2 shall not result in any further
payments hereunder except as provided in this Section 5.1; and a voluntary
termination that does not satisfy the provisions of Section 5.2(b) shall not
result in the payment of a Severance Award.
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 Medtox terminates
during the term of this Agreement and within twelve (12) months following a
Change in Control for any of the following reasons:
(a) involuntarily, other than an involuntary
termination on account of Misconduct; or
(b) voluntarily, following:
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<PAGE>
(i) any reduction in Employee's Base
Salary from the level existing at any time
within ninety (90) days preceding the date
of a Change in Control;
(ii) any material reduction in the
health care or retirement benefits provided
to Employee. It is the intent that this
provision will in no way limit the ability
of Editek to reasonably alter, which would
include a reasonable reduction, health care
and retirement benefits on account of a
Change in Control without triggering the
payment of a Severance Award, provided that
any such alteration is uniformly applied to
all similarly situated employees;
(iii) any relocation to which
Employee has not agreed to an office of
Medtox or if a related entity more than
thirty (30) miles from the office where
Employee was located at the time of the
Change in Control or any increase in
Employee's required travel amounting to a
constructive relocation; or
(iv) any material reduction in the
level of responsibility, position (including
status, office, title, reporting
relationships or working conditions),
authority or duties of Employee with Medtox
from that as existed within ninety (90) days
preceding the date of a Change in Control.
The intent of this provision is that
Employee, following a Change in Control,
will have a materially comparable position
with Medtox or a successor or related entity
as existed within ninety (90) days preceding
the date of a Change in Control and that
changes in level of responsibility,
position, authority or duties which are
consistent with the Change in Control will
not be construed as constituting a material
reduction. If Employee believes that a
material change has occurred, Employee shall
provide Medtox with notice and a reasonable
opportunity to cure (not to exceed fifteen
(15) business days); or
(c) voluntarily if, following a Change in
Control, Medtox or any successor of Medtox
either announces that it will not honor or
cause Medtox to honor the terms of this
Agreement, or if Medtox or any successor of
Medtox or related entity at any time fails
to confirm in writing to Employee, within
fifteen (15) business days of a request by
Employee, that it will honor and will cause
Medtox to honor the terms of this Agreement.
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<PAGE>
5.3. The date of Employee's cessation of active employment
shall constitute Employee's "Termination Date." Although the Acquisition between
Medtox and Editek shall not constitute a termination of employment for purposes
of this Agreement, it is the intent of this Agreement that such transaction will
constitute a Change in Control such that a termination of Employee's employment
which satisfies the requirements of Section 5.2 above, will result in the
payment of a Severance Award.
6. Severance Award: The Severance Award, which shall be in
lieu of additional payments under this Agreement, shall consist of the
following:
6.1 If terminated during the initial two (2) year period of
this Agreement, a lump sum equal to the sum of: (i) twenty-four (24) months'
Base Salary; and (ii) two (2) times the most recent annual bonus paid or payable
to employee or, if greater, the annual bonus paid or payable to Employee for the
fall fiscal year ended prior to the fiscal year during which the Change in
Control occurred, payable as soon as administratively possible after Employee's
Termination Date but in no event later than thirty (30) days after the
Employee's Termination Date; and, if terminated during a one year renewal
period, a lump sum equal to twelve (12) months' Base Salary, payable as soon as
administratively possible after Employee's Termination Date but in no event
later than thirty (30) days after the Employee's Termination Date. Nothing
herein shall be construed to result in the nonpayment of Employee's accrued
compensation as of his Termination Date. For purposes hereof, accrued
compensation shall include amounts earned but not paid, including any accrued
vacation pay.
6.2 Advance payment or subsequent reimbursement of reasonable
expenses in an amount up to ten thousand dollars ($10,000), incurred by Employee
in the pursuit of subsequent employment during the period of six (6) months
following Employee's Termination Date, including reasonable expenses for any
reputable outplacement assistance or such other administrative assistance as may
be necessary to secure subsequent employment, for tax or accounting assistance
on account of termination of employment, and for phone and mail services, and
for reasonable travel expenses.
6.3 A lump sum payment of an amount equal to the cost of
employee-only coverage for a period of eighteen (18) months under the group
health plan maintained by or on behalf of Medtox. Such lump sum shall be paid as
soon as administratively possible after Employee's Termination Date, but in no
event later than thirty (30) days after the Employee's Termination Date. The
payment under this subsection is in no way intended to reduce or limit any
continuation coverage under such group health plan to which Employee and any of
his or her qualified beneficiaries are entitled under the provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; and such
payment shall be made regardless of whether Employee is participating in the
group health plan or elects continuation coverage under such plan.
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<PAGE>
6.4 To the extent an equity award held by Employee is not
fully vested and exercisable on Employee's Termination Date on account of the
relevant Change in Control, Employee shall be entitled to a lump sum payment in
an amount equal to the value lost under the equity award, payable as soon as
administratively possible after the date that the equity award is forfeited in
whole or in part, and in no event payable later than thirty (30) days after the
Employee's Termination Date. The value lost by Employee under an equity award
shall be determined by calculating the net benefit lost by Employee, exclusive
of taxes, assuming that Employee was fully vested in his equity award on his
Termination Date, exercised the equity award and, if necessary, sold the
underlying stock at the time the equity award is otherwise forfeited. By way of
example, if Employee would have otherwise forfeited an incentive stock option on
his Termination Date, and the option terms required a two dollar ($2.00)
exercise price per share and the fair market value of the stock was five dollars
($5.00) per share on his Termination Date, Employee would be entitled to a
payment of three dollars ($3.00) per share.
6.5 A lump sum payment equivalent on an after-tax basis to the
additional amount Employee would have had in his 401(k) plan account had he: (i)
continued as an employee of Medtox for an additional twelve (12) months and
continued to receive his Base Salary as in effect on his Termination Date and
received an allocation of employer contributions, including deferrals, based on
the maximum percentage allocated to his account for the last two (2) immediately
preceding plan years; and (ii) retired at his early retirement date. The lump
sum payment will be calculated assuming that the 401(k) account had grown at the
rate of average plan earnings for the most recent two (2) plan years preceding
the Change in Control. The lump sum shall be paid not later than thirty (30)
days after the Employee's Termination Date.
7. Responsibilities of Employee: In consideration of the Severance
Award set forth in Section 6 above, Employee agrees to execute a general release
acceptable to Medtox and Editek, which release shall include a release with
respect to any beneficiary of Employee entitled to or eligible to receive all or
a portion of any Severance Award hereunder. Notwithstanding any provision set
forth in this Agreement, if Employee shall not execute such a general release,
then Employee's Severance Award shall consist solely of two (2) months' Base
Salary, payable in a lump sum as soon as administratively possible following
Employee's Termination Date but not later than thirty (30) days after the
Termination Date.
8. Limitations of Agreement:
8.1 Employee shall not be entitled, solely by reason of a
Severance Award or any other provision of this Agreement, to continue to
participate in any employee benefit plans or fringe benefit programs maintained
by Medtox or for the benefit of Medtox employees, and the rights of Employee to
continue to participate in such plans and programs shall be governed solely by
their terms and applicable law.
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<PAGE>
8.2 Nothing in this Agreement, including a Severance Award,
shall in any way be construed to extend the period of Employee's employment with
Medtox, and Employee's Termination Date shall not be extended beyond the last
official work day for which Employee is paid for active service.
8.3 Employee shall be entitled to a cash payment of an amount
equal to the amount of any excise tax liability incurred by Employee pursuant to
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), in
connection with the payment of the Severance Award, plus an additional amount
intended to compensate Employee for the federal and state income tax liability
in connection with such cash payment. The amount of the total cash payment
payable under this Section 8.3 shall be determined pursuant to the following
formula:
X = the sum of the maximum federal
individual income tax rate and the
maximum individual income tax rate
for the Employee's State of primary
residence for the year in which the
stock award become taxable to
Employee (e.g., .40)
amount amount of excise tax liability
of cash =
payment 1 - X
9. Termination on Account of Death: Notwithstanding any provision
herein to the contrary, upon the death of Employee prior to the payment of or
entitlement to a Severance Award, the Base Salary which would have been payable
under Section 3.1 of this Agreement during the remainder of the term of the
Agreement (without any renewal hereunder), but in no event less than twelve (12)
months of Base Salary, shall be paid in a lump sum within thirty (30) days of
Employee's death to the beneficiary designated by Employee for such purpose (if
no designation has been made, payment will be to the estate of Employee). Upon
the death of Employee after Severance Award payments are initiated or after he
becomes entitled to the payment of a Severance Award, the balance of the
Severance Award shall be paid to the beneficiary designated by Employee for such
purpose or, if no designation has been made, payment will be made to the estate
of Employee. If an insurance arrangement has been implemented and accepted in
writing by Employee for the purpose of satisfying Medtox's obligation under this
Agreement under which benefits are payable upon Employee's death, the lump-sum
payment specified above shall not be provided, or shall be reduced on a dollar
equivalent basis for payments received by Employee's beneficiary or estate from
such insurance arrangement on account of Employee's death.
10. Termination for Disability: Notwithstanding any provision
herein to the contrary, upon the termination of employment on account of
disability prior to the payment or entitlement of a Severance Award, Employee
shall continue to receive the Base Salary that would otherwise have been payable
under Section 3.1 of the Agreement during the remainder
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<PAGE>
of the term of the Agreement (without any renewal hereunder) but in no event
will the payments received on account of termination on account of a disability
be less than twelve (12) months of Base Salary. Employee may elect to delay the
payment of disability benefits on terms mutually agreeable with Medtox if the
payment thereof shall result in the reduction of any insured disability benefit
to which Employee is entitled. For purposes of this Agreement, disability shall
be defined as disability that would entitle Employee to disability payments
under any long term disability plan maintained by Medtox, or alternatively, a
Social Security determination of disability. Whether Employee is terminated for
disability shall in no way be governed by this Section 10, but shall be
determined by the employment policies of Medtox.
11. Termination for Misconduct: Medtox shall have the right to
terminate Employee's employment under this Agreement for Misconduct. Employee
shall not be entitled to a Severance Award if his employment with Medtox is
terminated for Misconduct; or, for purposes of Section 11(i), if within twelve
(12) months following a termination of employment it is determined that Employee
engaged in Misconduct. For purposes hereof, "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 committed against Medtox or
Editek; or (ii) the intentional and continual failure of Employee to perform his
reasonably assigned duties with Medtox, other than on account of a physical or
mental illness that could reasonably be expected to result in a disability as
defined herein, which failure continues for a period of at least thirty (30)
days after a written notice of demand for substantial performance delivered to
Employee specifying the manner in which Employee has failed substantially to
perform. It will not be grounds for termination for Misconduct if the assigned
duties otherwise result in a violation of Section 5.2(b) of the Agreement,
provided that Employee timely puts Editek on notice of a violation of Section
5.2(b) in accordance with the provisions thereof.
The determination as to whether Employee's employment has been
terminated for Misconduct shall be made by the C.E.O. Written notice of a
tentative determination of Misconduct, as defined in Section 11(ii) above, shall
be provided to Employee and Employee shall have a reasonable opportunity to cure
such Misconduct. 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, as defined in Section
11(ii) above, or the cure is not acceptable, or if Employee refuses to cure,
then Employee is subject to immediate termination for Misconduct. If Employee
shall contest the C.E.O.'s determination of Misconduct as defined in Section
11(ii), then the dispute shall be resolved pursuant to Section 20. The C.E.O.'s
determination of termination for Misconduct as defined in Section 11(i) above
shall be final.
12. Termination - Records: In the event of the termination or
resignation of Employee pursuant to this Agreement, whether the termination is
voluntary, is without cause or for Misconduct, Employee will transfer all books,
records, documents, and other memoranda of Medtox and any related entity,
including all materials which have come into
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<PAGE>
his custody, possession and control as a result of employment with Medtox, to
whomsoever Medtox 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 Medtox or any
related entity, which shall have come to his knowledge in the course of his
employment and the disclosure of which would cause damage or loss to Medtox or
any related entity or result in the disclosure of confidential or proprietary
information regarding Medtox or any related entity or any of its members.
13. Interpretation: This Agreement is being executed and delivered
contemporaneously with the Acquisition. It is the intent of the parties to this
Agreement that immediately following the Acquisition, consistent with the
substance of this Agreement, all references to Medtox shall mean Editek or an
entity related to Editek by which Employee is employed. For example, reference
to benefit plans of Medtox shall mean the benefit plans of Editek or, if
Employee is not employed by Editek, the entity related to Editek by which
Employee is employed.
14. Covenant Not to Compete:
14.1 Background: This Agreement is being executed and
delivered contemporaneously with and as a condition to the Acquisition by Editek
(the "Purchaser," and for purposes of this Section 14, Purchaser shall also mean
any entity related to Editek, including but not limited to, Medtox) of
substantially all the assets of Medtox ("Seller"). Seller is in the business of
forensic, medical, clinical, biological and/or pharmacological toxicology (the
"Business"). Employee is the President of Laboratory Operations of Seller.
Employee understands that Purchaser will not consummate such Acquisition without
the assurance that Employee will not engage in the activities prohibited by this
covenant not to compete, and in order to induce the Purchaser to consummate the
Acquisition and other transactions contemplated by the Acquisition agreement,
Employee agrees to restrict his actions as provided in this covenant not to
compete. Employee acknowledges and agrees that such restrictions are reasonable
in light of the business of Seller and the direct and substantial benefits of
the Acquisition to Employee and the terms and provisions of this Agreement.
14.2 Territory: Employee acknowledges and agrees that Seller
sells its services throughout the United States (the "Territory") and that
Purchaser intends to continue and to increase its sales and operations
throughout the Territory.
14.3 Noncompetition Period: The Noncompetition Period
commences on the date of this Agreement and shall terminate on the later of (i)
the second anniversary of the closing date of the Acquisition; or (ii) the first
anniversary of termination of employment with Purchaser; the period for which a
Severance Award is payable hereunder.
14.4 Noncompetition: Employee agrees that during the
Noncompetition Period, he will not, directly or indirectly, either:
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<PAGE>
(a) have any interest in (whether as proprietor,
officer, director or otherwise),
(b) enter the employment of,
(c) act as agent, broker, or distributor for or
adviser or consultant to, or
(d) provide information useful in conducting the
Business to, solicit customers or employees
on behalf of or otherwise provide any
substantial assistance useful in conducting
the Business to any person, firm,
corporation or business entity which is
engaged, or which Employee reasonably knows
is undertaking to become engaged, in the
Territory in the Business or outside the
Territory if sales are solicited from
customers located inside the Territory.
Notwithstanding the foregoing, Employee shall not be
prohibited from (i) being employed by or acting as an agent, broker or
distributor for or advisor or consultant to any Non-Business Affiliate of a
person, division, firm, corporation, a business entity ("Parent") which
("Parent"), as one of its businesses, is or may become engaged in the Business
so long as (x) Employee has no relationship or contact with any portion of
Parent which is competitive with the Business, (y) Employee's activities are not
described in clause (d) above and (z) the Business does not constitute more than
ten percent (10%) of the aggregate revenues of Parent on a consolidated basis;
or (ii) owning not more than one percent (1%) of the issued and outstanding
securities of a publicly traded entity which may be engaged in whole or in part
in the Business. A Non-Business Affiliate is a person, division, firm,
corporation or business entity which does not, and is not preparing to, engage
in the Business.
14.5 No Interference with Purchaser Customers: Employee
agrees that during the Noncompetition Period, he will not, directly or
indirectly:
(a) solicit, divert or take away, or attempt to
solicit, divert or take away, the business
of any Purchaser Customer; or
(b) attempt or seek to cause any of the
Purchaser Customers to refrain, in any
respect, from maintaining or acquiring from
or through the Purchaser any product or
service of the Business sold (or offered for
sale) to such Purchaser Customer by Seller
or Purchaser during the twelve (12) month
period prior to the date of this Agreement
or during the Noncompetition Period.
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<PAGE>
As used in this Section, "Purchaser Customer" means any
customer of Seller or Purchaser located in the Territory served or solicited by
Seller or Purchaser within the twenty-four (24) month period prior to
termination of employment with Purchaser.
14.6 No Interference With Employees: Employee agrees that for
the Noncompetition Period, he will not, directly or indirectly, request or
induce any employee of Purchaser to terminate his employment with Purchaser or
accept employment with another business entity engaged in the Business in the
Territory or which is located outside the Territory if sales are solicited from
customers located inside the Territory.
14.7 Notice to Others: Employee hereby agrees that Purchaser
may disclose the provisions of this Section 14 to any person or entity,
including without limitation one that at the time employs or is considering
employing Employee.
14.8 Remedies: Employee acknowledges that any violation of
this Section 14 may cause irreparable harm to Purchaser and that damages are not
an adequate remedy. Employee therefore agrees that Purchaser shall be entitled
to injunctive relief, including temporary, preliminary and permanent
injunctions, by an appropriate court in the appropriate jurisdiction, enjoining,
prohibiting and restraining Employee from the continuance of any such violation,
in addition to any monetary damages which might occur by reason of the violation
of this Section 14, including, but not limited to, the forfeiture or repayment
of any Severance Award. The remedies provided in this Section 14.8 are
cumulative and shall not exclude any other remedies to which any party to this
Agreement may be entitled under this Agreement or applicable law, and the
exercise of a remedy shall not be deemed an election excluding any other remedy
(any such claim by the other party to this Agreement being hereby waived).
14.9 Modification: It is understood and agreed by the parties
hereto that should any portion, provision or clause of this Section 14 be deemed
too broad to permit enforcement to its full extent, then it shall be enforced to
the maximum extent permitted by law, and Employee hereby consents and agrees
that such scope may be judicially modified accordingly in any proceeding brought
to enforce such restriction.
14.10 Independent: The covenants and agreements set forth in
this Section 14 shall be deemed, and shall be construed as, separate and
independent covenants and agreements, and should any part or provision of such
covenants or agreements be held invalid, void or unenforceable by any court of
competent jurisdiction, such invalidity, voidness or unenforceability shall in
no way render invalid, void or unenforceable any other part or provision thereof
or any separate covenant not declared invalid, void or unenforceable; and this
Section 14 shall in that case be construed as if the void, invalid or
unenforceable provisions were omitted.
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<PAGE>
15. Miscellaneous:
15.1 Notice: All notices under this Agreement shall be in
writing and given either in person, by express overnight service (with all fees
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid, to the address of the party to this Agreement set forth below
his or its signature or to such other address as a party to this Agreement may
furnish to the other as provided in this sentence, and shall be deemed received
on the date of personal delivery, on the first business day after sent by
express overnight service or on the date of delivery or attempted delivery as
indicated by the return receipt if sent by registered or certified mail; and if
notice is given pursuant to the foregoing of a permitted successor or assign,
then notice shall thereafter be given pursuant to the foregoing to such
permitted successor or assign.
15.2 Assignment; Binding Effect: No assignment, transfer or
delegation of any rights or obligations under this Agreement by a party shall be
made without the prior written consent of the other parties to this Agreement
(which shall not be unreasonably withheld.) This Agreement shall be binding upon
the parties to this Agreement and their respective legal representatives, heirs,
devisees, legatees or other successors and assigns, and shall inure to the
benefit of the parties to this Agreement and their respective permitted legal
representatives, heirs, devisees, legatees or other permitted successors and
assigns.
15.3 Gender; Captions: Whenever the context so requires, the
singular number shall include the plural and the plural shall include the
singular, and the gender of any pronoun shall include the other genders. Titles
and captions of or in this Agreement are inserted only as a matter of
convenience and for reference and in no way affect the scope of this Agreement
or the intent of its provisions.
15.4 Certain Definitions: The parties agree that "applicable
law" means all provisions of any constitution, statute, law, rule, regulation,
decision, order, decree, judgment, release, license, permit, stipulation or the
official pronouncement enacted, promulgated or issued by any governmental
authority or arbitrator or arbitration panel; that "governmental authority"
means any legislative, executive, judicial, quasi-judicial or other public
authority, agency, department, bureau, division, unit, court or other public
body, person or entity; and that "including" and other words or phrases of
inclusion, if any, shall not be construed as terms of limitation, so that
references to "included" matters shall be regarded as non-exclusive,
non-characterizing illustrations.
15.5 Entire Agreement: This Agreement constitutes the entire
agreement of the parties to this Agreement with respect to its subject matter,
supersedes all prior agreements, if any, of the parties to this Agreement with
respect to its subject matter, and may not be amended except in writing signed
by the party to this Agreement against whom the change is being asserted.
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<PAGE>
15.6 No Waiver: The failure of any party to this Agreement at
any time or times to require the performance of any provisions of this Agreement
shall in no manner affect the right to enforce the same; and no waiver by any
party to this Agreement of any provision (or of a breach of any provision) of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed or construed either as a further or continuing waiver of any
such provision or breach or as a waiver of any other provision (or of a breach
of any other provision) of this Agreement.
15.7 Counterparts: This Agreement may be executed in two or
more copies, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to produce or account
for more than one of such copies.
16. 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
for any shares of Editek's stock pursuant to
which any shares of Editek's stock are
purchased; 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 Editek's stock;
(ii) The shareholders of Editek approve a
definitive agreement or plan to merge or consolidate
Editek with or into another corporation, to sell or
otherwise dispose of all or substantially all of its
assets, or to liquidate Editek; or
(iii) When, during any period of twenty-four
(24) consecutive months during the existence of the
Agreement, the individuals who, at the beginning of
such period, constitute the Board (the "Incumbent
Directors") cease for any reason other than death to
constitute at least a majority thereof; provided,
however, that a director who was not a director at
the beginning of such twenty-four (24) month period
shall be deemed to have satisfied such twenty-four
(24) month requirement, and be an Incumbent Director,
if such director was elected by, or on the
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<PAGE>
recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as
Incumbent Directors either actually, because they
were directors at the beginning of such twenty-four
(24) month period, or by prior operation of this
Section.
17. Indemnification: Medtox agrees to indemnify and hold harmless
Employee for any legal, 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 herewith so long as any claim or expense relates
to services provided by Employee during his employment. Such indemnification
shall not include any dispute of Employee related to this Agreement.
18. Binding Effect: This Agreement shall be binding upon the successors
and assigns of Medtox, including those that may result from merger or
reorganization.
19. Governing Law: This Agreement shall be governed by the laws of the
State of Minnesota without regard to its conflicts of law principles.
20. Binding Arbitration: Any dispute involving this Agreement, other
than an action by Medtox to enforce its rights pursuant to Section 14 hereof,
shall be resolved through binding arbitration in accordance with the rules of
the American Arbitration Association then in effect. The venue of the
arbitration will be in Minnesota. Any such resolution shall include a
determination as to the portion of the costs of arbitration that shall be borne
by Medtox and by Employee. Except if Employee is terminated for Misconduct, if
Medtox contests the payment of a Severance Award or the calculation of the
Severance Award, after written notice from Employee, Medtox shall make
conditional payments to Employee of 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 payments in addition to the conditional payments
following a resolution of the dispute, Employee shall be entitled to interest on
such payments. Interest shall be payable from the date beginning thirty (30)
days after Employee's Termination Date and shall be calculated at a rate equal
to 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. To the extent Employee is required to return all or
any portion of the conditional payments following a resolution of the dispute,
Employee shall be required to include interest on such payments to Medtox.
21. 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.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Medtox and Employee have each dated, executed and
delivered this Agreement on the day and year indicated by their signatures, and
effective as of the Acquisition, PDLA has assumed this Agreement as set forth
herein and as acknowledged below by Employee and PDLA on the day and year
indicated by their signatures.
EMPLOYEE
Date: _______________ /s/ Harry G. McCoy
Harry G. McCoy
MEDTOX LABORATORIES, INC.
Date: _______________ By: /s/ Harry G. McCoy, President
-------------------------------
ACKNOWLEDGEMENT OF ASSUMPTION:
EMPLOYEE
Date: _______________ /s/ Harry G. McCoy
Harry G. McCoy
PSYCHIATRIC DIAGNOSTIC
LABORATORIES OF AMERICA, INC.
Date: 1/30/96 By: Peter J. Heath
Page 14 of 14
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EDITEK, INC.
EQUITY COMPENSATION PLAN
AS AMENDED AND RESTATED EFFECTIVE AS OF AUGUST 1, 1995
ARTICLE I - GENERAL PROVISIONS
1.1 The Plan is designed, for the benefit of the Company, to attract and
retain for the Company personnel of exceptional ability; to motivate
such personnel through added incentives to make a maximum contribution
to greater profitability; to develop and maintain a highly competent
management team; and to be competitive with other companies with
respect to executive compensation.
1.2 Awards under the Plan may be made to Participants in the form of (i)
Incentive Stock Options; (ii) Nonqualified Stock Options; (iii) Stock
Appreciation Rights; (iv) Restricted Stock; (v) Deferred Stock; (vi)
Stock Awards; (vii) Performance Shares; and (viii) Other Stock-Based
Awards and other forms of equity-based compensation as may be provided
and are permissible under this Plan and the law.
1.3 The Plan, shall be effective October 26, 1993 (the "Effective Date"),
subject to the approval of shareholders of the Company on such date.
ARTICLE II - DEFINITIONS
DEFINITIONS. Except where the context otherwise indicates, the
following definitions apply:
2.1 "Acceleration Event" means the occurrence of an event
defined in Article XIII of the Plan.
2.2 "Act" means the Securities Exchange Act of 1934, as now in effect or as
hereafter amended. (All citations to sections of the Act or rules
thereunder are to such sections or rules as they may from time to time
be amended or renumbered.)
2.3 "Agreement" means the written agreement evidencing each
Award granted to a Participant under the Plan.
2.4 "Award" means an award granted to a Participant in accordance with the
provisions of the Plan, including, but not limited to, a Stock Option,
Stock Right, Restricted or Deferred Stock, Stock Awards, Performance
Shares, other Stock-Based Award, or any combination of the foregoing.
2.5 "Board" means the Board of Directors of EDITEK, Inc.
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2.6 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.)
2.7 "Committee" means the Compensation Committee or such other committee
consisting of three or more members as may be appointed by the Board to
administer this Plan pursuant to Article III. To the extent required by
Rule 16b-3 under the Act, the Committee shall consist of individuals
who are members of the Board and Disinterested Persons. Committee
members may also be appointed for such limited purposes as may be
provided by the Board.
2.8 "Company" means EDITEK, Inc., a Delaware corporation, and its
successors and assigns. The term "Company" shall include any
corporation which is a member of a controlled group of corporations (as
defined in Section 414(b) of the Code, as modified by Section 415(h) of
the Code) which includes the Company; any trade or business (whether or
not incorporated) which is under common control (as defined in Section
414(c) of the Code, as modified by Section 415(h) of the Code) with the
Company; any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in Section 414(m) of
the Code) which includes the Company; and any other entity required to
be aggregated with the Company pursuant to regulations under Section
414(o) of the Code. With respect to all purposes of the Plan,
including, but not limited to, the establishment, amendment,
termination, operation and administration of the Plan, EDITEK, Inc.
shall be authorized to act on behalf of all other entities included
within the definition of Company.
2.9 "Deferred Stock" means the stock awarded under Article IX of
the Plan.
2.10 "Disability" means disability as determined under procedures
established by the Committee or in any Award.
2.11 "Discount Stock Options" means the Nonqualified Stock Options which
provide for an exercise price of less than the Fair Market Value of the
Stock at the date of the Award.
2.12 "Disinterested Person" shall have the meaning set forth in
Rule 16b-3 under the Act.
2.13 "Early Retirement" means retirement from active employment
with the Company, with the express consent of the Committee,
pursuant to the early retirement provisions established by
the Committee or in any Award.
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2.14 "Eligible Participant" means any employee of the Company, as shall be
determined by the Committee, as well as any other person, including
directors, subject to such limitations imposed on a person designated
as a Disinterested Person, whose participation the Committee determines
is in the best interest of the Company, subject to limitations as may
be provided by the Code, the Act or the Committee.
2.15 "Fair Market Value" means, with respect to any given day, the closing
price of the Stock reported on the stock exchange on which the Stock is
then listed for such day, as reported by such source as the Committee
may select, provided there was a sale of at least 100 shares of Stock
on such date. If there was not a sale of at least 100 shares of Stock
on such day, the Fair Market Value shall be determined based on the
closing price of the Stock reported on the stock exchange as of the
last date on which there was a sale of at least 100 shares of Stock.
The Committee may establish an alternative method of determining Fair
Market Value.
2.16 "Incentive Stock Option" means a Stock Option granted under Article IV
of the Plan, and as defined in Section 422 of the Code.
2.17 "Limited Stock Appreciation Rights" means a Stock Right which is
exercisable only in the event of a Change in Control and/or a Potential
Change in Control, as described in Section 6.9 of this Plan, which
provides for an amount payable solely in cash, equal to the excess of
the Stock Appreciation Right Fair Market Value of a share of Stock on
the day the Stock Right is surrendered over the price at which a
Participant could exercise a related Stock Option to purchase the share
of Stock.
2.18 "Nonqualified Stock Option" means a Stock Option granted
under Article V of the Plan.
2.19 "Normal Retirement" means retirement from active employment with the
Company on or after age 65, or pursuant to such other requirements as
may be established by the Committee or in any Award.
2.20 "Option Grant Date" means, as to any Stock Option, the
latest of:
(a) the date on which the Committee grants the Stock Option
by entering into an Award Agreement with the
Participant;
(b) the date the Participant receiving the Stock Option
becomes an employee of the Company, to the extent
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employment status is a condition of the grant or a
requirement of the Code or the Act; or
(c) such other date (later than the dates described in (i)
and (ii) above) as the Committee may designate.
2.21 "Participant" means an Eligible Participant to whom an Award of
equity-based compensation has been granted and who has entered into an
Agreement evidencing the Award.
2.22 "Performance Share" means an Award under Article XI of the Plan of a
unit valued by reference to a designated number of shares of Stock,
which value may be paid to the Participant by delivery of such property
as the Committee shall determine, including without limitation, cash or
Stock, or any combination thereof, upon achievement of such Performance
objectives during the Performance Period as the Committee shall
establish at the time of such Award or thereafter.
2.23 "Plan" means the EDITEK, Inc. Equity Compensation Plan, as
amended from time to time.
2.24 "Restricted Stock" means an Award of Stock under Article VIII of the
Plan, which Stock is issued with the restriction that the holder may
not sell, transfer, pledge, or assign such Stock and with such other
restrictions as the Committee, in its sole discretion, may impose,
including without limitation, any restriction on the right to vote such
Stock, and the right to receive any cash dividends, which restrictions
may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem appropriate.
2.25 "Restriction Period" means the period commencing on the date an Award
of Restricted Stock is granted and ending on such date as the Committee
shall determine.
2.26 "Retirement" means Normal or Early Retirement.
2.27 "Stock" means shares of common stock of EDITEK, Inc., as may be
adjusted pursuant to the provisions of Section 3.11.
2.28 "Stock Appreciation Right" means a Stock Right, as described in Article
VI of this Plan, which provides for an amount payable in Stock and/or
cash, as determined by the Committee, equal to the excess of the Fair
Market Value of a share of Stock on the day the Stock Right is
exercised over the price at which the Participant could exercise a
related Stock Option to purchase the share of Stock.
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2.29 "Stock Appreciation Right Fair Market Value" means a value established
by the Committee for the exercise of a Stock Appreciation Right or a
Limited Stock Appreciation Right. If such exercise occurs during any
quarterly "window period," as specified by Rule 16b-3 under the Act,
the Committee may establish a common value for exercises during such
window period.
2.30 "Stock Award" means an Award of Stock granted in payment of
compensation, as provided in Article X of the Plan.
2.31 "Stock Option" means an Award under Article IV or V of the Plan of an
option to purchase Stock. A Stock Option may be either an Incentive
Stock Option or a Nonqualified Stock Option.
2.32 "Stock Right" means an Award under Article VI of the Plan.
A Stock Right may be either a Stock Appreciation Right or a
Limited Stock Appreciation Right.
2.33 "Termination of Employment" means the discontinuance of employment of a
Participant with the Company for any reason. The determination of
whether a Participant has discontinued employment shall be made by the
Committee in its discretion. In determining whether a Termination of
Employment has occurred, the Committee may provide that service as a
consultant or service with a business enterprise in which the Company
has a significant ownership interest shall be treated as employment
with the Company. The Committee shall have the discretion, exercisable
either at the time the Award is granted or at the time the Participant
terminates employment, to establish as a provision applicable to the
exercise of one or more Awards that during the limited period of
exercisability following Termination of Employment, the Award may be
exercised not only with respect to the number of shares of Stock for
which it is exercisable at the time of the Termination of Employment
but also with respect to one or more subsequent installments for which
the Award would have become exercisable had the Termination of
Employment not occurred.
ARTICLE III - ADMINISTRATION
3.1 This Plan shall be administered by the Committee. A Committee member
who is not a Disinterested Person, with respect to action to be taken
by the Committee, shall not be able to participate in the decision to
the extent prescribed by Rule 16b-3 under the Act. The Committee, in
its discretion, may delegate to one or more of its members such of its
powers as it deems appropriate. The Committee also may limit the power
of any member to the extent necessary to
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comply with Rule 16b-3 under the Act or any other law. Members of the
Committee shall be appointed originally, and as vacancies occur, by the
Board, to serve at the pleasure of the Board. The Board may serve as
the Committee, if by the terms of the Plan all Board members are
otherwise eligible to serve on the Committee.
3.2 The Committee shall meet at such times and places as it determines. A
majority of its members shall constitute a quorum, and the decision of
a majority of those present at any meeting at which a quorum is present
shall constitute the decision of the Committee. A memorandum signed by
all of its members shall constitute the decision of the Committee
without necessity, in such event, for holding an actual meeting.
3.3 The Committee shall have the exclusive right to interpret, construe and
administer the Plan, to select the persons who are eligible to receive
an Award, and to act in all matters pertaining to the granting of an
Award and the contents of the Agreement evidencing the Award, including
without limitation, the determination of the number of Stock Options,
Stock Rights, shares of Stock or Performance Shares subject to an Award
and the form, terms, conditions and duration of each Award, and any
amendment thereof consistent with the provisions of the Plan. All acts,
determinations and decisions of the Committee made or taken pursuant to
grants of authority under the Plan or with respect to any questions
arising in connection with the administration and interpretation of the
Plan, including the severability of any and all of the provisions
thereof, shall be conclusive, final and binding upon all Participants,
Eligible Participants and their beneficiaries.
3.4 The Committee may adopt such rules, regulations and
procedures of general application for the administration of
this Plan, as it deems appropriate.
3.5 Without limiting the foregoing Sections 3.1, 3.2, 3.3 and 3.4, and
notwithstanding any other provisions of the Plan, the Committee is
authorized to take such action as it determines to be necessary or
advisable, and fair and equitable to Participants, with respect to an
Award in the event of an Acceleration Event as defined in Article XIII.
Such action may include, but shall not be limited to, establishing,
amending or waiving the forms, terms, conditions and duration of an
Award and the Award Agreement, so as to provide for earlier, later,
extended or additional times for exercise or payments, differing
methods for calculating payments, alternate forms and amounts of
payment, an accelerated release of restrictions or other modifications.
The Committee may take such actions pursuant
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to this Section 3.5 by adopting rules and regulations of general
applicability to all Participants or to certain categories of
Participants, by including, amending or waiving terms and conditions in
an Award and the Award Agreement, or by taking action with respect to
individual Participants.
3.6 The aggregate number of shares of Stock which are subject to an Award
under the Plan shall be 3,000,000 shares, plus six percent of any
increase, other than any increase due to Awards under this Plan or any
other similar plan of the Company, in the number of issued shares of
Stock above the number of outstanding shares as of the date the Plan
was adopted. Such shares of Stock shall be made available from
authorized and unissued shares of the Company. All of such shares of
Stock may be subject to Incentive Stock Option Awards pursuant to
Article IV hereof.
(a) If, for any reason, any shares of Stock or Performance
Shares awarded or subject to purchase under the Plan
are not delivered or purchased, or are reacquired by
the Company, for reasons including, but not limited to,
a forfeiture of Restricted Stock or termination,
expiration or cancellation of a Stock Option, Stock
Right or Performance Share, or any other termination of
an Award without payment being made in the form of
Stock, whether or not Restricted Stock, such shares of
Stock or Performance Shares shall not be charged
against the aggregate number of shares of Stock
available for Awards under the Plan, and may again be
available for Award under the Plan.
(b) For all purposes under the Plan, each Performance Share
awarded shall be counted as one share of Stock subject to an
Award.
(c) To the extent a Stock Right granted in connection with
a Stock Option is exercised without payment being made
in the form of Stock, whether or not Restricted Stock,
the shares of Stock which otherwise would have been
issued upon the exercise of such related Stock Option
shall not be charged against the aggregate number of
shares of Stock subject to Awards under the Plan, and
may again be available for Award under the Plan.
3.7 Each Award granted under the Plan shall be evidenced by a written Award
Agreement. Each Award Agreement shall be subject to and incorporate, by
reference or otherwise, the applicable terms and conditions of the
Plan, and any other terms and conditions, not inconsistent with the
Plan, required by the Committee.
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3.8 The Company shall not be required to issue or deliver any
certificates for shares of Stock prior to:
(a) the listing of such shares on any stock exchange on
which the Stock may then be listed; and
(b) the completion of any registration or qualification of such
shares of Stock under any federal or state law, or any ruling
or regulation of any government body which the Company shall,
in its discretion, determine to be necessary or advisable.
3.9 All certificates for shares of Stock delivered under the Plan shall
also be subject to such stop-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed and any applicable federal
or state laws, and the Committee may cause a legend or legends to be
placed on any such certificates to make appropriate reference to such
restrictions. In making such determination, the Committee may rely upon
an opinion of counsel for the Company.
3.10 Subject to the restrictions on Restricted Stock, as provided in Article
VIII of the Plan and in the Restricted Stock Award Agreement, each
Participant who receives an Award of Restricted Stock shall have all of
the rights of a shareholder with respect to such shares of Stock,
including the right to vote the shares to the extent, if any, such
shares possess voting rights and receive dividends and other
distributions. Except as provided otherwise in the Plan or in an Award
Agreement, no Participant awarded a Stock Option, Stock Right, Deferred
Stock, Stock Award or Performance Share shall have any right as a
shareholder with respect to any shares of Stock covered by his or her
Stock Option, Stock Right, Deferred Stock, Stock Award or Performance
Share prior to the date of issuance to him or her of a certificate or
certificates for such shares of Stock.
3.11 If any reorganization, recapitalization, reclassification, stock
split-up, stock dividend, or consolidation of shares of Stock, merger
or consolidation of the Company or sale or other disposition by the
Company of all or a portion of its assets, any other change in the
Company's corporate structure, or any distribution to shareholders
other than a cash dividend results in the outstanding shares of Stock,
or any securities exchanged therefor or received in their place, being
exchanged for a different number or class of shares of Stock or other
securities of the Company, or for shares of Stock or other securities
of any other
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corporation; or new, different or additional shares or other securities
of the Company or of any other corporation being received by the
holders of outstanding shares of Stock, then equitable adjustments
shall be made by the Committee in:
(a) the limitation of the aggregate number of shares of
Stock that may be awarded as set forth in Section 3.6
of the Plan;
(b) the number and class of Stock that may be subject to an
Award, and which have not been issued or transferred
under an outstanding Award;
(c) the purchase price to be paid per share of Stock under
outstanding Stock Options and the number of shares of Stock to
be transferred in settlement of outstanding Stock Rights; and
(d) the terms, conditions or restrictions of any Award and
Award Agreement, including the price payable for the
acquisition of Stock; provided, however, that all
adjustments made as the result of the foregoing in
respect of each Incentive Stock Option shall be made so
that such Stock Option shall continue to be an
Incentive Stock Option, as defined in Section 422 of
the Code.
3.12 In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against reasonable expenses,
including attorney's fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted thereunder, and against
all amounts paid by them in settlement thereof, provided such
settlement is approved by independent legal counsel selected by the
Company, or paid by them in satisfaction of a judgment or settlement in
any such action, suit or proceeding, except as to matters as to which
the Committee member has been negligent or engaged in misconduct in the
performance of his duties; provided, that within 60 days after
institution of any such action, suit or proceeding, a Committee member
shall in writing offer the Company the opportunity, at its own expense,
to handle and defend the same.
3.13 The Committee may require each person purchasing shares of Stock
pursuant to a Stock Option or other Award under the Plan to represent
to and agree with the Company in writing that he is acquiring the
shares of Stock without a view to
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distribution thereof. The certificates for such shares of Stock may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
3.14 The Committee shall be authorized to make adjustments in performance
based criteria or in the terms and conditions of other Awards in
recognition of unusual or nonrecurring events affecting the Company or
its financial statements or changes in applicable laws, regulations or
accounting principles. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award
Agreement in the manner and to the extent it shall deem desirable to
carry it into effect. In the event the Company shall assume outstanding
employee benefit awards or the right or obligation to make future such
awards in connection with the acquisition of another corporation or
business entity, the Committee may, in its discretion, make such
adjustments in the terms of Awards under the Plan as it shall deem
appropriate.
3.15 The Committee shall have full power and authority to determine whether,
to what extent and under what circumstances, any Award shall be
canceled or suspended. In particular, but without limitation, all
outstanding Awards to any Participant may be canceled if (a) the
Participant, without the consent of the Committee, while employed by
the Company or after termination of such employment, becomes associated
with, employed by, renders services to, or owns any interest in, other
than any nonsubstantial interest, as determined by the Committee, any
business that is in competition with the Company or with any business
in which the Company has a substantial interest as determined by the
Committee; or (b) is terminated for cause as determined by the
Committee.
ARTICLE IV - INCENTIVE STOCK OPTIONS
4.1 Each provision of this Article IV and of each Incentive Stock Option
granted hereunder shall be construed in accordance with the provisions
of Section 422 of the Code, and any provision hereof that cannot be so
construed shall be disregarded.
4.2 Incentive Stock Options shall be granted only to Eligible Participants
who are in the active employment of the Company, each of whom may be
granted one or more such Incentive Stock Options for a reason related
to his employment at such time or times determined by the Committee
following the Effective Date until October 26, 2003, subject to the
following conditions:
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(a) The Incentive Stock Option price per share of Stock
shall be set in the Award Agreement, but shall not be
less than 100% of the Fair Market Value of the Stock on
the Option Grant Date. If the Optionee owns more than
10% of the outstanding Stock (as determined pursuant to
Section 424(d) of the Code) on the Option Grant Date,
the Incentive Stock Option price per share shall not be
less than 110% of the Fair Market Value of the Stock on
the Option Grant Date.
(b) The Incentive Stock Option and its related Stock Right,
if any, may be exercised in whole or in part from time
to time within ten (10) years from the Option Grant
Date (five (5) years if the Optionee owns more than 10%
of the Stock on the Option Grant Date), or such shorter
period as may be specified by the Committee in the
Award; provided, that in any event, the Incentive Stock
Option and related Stock Right shall lapse and cease to
be exercisable upon, or within such period following, a
Termination of Employment as shall have been determined
by the Committee and as specified in the Incentive
Stock Option Award Agreement or its related Stock Right
Award Agreement; provided, however, that such period
following a Termination of Employment shall not exceed
three months unless employment shall have terminated:
(i) as a result of death or Disability, in which
event, such period shall not exceed one year after
the date of death or Disability; and
(ii) as a result of death, if death shall have occurred
following a Termination of Employment and while
the Incentive Stock Option or Stock Right was
still exercisable, in which event, such period
shall not exceed one year after the date of death;
provided, further, that such period following a
Termination of Employment shall in no event extend
the original exercise period of the Incentive
Stock Option or any related Stock Right.
(c) The aggregate Fair Market Value, determined as of the Option
Grant Date, of the shares of Stock with respect to which
Incentive Stock Options are first exercisable during any
calendar year by any Eligible Participant shall not exceed
$100,000; provided, however, to the extent permitted under
Section 422 of the Code:
(i) if a Participant's employment is terminated by reason
of death, Disability or Retirement and the portion of
any Incentive Stock Option that is otherwise
exercisable during the post-termination period
applied without regard to the $100,000
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limitation contained in section 422(b)(6) of the Code
is greater than the portion of such option that is
immediately exercisable as an Incentive Stock Option
during such post-termination period under Section
422, such excess shall be treated as a Nonqualified
Stock Option; and
(ii) if the exercise of an Incentive Stock Option is
accelerated by reason of an Acceleration Event, any
portion of such Award that is not exercisable as an
Incentive Stock Option by reason of the $100,000
limitation contained in Section 422(b)(6) of the Code
shall be treated as a Nonqualified Stock Option.
(d) The Committee may adopt any other terms and conditions which
it determines should be imposed for the Incentive Stock Option
to qualify under Section 422 of the Code, as well as any other
terms and conditions not inconsistent with this Article IV as
determined by the Committee.
4.3 The Committee may at any time offer to buy out for a payment in cash,
Stock, Deferred Stock or Restricted Stock an Incentive Stock Option
previously granted, based on such terms and conditions as the Committee
shall establish and communicate to the Participant at the time that
such offer is made.
4.4 If the Incentive Stock Option Award Agreement so provides, the
Committee may require that all or part of the shares of Stock to be
issued upon the exercise of an Incentive Stock Option shall take the
form of Deferred or Restricted Stock, which shall be valued on the date
of exercise, as determined by the Committee, on the basis of the Fair
Market Value of such Deferred Stock or Restricted Stock determined
without regard to the deferral limitations and/or forfeiture
restrictions involved.
ARTICLE V - NONQUALIFIED STOCK OPTIONS
5.1 One or more Stock Options may be granted as Nonqualified Stock Options
to Eligible Participants to purchase shares of Stock at such time or
times determined by the Committee, following the Effective Date,
subject to the terms and conditions set forth in this Article V.
5.2 The Nonqualified Stock Option price per share of Stock shall be
established in the Award Agreement and may be less than 100% of the
Fair Market Value at the time of the grant, or at such later date as
the Committee shall determine.
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5.3 The Nonqualified Stock Option and its related Stock Right, if any, may
be exercised in full or in part from time to time within such period as
may be specified by the Committee or in the Award Agreement; provided,
that, in any event, the Nonqualified Stock Option and the related Stock
Right shall lapse and cease to be exercisable upon, or within such
period following, Termination of Employment as shall have been
determined by the Committee and as specified in the Nonqualified Stock
Option Award Agreement or Stock Right Award Agreement; provided,
however, that such period following Termination of Employment shall not
exceed three months unless employment shall have terminated:
(a) as a result of Retirement or Disability, in which event, such
period shall not exceed one year after the date of Retirement
or Disability, or within such longer period as the Committee
may specify; and
(b) as a result of death, or if death shall have occurred
following a Termination of Employment and while the
Nonqualified Stock Option or Stock Right was still
exercisable, in which event, such period may exceed one year
after the date of death, as provided by the Committee or in
the Award Agreement.
5.4 The Nonqualified Stock Option Award Agreement may include any other
terms and conditions not inconsistent with this Article V or in Article
VII, as determined by the Committee.
ARTICLE VI - STOCK APPRECIATION RIGHTS
6.1 A Stock Appreciation Right may be granted to an Eligible Participant in
connection with an Incentive Stock Option or a Nonqualified Stock
Option granted under Article IV or Article V of this Plan, or may be
granted independent of any related Stock Option.
6.2 A related Stock Appreciation Right shall entitle a holder of a Stock
Option, within the period specified for the exercise of the Stock
Option, to surrender the unexercised Stock Option, or a portion
thereof, and to receive in exchange therefor a payment in cash or
shares of Stock having an aggregate value equal to the amount by which
the Fair Market Value of each share of Stock exceeds the Stock Option
price per share of Stock, times the number of shares of Stock under the
Stock Option, or portion thereof, which is surrendered.
6.3 Each related Stock Appreciation Right granted hereunder shall be
subject to the same terms and conditions as the related Stock Option,
including limitations on
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transferability, and shall be exercisable only to the extent such Stock
Option is exercisable and shall terminate or lapse and cease to be
exercisable when the related Stock Option terminates or lapses. The
grant of Stock Appreciation Rights related to Incentive Stock Options
must be concurrent with the grant of the Incentive Stock Options. With
respect to Nonqualified Stock Options, the grant either may be
concurrent with the grant of the Nonqualified Stock Options, or in
connection with Nonqualified Stock Options previously granted under
Article V, which are unexercised and have not terminated or lapsed.
6.4 The Committee shall have sole discretion to determine in each case
whether the payment with respect to the exercise of a Stock
Appreciation Right will be in the form of all cash or all Stock, or any
combination thereof. If payment is to be made in Stock, the number of
shares of Stock shall be determined based on the Fair Market Value of
the Stock on the date of exercise. If the Committee elects to make full
payment in Stock, no fractional shares of Stock shall be issued and
cash payments shall be made in lieu of fractional shares.
6.5 The Committee shall have sole discretion as to the timing of any
payment made in cash or Stock, or a combination thereof, upon exercise
of Stock Appreciation Rights. Payment may be made in a lump sum, in
annual installments or may be otherwise deferred; and the Committee
shall have sole discretion to determine whether any deferred payments
may bear amounts equivalent to interest or cash dividends.
6.6 Upon exercise of a Stock Appreciation Right, the number of shares of
Stock subject to exercise under any related Stock Option shall
automatically be reduced by the number of shares of Stock represented
by the Stock Option or portion thereof which is surrendered.
6.7 Notwithstanding any other provision of the Plan, the exercise of a
Stock Appreciation Right is required to satisfy the applicable
requirements under Rule 16b-3 of the Act.
6.8 The Committee, in its sole discretion, may also provide that, in the
event of a Change in Control and/or a Potential Change in Control, as
defined in Article XIII, the amount to be paid upon the exercise of a
Stock Appreciation Right or Limited Stock Appreciation Right shall be
based on the Change in Control Price, as defined in Section 13.9,
subject to such terms and conditions as the Committee may specify.
6.9 In its sole discretion, the Committee may grant Limited
Stock Appreciation Rights under this Article VI. Limited
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Stock Appreciation Rights become exercisable only in the event of a
Change in Control and/or a Potential Change in Control, subject to such
terms and conditions as the Committee, in its sole discretion, may
specify. Such Limited Stock Appreciation Rights shall be settled solely
in cash. A Limited Stock Appreciation Right shall entitle the holder of
the related Stock Option to surrender such Stock Option, or any portion
thereof, to the extent unexercised in respect of the number of shares
of Stock as to which such Limited Stock Appreciation Right is
exercised, and to receive a cash payment equal to the difference
between (a) the Stock Appreciation Right Fair Market Value, at the date
of surrender, of a share of Stock for which the surrendered Stock
Option or portion thereof is then exercisable, and (b) the price at
which a Participant could exercise a related Stock Option to purchase
the share of Stock. Such Stock Option shall, to the extent so
surrendered, thereupon cease to be exercisable. A Limited Stock
Appreciation Right shall be subject to such further terms and
conditions as the Committee shall, in its sole discretion, deem
appropriate, including any restrictions necessary to comply with
Section 16(b) of the Act.
ARTICLE VII - INCIDENTS OF STOCK OPTIONS AND STOCK RIGHTS
7.1 Each Stock Option and Stock Right shall be granted subject to such
terms and conditions, if any, not inconsistent with this Plan, as shall
be determined by the Committee, including any provisions as to
continued employment as consideration for the grant or exercise of such
Stock Option or Stock Right and any provisions which may be advisable
to comply with applicable laws, regulations or rulings of any
governmental authority.
7.2 A Stock Option or Stock Right shall not be transferable by the
Participant other than by will or by the laws of descent and
distribution, or, to the extent otherwise allowed by Rule 16b-3 under
the Act, or other applicable law, pursuant to a qualified domestic
relations order as defined by the Code or the Employee Retirement
Income Security Act, or the rules thereunder, and shall be exercisable
during the lifetime of the Participant only by him or by his guardian
or legal representative.
7.3 Shares of Stock purchased upon exercise of a Stock Option shall be paid
for in such amounts, at such times and upon such terms as shall be
determined by the Committee, subject to limitations set forth in the
Stock Option Award Agreement. Without limiting the foregoing, the
Committee may establish payment terms for the exercise of Stock Options
which permit the Participant to deliver shares of
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Stock, or other evidence of ownership of Stock satisfactory to the
Company, with a Fair Market Value equal to the Stock Option price as
payment.
7.4 No cash dividends shall be paid on shares of Stock subject to
unexercised Stock Options. The Committee may provide, however, that a
Participant to whom a Stock Option has been granted which is
exercisable in whole or in part at a future time for shares of Stock
shall be entitled to receive an amount per share equal in value to the
cash dividends, if any, paid per share on issued and outstanding Stock,
as of the dividend record dates occurring during the period between the
date of the grant and the time each such share of Stock is delivered
pursuant to exercise of such Stock Option or the related Stock Right.
Such amounts (herein called "dividend equivalents") may, in the
discretion of the Committee, be:
(a) paid in cash or Stock either from time to time prior to, or at
the time of the delivery of, such Stock, or upon expiration of
the Stock Option if it shall not have been fully exercised; or
(b) converted into contingently credited shares of Stock, with
respect to which dividend equivalents may accrue, in such
manner, at such value, and deliverable at such time or times,
as may be determined by the Committee.
Such Stock, whether delivered or contingently credited, shall be
charged against the limitations set forth in Section 3.6.
7.5 The Committee, in its sole discretion, may authorize payment of
interest equivalents on dividend equivalents which are payable in cash
at a future time.
7.6 In the event of Disability or death, the Committee, with the consent of
the Participant or his legal representative, may authorize payment, in
cash or in Stock, or partly in cash and partly in Stock, as the
Committee may direct, of an amount equal to the difference at the time
between the Fair Market Value of the Stock subject to a Stock Option
and the option price in consideration of the surrender of the Stock
Option.
7.7 If a Participant is required to pay to the Company an amount with
respect to income and employment tax withholding obligations in
connection with exercise of a Nonqualified Stock Option, and/or with
respect to certain dispositions of Stock acquired upon the exercise of
an Incentive Stock Option, the Committee, in its discretion and subject
to such rules as it may adopt, may permit the Participant to satisfy
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the obligation, in whole or in part, by making an irrevocable election
that a portion of the total Fair Market Value of the shares of Stock
subject to the Nonqualified Stock Option and/or with respect to certain
dispositions of Stock acquired upon the exercise of an Incentive Stock
Option, be paid in the form of cash in lieu of the issuance of Stock
and that such cash payment be applied to the satisfaction of the
withholding obligations. The amount to be withheld shall not exceed the
statutory minimum federal and state income and employment tax liability
arising from the Stock Option exercise transaction. Notwithstanding any
other provision of the Plan, any election under this Section 7.7 is
required to satisfy the applicable requirements under Rule 16b-3 of the
Act.
7.8 The Committee may permit the voluntary surrender of all or a portion of
any Stock Option granted under the Plan to be conditioned upon the
granting to the Participant of a new Stock Option for the same or a
different number of shares of Stock as the Stock Option surrendered, or
may require such surrender as a condition precedent to a grant of a new
Stock Option to such Participant. Subject to the provisions of the
Plan, such new Stock Option shall be exercisable at the same price,
during such period and on such other terms and conditions as are
specified by the Committee at the time the new Stock Option is granted.
Upon surrender, the Stock Options surrendered shall be canceled and the
shares of Stock previously subject to them shall be available for the
grant of other Stock Options.
ARTICLE VIII - RESTRICTED STOCK
8.1 Restricted Stock Awards may be made to certain Participants as an
incentive for the performance of future services that will contribute
materially to the successful operation of the Company. Awards of
Restricted Stock may be made either alone, in addition to or in tandem
with other Awards granted under the Plan and/or cash payments made
outside of the Plan.
8.2 With respect to Awards of Restricted Stock, the Committee
shall:
(a) determine the purchase price, if any, to be paid for such
Restricted Stock, which may be equal to or less than par value
and may be zero, subject to such minimum consideration as may
be required by applicable law;
(b) determine the length of the Restriction Period;
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(c) determine any restrictions applicable to the Restricted
Stock such as service or performance, other than those
set forth in this Article VIII;
(d) determine if the restrictions shall lapse as to all shares of
Restricted Stock at the end of the Restriction Period or as to
a portion of the shares of Restricted Stock in installments
during the Restriction Period; and
(e) determine if dividends and other distributions on the
Restricted Stock are to be paid currently to the Participant
or paid to the Company for the account of the Participant.
8.3 Awards of Restricted Stock must be accepted within a period of 60 days,
or such shorter period as the Committee may specify, by executing a
Restricted Stock Award Agreement and paying whatever price, if any, is
required. The prospective recipient of a Restricted Stock Award shall
not have any rights with respect to such Award, unless such recipient
has executed a Restricted Stock Award Agreement and has delivered a
fully executed copy thereof to the Committee, and has otherwise
complied with the applicable terms and conditions of such Award.
8.4 Except when the Committee determines otherwise, or as otherwise
provided in the Restricted Stock Award Agreement, if a Participant
terminates employment with the Company for any reason before the
expiration of the Restriction Period, all shares of Restricted Stock
still subject to restriction shall be forfeited by the Participant and
shall be reacquired by the Company.
8.5 Except as otherwise provided in this Article VIII, no shares of
Restricted Stock received by a Participant shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period.
8.6 To the extent not otherwise provided in a Restricted Stock Award
Agreement, in cases of death, Disability or Retirement or in cases of
special circumstances, the Committee, if it finds that a waiver would
be appropriate, may elect to waive any or all remaining restrictions
with respect to such Participant's Restricted Stock.
8.7 In the event of hardship or other special circumstances of a
Participant whose employment with the Company is involuntarily
terminated, the Committee may waive in whole or in part any or all
remaining restrictions with respect to any or all of the Participant's
Restricted Stock, based on
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such factors and criteria as the Committee may deem
appropriate.
8.8 The certificates representing shares of Restricted Stock may
either:
(a) be held in custody by the Company until the Restriction Period
expires or until restrictions thereon otherwise lapse, and the
Participant shall deliver to the Company a stock power
endorsed in blank relating to the Restricted Stock; and/or
(b) be issued to the Participant and registered in the name of the
Participant, and shall bear an appropriate restrictive legend
and shall be subject to appropriate stop-transfer orders.
8.9 Except as provided in this Article VIII, a Participant receiving a
Restricted Stock Award shall have, with respect to the shares of
Restricted Stock covered by any Award, all of the rights of a
shareholder of the Company, including the right to vote the shares to
the extent, if any, such shares possess voting rights and the right to
receive any dividends; provided, however, the Committee may require
that any dividends on such shares of Restricted Stock shall be
automatically deferred and reinvested in additional Restricted Stock
subject to the same restrictions as the underlying Award, or may
require that dividends and other distributions on Restricted Stock
shall be paid to the Company for the account of the Participant. The
Committee shall determine whether interest shall be paid on such
amounts, the rate of any such interest, and the other terms applicable
to such amounts.
8.10 If and when the Restriction Period expires without a prior forfeiture
of the Restricted Stock subject to such Restriction Period,
unrestricted certificates for such shares shall be delivered to the
Participant.
8.11 In order to better ensure that Award payments actually reflect the
performance of the Company and the service of the Participant, the
Committee may provide, in its sole discretion, for a tandem
performance-based or other Award designed to guarantee a minimum value,
payable in cash or Stock to the recipient of a Restricted Stock Award,
subject to such performance, future service, deferral and other terms
and conditions as may be specified by the Committee.
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ARTICLE IX - DEFERRED STOCK
9.1 Shares of Deferred Stock together with cash dividend equivalents, if so
determined by the Committee, may be issued either alone or in addition
to other Awards granted under the Plan in the discretion of the
Committee. The Committee shall determine the individuals to whom, and
the time or times at which, such Awards will be made, the number of
shares to be awarded, the price, if any, to be paid by the recipient of
a Deferred Stock Award, the time or times within which such Awards may
be subject to forfeiture, and all other conditions of the Awards. The
Committee may condition Awards of Deferred Stock upon the attainment of
specified performance goals or such other factors or criteria as the
Committee may determine.
9.2 Deferred Stock Awards shall be subject to the following
terms and conditions:
(a) Subject to the provisions of this Plan and the
applicable Award Agreement, Deferred Stock Awards may
not be sold, transferred, pledged, assigned or
otherwise encumbered during the period specified by the
Committee for purposes of such Award (the "Deferral
Period"). At the expiration of the Deferral Period, or
the Elective Deferral Period defined in Section 9.3,
share certificates shall be delivered to the
Participant, or his legal representative, in a number
equal to the number of shares of Stock covered by the
Deferred Stock Award.
Based on service, performance and/or such other factors or
criteria as the Committee may determine, the Committee,
however, at or after grant, may accelerate the vesting of all
or any part of any Deferred Stock Award and/or waive the
deferral limitations for all or any part of such Award.
(b) Unless otherwise determined by the Committee, amounts
equal to any dividends that would have been payable
during the Deferral Period with respect to the number
of shares of Stock covered by a Deferred Stock Award if
such shares of Stock had been outstanding shall be
automatically deferred and deemed to be reinvested in
additional Deferred Stock, subject to the same deferral
limitations as the underlying Award.
(c) Except to the extent otherwise provided in this Plan or in the
applicable Award Agreement, upon Termination of Employment
during the Deferral Period for a given Award, the Deferred
Stock covered by such Award shall be forfeited by the
Participant; provided, however, the
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Committee may provide for accelerated vesting in the event of
Termination of Employment due to death, Disability or
Retirement, or in the event of hardship or other special
circumstances as the Committee deems appropriate.
(d) The Committee may require that a designated percentage
of the total Fair Market Value of the shares of
Deferred Stock held by one or more Participants be paid
in the form of cash in lieu of the issuance of Stock
and that such cash payment be applied to the
satisfaction of the federal and state income and
employment tax withholding obligations that arise at
the time the Deferred Stock becomes free of all
restrictions. The designated percentage shall be equal
to the minimum income and employment tax withholding
rate in effect at the time under applicable federal and
state laws.
(e) The Committee may provide one or more Participants subject to
the mandatory cash payment with an election to receive an
additional percentage of the total value of the Deferred Stock
in the form of a cash payment in lieu of the issuance of
Deferred Stock. The additional percentage shall not exceed the
difference between 50% and the designated percentage cash
payment.
(f) The Committee may impose such further terms and conditions on
partial cash payments with respect to Deferred Stock as it
deems appropriate, including any restrictions necessary to
comply with Section 16(b) of the Act.
9.3 A Participant may elect to further defer receipt of Deferred Stock for
a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must generally be made at least
12 months prior to completion of the Deferral Period for the Deferred
Stock Award in question, or for the applicable installment of such an
Award.
9.4 Each Award shall be confirmed by, and subject to the terms
of, a Deferred Stock Award Agreement.
9.5 In order to better ensure that the Award actually reflects the
performance of the Company and the service of the Participant, the
Committee may provide, in its sole discretion, for a tandem
performance-based or other Award designed to guarantee a minimum value,
payable in cash or Stock to the recipient of a Deferred Stock Award,
subject to
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such performance, future service, deferral and other terms and
conditions as may be specified by the Committee.
ARTICLE X - STOCK AWARDS
10.1 A Stock Award shall be granted only in payment of compensation that has
been earned or as compensation to be earned, including without
limitation, compensation awarded concurrently with or prior to the
grant of the Stock Award.
10.2 For the purposes of this Plan, in determining the value of a Stock
Award, all shares of Stock subject to such Stock Award shall be valued
at not less than 100% of the Fair Market Value of such shares of Stock
on the date such Stock Award is granted, regardless of whether or when
such shares of Stock are issued or transferred to the Participant and
whether or not such shares of Stock are subject to restrictions which
affect their value.
10.3 Shares of Stock subject to a Stock Award may be issued or transferred
to the Participant at the time the Stock Award is granted, or at any
time subsequent thereto, or in installments from time to time, as the
Committee shall determine. If any such issuance or transfer shall not
be made to the Participant at the time the Stock Award is granted, the
Committee may provide for payment to such Participant, either in cash
or shares of Stock, from time to time or at the time or times such
shares of Stock shall be issued or transferred to such Participant, of
amounts not exceeding the dividends which would have been payable to
such Participant in respect of such shares of Stock, as adjusted under
Section 3.11, if such shares of Stock had been issued or transferred to
such Participant at the time such Stock Award was granted. Any issuance
payable in shares of Stock under the terms of a Stock Award, at the
discretion of the Committee, may be paid in cash on each date on which
delivery of shares of Stock would otherwise have been made, in an
amount equal to the Fair Market Value on such date of the shares of
Stock which would otherwise have been delivered.
10.4 A Stock Award shall be subject to such terms and conditions, including
without limitation, restrictions on the sale or other disposition of
the Stock Award or of the shares of Stock issued or transferred
pursuant to such Stock Award, as the Committee shall determine;
provided, however, that upon the issuance or transfer of shares
pursuant to a Stock Award, the Participant, with respect to such shares
of Stock, shall be and become a shareholder of the Company fully
entitled to receive dividends, to vote to the extent, if any, such
shares possess voting rights and to exercise
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all other rights of a shareholder except to the extent otherwise
provided in the Stock Award. Each Stock Award shall be evidenced by a
written Award Agreement in such form as the Committee shall determine.
ARTICLE XI - PERFORMANCE SHARES
11.1 Awards of Performance Shares may be made to certain Participants as an
incentive for the performance of future services that will contribute
materially to the successful operation of the Company. Awards of
Performance Shares may be made either alone, in addition to or in
tandem with other Awards granted under the Plan and/or cash payments
made outside of the Plan.
11.2 With respect to Awards of Performance Shares, which may be issued for
no consideration or such minimum consideration as is required by
applicable law, the Committee shall:
(a) determine and designate from time to time those
Participants to whom Awards of Performance Shares are
to be made;
(b) determine the performance period (the "Performance
Period") and/or performance objectives (the
"Performance Objectives") applicable to such Awards;
(c) determine the form of settlement of a Performance
Share; and
(d) generally determine the terms and conditions of each such
Award. At any date, each Performance Share shall have a value
equal to the Fair Market Value, determined as set forth in
Section 2.15.
11.3 Performance Periods may overlap, and Participants may participate
simultaneously with respect to Performance Shares for which different
Performance Periods are prescribed.
11.4 The Committee shall determine the Performance Objectives of Awards of
Performance Shares. Performance Objectives may vary from Participant to
Participant and between Awards and shall be based upon such performance
criteria or combination of factors as the Committee may deem
appropriate, including for example, but not limited to, minimum
earnings per share or return on equity. If during the course of a
Performance Period there shall occur significant events which the
Committee expects to have a substantial effect on the applicable
Performance Objectives during such period, the Committee may revise
such Performance Objectives.
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11.5 The Committee shall determine for each Participant the number of
Performance Shares which shall be paid to the Participant if the
applicable Performance Objectives are exceeded or met in whole or in
part.
11.6 If a Participant terminates service with the Company during a
Performance Period because of death, Disability, Retirement or under
other circumstances in which the Committee in its discretion finds that
a waiver would be appropriate, that Participant, as determined by the
Committee, may be entitled to a payment of Performance Shares at the
end of the Performance Period based upon the extent to which the
Performance Objectives were satisfied at the end of such period and pro
rated for the portion of the Performance Period during which the
Participant was employed by the Company; provided, however, the
Committee may provide for an earlier payment in settlement of such
Performance Shares in such amount and under such terms and conditions
as the Committee deems appropriate or desirable. If a Participant
terminates service with the Company during a Performance Period for any
other reason, then such Participant shall not be entitled to any
payment with respect to that Performance Period unless the Committee
shall otherwise determine.
11.7 Each Award of a Performance Share shall be paid in whole shares of
Stock, or cash, or a combination of Stock and cash as the Committee
shall determine, with payment to be made as soon as practicable after
the end of the relevant Performance Period.
11.8 The Committee shall have the authority to approve requests by
Participants to defer payment of Performance Shares on terms and
conditions approved by the Committee and set forth in a written Award
Agreement between the Participant and the Company entered into in
advance of the time of receipt or constructive receipt of payment by
the Participant.
ARTICLE XII - OTHER STOCK-BASED AWARDS
12.1 Other awards that are valued in whole or in part by reference to, or
are otherwise based on, Stock ("Other Stock-Based Awards"), including
without limitation, convertible preferred stock, convertible
debentures, exchangeable securities, phantom stock and Stock awards or
options valued by reference to book value or performance, may be
granted either alone or in addition to or in tandem with Stock Options,
Stock Rights, Restricted Stock, Deferred Stock or Stock Awards granted
under the Plan and/or cash awards made outside of the Plan.
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Subject to the provisions of the Plan, the Committee shall have
authority to determine the Eligible Participants to whom and the time
or times at which such Awards shall be made, the number of shares of
Stock subject to such Awards, and all other conditions of the Awards.
The Committee also may provide for the grant of shares of Stock upon
the completion of a specified Performance Period.
The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient.
12.2 Other Stock-Based Awards made pursuant to this Article XII shall be
subject to the following terms and conditions:
(a) Subject to the provisions of this Plan and the Award
Agreement, shares of Stock subject to Awards made under this
Article XII may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which the shares are
issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(b) Subject to the provisions of this Plan and the Award
Agreement and unless otherwise determined by the
Committee at the time of the Award, the recipient of an
Award under this Article XII shall be entitled to
receive, currently or on a deferred basis, interest or
dividends or interest or dividend equivalents with
respect to the number of shares covered by the Award,
as determined at the time of the Award by the
Committee, in its sole discretion, and the Committee
may provide that such amounts, if any, shall be deemed
to have been reinvested in additional Stock or
otherwise reinvested.
(c) Any Award under this Article XII and any Stock covered by any
such Award shall vest or be forfeited to the extent so
provided in the Award Agreement, as determined by the
Committee, in its sole discretion.
(d) Upon the Participant's Retirement, Disability or death, or in
cases of special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of the
remaining limitations imposed hereunder, if any, with respect
to any or all of an Award under this Article XII.
(e) Each Award under this Article XII shall be confirmed
by, and subject to the terms of, an Award Agreement.
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(f) Stock, including securities convertible into Stock, issued on
a bonus basis under this Article XII may be issued for no cash
consideration.
12.3 Other Stock-Based Awards may include a phantom stock Award, which is
subject to the following terms and conditions:
(a) The Committee shall select the Eligible Participants who may
receive phantom stock Awards. The Eligible Participant shall
be awarded a phantom stock unit, which shall be the equivalent
to a share of Stock.
(b) Under an Award of phantom stock, payment shall be made on the
dates or dates as specified by the Committee or as stated in
the Award Agreement and phantom stock Awards may be settled in
cash, Stock, or some combination thereof.
(c) The Committee shall determine such other terms and conditions
of each Award as it deems necessary in its sole discretion.
ARTICLE XIII - ACCELERATION EVENTS
13.1 For the purposes of the Plan, an Acceleration Event shall occur in the
event of a "Potential Change in Control," or "Change in Control" or a
"Board-Approved Change in Control", as those terms are defined below.
13.2 A "Change in Control" shall be deemed to have occurred if:
(a) Any "Person" as defined in Section 3(a)(9) of the Act,
including a "group" (as that term is used in Sections 13(d)(3)
and 14(d)(2) of the Act), but excluding the Company and any
employee benefit plan sponsored or maintained by the Company,
including any trustee of such plan acting as trustee, who:
(i) makes a tender or exchange offer for any shares of
the Company's Stock (as defined below) pursuant to
which any shares of the Company's Stock are
purchased (an "Offer"); or
(ii) 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 20% of the
Company's Stock (an "Acquisition");
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(b) The shareholders of the Company approve a definitive agreement
or plan to merge or consolidate the Company with or into
another corporation, to sell or otherwise dispose of all or
substantially all of its assets, or to liquidate the Company
(individually, a "Transaction"); or
(c) When, during any period of 24 consecutive months during
the existence of the Plan, the individuals who, at the
beginning of such period, constitute the Board (the
"Incumbent Directors") cease for any reason other than
death to constitute at least a majority thereof;
provided, however, that a director who was not a
director at the beginning of such 24 month period shall
be deemed to have satisfied such 24 month requirement,
and be an Incumbent Director, if such director was
elected by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who
then qualified as Incumbent Directors either actually,
because they were directors at the beginning of such 24
month period, or by prior operation of this Section
13.2(c).
13.3 A "Board-Approved Change in Control" shall be deemed to have occurred
if the Offer, Acquisition or Transaction, as the case may be, is
approved by a majority of the Directors serving as members of the Board
at the time of the Potential Change in Control or Change in Control.
13.4 A "Potential Change in Control" means the happening of any
one of the following:
(a) The approval by shareholders of an agreement by the
Company, the consummation of which would result in a
Change in Control of the Company, as defined in Section
13.2; or
(b) The acquisition of Beneficial Ownership, directly or
indirectly, by any entity, person or group, other than
the Company or any Company employee benefit plan,
including any trustee of such plan acting as such
trustee, of securities of the Company representing five
percent or more of the combined voting power of the
Company's outstanding securities and the adoption by
the Board of a resolution to the effect that a
Potential Change in Control of the Company has occurred
for the purposes of this Plan.
13.5 Upon the occurrence of an Acceleration Event, subject to the approval
of the Committee if the Acceleration Event results from a
Board-Approved Change in Control, all then outstanding Performance
Shares with respect to which the
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applicable Performance Period has not been completed shall be paid as
soon as practicable as follows:
(a) all Performance Objectives applicable to the Award of
Performance Shares shall be deemed to have been satisfied to
the extent necessary to result in payment of 100% of the
Performance Shares covered by the Award; and
(b) the applicable Performance Period shall be deemed to
have ended on the date of the Acceleration Event;
(c) the payment to the Participant shall be the amount
determined either by the Committee, in its sole
discretion, or in the manner stated in the Award
Agreement. This amount shall then be multiplied by a
fraction, the numerator of which is the number of full
calendar months of the applicable Performance Period
that have elapsed prior to the date of the Acceleration
Event, and the denominator of which is the total number
of months in the original Performance Period; and
(d) upon the making of any such payment, the Award Agreement as to
which it relates shall be deemed canceled and of no further
force and effect.
13.6 Upon the occurrence of an Acceleration Event, subject to the approval
of the Committee if the Acceleration Event results from a
Board-Approved Change in Control, the Committee in its discretion may
declare any or all then outstanding Stock Options, and any or all
related Stock Rights outstanding for at least six months, not
previously exercisable and vested as immediately exercisable and fully
vested, in whole or in part.
13.7 Upon the occurrence of an Acceleration Event, subject to the approval
of the Committee if the Acceleration Event results from a
Board-Approved Change in Control, the Committee in its discretion, may
declare the restrictions applicable to Awards of Restricted Stock,
Deferred Stock or Other Stock- Based Awards to have lapsed, in which
case the Company shall remove all restrictive legends and stop-transfer
orders applicable to the certificates for such shares of Stock, and
deliver such certificates to the Participants in whose names they are
registered.
13.8 The value of all outstanding Stock Options, Stock Rights, Restricted
Stock, Deferred Stock, Performance Shares, Stock Awards and Other
Stock-Based Awards, in each case to the extent vested, shall, unless
otherwise determined by the Committee in its sole discretion at or
after grant but prior to any Change in Control, be cashed out on the
basis of the
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"Change in Control Price," as defined in Section 13.9 as of the date
such Change in Control or such Potential Change in Control is
determined to have occurred or such other date as the Committee may
determine prior to the Change in Control.
13.9 For purposes of Section 13.8, "Change in Control Price" means the
highest price per share of Stock paid in any transaction reported on
the exchange on which the Stock is then traded, or paid or offered in
any bona fide transaction related to a Potential or actual Change in
Control of the Company at any time during the 60 day period immediately
preceding the occurrence of the Change in Control, or, where
applicable, the occurrence of the Potential Change in Control event, in
each case as determined by the Committee except that, in the case of
Incentive Stock Options and Stock Appreciation Rights, or Limited Stock
Appreciation Rights, relating to such Incentive Stock Options, such
price shall be based only on transactions reported for the date on
which the optionee exercises such Stock Appreciation Rights, or Limited
Stock Appreciation Rights.
ARTICLE XIV - AMENDMENT AND TERMINATION
14.1 The Board, upon recommendation of the Committee, or otherwise, at any
time and from time to time, may amend or terminate the Plan. To the
extent required by Rule 16b-3 under the Act, no amendment, without
approval by the Company's shareholders, shall:
(a) alter the group of persons eligible to participate in
the Plan;
(b) except as provided in Section 3.6, increase the maximum number
of shares of Stock or Stock Options or Stock Rights which are
available for Awards under the Plan;
(c) extend the period during which Incentive Stock Option
Awards may be granted beyond September 15, 2003;
(d) limit or restrict the powers of the Committee with
respect to the administration of this Plan;
(e) change the definition of an Eligible Participant for the
purpose of an Incentive Stock Option or increase the limit or
the value of shares of Stock for which an Eligible Participant
may be granted an Incentive Stock Option;
(f) materially increase the benefits accruing to
Participants under this Plan;
29
<PAGE>
(g) materially modify the requirements as to eligibility
for participation in this Plan; or
(h) change any of the provisions of this Article XIV.
14.2 No amendment to or discontinuance of this Plan or any provision thereof
by the Board or the shareholders of the Company shall, without the
written consent of the Participant, adversely affect, as shall be
determined by the Committee, any Award theretofore granted to such
Participant under this Plan; provided, however, the Committee retains
the right and power to:
(a) annul any Award if the Participant is terminated for
cause as determined by the Committee;
(b) provide for the forfeiture of shares of Stock or other
gain under an Award as determined by the Committee for
competing against the Company; and
(c) convert any outstanding Incentive Stock Option to a
Nonqualified Stock Option.
14.3 If an Acceleration Event has occurred, no amendment or termination
shall impair the rights of any person with respect to an outstanding
Award as provided in Article XIII.
ARTICLE XV - MISCELLANEOUS PROVISIONS
15.1 Nothing in the Plan or any Award granted hereunder shall confer upon
any Participant any right to continue in the employ of the Company, or
to serve as a director thereof, or interfere in any way with the right
of the Company to terminate his or her employment at any time. Unless
specifically provided otherwise, no Award granted under the Plan shall
be deemed salary or compensation for the purpose of computing benefits
under any employee benefit plan or other arrangement of the Company for
the benefit of its employees unless the Company shall determine
otherwise. No Participant shall have any claim to an Award until it is
actually granted under the Plan. To the extent that any person acquires
a right to receive payments from the Company under the Plan, such right
shall, except as otherwise provided by the Committee, be no greater
than the right of an unsecured general creditor of the Company. All
payments to be made hereunder shall be paid from the general funds of
the Company, and no special or separate fund shall be established and
no segregation of assets shall be made to assure payment of such
amounts, except as provided in Article VIII with respect to Restricted
Stock and except as otherwise provided by the Committee.
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15.2 The Company may make such provisions and take such steps as it may deem
necessary or appropriate for the withholding of any taxes which the
Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Stock Option or the exercise thereof,
any Stock Right or the exercise thereof, or in connection with any
other type of equity-based compensation provided hereunder or the
exercise thereof, including, but not limited to, the withholding of
payment of all or any portion of such Award or another Award under this
Plan until the Participant reimburses the Company for the amount the
Company is required to withhold with respect to such taxes, or
canceling any portion of such Award or another Award under this Plan in
an amount sufficient to reimburse itself for the amount it is required
to so withhold, or selling any property contingently credited by the
Company for the purpose of paying such Award or another Award under
this Plan, in order to withhold or reimburse itself for the amount it
is required to so withhold.
15.3 The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by
any United States government or regulatory agency as may be required.
Any provision herein relating to compliance with Rule 16b-3 under the
Act shall not be applicable with respect to participation in the Plan
by Participants who are not subject to Section 16(b) of the Act.
15.4 The terms of the Plan shall be binding upon the Company, and
its successors and assigns.
15.5 Neither a Stock Option, Stock Right, nor any other type of equity-based
compensation provided for hereunder, shall be transferable except as
provided for herein. Unless otherwise provided by the Committee or in
an Award Agreement, transfer restrictions shall only apply to Incentive
Stock Options as required in Article IV and to the extent otherwise
required by federal or state securities laws. If any Participant makes
such a transfer in violation hereof, any obligation of the Company
shall forthwith terminate.
15.6 This Plan and all actions taken hereunder shall be governed by the laws
of the State of North Carolina, except to the extent preempted by the
Employee Retirement Income Security Act of 1974, as amended.
15.7 The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any
payments not yet made to a Participant by the Company,
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nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company. In
its sole discretion, the Committee may authorize the creation of trusts
or other arrangements to meet the obligations created under the Plan to
deliver shares of Stock or payments in lieu of or with respect to
Awards hereunder; provided, however, that, unless the Committee
otherwise determines with the consent of the affected Participant, the
existence of such trusts or other arrangements is consistent with the
"unfunded" status of the Plan.
15.8 Each Participant exercising an Award hereunder agrees to give the
Committee prompt written notice of any election made by such
Participant under Section 83(b) of the Code, or any similar provision
thereof.
15.9 If any provision of this Plan or an Award Agreement is or becomes or is
deemed invalid, illegal or unenforceable in any jurisdiction, or would
disqualify the Plan or any Award Agreement under any law deemed
applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the Award
Agreement, it shall be stricken and the remainder of the Plan or the
Award Agreement shall remain in full force and effect.
EDITEK, INC.
ATTEST: By: ______________________________
Authorized Officer
(Corporate Seal)
- -----------------------------
Secretary
32
<PAGE>
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
EDITEK, INC.
AND
BIOMAN PRODUCTS INC. AND NOVAMANN INTERNATIONAL INC.
DATED MAY 31, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I
ASSET SALE.................................................. 1
Section 1.1 Subsidiary Asset Sale............................................................ 1
Section 1.2 Parent Asset Sale................................................................ 1
Section 1.3 Other Assets..................................................................... 1
Section 1.4 Transfer of Title................................................................ 2
Section 1.5 Employees........................................................................ 2
Section 1.6 Names and Marks.................................................................. 2
Section 1.7 Trade Secrets.................................................................... 2
Section 1.8 Good Will........................................................................ 3
Section 1.9 License Rights................................................................... 3
Section 1.10 Affiliates....................................................................... 4
ARTICLE II
CONSIDERATION PAYABLE BY PURCHASER...................................... 4
Section 2.1 Purchase Price................................................................... 4
Section 2.2 Cash Payment..................................................................... 4
Section 2.3 Securities of Purchaser.......................................................... 4
Section 2.4 Liabilities...................................................................... 5
ARTICLE III
CLOSING................................................... 6
Section 3.1 Closing............................................................. 6
Section 3.2 Conditions to Each Party's Obligation to
Close............................................................... 6
Section 3.3 Conditions to Obligation of Parent and
Subsidiary to Close................................................. 7
Section 3.4 Conditions to Obligation of Purchaser to
Close............................................................... 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER................................. 8
Section 4.1 Corporate Organization and Good
Standing............................................................ 8
Section 4.2 Authorization; Binding Agreement.................................... 8
Section 4.3 SEC Reports......................................................... 9
Section 4.4 Certain Fees........................................................ 9
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY........................... 10
Section 5.1 Corporate Organization and Good
Standing............................................................ 10
Section 5.2 Authorization....................................................... 10
Section 5.3 Financial Statements................................................ 10
Section 5.4 Absence of Certain Changes.......................................... 11
Section 5.5 Certain Fees........................................................ 11
Section 5.6 Consents and Approvals; No Violations............................... 11
Section 5.7 Litigation.......................................................... 12
Section 5.8 Certain Employment Matters; Labor
Relations........................................................... 12
Section 5.9 Employee Benefit Plans.............................................. 13
Section 5.10 Tax Liabilities..................................................... 13
<PAGE>
Section 5.11 Title to Assets..................................................... 13
Section 5.12 Contracts, Minutes and Other Instruments
and Information..................................................... 14
Section 5.13 Permits and Licenses................................................ 14
Section 5.14 Real Property; Environmental Matters................................ 15
Section 5.15 Rates for Use of Equipment.......................................... 15
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE CLOSING................................... 15
Section 6.1 Conduct of Business by Parent and
Subsidiary Pending the Closing...................................... 15
ARTICLE VII
ADDITIONAL AGREEMENTS............................................ 17
Section 7.1 Access to Information............................................... 17
Section 7.2 Approvals........................................................... 17
Section 7.3 Expenses............................................................ 17
Section 7.4 Agreement to Cooperate.............................................. 17
Section 7.5 Public Statements................................................... 17
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER...................................... 18
Section 8.1 Termination......................................................... 18
Section 8.2 Effect of Termination............................................... 18
Section 8.3 Amendment........................................................... 18
Section 8.4 Waiver.............................................................. 18
ARTICLE IX
GUARANTY AND INDEMNIFICATION......................................... 19
Section 9.1 Guaranty............................................................ 19
Section 9.2 Indemnity of Purchaser.............................................. 19
Section 9.3 Setoff.............................................................. 19
Section 9.4 Indemnity of Parent and Subsidiary.................................. 19
ARTICLE X
GENERAL PROVISIONS.............................................. 19
Section 10.1 Survival of Representations, Warranties
and Agreements...................................................... 19
Section 10.2 Notices............................................................. 19
Section 10.3 Miscellaneous....................................................... 20
Section 10.4 Counterparts........................................................ 20
Section 10.5 Parties in Interest................................................. 20
</TABLE>
Disclosure Schedules
Exhibit A - Form of Opinion of Petree Stockton, L.L.P.
Exhibit B - Form of Opinion of Brennen Partners
Exhibit C - Form of Distribution and Supply Agreement
ii
<PAGE>
ASSET PURCHASE AGREEMENT
AGREEMENT, dated as of May __, 1995 (the "Agreement"), between and
among EDITEK, Inc., a Delaware corporation ("Purchaser"), Bioman Products Inc.,
an Ontario corporation ("Subsidiary"), and NOVAMANN International Inc., a
Canadian corporation ("Parent").
WHEREAS, Parent and Subsidiary desire to sell to Purchaser all the
assets of Subsidiary and certain assets of Parent, and Purchaser desires to
purchase such assets, pursuant to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
ASSET SALE
Section 1.1 Subsidiary Asset Sale. Subsidiary agrees to sell, and
Purchaser agrees to purchase, all the tangible and intangible assets of
Subsidiary, including, without limitation, all inventory (including without
limitation all antibody, conjugate and hapten), cash and cash equivalents,
equipment, contracts, leases, subleases, licenses (subject to Section 1.9
hereof), customer and supplier lists, tradenames and marks, but excluding any
contracts or other assets rejected by Purchaser. Schedule 1.1 hereto contains a
list of all Assets of Subsidiary on March 31, 1995. Until the Closing Date
Subsidiary will not transfer any assets, except sales of inventory and cash
payments for payroll purposes, both of which shall be in the ordinary course of
business consistent with prior practices as explained to Purchaser. All assets
to be sold by Subsidiary hereunder, whether or not listed on Schedule 1.1
hereto, are hereinafter referred to as "Subsidiary Assets."
Section 1.2 Parent Asset Sale. Parent hereby agrees to cause its
Affiliates to sell, and Purchaser hereby agrees to purchase, the items listed on
Schedule 1.2 hereto (hereinafter referred to as the "Parent Assets").
Section 1.3 Other Assets. For a period of three years after the Closing
Parent will continue to provide Purchaser at rates listed on Schedule 1.3 hereto
use of the equipment and services which are listed on Schedule 1.3 hereto.
Subsidiary (or Parent in the name of Subsidiary) has applied for an investment
tax credit from the government of Canada, which tax credit may not be paid until
after Closing. Fifty (50%) Percent of any tax credit received by Parent or
Subsidiary in respect of research activities conducted by or on behalf of
Subsidiary shall be paid to Purchaser promptly upon receipt by Parent or
Subsidiary.
<PAGE>
Section 1.4 Transfer of Title. Seller and Parent shall enter into such
agreements, sign such consents, and take any other actions as may be reasonably
necessary to convey title to the Subsidiary Assets and Parent Assets to
Purchaser, free and clear of all liens and encumbrances, except those
specifically assumed by Purchaser.
Section 1.5 Employees. Parent and Subsidiary shall take all actions
reasonably requested by Purchaser to assist Purchaser to convince personnel
selected by Purchaser to become employed by Purchaser. It is contemplated that
Purchaser shall hire the current employees of Subsidiary. However, Purchaser
shall have no obligation to hire any employees of Subsidiary or Parent. If the
transactions contemplated hereby are not completed, Purchaser agrees not to
solicit the employment of any employee of Parent or Subsidiary for a period of
three years from the dated of this Agreement.
Section 1.6 Names and Marks. From and after the Closing Date neither
Parent, Subsidiary nor any of their Affiliates shall use the names or marks sold
to Purchaser nor any name or mark similar to any name or mark sold to Purchaser.
Parent and Affiliates other than Subsidiary may continue to use their existing
names as shown on Schedule 1.6 hereto without there being a breach of this
Agreement. Within ten (10) days after the Closing Date, Subsidiary shall have
amended its corporate charter to change its corporate name. All rights to use
names and marks shall be assigned to Purchaser and on the Closing Date or at any
time after the Closing Date Parent and Subsidiary shall execute such documents
as are requested by Purchaser to allow Purchaser to use such names and marks.
Where any name or mark is registered or otherwise protected, Parent and
Subsidiary shall so inform Purchaser and facilitate transfer of such
registration or other protection to Purchaser. Notwithstanding any of the
foregoing, Purchaser shall not use the names or marks of Parent or any Affiliate
except to the extent any such names or marks were owned or used by Subsidiary
prior to the date hereof.
Section 1.7 Trade Secrets. From and after the Closing Date neither
Parent, Subsidiary nor any of their Affiliates shall use or disclose, whether
orally or in writing, the trade secrets sold to Purchaser. On or prior to the
Closing Date Subsidiary shall deliver a list to Purchaser of all the trade
secrets of Subsidiary, a list of those persons or entities with access to, or
copies of, such trade secrets and the information required to enable Purchaser
to utilize such trade secrets. All copies of such information in whatever form
not delivered to Purchaser shall be destroyed. Parent and Subsidiary shall cause
all others to whom such trade secrets have been disclosed to cease all use
(including all written or oral disclosure) of such trade secrets and to destroy
all copies thereof. From and after the date hereof, Parent, Subsidiary and their
Affiliates (i) shall not disclose such trade secrets to
2
<PAGE>
others, whether orally or in writing, and (ii) shall cooperate with Purchaser to
protect against future use of such trade secrets by others.
Section 1.8 Good Will. As Purchaser is paying for the good will of
Subsidiary as a going concern, from and after the date hereof neither Parent nor
Subsidiary, nor any of their Affiliates shall take any action that a reasonable
person would have reason to believe may harm the good will and reputation of the
business purchased from Subsidiary by Purchaser.
Section 1.9 License Rights. The Subsidiary Assets shall include all
rights of Subsidiary, Parent or any of their Affiliates under the License
Agreements between the Minister of Agriculture and Mann Testing Laboratories
with respect to Glycopyrrolate ELISA test kits and Crymoglycate ELISA test kits,
which agreements are listed on Schedule 1.9 hereto (the "License Rights").
Parent, Subsidiary and their Affiliates shall use their best efforts to arrange
for assignment or exclusive sublicense of such License Rights to Purchaser and
approval of such license assignment or sublicense by the Minister of
Agriculture. Failing that, for the duration of the respective License Rights
including any renewals or extensions thereof, Parent, Subsidiary and their
Affiliates shall take all necessary action to ensure that Purchaser has all the
economic benefits of such License Rights, including selling products to
Purchaser at cost (including the royalties payable to Agro-Canada), plus 10%.
Furthermore, Parent, Subsidiary and their Affiliates shall use their best
efforts to assist Purchaser in renewing or extending the License Rights. Any
such license, sublicense or other arrangement shall be without cost to purchaser
as the cost is included in the purchase price for the Assets paid by Purchaser
on the Closing Date.
Until the later of (i) the sixth anniversary of the Closing Date, (ii)
the date the License Rights, including all renewals, modifications, extensions
and subsequent agreements regarding the same subject matter as the License
Rights, expire and cease to be held by Purchaser or any affiliate of Purchaser,
or any transferee or assignee of Purchaser or (iii) the date the licensor of
such License Rights shall cease negotiating with Purchaser or its affiliates, or
their transferees or assignees with respect to any renewal, modification or
extension of the License Rights or subsequent agreement regarding the same
subject matter as the License Rights, neither Parent or Subsidiary nor any of
their Affiliates shall seek or accept the License Rights or any rights having
the same subject matter as the License Rights, nor shall any of them act as
agent for or otherwise assist any other person or entity seeking such rights
during such period. Parent and its Affiliates shall, however, take any action at
the request of Purchaser to extend the term of the License Rights of Purchaser.
Parent shall not manufacture or sell to any person or entity any Reagents (as
defined below), except as specifically requested by Purchaser.
3
<PAGE>
"Reagents" means the reagent antibodies, conjugates and haptens and any
other reagent or raw materials provided by Parent to Subsidiary prior to the
date hereof in connection with any product of Subsidiary, specifically
including, without limitation, reagents manufactured pursuant to the License
Rights. Notwithstanding that Subsidiary is selling to Purchaser all its rights
pursuant to the agreement with ImmunoSystems described in Schedule 1.1 hereto
pursuant to Section 1.1, neither Parent nor Subsidiary is disclosing or
otherwise providing to Purchaser in any way any "plate coating" technology,
know-how or tradesecret information obtained by Parent or Subsidiary from the
ImmunoSystems Division of Milipore Corporation, nor shall any such technology,
know-how or tradesecret information be disclosed or provided to Purchaser
pursuant to this Agreement. If Purchaser desires to acquire such technology,
Purchaser must negotiate directly with Milipore Corporation, provided that
Parent shall assist Purchaser in such negotiations.
Section 1.10 Affiliates. The term Affiliates shall include all persons
and entities that would be "affiliates" under the Securities Exchange Act of
1934. "Affiliates" shall also include all of the current management of Parent
and Subsidiary.
ARTICLE II
CONSIDERATION PAYABLE BY PURCHASER
Section 2.1 Purchase Price. Purchaser shall pay to Parent and
Subsidiary an aggregate purchase price of One Hundred Forty Thousand ($140,000)
Dollars (Canadian) (the "Purchase Price"), which amount shall be allocated
between Parent and Subsidiary at the Closing in the percentages set forth in a
written notice executed by both Parent and Subsidiary and delivered to Purchaser
prior to the Closing. The Purchase Price shall be allocated equitably among
Subsidiary and Parent to reflect the value of assets sold by each.
Section 2.2 Cash Payment. 40% of the Purchase Price will be
paid by cash, certified check or bank draft at Closing in Canadian
currency.
Section 2.3 Securities of Purchaser. The remaining 60% of the Purchase
Price will be paid by the issuance of shares of Common Stock of Purchaser (the
"Purchase Shares") having on the date of Closing a market value equal to the
amount of the noncash Purchase Price. No fractional shares shall be issued.
Purchaser shall pay cash in lieu of fractional shares. The market price of the
Common Stock of Purchaser shall be deemed to be the average closing sale price
of a share of Common Stock of Purchaser on the American Stock Exchange during
the ten (10) trading days immediately preceding the Closing Date. Currency
values shall be equal to the average between the sales price of the respective
currencies and the purchase price for the respective currencies as identified in
the Wall Street Journal at the close of business on the last currency trading
date prior to the Closing Date.
4
<PAGE>
Purchaser shall cause the Purchase Shares to be listed for trading on
the American Stock Exchange at the time of the Closing or as soon as practicable
following the Closing. Notwithstanding such listing Parent and Subsidiary hereby
acknowledge and agree that resale by Parent or Subsidiary of the Purchase Shares
shall be subject to restriction under U. S. securities laws, the Purchase Shares
shall be issued with a restrictive legend and the Purchaser shall impose stock
transfer restrictions with the transfer agent.
Purchaser hereby agrees to include the Purchase Shares in the first
registration statement (other than a registration statement on Form S-8 or S-4)
filed by Purchaser with the U. S. Securities and Exchange Commission ("SEC")
following the Closing Date, provided SEC rules the allow the Purchase Shares to
be included in such registration statement. In any event, Purchaser shall cause
a registration statement covering the Purchase Shares to become effective not
later than 180 days after the Closing Date. Purchaser shall pay all its costs of
such registration. Parent and Subsidiary hereby agree to provide Purchaser with
such information as Purchaser reasonably requests to facilitate such
registration statement. Upon Parent and Subsidiary becoming able to sell all the
purchase Shares under the rules and regulations of the SEC, Purchaser shall
notify Parent and Subsidiary that the Purchased Shares can be resold under U. S.
securities laws. The date of such written notice is hereinafter referred to as
the "Restriction Termination Date."
If on the Restriction Termination Date the aggregate market value of
the Purchase Shares is less than the aggregate market value of the Purchase
Shares on the Closing Date (in both cases market value being calculated by the
ten trading date formula set forth above), Purchaser shall issue a number of
additional shares of Common Stock to Parent or Subsidiary equal to the number of
shares required to cause the aggregate market value of shares of Common Stock
held by Parent and Subsidiary to be the same on the Closing Date and the
Restriction Termination Date, provided that the number of additional shares
issued shall not exceed fifty percent (50%) of the number of shares issued on
the Closing Date. In the event that the price of the Purchase Shares on the
Restriction Termination Date shall exceed the price of the Purchase Shares at
Closing by more than One Hundred (100%) Percent, the price in excess of Two
Hundred (200%) Percent of the price at Closing shall be deemed to be payments of
the promissory note of Purchaser provided pursuant to Section 2.4 hereof.
Section 2.4 Liabilities. Purchaser shall not assume any liabilities of
Subsidiary or Parent, except that Purchaser shall assume (i) the obligation of
Subsidiary to pay to Parent or the Parent's Affiliates, as the case may be,
$40,000 (Canadian) of indebtedness that is currently outstanding (the "Fixed
Intercompany Liabilities"), (ii) up to $80,000 (Canadian) of intercompany
liabilities of Subsidiary to Parent or to Parent's Affiliates, as the case may
be, in existence at the time of the Closing (the "Fluctuating Intercompany
Liabilities") and (iii) trade payables and other usual and customary payables
(the "Trade Payables"),
5
<PAGE>
provided that the Trade Payables assumed by Purchaser shall not exceed the
current assets acquired by Purchaser in this transaction. The Fixed Intercompany
Liabilities and the Fluctuating Intercompany Liabilities are hereinafter
collectively referred to as the "Intercompany Liabilities."
Parent shall provide Purchaser a list of all Fluctuating Intercompany
Liabilities and all Trade Payables at least two (2) business days prior to the
Closing Date, together with reasonable evidence of the existence and nature of
such liabilities. If the list of Trade Payables exceeds the commitment of
Purchaser as provided above, Purchaser shall select those Trade Payables it will
assume and agrees to pay such assumed Trade Payables as and when they become due
in order to protect the credit of Parent and Subsidiary with such trade
creditors. Parent agrees to pay all Trade Payables of Subsidiary not assumed by
Purchaser as and when they become due in order to protect the credit of
Purchaser with such trade creditors.
At the Closing Purchaser shall issue to Parent a noninterest bearing
promissory note equal to the amount of Intercompany Liabilities assumed by
Purchaser as provided herein. The Promissory Note shall be payable in six equal
installments commencing one month after the Closing Date in Canadian currency.
On the Closing Date, Purchaser shall deposit in a bank account an amount equal
to the Intercompany Liabilities assumed by Purchaser and shall use the account
solely for the purpose of repaying the Promissory Note.
ARTICLE III
CLOSING
Section 3.1 Closing. The Closing for the transactions contemplated
hereby shall be held on June 1, 1995 or other mutually agreeable date (the
"Closing Date") at a location and time mutually agreeable to the parties.
Section 3.2 Conditions to Each Party's Obligation to Close. The
respective obligations of each party to Close the Merger shall be subject to the
fulfillment at or prior to the Closing of the following conditions:
(a) This Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the shareholders
of Parent and Subsidiary and the Board of Directors of Purchaser, under
applicable law and applicable listing requirements;
(b) The shares of Common Stock of Purchaser issuable as
provided in Article II hereof shall have been authorized for listing on the
American Stock Exchange upon official notice of issuance;
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(c) No preliminary or permanent injunction or other order or
decree by any court which prevents the consummation of the transactions
contemplated hereby shall have been issued and remains in effect (each party
agreeing to use all best efforts to have any such injunction, order or decree
lifted); and
(d) All governmental consents and approvals required by law
for the consummation of the transactions contemplated hereby shall have been
obtained and be in effect on the Closing date on terms and conditions that would
not have a material adverse affect on the prospects of the business operated by
Subsidiary.
Section 3.3 Conditions to Obligation of Parent and Subsidiary to Close.
The obligation of Parent and Subsidiary to Close shall be subject to the
fulfillment at or prior to the Closing Date of the following additional
conditions which may be waived at Parent's option:
(a) Purchaser shall have performed in all material respects
its agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of Purchaser
contained in this Agreement shall be true and correct in all material respects
on and as of the date of this Agreement and at and as of the Closing Date as if
made on and as of such date or time, except as contemplated or permitted by this
Agreement, and Parent and Subsidiary shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of Purchaser to that effect;
(b) Parent and Subsidiary shall have received an opinion
addressed to Parent and Company from Petree Stockton, L.L.P., or other legal
counsel selected by Purchaser and reasonably satisfactory to Company, dated the
Closing Date, substantially in the forms set forth in Exhibit A hereto;
(c) Purchaser shall be ready, willing and able to pay
the Purchase Price in full as contemplated by Sections 2.1, 2.2 and
2.3 hereof; and
(d) Purchaser shall have executed and delivered to Parent a
Promissory Note in form and substance reasonably satisfactory to Parent and
deposited the funds in accordance with Section 2.4 hereof.
Section 3.4 Conditions to Obligation of Purchaser to Close. The
obligation of Purchaser to Close shall be subject to the fulfillment at or prior
to the Closing Date of the additional following conditions which may be waived
at Purchaser's option:
(a) Parent and Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be performed
at or prior to the Closing Date, and the
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representations and warranties of Parent and Subsidiary contained in this
Agreement shall be true and correct in all material respects on and as of the
date of this Agreement and at and as of the Closing Date as if made on and as of
such date or time, except as contemplated or permitted by this Agreement, and
Purchaser shall have received a Certificate of the Chief Executive Officer and
Chief Financial Officer of Parent and Subsidiary to that effect;
(b) Purchaser shall have received an opinion from Brennen
Partners, or other legal counsel selected by Parent and Subsidiary and
reasonably satisfactory to Purchaser, dated as of the Closing Date,
substantially in the form set forth in Exhibit B hereto;
(c) Parent and Subsidiary shall have executed and delivered
bills of sale assignments, consents to assignment and transfer, waivers of liens
and other documents of title and related documents as Purchaser shall reasonably
request, in any event sufficient to convey to Purchaser good and marketable
title to all the Parent Assets and the Subsidiary Assets free and clear of all
liens, charges, claims and encumbrances of any nature whatsoever ;
(d) Parent and Subsidiary shall have executed and
delivered to Purchaser a three-year Distribution and Supply
Agreement in form attached hereto as Exhibit C;
(e) Purchaser shall be reasonably satisfied that the key
employees of Subsidiary are willing to become employed by Purchaser
on terms and conditions acceptable to Purchaser;
(f) Parent and Subsidiary shall have executed and delivered to
Purchaser such other certificates and other documents as shall reasonably be
required to complete this transaction; and
(g) Since the date hereof, no event having a material
adverse effect on Subsidiary shall have occurred.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Parent and Subsidiary as
follows:
Section 4.1 Corporate Organization and Good Standing. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, with all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as it is now being
conducted, and is qualified or licensed to do business and is in good standing
in each jurisdiction in which the ownership or leasing of property by it or the
conduct of its business requires
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such licensing or qualification, except for such failures to be so qualified or
licensed which would not have a material adverse effect on Purchaser.
Section 4.2 Authorization; Binding Agreement. At closing,
Purchaser will have all requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agree-
ment by Purchaser, and the consummation by Purchaser of the
transactions contemplated hereby, will at closing have been duly
authorized by Purchaser's Board of Directors, and no other
corporate action or proceeding on the part of Purchaser will be
necessary for the execution, delivery and performance of this
Agreement by Purchaser and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Purchaser and is a legal, valid and
binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally,
by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law)
or by an implied covenant of good faith and fair dealing.
Section 4.3 SEC Reports. Purchaser heretofore has delivered to Parent
and Subsidiary true and complete copies of its Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 ("SEC Report"). As of the filing date,
the SEC Report did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements (including any related notes) of
Purchaser included in the SEC Report were prepared in conformity with generally
accepted accounting principles applied on a consistent basis (except as
otherwise stated in such financial statements or, in the case of audited
statements, the related report of Ernst & Young, independent certified public
accountants of Purchaser), and present fairly the consolidated financial
position, results of operations and cash flows of Purchaser as of the dates and
for the periods indicated, subject, in the case of unaudited interim financial
statements to condensation, the absence of certain notes thereto and normal
year-end audit adjustments.
Section 4.4 Certain Fees. Neither Purchaser, any subsidiary of
Purchaser nor any of their officers, directors, employees or agents has employed
any broker or finder or incurred any liability for any financial advisory,
brokerage or finder's fee or commissions in connection with the transactions
contemplated herein. Purchaser agrees to indemnify and hold harmless Parent and
Subsidiary from and against any and all claims, suits, liabilities, costs and
expenses, including reasonable attorneys' fees, resulting
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from any claims that may be made against the parties by any broker or person
claiming a commission, fee or other compensation on the basis of any
communication or agreement such broker may have had or entered into with
Purchaser any of its subsidiaries, officers, directors, shareholders, employees
or agents.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
Parent and Subsidiary hereby jointly and severally represent and
warrant to Purchaser as follows:
Section 5.1 Corporate Organization and Good Standing. Parent and
Subsidiary are corporations duly organized, validly existing and in good
standing under the laws of Canada and Ontario, respectively, with all requisite
corporate power and authority to own, operate and lease their properties and to
carry on their business as it is now being conducted, and are qualified or
licensed to do business and are in good standing in each jurisdiction in which
the ownership or leasing of property by them or the conduct of their business
requires such licensing or qualification, except for such failures to be so
qualified or licensed which would not have a material adverse effect on Parent
or Subsidiary. Parent and Subsidiary have delivered to Purchaser true and
correct copies of their Certificates of Incorporation and By-laws as in effect
on the date hereof.
Section 5.2 Authorization. At Closing, Parent and Subsidiary will have
all requisite corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement by Parent and Subsidiary, and the consummation by
Parent and Subsidiary of the transactions contemplated hereby, will have been
duly authorized by the Board of Directors and the shareholders of Parent and
Subsidiary and no other corporate action or proceeding on the part of Parent or
Subsidiary will be necessary for the execution, delivery and performance of this
Agreement by Parent and Subsidiary and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent and Subsidiary and constitutes legal, valid and binding
obligations of Parent and Subsidiary, enforceable against them in accordance
with its terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) or by an implied covenant of good faith and fair dealing.
Section 5.3 Financial Statements. Parent and Subsidiary
have heretofore delivered to Purchaser true and complete copies of
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the financial statements of Subsidiary for the 13-month period ended November
30, 1994 and the four-month period ended March 31, 1995 (the "Financial
Statements"). The Financial Statements (including any related notes) were
prepared in conformity with generally accepted accounting principles applied on
a consistent basis (except as otherwise stated in such financial statements),
and present fairly the consolidated financial position, results of operations
and cash flows of Subsidiary as of the dates and for the periods indicated,
subject, in the case of unaudited interim financial statements to condensation,
the absence of certain notes thereto and normal year-end audit adjustments.
Section 5.4 Absence of Certain Changes. Except as set forth on
Disclosure Schedule 5.4, since the end of the period covered by the Financial
Statements no material adverse changes have occurred with respect to Subsidiary.
Section 5.5 Certain Fees. Neither Parent nor Subsidiary nor any of
their officers, directors, employees or agents has employed any broker or finder
or incurred any liability for any financial advisory, brokerage or finder's fee
or commissions in connection with the transactions contemplated herein. No other
agent or broker or other person is entitled to any commission or finder's fee in
connection with the transaction contemplated by this Agreement. Parent and
Subsidiary agree to indemnify and hold harmless Purchaser from and against any
and all claims, suits, liabilities, costs and expenses, including reasonable
attorneys' fees, resulting from any claims that may be made against the parties
by any broker or person claiming a commission, fee or other compensation on the
basis of any communication or agreement such broker may have had or entered into
with Parent or Subsidiary, or any of their officers, directors, shareholders,
employees or agents.
Section 5.6 Consents and Approvals; No Violations.
(a) Except as set forth in Disclosure Schedule 5.6, neither
Parent nor Subsidiary is in violation of any applicable law, statute, ordinance,
order, rule or regulation promulgated or judgment, decree, order, concession,
grant, permit, license or other governmental authorization or approval, issued
or entered by, any federal, state, provincial or local, court or governmental
authority relating to or affecting the operation, conduct or ownership of the
property or business of Parent or Subsidiary.
(b) Except as set forth in Disclosure Schedule 5.6, no filing
or registration with, no notice to and no permit, authorization, consent or
approval of any public or governmental body or authority is necessary for the
consummation by Parent and Subsidiary of the transactions contemplated by this
Agreement or to enable Purchaser after the Closing Date to continue to conduct
the
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same business conducted by Subsidiary in a manner which is consistent with that
in which it is presently conducted by Subsidiary.
(c) Except as set forth in Disclosure Schedule 5.6, neither
the execution and delivery of this Agreement by Parent or Subsidiary, the
performance by Parent and Subsidiary of their obligations hereunder nor the
consummation by Parent and Subsidiary of the transactions contemplated hereby
will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or By-laws of Parent or Subsidiary, (ii) result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or the happening or occurrence of any other event) a default by Parent or
Subsidiary, or permit the termination of, or require the consent of any other
party to, or result in the acceleration of, or entitle any party to accelerate
(or give rise to the creation of any lien, charge, security interest or
encumbrance upon any properties or assets of Parent or Subsidiary) under, any of
the terms, conditions or provisions of any contract, note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which Parent
or Subsidiary is a party or by which they or any of their properties or assets
may be bound or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation of any court or governmental authority applicable to Parent or
Subsidiary, or any of their properties or assets.
Section 5.7 Litigation. Except as set forth on Disclosure Schedule 5.7
hereof, there is no action, suit, set of related actions or suits concerning a
common issue, complaint, arbitration, inquiry, proceeding or investigation
pending or, to the knowledge of Parent or Subsidiary, threatened against or
involving Parent or Subsidiary, or any properties or rights of Parent or
Subsidiary, before any court, arbitrator or administrative or governmental body,
and there is no judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Parent or Subsidiary which would individually or in the
aggregate, if adversely determined, have a material adverse effect on Subsidiary
or result in any claim, lien or other encumbrance on any of the Parent Assets or
Subsidiary Assets. As of the date hereof, there are no actions, suits or
proceedings pending or, to the knowledge of Parent or Subsidiary, threatened
against Parent or Subsidiary arising out of or in any way related to this
Agreement, or any of the transactions contemplated hereby.
Section 5.8 Certain Employment Matters; Labor Relations. Except as set
forth in Disclosure Schedule 5.8, there are no written employment or consulting
agreements or contracts in effect between Parent or Subsidiary with any of the
employees of Subsidiary, nor any oral contracts or understandings of employment
or consultation, or any applicable law, which (i) are not terminable upon the
giving of notice not to exceed ten (10) days, or (ii) provide for any severance
or other payments to any employee
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of Subsidiary upon termination of employment or upon any change of control of
Subsidiary or Parent or sale of the assets of Subsidiary or Parent. Except as
set forth on Disclosure Schedule 5.8, Parent and Subsidiary have complied with
all applicable laws, rules and regulations relating to the employment of labor
which could have a material adverse effect on the business, assets, condition or
prospects, financial or otherwise, of Subsidiary, including without limitation
those relating to wages, hours, collective bargaining, age and sex
discrimination and the payment and withholding of taxes; Parent and Subsidiary
have withheld all amounts required by law or agreement to be withheld from the
wages or salaries of employees of Subsidiary; and neither Parent nor Subsidiary
has any unaccrued liability for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing with respect to employees of
Subsidiary. There are no controversies pending, threatened or reasonably
anticipated between Parent or Subsidiary and any employee or former employee of
Subsidiary. None of the employees of Subsidiary are represented by a labor
union, and no petition has been filed or proceeding instituted of which Parent
or Subsidiary has notice by any employee or group of employees with any labor
relations boards seeking recognition of a bargaining representative. There is no
material dispute or controversy with any union or other organization
representing employees, and no arbitration proceeding is pending or threatened
involving such a dispute or controversy.
Section 5.9 Employee Benefit Plans. Except as described on Disclosure
Schedule 5.9, the employees and former employees of Subsidiary have no right to
require Purchaser to continue any Employee benefit plans maintained by Parent or
Subsidiary and Purchaser has no liability for any failures by Parent or
Subsidiary to comply with any law, rule or regulation governing employee benefit
plans for employees and former employees of Subsidiary.
Section 5.10 Tax Liabilities. No fact exists which could constitute
grounds for assessment of any tax liability or lien against Purchaser or any
Parent Asset or Subsidiary Asset on account of any tax liability of Parent or
Subsidiary.
Section 5.11 Title to Assets. Parent and Subsidiary have good title to
all the Parent Assets and Subsidiary Assets (other than names and marks) to be
sold to Purchaser hereunder free and clear of any claim, lien or encumbrance of
any third person or entity of any nature whatsoever. The conduct of the business
of Subsidiary as heretofore carried on is free from any infringement of patents,
trademarks, trade names, copyrights or publication rights of others. Parent and
Subsidiary have taken all reasonable measures to protect the trade secrets of
Subsidiary and such trade secrets have not been disclosed to others except
pursuant to reasonable confidentiality agreements. To the best of their
knowledge and belief, Parent and Subsidiary have good title to all the names and
marks included in the Parent Assets and Subsidiary
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Assets. None of the Parent Assets or Subsidairy Assets are leased or licensed
from any person or entity, except for any lease or license disclosed on Schedule
1.1 or 1.2 hereof.
The assets listed on Schedule 1.2 hereto constitute all assets owned by
Parent that are used by Subsidiary on a regular basis to conduct its business,
but which are not regularly used by Parent in its business, whether such use is
pursuant to a lease, license or other agreement or under a less formal
arrangement not constituting a written agreement. Purchaser will assume no
leases, licenses, or other agreements to which any of the Parent Assets or
Subsidiary Assets is subject unless such lease, license or other agreement has
been specifically identified on Schedule 1.1 or 1.2 hereto. Parent, Subsidiary
and their Affiliates have complied with all terms of all of the leases, licenses
and agreements disclosed on Schedule 1.2 up to Closing, and will indemnify and
hold Purchaser harmless against any damages, losses, claims and expenses
(including reasonable attorneys fees and expenses) suffered by Purchaser as a
result of the failure of Parent, Subsidiary or any of their Affiliates to comply
with such terms. Purchaser will indemnify and hold harmless Parent and
Subsidiary for any damages, losses, claims and expenses (including reasonable
attorneys fees and expenses) suffered as a result of Purchaser's failure to
comply with the terms of any of the leases, licenses or agreements disclosed on
Schedule 1.2, provided that Parent, Subsidiary and their Affiliates have
complied with the terms of such lease, license or agreement prior to Closing.
Section 5.12 Contracts, Minutes and Other Instruments and Information.
Parent and Subsidiary have provided to Purchaser true, correct and complete
copies of all contracts and agreements to which either Parent or Subsidiary is a
party or by which Parent or Subsidiary is bound, in the case of Parent such
representation being limited to contracts affecting the Parent Assets or
Subsidiary Assets. Parent and Subsidiary are in material compliance with all
such contracts and agreements, and to the knowledge of Parent and Subsidiary, no
other party is in breach thereof. Parent and Subsidiary have provided to
Purchaser true, correct and complete copies of all minutes and/or consents of
all actions taken by the shareholders and Board of Directors of Parent and
Subsidiary, in the case of Parent such representation being limited to minutes
and/or consents that affect the Parent Assets or Subsidiary Assets.
Section 5.13 Permits and Licenses. Subsidiary has acquired and
currently holds all permits, licenses, franchises, authorizations, approvals and
other certificates of authority (the "Licenses") as may be required for
Subsidiary to conduct its business, and copies of all such documents have been
provided to Purchaser. Except as disclosed on Disclosure Schedule 5.13,
Subsidiary is in material compliance with all the terms thereof, the Licenses
are transferable and are being transferred to
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Purchaser with the Subsidiary Assets and neither Parent nor Subsidiary is aware
of any reason which any such License could not be renewed on terms at least as
advantageous to Purchaser as the current License held by Subsidiary. Neither
Parent nor Subsidiary is aware of any change in any law, rule or regulation,
whether or not yet effective, which is likely to require Purchaser to obtain in
the future any additional License to conduct the business currently conducted by
Subsidiary.
Section 5.14 Real Property; Environmental Matters. Subsidiary does not
own any real property and is not a party to any agreement to acquire ownership
of any real property or any interests in real property, and does not occupy or
otherwise use any real property, other than real property subject to lease(s) to
which Subsidiary is a party and are being assigned to Purchaser as part of the
Subsidiary Assets, copies of which have been provided to Purchaser. Except as
disclosed on Disclosure Schedule 5.14, neither Parent nor Subsidiary has (either
with or without negligence) caused or permitted the escape, disposal or release
in violation of applicable law of any biologically active or other hazardous
substances, or materials causing harm in or on any real property occupied or
utilized by Subsidiary in conducting its business (the "Premises"). Neither
Parent nor Subsidiary has allowed the storage or use of such substances or
materials in any manner not sanctioned by law or by commercially reasonable
standards in the industry for the storage and use of such substances or
materials. Neither Parent nor Subsidiary has allowed to be brought onto the
Premises any such materials or substances except to use in the ordinary course
of Subsidiary's business. During the use and occupancy of the Premises by
Subsidiary, Subsidiary has kept and maintained the Premises so as to be in
material compliance with all then existing statutes, laws, rules, ordinances,
orders, permits and regulations of all governmental and regulatory authorities,
agencies and bodies pertaining to environmental matters, or regulating,
prohibiting or otherwise having to do with asbestos and all other toxic,
radioactive or hazardous wastes or materials.
Section 5.15 Rates for Use of Equipment. The rates listed on Schedule
1.3 hereto for use of equipment and services of Parent are consistent with the
rates historically charged by Parent for use of equipment and services to assist
Subsidiary in the operation of its business.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 6.1 Conduct of Business by Parent and Subsidiary Pending the
Closing. Except as otherwise expressly contemplated hereby, after the date
hereof and prior to the Closing or earlier termination of this Agreement, unless
Purchaser shall otherwise
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agree in writing or as otherwise expressly contemplated by this Agreement,
Parent (in the case of Parent solely to the extent required to preserve its
ability to sell the Parent Assets and cause Subsidiary to sell Subsidiary
Assets) and Subsidiary shall:
(a) conduct its business in the ordinary and usual
course of business and consistent with past practice;
(b) use its best efforts to: preserve intact the business
organization and goodwill of Subsidiary, keep available the services of its
present officers and key employees, and preserve the goodwill and business
relationships with suppliers, distributors, customers, and others having
business relationships with Subsidiary;
(c) confer on a regular and frequent basis with one or more
representatives of Purchaser to discuss operational matters of materiality and
the general status of ongoing operations of Subsidiary;
(d) promptly notify Purchaser of any significant changes
in the business, properties, assets, condition (financial or
other), results of operations or prospects of Subsidiary;
(e) not directly or indirectly, (i) sell, lease, encumber or
otherwise transfer any Purchaser Assets or Subsidiary Assets, other than sales
of nonmaterial amounts of inventory in the ordinary course of business, (ii)
enter into or negotiate any agreement to make any such sale, lease, encumbrance
or other transfer, (iii) submit to any other person or entity any offer or
proposal for, or provide any information useful for, or relating to, any such
sale, lease, encumbrance or other transfer, (iv) otherwise participate in
discussions or take any other action that is designed to promote any such sale,
lease, encumbrance or other transfer or (v) take any other action that is
inconsistent with a good faith attempt to fulfill the purposes of this
Agreement;
(f) not increase the salary or other compensation of any
employee of Subsidiary or enter into or amend any employment, severance, bonus,
special pay arrangement with respect to termination of employment or other
similar arrangements or agreements;
(g) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree of Subsidiary,
except (i) as required to comply with changes in applicable law occurring after
the date hereof and (ii) with respect to all plans other than in the ordinary
course of business and consistent with past practice;
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(h) not agree orally or in writing, or otherwise, to take any
of the foregoing actions or any other action which would make any representation
or warranty contained in Article V untrue or incorrect in any material respect
as of the time of the Closing.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information. (a) Parent and
Subsidiary shall afford to Purchaser and its accountants, counsel,
and other representatives reasonable access during normal business
hours and upon reasonable notice throughout the period prior to the
Closing to all properties, books, contracts, commitments and
records related to the business of Subsidiary, the Parent Assets or
the Subsidiary Assets and all other information concerning the
businesses, properties and personnel of Subsidiary as Purchaser may
reasonably request; provided that no investigation pursuant to this
Section 7.1 shall affect any representations or warranties made
herein or the conditions to the obligations of the respective
parties to consummate the transactions contemplated hereby. Parent
and Subsidiary shall promptly advise Purchaser in writing of any
change or occurrence of any event after the date of this Agreement
having, or which, insofar as can reasonably be foreseen, in the
future may have, a material adverse affect on Subsidiary.
Section 7.2 Approvals. Parent and Subsidiary, in accordance with
applicable law, shall promptly submit this Agreement and the transactions
contemplated hereby for the approval of their respective Boards of Directors and
shareholders as soon as practicable after the date hereof. Purchaser shall
submit this Agreement for approval to its Board of Directors prior to the
Closing.
Section 7.3 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses, except that if either party breaches this
Agreement causing the Closing not to be held the breaching party shall pay the
expenses of the nonbreaching party.
Section 7.4 Agreement to Cooperate. Subject to the terms and conditions
herein provided, each of the parties hereto shall use reasonable efforts to
take, or cause to be taken, all action to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
Section 7.5 Public Statements. The parties shall consult
with each other prior to issuing any public announcement or
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statement with respect to this Agreement or the transactions contemplated hereby
and shall not issue any such public announcement or statement prior to such
consultation, except as may be required by law or any listing agreement with the
American Stock Exchange or other national securities exchange.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual consent of Parent, Subsidiary and
Purchaser; or
(b) by either Parent or Subsidiary, if Purchaser shall have
breached any of its material obligations under this Agreement, if any material
representation or warranty of Purchaser shall have been untrue when made or
shall have subsequently become untrue as of any date prior to the Closing or if
the Closing shall not have been consummated on or before April 17, 1995 (the
"Termination Date") through no fault of either Parent or Subsidiary; or
(c) by Purchaser, if Parent or Subsidiary shall have breached
any of their material obligations under this Agreement, any material
representation or warranty of Parent or Subsidiary shall have been untrue when
made or shall have subsequently become untrue as of any date prior to the
Closing or if the Closing shall not have been consummated on or before April 17,
1995 through no fault of Purchaser.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement, as provided in Section 8.1, this Agreement shall forthwith become
void, and there shall be no obligation hereunder on the part of any party except
pursuant to Section 7.3 hereof. Nothing in this Section 8.2 shall relieve any
party from liability for any breach of this Agreement.
Section 8.3 Amendment. This Agreement may be amended by the parties
hereto at any time. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
Section 8.4 Waiver. At any time prior to the Closing, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein; provided, however, that waiver of compliance with
any agreements or conditions herein shall not limit the parties'
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obligations to comply with all other agreements or conditions herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of such party.
ARTICLE IX
GUARANTY AND INDEMNIFICATION
Section 9.1 Guaranty. Parent and Subsidiary hereby
guarantee to Purchaser all obligations of the other pursuant to
this Agreement.
Section 9.2 Indemnity of Purchaser. Parent and Subsidiary each
agree to indemnify Purchaser for any damages, losses, claims and expenses
(including reasonable attorneys fees and expenses) suffered on account of any
breach by Parent or Subsidiary of any representation, warranty or covenant of
this Agreement.
Section 9.3 Setoff. Purchaser may pay into an escrow account
maintained by Purchaser's lawyers any obligation due to Parent or Subsidiary to
the extent Purchaser has reason to believe (i) it is entitled to indemnification
hereunder and (ii) the amount of the indemnity obligation is equal to or greater
than the amount withheld. Upon determination of such indemnification rights, the
indemnity obligation may be set-off against the obligation for which payment was
withheld or any other obligation of Purchaser to Parent or Subsidiary, and funds
in the escrow account shall be paid accordingly.
Section 9.4 Indemnity of Parent and Subsidiary. Purchaser
agrees to indemnify Parent and Subsidiary for any damages, losses, claims and
expenses (including reasonable attorneys fees and expenses) suffered on account
of any claims for brokerage fees relating to the subject matter of this
Agreement.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Survival of Representations, Warranties
and Agreements. All representations, warranties and agreements in
this Agreement shall survive the Closing.
Section 10.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to Purchaser to:
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EDITEK, Inc.
1238 Anthony Rd.
Burlington, NC 27215
Attention: James D. Skinner
with copies to:
Petree Stockton, L. L. P.
4101 Lake Boone Trail, Suite 400
Raleigh, NC 27607
Attention: James F. Verdonik, Esq.
(b) If to Parent or Subsidiary, to:
John W. Martin, President and CEO
NOVAMANN International, Inc.
5540 McAdam Road
Mississauga, Ontario L42 1P1
with a copy to:
Brennen Partners
21 Four Seasons Place, Fifth Floor
Etobicoke, Ontario M9B 6J8
Attention: David Brennen
Section 10.3 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
(b) is not intended to confer upon any other person any rights or remedies
hereunder; (c) shall not be assigned except that Purchaser may assign this
agreement to any Affiliate of Purchaser or any subsequent purchaser of all or
any substantial part of the Assets, provided that the Purchaser shall not
thereby be relieved of its obligations under this Agreement, including, without
limitation, its obligations contained in Section 2.3 which shall remain the
obligations of the Purchaser; and (d) shall be governed in all respects,
including validity, interpretation and effect, by the laws of the Province of
Ontario (without giving effect to the provisions thereof relating to conflicts
of law). The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
Section 10.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement. Facsimile signatures shall be
binding on all parties upon delivery thereof.
20
<PAGE>
Section 10.5 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under this Agreement.
21
<PAGE>
IN WITNESS WHEREOF, Parent, Subsidiary and Purchaser have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
PURCHASER:
EDITEK, INC.
By: /s/ James D. Skinner
Title: President and CEO
SUBSIDIARY:
BIOMAN PRODUCTS INC.
By: /s/ John Martin
Title: President
PARENT:
NOVAMANN INTERNATIONAL INC.
By: /s/ John Martin
Title: CEO
22
<PAGE>
SCHEDULE 1.1
"SUBSIDIARY ASSETS"
BIOMAN PRODUCTS, INC.
LIST OF ASSETS
Computer - Equipment
Macintosh Powerbook 160 (1 unit)
Macintosh LC475 (1 unit)
Macintosh lisi (3 units)
Macintosh 500 megabyte harddrive (1 unit)
Modem (2 units)
Texas Instruments mic Writer (1 unit)
GCC Technologies BPelite printer (1 unit)
Office - Equipment
Desks (7 units)
Computer tables (3 units)
Tables & Chairs
Book Shelves
Filing Cabinets
Answering Machine/Coffeemaker/Microwave
Telephone - Equipment
Meridian Black Handset Telephones (6 units)
Meridian Analog Terminal Adaptor
Meridian M8 x 24 and Software
Inventory
Product Inventory
Materials Inventory: bottles, substrate, BSA, FBS and other reagents
License Rights
An agreement with Immunosystems regarding the ELISA plate-coating technology
(provided EDITEK obtains the consent of of Immunosystems division of Milipore
Corporation to the assignment of this agreement, reserving to NovMann (Ontario)
Inc. the right to use the technology internally for the provision of services to
its clients.
<PAGE>
SCHEDULE 1.1 - CONTINUED
"SUBSIDIARY ASSETS"
Other Assets
All Correspondence Files
All Customer Files/Complaint Letters
All Invoices
All Billing Records
All Shipping Records
All Financial Records
All Employment Records
All Purchasing Records
All Manufacturing Records
All Other Records
All Customer Relations/Goodwill
All Customer Lists
All Distributor Lists
All Supplier Lists
All Price Lists/Quotations
All Computer Software
All Computer Databases/Files/Floppy Disks
All Operating Manuals
All Policies & Procedures
All Advertising and Promotional Material
All Telephone Lists
All Telephone Numbers and Directory Listings
<PAGE>
SCHEDULE 1.2
"PARENT ASSETS"
NOVAMANN LIST OF ASSETS
Agriculture Canada License to Distribute
(pending approval of Agriculture Canada of
assignment or sublicense to EDITEK, Inc.)
<PAGE>
SCHEDULE 1.3
SCHEDULE OF APPLICABLE CHARGES FOR SERVICES
1. Quality Control on Biomek................................ $150.00/hr
including one NOVAMANN Technician
2. Rental of current premises until June 30, 1995........... $750/month
Occupancy costs to June 30, 1995
<PAGE>
SCHEDULE 1.6
Trade Names and Trade Marks
NOVAMANN (Ontario) Inc.
NOVAMANN (Quebec) Inc.
NOVAMANN International Inc.
Mann Testing Laboratories Ltd.
Mann Testing Sampling Services
Mann Equitest Inc.
Chulenco Corp.
NOVAMANN (Sampling) Inc.
Trade marks: MANN
<PAGE>
SCHEDULE 1.9
SCHEDULE OF LICENSED RIGHTS
Agriculture Canada
See Schedule 1.2
<PAGE>
SCHEDULE 5.4
ABSENCE OF CERTAIN CHANGES
No material or adverse changes since end of period covered by
financial statements.
<PAGE>
SCHEDULE 5.6
SCHEDULE OF CONSENTS, APPROVALS AND VIOLATIONS
The approval to assignment or sublicense to EDITEK, Inc. of the Agriculture
Canada license is required, has been requested from Agriculture Canada but has
not yet been received.
Continuation of supply of product by third party suppliers not within Parent's
or Subsidiary's control is subject to normal business risk, and consents or
approvals of such suppliers are excluded from the operation of this agreement.
Violations, filings, registrations, notices, permits, authorizations, consents,
approvals, breaches and defaults referred to in Section 5.6 are limited to those
within Parent and/or Subsidiary's knowledge. To the best of Parent's and
Subsidiary's knowledge, information and belief, there are and will be none.
The continued operation of the business of EDITEK, Inc. will be subject to laws
of general application including those relating to extra-provincial
registration, filing of corporate information, taxation and notification.
<PAGE>
SCHEDULE 5.7
LITIGATION
No litigation that is known to be before the courts at the
time. None is expected in the future.
<PAGE>
SCHEDULE 5.8
EMPLOYMENT OR CONSULTING AGREEMENTS
There are no written employment or consulting agreements in effect as of the
closing date. All employer/employee relationships are subject to the termination
provisions of the Employment Standards Act which prescribe minimum notices of
termination depending on the duration of employment and other factors.
<PAGE>
SCHEDULE 5.9
EMPLOYEE BENEFIT PLANS
Obligation that EDITEK must continue to maintain under the Ontario governments:
Employment Standards Act Source Deductions
Canada Pension Plan
Unemployment Insurance
Income Tax
Workers Compensation
Employee Health Tax
<PAGE>
SCHEDULE 5.13
PERMITS AND LICENSES
EDITEK, Inc. will have to obtain its own registrations, accounts and permits to
conduct business subject to laws of general application, includign Provincial
Sales vendor's permit, Goods and Services Tax registration, employer
registration, worker's compensation accounts, etc., which are not transferable.
<PAGE>
SCHEDULE 5.14
REAL PROPERTY ENVIRONMENTAL MATTERS
SUBSIDIARY AND PARENT are clear of any
environmental violations on or off their premises.
<PAGE>
EXHIBIT A
[PETREE STOCKTON LETTERHEAD]
May ____, 1995
NOVAMANN International, Inc.
Bioman Products, Inc.
Attention: John W. Martin
5540 McAdam Road
Mississauga, Ontario L42 1P1
RE: Sale of Certain Assets of Bioman Products, Inc.
and NOVAMANN International, Inc.
Gentlemen:
This opinion letter is being delivered pursuant to Section 3.3(b) of
that certain Asset Purchase Agreement (the "Purchase Agreement") dated May 12,
1995 among NOVAMANN International, Inc., a corporation organized under the laws
of Canada ("Parent"), and Bioman Products, Inc., a corporation organized under
the laws of Ontario, Canada ("Subsidiary") (collectively, "Sellers"), and
EDITEK, Inc., a Delaware corporation ("Purchaser"), in our capacity as counsel
to Purchaser in connection with the negotiation, execution and delivery of the
Purchase Agreement and the consummation of the transactions contemplated
therein.
Capitalized terms used in this opinion letter and not defined in it
have the respective meanings given to those terms in the Purchase Agreement.
Based upon the foregoing and subject to the qualifications and
limitations set forth herein, we are of the following opinions:
1. Purchaser is a corporation duly incorporated, organized and
entitled to conduct business under, and is validly existing and in good standing
under the laws of the State of Delaware.
2. Purchaser has all requisite corporate power and
authority to own, operate or lease its properties and to engage
in its business as conducted on the date hereof.
3. With respect to the Purchase Agreement, the
Distribution and Supply Agreement, the Promissory Note, an option
letter dated May 15, 1995 issued by Purchaser to Sellers
regarding the repurchase by Purchaser of the Purchased Shares,
<PAGE>
NOVAMANN International, Inc.
Bioman Products, Inc.
May ____, 1995
Page 2
and any other agreements, instruments and documents executed and delivered by
Purchaser pursuant to the Purchase Agreement (collectively, together with the
Purchase Agreement, the "Purchaser Delivered Agreements"):
(a) Purchaser has all requisite corporate power
and authority to execute and deliver the Purchaser Delivered Agreements to which
it is a party and to consummate the transactions contemplated by, and otherwise
to comply with and perform under, the Purchaser Delivered Agreements;
(b) the execution and delivery by Purchaser of
the Purchaser Delivered Agreements, the consummation by Purchaser of the
transactions contemplated by them and Purchaser's other compliance with or
performance under them have been duly authorized by all necessary corporate
action on the part of Purchaser in compliance with any governing or applicable
agreements, instruments or other documents (including without limitation its
Articles of Incorporation and Bylaws) and applicable law; and
(c) Purchaser has duly and validly executed and
delivered the Purchaser Delivered Agreements.
4. The Purchaser Delivered Agreements constitute legal, valid
and binding obligations of Purchaser enforceable against it in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
or by an implied covenant of good faith and fair dealing.
5. The shares of Common Stock (the "Shares") issuable pursuant
to Section 2.3 of the Purchase Agreement have been duly authorized and reserved
for issuance by all necessary corporate action on the part of the Purchaser; and
the Shares, when issued and delivered in accordance with the provisions of the
Purchase Agreement, will be duly and validly issued, fully-paid and
nonassessable. No consent, approval, order or authorization of, notice to or
permit from, or registration, declaration or filing with, any United States
governmental authority acting in a regulatory capacity, is required in
connection with the issue and delivery to Purchaser of the Shares. The Shares
may not be resold by Parent or Subsidiary except pursuant to an effective
registration statement filed with the United States Securities
<PAGE>
NOVAMANN International, Inc.
Bioman Products, Inc.
May ____, 1995
Page 3
and Exchange Commission or pursuant to an exemption from registration. No
opinion is expressed with respect to any Canadian or provincial restriction on
transfer of the Shares.
This opinion letter is delivered in connection with the consummation of
the transactions contemplated in the Purchase Agreement, may be relied upon only
by you and your counsel in connection therewith, may not be relied upon by you
for any other purpose or by anyone else for any purpose, and may not be quoted,
published or otherwise disseminated without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT B
[BRENNEN PARTNERS LETTERHEAD]
May , 1995
EDITEK, Inc.
Attention: James D. Skinner
1238 Anthony Rd.
Burlington, North Carolina 27215
RE: Sale of Certain Assets of Bioman Products, Inc.
and NOVAMANN International, Inc.
Gentlemen:
This opinion letter is being delivered pursuant to Section 3.4(b) of
that certain Asset Purchase Agreement (the "Purchase Agreement") dated May ,
1995 among NOVAMANN International, Inc., a corporation organized under the laws
of Canada ("Parent"), Bioman Products, Inc., a corporation organized under the
laws of Ontario, Canada ("Subsidiary") (collectively, "Sellers"), and EDITEK,
Inc., a Delaware corporation ("Purchaser"), in our capacity as counsel to
Sellers in connection with the negotiation, execution and delivery of the
Purchase Agreement and the consummation of the transactions contemplated
therein.
Capitalized terms used in this opinion letter and not defined in it
have the respective meanings given to those terms in the Purchase Agreement.
Based upon the foregoing and subject to the qualifications and
limitations set forth herein, we are of the following opinions:
1. Subsidiary is a corporation duly incorporated, organized
and entitled to conduct business under, and is validly existing and in good
standing under the laws of Ontario, Canada. Parent is a corporation duly
incorporated, organized and entitled to conduct business under, and is validly
existing and in good standing under the laws of Canada.
2. Parent has all requisite corporate power and authority to
own, operate or lease its properties and to engage in its business as conducted
on the date hereof, and is qualified or licensed to do business and in good
standing in such jurisdictions as to which a failure to be so qualified or
licensed would have a material, adverse effect on the Parent.
3. Subsidiary has all requisite corporate power and
authority to own, operate or lease its properties and to engage
<PAGE>
EDITEK, Inc.
May ____, 1995
Page 2
in its business as conducted on the date hereof, and is qualified or licensed to
do business and in good standing in such jurisdictions as to which a failure to
be so qualified or licensed would have a material, adverse effect on the
Subsidiary.
4. Parent has good and marketable title to all Parent
Assets, free and clear of all liens, charges, claims and
encumbrances.
5. Subsidiary has good and marketable title to all Subsidiary
Assets (including all names, marks and other intellectual property), free and
clear of all liens, charges, claims and encumbrances, and the conduct of
Subsidiary's business is free from infringement of patents, trademarks, trade
names, copyrights or publication rights of others.
6. With respect to the Purchase Agreement, the Distribution
and Supply Agreement and any other agreements, instruments and documents
executed and delivered by Sellers, pursuant to the Purchase Agreement
(collectively, together with the Purchase Agreement, the "Seller Delivered
Agreements"):
(a) Each of Sellers has the corporate power and
authority to execute and deliver the Seller Delivered Agreements to which it is
a party and to consummate the transactions contemplated by, and otherwise to
comply with and perform under, them;
(b) The execution and delivery by each of Sellers
of the Seller Delivered Agreements, the consummation by each of Sellers of the
transactions contemplated by them and each of Seller's other compliance with or
performance under them have been duly authorized by all necessary corporate
action on the part of each of Sellers in compliance with any governing or
applicable agreements, instruments or other documents (including without
limitation its Articles of Incorporation and Bylaws) and applicable law;
(c) Each of Sellers has duly executed and
delivered the Seller Delivered Agreements;
(d) The transfer instruments included in the
Seller Delivered Agreements effectively convey to, and vest in, Purchaser good
and marketable title to and in the Parent Assets and Subsidiary Assets free and
clear of all liens and encumbrances, except as specifically assumed by
Purchaser.
<PAGE>
EDITEK, Inc.
May ____, 1995
Page 3
7. The Seller Delivered Agreements (including without
limitation the transfer instruments delivered by Sellers with respect to the
Parent Assets and Subsidiary Assets) constitute valid and binding obligations of
Sellers enforceable against each of them in accordance with their terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
8. Neither the execution or delivery of the Seller Delivered
Agreements nor the consummation by Sellers of the transactions contemplated
thereby nor other compliance with or performance under them will (i) conflict
with or result in any breach of any provision of the Articles of Incorporation
(as amended) or Bylaws (as amended) of Parent or Subsidiary, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or the happening or occurrence of any other event) a default by Parent or
Subsidiary, or permit the termination of, or require the consent of any other
party to, or result in the acceleration of, or entitle any party to accelerate
(or give rise to the creation of any lien, charge, security interest or
encumbrance upon any properties or assets of Parent or Subsidiary) under, any of
the terms, conditions or provisions of any contract, note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which Parent
or Subsidiary is a party or by which either Parent or Subsidiary or any of
either of their properties or assets may be bound or (iii) violate any order,
writ, injunction, decree, statute, rule or regulation of any court or
governmental authority applicable to Parent or Subsidiary, or any of either of
their properties or assets.
9. No consent, approval, order or authorization of, notice to
or permit from, or registration, declaration of filing with, any governmental
authority or other person on the part of either of Sellers is required in
connection with Sellers' execution or delivery of the Purchase Agreement or the
other Seller Delivered Agreements, Sellers' consummation of the transactions
contemplated by them, Sellers' other compliance with or performance under them
or to enable Purchaser after the Closing Date to continue to conduct the same
business conducted by Subsidiary in a manner which is consistent with that in
which it is presently conducted by Subsidiary.
<PAGE>
EDITEK, Inc.
May ____, 1995
Page 4
10. To the best of our knowledge and except as may be
disclosed in any schedules to the Purchase Agreement, neither Parent nor
Subsidiary is in violation of any applicable law, statute, ordinance, order,
rule or regulation promulgated, or judgment, decree, order, concession, grant,
permit, license or other governmental authorization or approval, issued or
entered by any federal, state, provincial or local court or governmental
authority, relating to or affecting the operation, conduct or ownership of the
property or business of Parent or Subsidiary.
11. To the best of our knowledge, Subsidiary is in material
compliance with all Licenses and other contracts included in the Assets being
transferred to Purchaser by Parent and Subsidiary, and the Licenses are fully
valid and enforceable and are transferrable to Purchaser and renewable by
Purchaser on terms as advantageous to Purchaser as to Subsidiary.
12. To the best of our knowledge and except as disclosed in
any schedules to the Purchase Agreement, no litigation or other proceeding
against either of the Sellers or any of the Parent Assets or Subsidiary Assets
is pending or threatened, and there is no judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency, instrumentality
or arbitrator outstanding against Parent or Subsidiary which would individually
or in the aggregate, if adversely determined, have a material, adverse effect on
Subsidiary or result in any claim, lien or other encumbrance on any of the
parent Assets or Subsidiary Assets.
This opinion letter is delivered in connection with the consummation of
the transactions contemplated in the Purchase Agreement, may be relied upon only
by you and your counsel in connection therewith, may not be relied upon by you
for any other purpose or by anyone else for any purpose, and may not be quoted,
published or otherwise disseminated without our prior written consent.
Very truly yours,
--------------------
<PAGE>
EXHIBIT C
TO ASSET PURCHASE AGREEMENT
AGREEMENT dated as of May 31, 1995, between EDITEK, INC., a Delaware
corporation, ("EDITEK"), and NOVAMANN INTERNATIONAL INC., a Canadian corporation
("NOVAMANN" is defined below to include certain other persons and entities) and
Bioman Products Inc., an Ontario corporation ("Bioman").
RECITALS
A. NOVAMANN is the licensee under certain license agreements between
Her Majesty the Queen in right of Canada acting through the Minister of
Agriculture and Mann Testing Laboratories (the "License Agreements").
B. Under the License Agreements, NOVAMANN is licensed to make, use,
sell, and sublicense test kits known as the Glycopyrrolate ELISA test kits and
the Cromoglycate ELISA test kits (both of which are hereinafter referred to as
the "ELISA Test Kits").
C. The ELISA Test Kits were manufactured (in part by Bioman and in part
by subcontractors to Bioman) and distributed for NOVAMANN by Bioman using, in
part, materials including Reagents (as defined below) supplied to Bioman by
NOVAMANN.
D. On June 1, 1995, EDITEK purchased the assets of Bioman and certain
assets of NOVAMANN, including NOVAMANN's entire inventory of Reagents with the
exception of Reagents owned by the Canadian Government which shall be provided
to EDITEK as provided herein, with the exception of IMI plate coating technology
which shall be acquired by EDITEK, if at all, directly from Immunosystems
Division of Milipore Corporation (the "Asset Purchase").
E. The purchase price paid by EDITEK for Bioman's assets was based in
part on EDITEK's expectation of continued purchases by NOVAMANN (as defined
below) of Bioman Products (as defined and in the circumstances described below)
at historical volumes of purchases consistent with the current business
practices of NOVAMANN and the transfer to EDITEK and continuation by EDITEK of
Bioman's relationships with suppliers of products sold by Bioman.
NOW, THEREFORE, in consideration of the recitals and the mutual
covenants and promises set out below, the parties agree as follows:
<PAGE>
1. DEFINITIONS
1.1 "Bioman Products" shall mean all products produced, marketed,
distributed and/or remarketed by Bioman (and any improved or similar test kits)
on behalf of itself, NOVAMANN or any other supplier at any time prior to the
Asset Purchase, including, without limitation, ELISA test kits and other test
kits.
1.2 "NOVAMANN" shall mean NOVAMANN INTERNATIONAL, Inc., any entities
controlled by NOVAMANN, and all officers and key employees thereof.
1.3 "Reagents" shall mean the reagent antibodies, conjugates and
haptens and any other reagent or raw materials provided by NOVAMANN to Bioman
prior to the date hereof in connection with the ELISA Test Kits or any other
product of Bioman.
2. TERM. The term of this Agreement shall commence upon the
day first above written and shall continue in force for a period
of three (3) years until June 1, 1998.
3. PRODUCT MANUFACTURE/PURCHASE.
3.1 Subject to the terms of this Agreement, EDITEK agrees to sell to
NOVAMANN and NOVAMANN agrees to purchase from EDITEK the Bioman Products. EDITEK
shall be the exclusive supplier to NOVAMANN of ELISA Test Kits, which NOVAMANN
may not either manufacture for itself or acquire from any supplier other than
EDITEK so long as EDITEK continues to supply NOVAMANN with ELISA Test Kits of
competitive quality, quantity, delivery and price. EDITEK shall be a
nonexclusive supplier to NOVAMANN of Bioman Products other than ELISA Test Kits,
but for Bioman Products other than ELISA Test Kits EDITEK shall be NOVAMANN's
supplier of first resort, provided that EDITEK continues to afford NOVAMANN such
other Bioman Products on competitive terms, as to quality, quantity, delivery
and price. EDITEK shall have the right to cease selling or to substantially
change any Bioman Products at any time upon ninety (90) days notice to NOVAMANN,
and thereafter NOVAMANN may buy such Bioman Products from any supplier it
chooses. Notwithstanding anything herein contained NOVAMANN may continue to
purchase from Forensic Diagnostics any products presently being supplied to
NOVAMANN by it.
3.2 EDITEK shall sell Bioman Products to NOVAMANN at prices consistent
with the prices paid by NOVAMANN to Bioman for such Bioman Products with such
adjustments made by EDITEK as shall be commercially reasonable under the
circumstances, provided that the prices paid by NOVAMANN shall at all times be
equal to or less than the prices paid by EDITEK's other customers for similar
products. The adjusted prices shall be effective thirty (30)
2
<PAGE>
days after the date of such notice and shall remain effective until subsequently
adjusted. To facilitate EDITEK meeting the delivery and quality consistent with
that of Bioman prior to the Asset Purchase, NOVAMANN shall provide EDITEK with a
non-binding estimation (the "NOVAMANN Requirements Notice") of its total
requirements for Bioman Products during the next calendar quarter at least
thirty (30) days prior to the beginning of each calendar quarter. NOVAMANN may
purchase Bioman Products from other suppliers if Bioman Products are not offered
to NOVAMANN by EDITEK on competitive terms as to quality, quantity, delivery and
price. NOVAMANN shall notify EDITEK if NOVAMANN purchases Bioman Products from
other suppliers on account of EDITEK's failure to meet price or other terms of
the other suppliers.
3.3 If EDITEK requires additional Reagents over and above the entire
inventory of NOVAMANN of Reagents purchased by EDITEK in the Asset Purchase on
the date hereof, at the option of EDITEK NOVAMANN shall assist EDITEK to the
best of its ability to manufacture the Reagents, including, without limitation,
providing EDITEK with all trade secrets which NOVAMANN is free to disclose
without breach of confidentiality obligations to third parties and other
information required for manufacturing the Reagents, in which case NOVAMANN
shall use its best efforts to obtain the consent of such third parties to
disclosure to, and use by EDITEK. NOVAMANN hereby represents that the only trade
secrets NOVAMANN is not free to disclose without breaching confidentiality
obligations to third parties are listed in Schedule 3.3 hereto. NOVAMANN shall
not manufacture or sell to any person or entity any Reagents, except as
specifically requested by EDITEK.
4. CERTAIN NOVAMANN OBLIGATIONS; RESERVATION OF RIGHTS.
4.1 NOVAMANN shall not manufacture any Bioman Products, whether for its
own use or for resale. Except as provided in Sections 3.1 and 3.2, during the
Term, NOVAMANN will not purchase, whether for its own use or for resale or act
as agent or broker or otherwise arrange for sale by others, any Bioman Products.
4.2 Except as provided in Sections 3.1, 3.2 and 8.1(b), NOVAMANN shall
not contact, discuss, negotiate with, or solicit any offer from, any Bioman
Supplier relating to any purchase, sale, distribution or manufacture of any
Bioman Products. NOVAMANN shall take any reasonable action requested by EDITEK
to assist EDITEK to cause the arrangements, agreements, history of dealing and
other relationships between EDITEK and any Bioman Supplier to be transferred
from Bioman to EDITEK, at EDITEK's expense. Neither shall NOVAMANN knowingly
take any action or make any communication that would have a reasonable
possibility of disrupting any arrangement, agreement, history of dealing or
other relationship between EDITEK and any Bioman Supplier. A
3
<PAGE>
"Bioman Supplier" is any person or entity who at any time prior to the Asset
Purchase sold products to Bioman for its own use or for resale by Bioman.
4.3 NOVAMANN hereby appoints EDITEK as the exclusive distributor
worldwide of any products manufactured, purchased for resale or otherwise
distributed by NOVAMANN, if at any time prior to the Asset Purchase, Bioman
acted as a distributor or purchased such products from NOVAMANN.
5. CONTINUITY. The purchase price paid by EDITEK for Bioman's assets was based
in part on EDITEK's expectation of (i) continued purchases by NOVAMANN (assuming
continued sales by NOVAMANN at historical levels) of Bioman Products at
historical volumes consistent with the current business practices of NOVAMANN
prior to the Asset Purchase and (ii) the transfer to EDITEK and continuation by
EDITEK of the relationship of Bioman with suppliers of Bioman Products sold by
Bioman prior to the Asset Purchase. In the event that in any year during the
term of this Agreement purchases by NOVAMANN are less than the historical
volumes of purchases by NOVAMANN from Bioman or if NOVAMANN shall fail to comply
with any provision of Section 4 of this Agreement without just cause, NOVAMANN
shall rebate to EDITEK a part of the purchase price of the assets paid by EDITEK
sufficient to equitably compensate EDITEK, except to the extent that continued
purchases by NOVAMANN of Bioman Products are reduced as a result of (i)
diminished sales by NOVAMANN of services requiring the use of the types of
products covered by this Agreement, (ii) failure by EDITEK to offer Bioman
Products to NOVAMANN on competitive terms as to quality, quantity, delivery or
price, or (iii) the availability from other suppliers of products utilizing
technology which the industry as a whole would consider new, which provides an
improvement over existing technology, and which is not made available by EDITEK
to NOVAMANN. Both NOVAMANN and EDITEK shall act reasonably and in good faith to
reach agreement on the amount of such rebate prior to EDITEK bringing any legal
action.
6. ORDERS/INVOICING/SHIPMENT.
6.1 Each party shall provide the other with written orders on forms
acceptable to one another for products to be purchased from one another.
6.2 EDITEK and NOVAMANN shall invoice the other for each shipment of
products at the time it is delivered. The full amount of each invoice shall be
payable within thirty (30) days of the date of delivery at the purchaser's
specified location. All products shall be invoiced at prices established in
accordance with this Agreement as of the earlier of the date of invoice or
shipment, plus all applicable taxes.
4
<PAGE>
6.3 All products shall be shipped F.O.B. purchaser's desti-
nation. The destination of the shipment shall be specified by in
the applicable order. "F.O.B." is a delivery term meaning that
the purchaser shall have the risk of loss, damage and/or delay in
shipment until the Product is properly delivered to the
purchaser's destination.
7. WARRANTIES.
7.1 Each product sold by one party to the other hereunder shall be
subject to the warranties inserted by the seller of the product into or on the
product packaging. Each party shall assign to the other any assignable
warranties of manufacturers, distributors or other persons or entities with
respect to products sold hereunder.
THE EXPRESS WARRANTIES SET FORTH ABOVE ARE MADE IN LIEU OF ANY AND ALL OTHER
WARRANTIES, VERBAL OR WRITTEN, EXPRESS OR IMPLIED, RELATING TO THE PRODUCT OR
THE WORKMANSHIP OR MATERIALS INCORPORATED THEREIN. EDITEK AND NOVAMANN EACH
DISCLAIM ANY AND ALL OTHER WARRANTIES APPLICABLE TO THE PRODUCTS IMPLIED BY
OPERATION OF LAW OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF
MERCHANTABILITY AND/OR FITNESS FOR A PARTICULAR PURPOSE.
The provisions of this Section 7 shall survive the termination of this
Agreement.
8. COVENANT NOT TO COMPETE.
8.1 (a) NOVAMANN covenants that for a period of three (3) years
beginning on the date hereof, it shall not, within the United States, Canada, or
any other place in the world (the "Noncompetition Area"), without the written
consent of EDITEK, (1) manufacture, distribute, market or sell ELISA Test Kits,
or otherwise compete in any line of business similar to the business acquired by
EDITEK from Bioman; (2) distribute the products of any third party if at any
time Bioman acted as a distributor of such products or similar products for such
third party; (3) be an owner of a controlling interest in a partnership, limited
liability company, corporation or other entity which performs any of the acts
described in (1) or (2) above, except that NOVAMANN may own a controlling
interest in a partnership, limited liability company, corporation or other
entity, of which (a) less than one half (1/2) of the gross revenue arises from
the performance of the acts described in (1) or (2) above in countries other
than the United States or Canada, and (b) none of the gross revenue arises from
the performance of the acts described in (1) or (2) above in the United States
or Canada; or (4) assist others in performing any of the acts described in (1)
through (3) above. NOVAMANN agrees to use its best efforts to prevent any entity
in which it owns an interest other than a controlling interest from performing
any of the acts described in
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(1) or (2) above. In the event the Noncompetition Area specified above shall be
determined by judicial action to define too broad a territory to be enforceable,
the country or countries causing the territory to be overly broad shall be
deleted and the Noncompetition Area shall be the remaining countries or areas.
In the event the Noncompetition Area specified in the first sentence of this
paragraph (a) is determined by judicial action to define too broad a territory
to be enforceable and the Noncompetition Area cannot be reformed pursuant to the
immediately preceding sentence to define a territory which is not too broad to
be enforceable, the Noncompetition Area shall be the United States and Canada.
(b) It is recognized that NOVAMANN may from time to time be presented
with opportunities to develop, distribute or manufacture technology or products
within the Noncompetition Area, which activities would be prohibited by the
terms of this Section 8.1. During the term hereof, NOVAMANN may present such
opportunities to EDITEK under such confidentiality agreements and circumstances
as are mutually acceptable to NOVAMANN and EDITEK. EDITEK agrees to negotiate in
good faith with NOVAMANN to pursue such opportunities; provided, however, that
if, after such negotiations, EDITEK chooses not to pursue such opportunities,
NOVAMANN shall continue to be prohibited by the terms of this Section 8.1 from
independently pursuing such opportunities; provided further that if EDITEK
chooses not to pursue such opportunities, NOVAMANN may approach EDITEK's
suppliers with such opportunities with the consent of EDITEK which shall not
unreasonably be denied or delayed. Denial of consent shall be reasonable if
NOVAMANN's or such supplier's pursuit of such opportunities would be detrimental
to EDITEK.
(c) Notwithstanding the provisions of Section 8.1(a), (1) Smith
Laboratory Service Limited in Toronto may continue its current minimal level of
business in competition with Bioman, and (2) the member of the board of
directors of Parent who currently indirectly acts as a supplier in Mexico of
Sepelco products may continue to conduct his present business activities without
there being a breach of this agreement.
8.2 NOVAMANN acknowledges that the covenants included Section 9.1 are
critical to the success of EDITEK and that violation of the covenants would
immeasurably damage EDITEK. EDITEK shall be entitled to an injunction to be
issued by any court of competent jurisdiction enjoining and restraining NOVAMANN
from committing any violation or threatened violation of this Section, without
the necessity of posting bond. The prevailing party in such litigation shall, in
addition to any other rights or remedies available to it, at law or otherwise,
be entitled to reimbursement from the losing party of court costs, attorney's
fees, and other expenses incurred, if and to the extent awarded by a Court
having jurisdiction.
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9. DEFAULT/REMEDIES.
9.1 If, through no fault of the other party, one or more of the
following events shall occur and shall continue for such time after any required
notice is given as provided below, such shall constitute a default (hereinafter
called "Events of Default"):
9.1.1 If a party shall fail to pay any sum due hereunder when
due in accordance with the terms of this Agreement and such default shall
continue for a period of ten (10) days after written notice thereof;
9.1.2 If a party shall fail to keep or perform or abide by any
other term or condition of this Agreement and such default shall continue for a
period of thirty (30) days after written notice thereof;
9.1.3 If a party shall file a petition in bankruptcy or take
or consent to any other action seeking any such judicial decree or shall make
any assignment for the benefit of its creditors or shall admit in writing its
inability to pay its debts generally as they become due, or if any court of
competent jurisdiction shall enter a decree or order adjudicating it bankrupt or
insolvent, or if any trustee or receiver for such party or for any substantial
part of its property be appointed at such party's request, or if any person
shall file a petition for involuntary bankruptcy against such party or if a
trustee or receiver for such party or for any substantial part of its property
be appointed at the request of a third party and such appointment or petition
shall not be stayed or vacated within sixty (60) days of entry thereof.
9.2 Upon the occurrence of any Event of Default, the non-defaulting
party, immediately or at any time thereafter, shall have the right, to recover
any and all direct damages (including, but not limited to, reasonable attorney
fees and expenses) resulting from the Event of Default. The non-defaulting party
shall also have the right at its option to terminate any provision of this
Agreement related to the default, but the other provisions of this Agreement
shall remain in effect.
9.3 Upon any breach of this Agreement, regardless of whether such
breach is, or becomes, an Event of Default, the non-defaulting party shall be
reimbursed for any and all expenses incurred by it (including reasonable
attorneys' fees and expenses) in enforcement of the terms and provisions of this
Agreement.
9.4 The exercise by a party of any one or more of the
remedies provided in this Agreement shall not prevent the subse-
quent exercise of any one or more of the other remedies herein
provided. All remedies provided for in this Agreement are
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cumulative and may be exercised alternatively, successively or in any other
manner and are in addition to any other rights provided by law.
10. TERMINATION.
Upon a termination of this Agreement:
(a) Neither party will have any further obligations under this
Agreement, except as to those obligations which have accrued as of the date of
termination or are specifically contemplated to survive this Agreement;
(b) A party may immediately recover all sums due from
the other; and,
(c) Each party will promptly return property of the
other which is in its possession or under its control.
11. MISCELLANEOUS.
11.1 Entire Agreement. This Agreement (together with any Exhibits
attached and documents incorporated herein) constitutes the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
any and all prior agreements, arrangements and understandings, whether oral or
written, between the parties with respect to the subject matter hereof.
11.2 Modification. No modification of this Agreement shall be binding
unless in writing, attached hereto, and signed by the party against whom or
which it is sought to be enforced.
11.3 Waiver. No waiver of any right or remedy shall be effective unless
in writing and nevertheless shall not operate as a waiver of any other right or
remedy or of the same right or remedy on a future occasion.
11.4 Headings. The captions and headings contained herein
are solely for convenience and reference and do not constitute a
part of this Agreement.
11.5 Binding Effect. This Agreement shall be binding upon
and shall inure to the benefit of the parties and their succes-
sors and permitted assigns.
11.6 Construction. This Agreement, and the application or
interpretation thereof, shall be governed exclusively by its terms and by the
local, internal law of the Province of Ontario without giving effect to its
conflict of laws principles. This Agreement shall not be modified or altered by
any subsequent course of performance between the parties. No provision of this
Agreement shall be construed against or interpreted to the
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<PAGE>
disadvantage of any party by any court or other governmental or judicial
authority by reason of such party's having or being deemed to have prepared or
imposed such provision. Whenever the context of this Agreement requires, the
personal pronouns (masculine, feminine or neuter genders) shall be
interchangeable, and the singular and plural numbers shall be interchangeable.
11.7 Exhibits. All Exhibits and Schedules, if any, attached hereto are
hereby incorporated by reference and made a part hereof. The term "Agreement" as
used herein shall be deemed to include all such Exhibits and Schedules.
11.8 Counterparts. This Agreement may be executed in two
(2) or more counterparts as the parties may desire, and each
counterpart shall constitute an original.
11.9 Additional Acts. Each party will execute and deliver
all additional documents and do all such other acts as may be
reasonably necessary to carry out the provisions and intent of
this Agreement.
11.10 Notices. All notices under this Agreement shall be in writing.
Unless delivered personally, all notices shall be given by certified mail,
postage prepaid, return receipt requested addressed to the appropriate addresses
set forth in Exhibit D hereto or as otherwise noted in writing in accordance
with this provision.
11.11 Disclosure. It is acknowledged that in the course of negotiation
and preparation of this Agreement and the Contract of Sale, certain proprietary
information was exchanged between the parties. No party, without the express
written consent of the other, shall divulge to third parties any such
information, except where such information is:
(i) generally known to the public through no fault
of the disclosing party,
(ii) obtainable from other sources without restric-
tion, or,
(iii) known by the recipient prior to the disclosure
thereof.
No publicity, advertising or public announcement in connection with this
Agreement shall be released or made without the prior written approval of all
parties, which approval shall not be unreasonably withheld. Notwithstanding the
foregoing, either party shall be permitted to make such disclosures to
governmental authorities or agencies as its counsel deems reasonably necessary
to comply with any applicable laws. The provisions of this Section 12.11 shall
survive the termination of this Agreement.
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<PAGE>
11.12 Costs. Each party will bear all costs incurred by it in
connection with the preparation and negotiation of this Agreement and neither
shall have any right to any reimbursement, payment, or compensation of any kind
from the other in respect of such costs.
11.13 Commissions. Each party represents and warrants that no broker or
finder is entitled to any brokerage or finder's fee or other commission in
connection with the transactions contemplated hereby. Each party will pay or
discharge, and will indemnify and hold the others harmless from and against any
and all claims or liabilities for brokerage commissions or finder's fees
incurred by reason of any action taken by it.
11.14 Assignment. This Agreement may not be assigned by any party
without the consent of the other party, which consent shall not be unreasonably
withheld; except that this Agreement may be assigned to a successor entity that
assumes the assignor's obligations hereunder. Any permitted assignment shall
not, however, relieve the assignor from any obligations hereunder unless
otherwise agreed in writing by the parties hereto.
11.15 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision is illegal, invalid, or unenforceable, for
any reason whatsoever, such shall not affect the validity of the remainder. In
lieu of such illegal, invalid, or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms as
necessary to render such provision legal, valid, and enforceable.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed, sealed in their name, and delivered all on the date first above
written.
NOVAMANN INTERNATIONAL INC.
BY: /s/ John Martin
Title: CEO
ATTEST:
- -----------------------
________ Secretary
(CORPORATE SEAL)
BIOMAN PRODUCTS INC.
BY: /s/ John Martin
Title: President
ATTEST:
- -----------------------
________ Secretary
(CORPORATE SEAL)
EDITEK, INC.
BY: /s/ James D. Skinner
Title: President & CEO
ATTEST:
/s/ Peter J. Heath
________ Secretary
(CORPORATE SEAL)
11
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SCHEDULE 3.3
RESTRICTED TRADE SECRETS
Bioman is restricted from disclosing information in relation to "plate-coating"
technology which is the property of Immunosystems Division of Milipore
Corporation. The parties acknowledge and agree that no such information has been
or will be disclosed by NOVAMANN or Bioman to EDITEK, Inc. under this agreement
or otherwise, and that should EDITEK, Inc. wish to obtain this technology it
must negotiate directly with Milipore Corporation.
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SECURITIES PURCHASE AGREEMENT
EDITEK, Inc.
1238 Anthony Road
Burlington, North Carolina 27215
Re: Private Offering Of Common Stock
Gentlemen:
In connection with the offer (the "Offering") and proposed issuance of shares
("Common Shares") of common stock of EDITEK, Inc. (the "Company"), the
undersigned prospective investor ("the Investor") and the Company hereby agree
as follows:
1. Subscription. The Investor hereby subscribes for the purchase of the
Common Shares and agrees to purchase the aggregate number of Common Shares
set forth on the signature page of this Agreement. The Company, in its
sole discretion and for any reason, may accept or reject this purchase in
whole or in part at any time not later than 10 days after receipt of this
Agreement.
2. Listing of Shares. The Company agrees to make any required listing
application with the American Stock Exchange to qualify the Common Shares
for trading on the AMEX and use its best efforts to effect such listing.
3. Payment Of Purchase Price. The Investor shall pay for the Common Shares by
either wire transfer of funds to the Company at a time designated by the
Company (the "Closing"). The number of Common Shares issuable to the
Investor shall be equal to the aggregate purchase price of the Common
Shares divided by the purchase price per share of the Common Shares, less
any fractional shares. The aggregate purchase price of the Common Shares
shall be $600,002.25 less an amount corresponding to any fractional
shares. The purchase price per share of the Common Shares shall be equal
to Seventy Five Percent (75%) of the Market Price of the common stock of
the Company. The "Market Price" as used in this Section shall mean the
average of the closing prices of the Company's Common Stock on the five
(5) trading days immediately prior to February 1, 1996 as quoted in The
Wall Street Journal.
The Company undertakes to deliver certificates for the Common Shares
within five (5) business days following Closing.
4. Company's Conditions. The Company's obligation to issue and sell the
Common Shares shall be subject to the satisfaction (or waiver by it) of
the following conditions precedent:
a) Performance. The Investor shall have tendered payment for the Common
Stock.
<PAGE>
b) Representations. Each representation and warranty made by the
Investor in this Agreement shall be true and correct in all material
respects as though made on and as of the Closing Date.
c) Legality. No change shall have occurred in any law, rule or
regulation that would prohibit the consummation of any transaction
contemplated hereby.
d) Litigation. No action, proceeding or investigation shall have been
instituted or threatened nor shall any order, judgment or decree have
been issued or be proposed to be issued by any court, agency or
authority to set aside, restrain, enjoin or prevent the consummation
of any transaction contemplated hereby.
5. Representations and Warranties. The Investor makes the representations,
declarations and warranties set forth in this Section with the intent that
the same may be relied upon in determining the Investor's suitability as a
purchaser of the Common Shares. If the Investor includes or consists of
more than one person or entity, the obligations of the Investor shall be
joint and several and the representations and warranties herein contained
shall be deemed to be made by and be binding upon each such person or
entity and their respective heirs, executors, administrators, successors
and assigns.
a) No Regulatory Review. The Investor is aware that this is a limited
private offering and that no federal, state or other agency has made
any finding or determination as to the fairness of the investment nor
made any recommendation or endorsement of the Common Shares.
b) Ability to Evaluate. The Investor, by reason of the Investor's
knowledge and experience in financial and business matters, is
capable of evaluating the risks and merits of an investment in the
Common Shares.
c) Investment Intent. The Investor acknowledges that the purchase of
Common Shares hereunder is being made for the Investor's own account,
for investment purposes only and not with the present intention of
distributing for reselling the Common Shares in whole or in part. The
Investor further understands that the Common Shares are not being
sold to the Investor in a transaction registered under the Securities
Act, or any state securities laws. As a result, the Investor
understands that there will be restrictions on the transfer and sale
of the Common Shares. Investor hereby agrees to exercise the
registration rights granted hereby, and to sell the Common Shares
pursuant to such registration, in a manner consistent with the
representations and warranties made by Investor to the Company
hereunder. Investor understands that the SEC may in its discretion
comment on certain aspects of the Registration Statement and the
transaction and that such comments may cause delay in the
Registration Statement becoming effective. The Company shall have no
liability to Investor on account of any delays initiated by the SEC.
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<PAGE>
d) Investment Information. The Investor has received and reviewed
pertinent information regarding the Company, including the most
recent SEC Forms 10-K and 1O-Q filed by the Company prior to the
execution of this Agreement and is capable of understanding and
evaluating the information contained therein. Specifically, the
Investor is fully aware of the risks relating to the business of the
Company and purchase of the Common Shares. The Investor will rely
solely upon his independent investigation and analysis in making the
decision to purchase the Common Shares. In particular, and without
limiting the generality of the foregoing, the Investor has not relied
on, and the Investor's decision to subscribe for Common Shares has
not been influenced by: (i) newspaper, magazine or other media
articles or reports related to the Company or its business; (ii)
promotional literature or other materials used by the Company for
sales or marketing purposes, or (iii) any other written or oral
statement of the Company or persons purporting to represent the
Company. The Investor has had the opportunity to discuss all aspects
of this transaction with management of the Company, has made or has
had the opportunity to make such inspection of the books and records
of the Company as the Investor has deemed necessary in connection
with this investment, and any questions asked have been answered to
the satisfaction of the Investor.
e) Confidentiality. The Investor understands that the Offering is
confidential. The Investor has not distributed information on the
Offering to anyone other than such legal or financial advisors as the
Investor has deemed necessary for purposes of evaluating an
investment in the Common Shares.
f) Authorization and Formation of Investor. The Investor, if a
corporation, partnership, trust or other form of business entity, is
authorized and otherwise duly qualified to purchase and hold the
Common Shares and such entity has not been formed for the specific
purposes of acquiring Common Shares in the Offering. If the Investor
is one of the aforementioned entities, it hereby agrees that upon
request of the Company it will supply the Company with any additional
written information that may be requested by the Company.
g) Accredited Investor Status. The Investor is an "accredited investor"
as such term is defined in Rule 501(a) of Regulation D under the Act
and within the meaning of similar regulations under state securities
laws. If the Investor is an individual, he or she is of majority age.
If the Investor is an entity, the person executing this Securities
Purchase Agreement on behalf of the Investor is of majority age.
6. Reliance on Representations and Warranties: Indemnity. The Investor
understands that the Company will rely on the representations and
warranties of the Investor herein in determining whether a sale of the
Common Shares to the Investor is in compliance with federal and applicable
state securities laws. The Investor hereby agrees to indemnify the Company
and its affiliates, and hold the Company and its affiliates and agents
harmless from and against any and all liability, damage, cost or expense
(including reasonable attorneys' fees) incurred on account of or arising
out of: (a) any inaccuracy in the Investor's
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<PAGE>
declarations, representations and warranties set forth in this Agreement;
(b) the disposition of any of the Common Shares which the Investor will
receive, contrary to the Investor's declarations, representations and
warranties in this Agreement; (c) any lawsuit or proceeding based upon a
claim that said declarations, representations or warranties were
inaccurate or misleading or otherwise cause for obtaining damages or
redress from the Company or any of its affiliates or the disposition of
all or any part of the Investor's Common Shares and (d) the Investor's
failure to fulfill any or all of the Investor's obligations herein.
7. Updating Information. All of the information set forth herein with respect
to the Investor, including, without limitation, all of the representations
and warranties set forth in Section 5, is correct and complete as of the
date hereof and, if there should be any material change in such
information prior to the acceptance of this subscription by the Company,
the Investor will immediately furnish the revised or corrected information
to the Company.
8. Notices. Any notice or other communications required or permitted
hereunder shall be sufficiently given if in writing and sent by registered
or certified mail, postage prepaid, return receipt requested, if to the
Company at the address set forth on the first page of this Agreement, and
to Investor, at the address set forth following the Investor's signature
to this Agreement, or, to such other address as either the Company or the
Investor shall designate to the other by notice in writing in accordance
with this Section 9.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of North Carolina.
10. Representations and Warranties of the Company. The Company represents and
warrants to Investor as follows:
a) The Company has legal capacity, power and authority to enter into and
perform this Agreement and to consummate the transaction contemplated
hereby.
b) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its
terms.
c) The execution and delivery of this Agreement and the performance of
the obligations imposed hereunder will not result in a violation of
any order, decree or judgment of any court or governmental agency
having jurisdiction over the Company or the Company's properties,
will not conflict with, constitute a default under, or result in the
breach of, any contract, agreement or other instrument to which the
Company is a party or is otherwise bound and no consent,
authorization or order of, or filing or registration with, any court
or governmental agency is required for the execution, delivery and
performance of this Agreement.
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<PAGE>
d) There is no litigation or proceeding pending or, to the best of the
Company's knowledge, threatened, against the Company which would have
a material effect on the validity or performance of this Agreement.
e) Upon consummation of the transaction contemplated hereby, the
Investor will own the Common Shares free and clear of all liens,
rights, claims, charges and other encumbrances and the delivery of
the Shares to the Investor pursuant to this Agreement will transfer
legal and valid title thereto, free and clear of all liens, rights,
claims, charges and other encumbrances.
f) The Company will pay all transfer fees and expenses, except such
expenses of registration as are described in the Registration Rights
Agreement executed pursuant to Section 2 hereof.
g) The Common Shares, when issued and delivered, will be duly and
validly authorized and issued, and when paid for by the Investor in
accordance with this Agreement will be fully-paid and nonassessable
and will not subject the holders thereof to personal liability by
reason of being such holders. There are no preemptive rights of any
shareholder of the Company.
h) The Company hereby agrees to indemnify and hold harmless the Investor
from and against any liability, damage, cost or expense incurred as a
result of breach by the Company of any representation, warranty or
covenant of the Company hereunder.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
11. Signatures. The Investor declares that the statements, representations and
warranties contained herein are true, correct and complete and that this
Agreement was executed at:
St. Paul Minnesota
(City) (State)
Number of Common Shares 235,295 @ $ 2.55 Per Share
Total Purchase Price $ (less amount for fractional shares)
$ 600,002.25
Exact Name(s) in which ownership
of Common Shares is to be registered: Harry G. McCoy, Jr.
Address: 402 West Country Road D
City, State, Zip Code: St. Paul, MN 55112
Subscriber Joint Subscriber (if necessary)
Harry G. McCoy, Jr.
(Print Name) (Print Name)
/s/ Harry G. McCoy, Jr.
(Signature) (Signature)
- ------------------------ -------------------------
(Title) (Title)
Date: 1/31/96 Date: ____________________
RECEIVED AND ACCEPTED AT __________________________, North Carolina:
(City)
Amount: $
Date:
EDITEK, Inc.
By: /s/ James D. Skinner
Its: President and CEO
* To be determined by dividing aggregate purchase price by the purchase
price per share calculated under Section 4.
** Purchase price per share calculated under Section 4.
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 1, 1996 (this
"Agreement"), is made between EDITEK, Inc., a corporation organized under the
laws of Delaware (the "Company"), and Harry McCoy (the "Investor").
W I T N E S S E T H:
WHEREAS, the Investor is purchasing 235,295 shares (the "Shares") of
Common Stock of the Company; and
WHEREAS, the Company is agreeing to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "Securities
Act"), and applicable state securities laws with respect to the Shares.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investor hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall
have the following meanings:
(i) "Register," "registered," and "registration"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act on such
appropriate registration form promulgated by the Commission as shall be selected
by the Company and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
("SEC") and applicable state laws.
(ii) "Registrable Securities" means the Shares.
(iii) "Registration Statement" means a registration
statement under the Securities Act registering securities of the Company.
2. Registration.
(a) Piggy-Back Registrations. Subject to the provisions of
Sections 3 and 4 hereof, if at any time the Company shall determine to prepare
and file with the SEC a
<PAGE>
Registration Statement relating to an offering under the Securities Act of any
of its equity securities for its own account or the account of others, other
than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans, the Company shall send to the Investor who owns
Registrable Securities written notice of such determination and, if within
twenty (20) days after receipt of such notice, the Investor shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Investor's Registrable Securities that the Investor requests to be
registered, except that if, in connection with any underwritten public offering
for the account of the Company the managing underwriter(s) thereof shall impose
a limitation on the number of shares of Common Stock which may be included in
the Registration Statement because, in such underwriter(s)' judgment, such
limitation is necessary to effect an orderly public distribution, then the
Company shall be obligated to include in such Registration Statement only such
limited portion, if any, of the Registrable Securities with respect to which the
Investor has requested inclusion hereunder. Any exclusion of Registrable
Securities and other securities having registration rights shall be made pro
rata among the Investor and other shareholders seeking to include Registrable
Securities and other securities having registration rights and in proportion to
the number of Registrable Securities and other securities having registration
rights sought to be included in such registration; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities the holders of which are not entitled
to inclusion of securities in such Registration Statement. No right to
registration of Registrable Securities under this Section 2(a) shall be
construed to limit any registration required under Section 2(b) hereof. The
obligations of the Company under this Section 2(a) shall terminate upon the
earlier of (i) February 1, 1999 or (ii) after the Company has afforded the
opportunity for the Investor to exercise registration rights under this Section
2(a) for two registrations; provided, however, that if the Investor has any
Registrable Securities excluded from any Registration Statement in accordance
with this Section 2(a), the Investor shall be entitled to include in an
additional Registration Statement filed by the Company the Registrable
Securities so excluded.
(b) Immediate Registration. Subject to the provisions of
Sections 3 and 4 hereof, the Company shall prepare and file a Registration
Statement with the SEC within fifteen (15) business days after the date hereof;
provided, however, that such registration statement need not be filed until five
(5) business days after the Investor has provided the Company with all
information reasonably requested by the Company in connection with such
registration.
(c) If any registration is underwritten, the Investor shall
pay all underwriting discounts and commissions with respect to the Registrable
Securities of the Investor included therein and the fees and expenses of legal
counsel of the Investor.
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(d) Nothing herein shall limit the right of the Company to
grant registration rights to any other person or entity and to include shares of
such person or entity on any Registration Statement.
3. Obligations of the Company. In connection with the registration of
the Registrable Securities under this Agreement, the Company shall:
(a) prepare promptly and file with the SEC promptly (but in no
event later than 15 business days after the Closing Date of the transactions
contemplated by the Purchase Agreement) a Registration Statement or Statements
with respect to all Registrable Securities to be included therein, and
thereafter use its best efforts to cause the Registration Statement to become
effective as soon as reasonably possible after such filing. If such Registration
Statement is filed pursuant to Rule 415, the Company shall keep the Registration
Statement effective pursuant to Rule 415 at all times until such date as is two
years after the date such Registration Statement is first ordered effective by
the SEC. In any case, the Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) filed by the Company
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, however, that, subject to the conditions set forth in Section 4(a)
below, the Investor may notify the Company in writing that it wishes to exclude
all or a portion of its Registrable Securities from such Registration Statement.
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until such
date as is two years after the date such Registration Statement is first ordered
effective by the SEC, and, during such period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of by the Investor in accordance with
the intended methods of disposition by the Investor as set forth in the
Registration Statement.
(c) furnish to the Investor whose Registrable Securities are
included in the Registration Statement, such number of copies of a prospectus,
including a preliminary prospectus, and all amendments and supplements thereto
promptly upon approval thereof by the SEC and such other documents as the
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by the Investor; The Company shall provide copies
of all such documents upon approval thereof by the SEC to counsel for the
Initial Investor at such address designated in writing by the Initial Investor;
(d) (i) register or qualify, or obtain exemption from
registration or qualification for, the Registrable Securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as required for sale of the Registrable
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Securities by the Investor as the Investor reasonably requests, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements, (iii) take such other actions as may be necessary
to maintain such registrations or qualifications in effect at all times until
February 1, 1998 and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions
or to otherwise permit the Holders to dispose of the Registrable Securities;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (I) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (II) subject itself to general taxation in any such jurisdiction,
(III) file a general consent to service of process in any such jurisdiction,
(IV) make any change in its charter or by-laws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders or (V) subject any officer, director or shareholder
to any penalty or risk of forfeiture other than those penalties and risks to
which officers and directors are ordinarily liable in a public offering of
securities;
(e) in the event the Investor shall select one or more
underwriters for the offering, or an underwritten public offering is conducted
pursuant to Section 2(a) hereof, enter into and perform its obligations under an
underwriting agreement in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering;
(f) as promptly as practicable after becoming aware of such
event, notify the Investor if the Investor continues to hold Registrable
Securities being sold pursuant to such registration of the happening of any
event of which the Company has knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, contains an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver a number of
copies of such supplement or amendment to the Investor as the Investor may
reasonably request;
(g) as promptly as practicable after becoming aware of such
event, notify the Investor if the Investor continues to hold Registrable
Securities being sold pursuant to such registration (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
any stop order or other suspension of effectiveness of the Registration
Statement at the earliest possible time;
(h) furnish on the date that Registrable Securities are
delivered to an underwriter for sale in connection with the Registration
Statement (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwriter
public offering, addressed to the underwriters; and (ii) an opinion, dated such
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date, from counsel representing the Company for purposes of such Registration
Statement, in form and substance as is customarily given in an underwritten
public offering, addressed to the underwriters and the Investor;
(i) use its best efforts either to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed on the
American Stock Exchange or another national securities exchange and on each
additional national securities exchange on which similar securities issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "national market system security" within the meaning of Rule
11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the quotation of the Registrable Securities on the NASDAQ
National Market System or, if, despite the Company's best efforts to satisfy the
preceding clause (i) or (ii), the Company is unsuccessful in satisfying the
preceding clause (i) or (ii), to secure listing on a national securities
exchange or NASDAQ authorization and quotation for such Registrable Securities;
(j) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(k) cooperate with the managing underwriter or underwriters,
if any, to facilitate the timely preparation and delivery of certificates to the
transferees to whom such Registrable Securities are being sold (not bearing any
restrictive legends) pursuant to the denominations or amounts as the case may
be, and registered, in such names as the managing underwriter or underwriters,
if any, or the Investor may reasonably request; and, within three business days
after a Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, or shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investor whose Registrable Securities are being
sold) instructions to the transfer agent to issue new stock certificates without
a legend to such transferees and an opinion of such counsel that the shares have
been registered; and
(l) take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
(m) Notwithstanding the foregoing, the Company's obligations
in connection with the registration of Registrable Securities shall be limited
as follows:
(i) The Company shall not be obligated under this
Agreement to register or include in any registration Registrable Securities that
the Investor has requested to be registered if the Company shall furnish the
Investor with a written opinion of counsel reasonably satisfactory to the
Investor, that all Registrable Securities that the Investor holds
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<PAGE>
may be publicly offered, sold or distributed without registration under the Act
pursuant to Rule 144 without restriction as to the amount of securities that can
be sold.
(ii) The Company's obligation to amend, supplement
and cause to continue to be effective any registration statement may be
suspended, for a reasonable period of time, not to exceed 45 days, if the
Company has been advised in writing by independent legal counsel that such
filing would require the disclosure of a material transaction or other facts and
the Board of Directors of the Company determines reasonably and in good faith
that such disclosure would have a material, adverse effect on the Company;
provided, however, that the Company shall not under any circumstances be
permitted to exercise such rights more than two (2) times in any twelve (12)
month period. The Company shall immediately notify in writing the Investor if
the Investor continues to hold Registrable Securities covered by such
registration statement of such determination, and the Investor shall maintain
the confidentiality of such notice and shall cease all trading in the securities
of the Company until the Company notifies the Investor in writing that the
circumstances that caused such suspension or postponement are no longer present
and that the Registration Statement is currently effective. The Company shall
use its best efforts to promptly take all such actions necessary to eliminate
any such suspension or postponement as soon as reasonably possible.
(iii) The Company may in its discretion grant to any
owner of securities of the Company registration rights of any kind or nature.
4. Obligations of the Investor. In connection with the registration of
the Registrable Securities, the Investor shall have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Agreement with respect to the
Investor that the Investor furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of the Registrable Securities and execute
such documents in connection with such registration as the Company may
reasonably request. At least fifteen (15) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify the Investor
of the information the Company requires from the Investor (the "Requested
Information") if the Investor elects to have any of the Investor's Registrable
Securities included in the Registration Statement. If within five (5) business
days prior to the filing date the Company has not received a signed writing
containing the Requested Information from the Investor (the "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of the NonResponsive Investor;
(b) The Investor by the Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection
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<PAGE>
with the preparation and filing of the Registration Statement hereunder, unless
the Investor has notified the Company in writing of the Investor's election to
exclude all of the Investor's Registrable Securities from the Registration
Statement;
(c) In the event the Company or the holders of securities
being registered determine to engage the services of an underwriter in
accordance with Section 2(b) hereof, or in connection with any underwritten
public offering pursuant to Section 2(a) hereof, the Investor agrees to enter
into and perform the Investor's obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities, unless the
Investor has notified the Company in writing of the Investor's election to
exclude all of the Investor's Registrable Securities from the Registration
Statement, and the Company shall have no obligation to register the Registrable
Securities if the Investor fails to comply with this paragraph;
(d) The Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
and 3(g), the Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until the Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, the Investor shall, at the option of the Investor, either (i)
deliver to the Company or (ii) destroy (and deliver to the Company a certificate
of destruction) all copies in the Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice; and
(e) The Investor may not participate and the Company shall
have no obligation to register the Registrable Securities of the Investor in any
underwritten registration hereunder unless the Investor (i) agrees to sell the
Investor's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Investor entitled hereunder to approve such
arrangements, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and (iii) agrees to
pay its pro rata share of all underwriting discounts and commissions applicable
with respect to its Registrable Securities, in each case to the extent not
payable by the Company pursuant to the terms of this Agreement.
5. Expenses of Registration. All expenses (other than underwriting
discounts and commissions or brokerage commissions) incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing and qualifications fees, printers'
and accounting fees and the fees and disbursements of counsel for the Company,
shall be borne by the Company; provided, however, that the Investor shall bear
the fees and out-of-pocket expenses of any legal counsel of the Investor.
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6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless the Investor who holds such Registrable Securities, any
underwriter (as defined in the Securities Act) for the Investor, the directors,
if any, of any underwriter and the officers, if any, of such underwriter, and
each person, if any, who controls any such underwriter within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, expenses or liabilities (joint or several)
(collectively "Claims") to which any of them become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any of the following statements, omissions or violations in
the Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act or any state securities law or any rule
or regulation (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6(d) with respect to the number of legal counsel, the Company shall reimburse
the Investor and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) (I) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement, preliminary prospectus, final prospectus or any amendments thereof or
supplements thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (II) with respect to any preliminary prospectus
shall not inure to the benefit of any such person from whom the person asserting
any such Claim purchased the Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected in the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; and (III) shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior
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<PAGE>
written consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Persons.
(b) In connection with any Registration Statement in which the
Investor is participating, the Investor agrees to indemnify and hold harmless,
to the same extent and in the same manner set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs the Registration
Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement of any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified person, an "Indemnified Party"),
against any Claims to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claims(s) arises out of or
is based upon any Violation(s), in each case to the extent (and only to the
extent) that such Violation(s) occurs in reliance upon and in conformity with
written information furnished to the Company by the Investor expressly for use
in connection with such Registration Statement; and the Investor will promptly
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
as does not exceed the net proceeds to the Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investor pursuant to Section 9. Notwithstanding
anything to the contrary herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties; provided,
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<PAGE>
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and indemnifying party in such proceeding. The Company shall
pay for only one separate legal counsel for the Investor as may become
Indemnified Parties or Indemnified Persons; such legal counsel shall be selected
by the Investor holding a majority in interest of the Registrable Securities.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action. The indemnification required by
this Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
(e) Any Holder required to indemnify the Company as provided
in this Section 6 shall cease to have the right to participate in any other
registration pursuant to this Agreement.
7. Contribution. To the extent any indemnification provided for herein
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (b) no Holder of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Holder of Registrable
Securities who was not guilty of such fraudulent misrepresentation and (c)
contribution by any Holder of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such Holder from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investor the benefits of Rule 144 or any other similar rule or regulation of the
SEC that may at any time permit the Investor to sell securities of the Company
to the public without registration, until such time as the Investor has sold all
the Registrable Securities held by the Investor pursuant to a Registration
Statement or Rule 144 or otherwise, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
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(c) furnish to the Investor so long as the Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investor to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement may not be assigned
by the Initial Investor without the prior written consent of the Company.
10. Amendment of Registration Rights. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investor. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon the Investor
and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall
be in writing (including facsimile) and shall be deemed to be sufficiently given
and delivered when personally delivered, faxed (with a copy sent by first class
mail) or when sent by registered mail, return receipt requested, addressed (i)
if to the Company, at EDITEK, Inc., 1238 Anthony Road, Burlington, North
Carolina 27215, Attention: Peter J. Heath, Chief Financial Officer, (ii) if to
the Investor, at the address set forth on the signature page to this Agreement
and or at such other address as each such party furnishes by notice given in
accordance with this Section 11(b), and shall be effective, when personally
delivered, upon receipt, when faxed, the day after transmission, and when so
sent by certified mail, four business days after deposit with the United States
Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement, or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and
construed in accordance with the laws of the State of New York applicable to the
agreements made and to
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<PAGE>
be performed entirely within such state. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may required.
(h) The headings in the Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
EDITEK, INC. INVESTOR:
By: /s/ James D. Skinner /s/ Harry G. McCoy
Title: President and CEO Harry McCoy
402 West County Road D
(Address For Notices)
St. Paul, MN 55112
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<PAGE>
AGREEMENT dated as of January 30, 1995 between Harry McCoy ("McCoy")
and EDITEK, Inc.
WHEREAS, EDITEK is acquiring all the assets of MedTox
Laboratories, Inc., including the name "MedTox"; and
WHEREAS, EDITEK desires to induce McCoy to become and remain employed
by EDITEK following the acquisition.
NOW, THEREFORE, in consideration of the premises, the parties hereby
agree that EDITEK shall assign to McCoy whatever rights it has to the name
"MedTox," (i) if EDITEK shall sell all or substantially all its laboratory
diagnostics business and within three (3) months after such sale McCoy ceases to
be employed by the new owner of such business or (ii) if more than Fifty (50%)
Percent of the outstanding voting securities of EDITEK are acquired by any
person or entity that is in the laboratory diagnostics business and within three
(3) months thereafter McCoy ceases to be employed by EDITEK.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement.
EDITEK, INC.
/s/ Harry G. McCoy By: /s/ James D. Skinner
Harry McCoy President
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT (the "Warrant Agreement") is dated as of December 18,
1995 between EDITEK, INC., a Delaware corporation (the "Company") and Samuel C.
Powell and his authorized, registered successors or assigns (the "Warrant
Holder").
Subject to adjustment as hereinafter provided, the Company proposes to
issue to Warrant Holder certain warrants as hereinafter described (the
"Warrants") to purchase up to an aggregate of 32,679 shares (the "Warrant
Shares") of the Company's Common Stock, par value $.15 per share (the "Common
Stock"), exercisable at $2.96 per Warrant Share, and each Warrant entitles the
holder thereof to purchase one share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth and for other good and valuable consideration, the
parties hereto agree as follows:
1. Issuance of Warrants; Form of Warrant. The Company will issue, sell
and deliver the Warrant Certificate evidencing the Warrants to the Warrant
Holder or at its direction, to its bona fide officers and directors upon
execution of this Warrant Agreement. The text of the Warrant Certificate
(hereinafter referred to as "Warrant" or "Warrant Certificate") and the form of
election to purchase shares to be attached thereto shall be substantially as set
forth in Exhibit A attached hereto. The Warrants shall be executed on behalf of
the Company by the manual or facsimile signature of the present or any future
President or Vice President of the Company, under its corporate seal, affixed or
in facsimile, attested by the manual or facsimile signature of the present or
any future Secretary or Assistant Secretary of the Company.
2. Registered Form. The Warrants shall be registered in a Warrant
register as they are issued. The Company shall be entitled to treat the
registered holder (the "Warrant Holder") of any Warrant on the Warrant register
as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person. The Warrants shall be registered initially in the name
of Samuel C. Powell.
3. Transfer of Warrants. The Warrants and the Warrant Shares will not
be transferable, in part or in whole, except (i) in compliance with the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
promulgated thereunder, and any applicable state securities laws and (ii) only
on the books of the Company upon delivery thereof duly endorsed by the Warrant
Holder or by its duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment or authority to transfer. In all cases
of transfer by an attorney, the original power of attorney, duly approved, or an
official copy thereof, duly certified, shall be deposited with the Company. In
case of transfer by executors, administrators, guardians or other legal
representatives, duly
<PAGE>
authenticated evidence of their authority shall be produced, and may be required
to be deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the persons
entitled thereto. The Warrants may be exchanged at the option of the then
Warrant Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person,
unless the Warrant Holder or Warrant Holders thereof shall furnish to the
Company evidence of compliance with the Act in accordance with the provisions of
Section 10 of this Agreement.
4. Term of Warrants; Exercise of Warrants. Each Warrant entitles the
Warrant Holder thereof to purchase one share of Common Stock at a purchase price
of $2.96 per share (the "Exercise Price") at any time after December 18, 1995
(the "Effective Date") until 5:00 p.m., New York City time, on March 17, 1999
(the "Expiration Date"). The Exercise Price and the number of Warrant Shares
issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, pursuant to the provisions of Section 8 of this
Agreement. Subject to the provisions of this Agreement, each Warrant Holder
shall have the right, which may be exercised as set forth in such Warrants, to
purchase from the Company (and the Company shall issue and sell to such Warrant
Holder) the number of fully paid and nonassessable shares of Common Stock
specified in such Warrant, upon surrender to the Company, or its duly authorized
agent of such Warrants, with the form of election to purchase attached thereto
duly completed and signed, with signatures guaranteed by a member firm of a
national securities exchange, a commercial bank (not a savings bank or savings
and loan association) or trust company located in the United States or a member
of the NASD, and upon payment to the Company of the Exercise Price, as adjusted
(if applicable) in accordance with provisions of Section 8 of this Agreement,
times the number of Warrant Shares in respect of which such Warrants are then
exercised. Payment of such Exercise Price may be made in cash or by check
payable to the order of the Company. No adjustment shall be made for any
dividends on any shares of stock issuable upon exercise of a Warrant. Upon each
surrender of Warrants and payment of the Exercise Price as aforesaid, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Warrant Holder of such Warrants and (subject to
receipt of evidence of compliance with the Act in accordance with the provisions
of Section 10 of this Agreement) in such name or names as such Warrant Holder
may designate, a certificate or certificates for the number of full Warrant
Shares so purchased upon the exercise of such Warrants, together with cash, as
provided in Section 9 of this Agreement, in respect of any fractional Warrant
Shares otherwise issuable upon such surrender. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of record of such Warrant Shares
as of the date of the surrender of Warrants and payment of the Exercise Price as
aforesaid; provided, however, that if, at the date of surrender of such Warrants
and payment of such Exercise Price, the transfer books for the Common Stock or
other class of stock purchasable upon the exercise of such Warrants shall be
issuable, shall be closed, the certificates for the shares
2
<PAGE>
shall be issuable as of the date on which such books are reopened and until such
time the Company shall be under no duty to deliver any certificate for such
Warrant Shares; provided, further, that the transfer books, unless otherwise
required by law, shall not be closed at any one time for a period longer than 20
days. The rights of purchase represented by the Warrants shall be exercisable,
at the election of the Warrant Holders thereof, either in full or from time to
time in part and, in the event that any Warrant is exercised in respect of less
than all of the Warrant Shares purchasable on such exercise at any time prior to
the Expiration Date, a new Warrant or Warrants will be issued for the remaining
number of Warrant Shares specified in the Warrant so surrendered.
5. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the issuance of Warrant Shares upon the exercise of
Warrants; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue or delivery of any certificates for Warrant Shares, and the Company shall
not be required to issue or deliver any certificate for such Warrant Shares
until the person requesting the same has paid to the Company the amount of such
tax or has established to the Company's satisfaction that such tax has been
paid.
6. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue
and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen
or destroyed, a new Warrant for the number of Warrants represented by the
Warrant so mutilated, lost, stolen or destroyed but only upon receipt of
sufficient evidence of such loss, theft or destruction of such Warrant, and the
ownership thereof, and an agreement to indemnify the Company, if required, all
satisfactory to the Company. An applicant for such substitute Warrants shall so
comply with such other reasonable regulations and pay such other reasonable
charges incidental thereto as the Company may prescribe.
7. Reservation of Warrant Shares, etc. The Company shall at all times
after the Effective Date keep reserved, out of the authorized and unissued
Common Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the rights of purchase represented by the outstanding Warrants.
American Stock Transfer & Trust Company, transfer agent for the Common Stock
(the "Transfer Agent"), and every subsequent transfer agent, if any, for shares
of the Company's capital stock issuable upon the exercise of any of the rights
of purchase aforesaid, will be irrevocably authorized and directed at all times
until the Expiration Date to reserve such number of authorized and unissued
shares as shall be required for such purpose. The Company will itself provide or
otherwise make available any cash which may be distributable as provided in
Section 9 of this Agreement. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be canceled, and such canceled Warrants shall
constitute sufficient evidence of the number of shares of Common Stock that have
been issued upon the exercise of such Warrants. No shares of Common
3
<PAGE>
Stock shall be subject to reservation in respect of unexercised Warrants
subsequent to the Expiration Date.
8. Adjustments of Exercise Price and Number of Warrant Shares. The
Exercise Price and the number and kind of securities purchasable upon exercise
of each Warrant shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
(a) In case the Company shall (i) declare a dividend on its
Common Stock in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), the number of
Warrants Shares purchasable upon exercise of each Warrant immediately prior to
the record or effective date therefor shall be adjusted so that the Warrant
Holder of each Warrant shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which such Warrant Holder
would have owned or have been entitled to receive after the happening of any of
the events described above, had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to immediately
after the record date, if any, for such event.
(b) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the Exercise Price
shall adjusted by multiplying such exercise Price immediately prior to such
adjustment by a fraction, the numerator of which shall be the number of shares
purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and the denominator of which shall be the number of Warrant Shares
so purchasable immediately thereafter.
(c) For the purpose of this Section 8, the term "shares of
Common Stock" shall mean (i) the class of stock designated as the Common Stock
of the Company at the date of this Agreement or (ii) any other class of stock
resulting from successive changes or reclassification of such shares consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to paragraph (a) above, the Warrant Holders shall
become entitled to purchase any shares of capital stock of the Company other
than shares of Common Stock, thereafter the number of such other shares so
purchasable upon exercise of each Warrant and the Exercise Price of such shares
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in paragraphs (a) through (b), inclusive, above, and paragraphs
(d) through (f), inclusive, of this Section 8, and the provisions of Sections 4,
5, 7 and 12, with respect to the Warrant Shares, shall apply on like terms to
any such other shares.
4
<PAGE>
(d) The Company may at its option, at any time during the term
of the Warrants, reduce the then current Exercise Price to any amount deemed
appropriate by the Board of Directors of the Company; provided, however, that in
no event shall the Exercise Price be adjusted below the par value per share of
the Common Stock.
(e) In case of any consolidation or merger of the Company with
or into another corporation r in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the Company or such successor or purchasing corporation (or an
affiliate of such successor or purchasing corporation), as the case may be,
agrees that such Warrant Holder shall have the right for thirty (30) days
thereafter upon payment of the Exercise Price in effect immediately prior to
such action to purchase upon exercise of each Warrant the kind and amount of
shares and other securities and property (including cash) which he would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such Warrant been exercised
immediately prior to such action. The provisions of this paragraph (e) shall
similarly apply to successive consolidations, mergers, sales or conveyances.
(f) Notwithstanding any adjustments in the Exercise Price or
the number or kind of shares purchasable upon the exercise of the Warrants
pursuant to this Agreement, certificates for Warrants issued prior or subsequent
to such adjustments many continue to express the same price and number and kind
of shares as are stated in the Warrants initially issuable pursuant to this
Agreement.
9. Fractional Interests. The Company shall not be required to issue
fractions of shares of Common Stock on the exercise of Warrants. If more than
one Warrant shall be presented for exercise in full at the same time by the same
Warrant Holder, the number of Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 9, be issuable on the exercise of any Warrant (or specified portions
thereof), the Company shall purchase such fraction for an amount in cash equal
to the same fraction of the current market price per share of Common Stock on
the date of exercise which price shall be the last sale price, or in case no
sale takes place on such day, the average of the closing bid and asked prices on
the principal national securities exchange on which the Common Stock of the
Company is traded, or if not traded on any national exchange, then the average
of the closing bid and asked prices as quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or as reported by the
National Quotation Bureau, Inc. or similar reporting organization.
10. Restriction on Dispositions. The Warrants and the Warrant Shares
have not been registered under the Act. The Warrant Holder represents and
warrants to the Company that it understands that neither the Warrants nor the
Warrant Shares may be transferred except pursuant to (i) an effective
Registration Statement under the Act, or (ii) any available
5
<PAGE>
rule or exemption from registration under the Act permitting such disposition of
securities and an opinion of counsel, reasonably satisfactory to counsel for the
Company, that an exemption from such registration is available.
11. Certificates to Bear Legends. The Warrants shall be subject to a
stop-transfer order and the certificate or certificates therefor shall bear the
following legend:
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933 OR (ii) ANY AVAILABLE RULE OR EXEMPTION FROM REGISTRATION UNDER
SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES AND AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THIS COMPANY, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
The Warrant Shares or other securities issued upon exercise of the
Warrants shall be subject to a stop-transfer order and the certificate or
certificates evidencing any such Warrant Shares or securities shall bear a
legend in substantially the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 OR (ii) ANY AVAILABLE RULE OR EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES
AND AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THIS
COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
12. Representations and Warranties of Warrant Holder. In connection
with the issuance of the Warrants, the Warrant Holder represents to the Company
by acceptance of the Warrants as follows:
(a) The Warrant Holder is aware of the Company's business
affairs and financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire the
Warrants. The Warrant Holder is acquiring the Warrants for its own account for
investment purposes only and not with view to, or for the resale in connection
with, any "distribution" thereof in violation of the Act.
(b) The Warrant Holder understands that the Warrants and
Warrant Shares have not been registered under the Act in reliance upon a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the Warrant Holder's investment intent as expressed
herein.
6
<PAGE>
(c) The Warrant Holder further understands that the Warrants
and any Warrant Shares to be issued upon exercise hereof must be held
indefinitely unless subsequently registered under the Act and either registered
or qualified under any applicable state securities laws, or unless exemptions
from such registration and qualification are otherwise available.
(d) The Warrant Holder agrees that it will not dispose of any
of the Warrants or Warrant Shares except pursuant to (i) an effective
registration statement under the Act (and, in such case, in compliance with all
prospectus delivery or other requirements to sell pursuant to such registration
statement), (ii) Rule 144 under the Act (or any similar rule under the Act
relating to the disposition of securities) or (iii) an opinion of counsel that
an exemption from registration is available.
13. Registration Rights. The Company hereby covenants and agrees to
grant certain registration rights to the Warrant Holder with respect to the
Warrant Shares, as follows:
(a) If the Company proposes to register any of its securities,
either for its own account or the account of others, solely for cash under the
Securities Act of 1933, as amended (the "Securities Act"), either for its own
account or the account of others (other than any registration effected by the
Company to implement an employee benefit plan or for a transaction to which Rule
145 or any similar rule under the Securities Act is applicable), it will give
written notice to the Warrant Holder of its intention to do so. Upon the written
request of the Warrant Holder received by the Company within ten (10) days after
the date of any such notice (which request shall specify the amount of Warrant
Shares intended to be disposed of by the Warrant Holder and the intended method
of disposition thereof), the Company will use its best efforts to effect the
registration, in a registration statement (the "Registration Statement")
covering the securities to be offered by the Company, of the securities which
the Company has been so requested to register by the Warrant Holder and other
security holders; provided, that if, at any time after giving written notice of
its intention to register any securities and prior to the effective date of the
Registration Statement, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to each holder whose
securities are to be included in the Registration Statement and, thereupon, (i)
in the case of a determination not to register, shall be relieved of its
obligation to register any securities in connection with such registration, and
(ii) in the case of a determination to delay registering, shall be permitted to
delay registering any securities for the same period as the delay in registering
such other securities; provided further, that in the case of an underwritten
registration, the Company shall not be required to register securities in excess
of the amount, if any, which the principal underwriter shall reasonably and in
good faith agree in writing to include in such registration. Any Warrant Shares
and any securities of any other security holder who holds securities requested
to be included in such registration which are not included for this reason shall
be included (subject, first, to the inclusion of all securities the Company
proposes to register and sell, if any) on a pro rata
7
<PAGE>
basis in proportion to the respective holdings of securities requested to be
included in such registration. The Warrant Holder shall be entitled to exercise
the registration rights described herein only once; provided that the
Registration Statement becomes and remains effective for at least ninety (90)
days. The Company shall pay its own expenses in connection with such
registration; the Warrant Holder shall pay all fees and expenses of the Warrant
Holder's own counsel and the Warrant Holder's proportionate share of all
registration and qualification fees and expenses (including underwriters'
discounts and commissions) and other expenses that result from the inclusion of
the Warrant Shares in such registration. The Warrant Holder shall provide the
Company in a signed writing such information about the Warrant Holder as in the
opinion of securities counsel to the Company shall be either necessary or
reasonably appropriate to enable the Company to comply with the Securities Act
and applicable state securities laws.
(b) The Company shall use its best efforts to register, qualify or
obtain exemption from registration or qualification for, the Warrant Shares
covered by the Registration Statement under such other securities or blue sky
laws of such jurisdictions as the Company determines to register securities to
be sold by the Company.
(c) Notwithstanding the foregoing, the Company (i) shall not be
obligated to register Warrant Shares held by the Warrant Holder if the Company
shall furnish the Warrant Holder with a written opinion of counsel reasonably
satisfactory to the Warrant Holder, that the Warrant Shares sought to be
registered may be publicly offered, sold and distributed without registration
under the Securities Act pursuant to Rule 144 without restriction as to the
amount of securities that can be sold; and (ii) if the registration herein
described is an underwritten offering, shall have no obligation to register the
Warrant Holder's Warrant Shares, unless the Warrant Holder enters into an
underwriting agreement in customary form with the underwriter or underwriters
selected for the offering by the Company, and enters into such other agreements
(including, but not limited to, holdback or lock-up agreements and a customary
and reasonable agreement to indemnify the Company and any underwriter) and
provides such documents as are customary and reasonable for underwritten
offerings.
14. Notices to Warrant Holders. Nothing contained in this Agreement or
in any of the Warrants shall be construed as conferring upon the Warrant Holders
thereof the right to vote or to receive dividends or to consent or to receive
notice as stockholders in respect of the meetings of stockholders or the
election of directors of the Company or any other matter, or any rights
whatsoever as stockholders of the Company; provided, however, that in the event
a meeting of the stockholders shall be called to consider and take action on a
proposal for the voluntary dissolution of the Company, other than in connection
with a consolidation, merger, sale or transfer of all of substantially all of
its assets, business and good will as an entirety, then and in that event the
Company shall cause a notice thereof to be sent by first-class mail, postage
prepaid, at least 10 days prior to the date fixed as a record date or the date
of closing the transfer books in relation to such meeting, to each registered
Warrant Holder of Warrants at such Warrant Holder's address appearing on the
Warrant register; but
8
<PAGE>
failure to mail or to receive such notice or any defect therein or in the
mailing thereof shall not affect the validity of any action taken in connection
with such voluntary dissolution. If such notice shall have been so given and if
such voluntary dissolution shall be authorized at such meeting or any
adjournment thereof, then from and after the date on which such voluntary
dissolution shall have been duly authorized by the shareholders, the Warrants
and all other rights with respect thereto shall cease and terminate.
15. Notices. Any notice pursuant to this Agreement to be given or made
to the Company by the Warrant Holder of any Warrants shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed as follows:
EDITEK, Inc.
1238 Anthony Road
Burlington, North Carolina 27215
Attention: Vice President-Finance
Notices or demands authorized by this Agreement to be given or made by
the Company to the Warrant Holder and/or Warrant Shares shall be sufficiently
given or made (except as otherwise provided in this Agreement) if sent by
first-class mail, postage prepaid, addressed to such Warrant Holder at the
address of such Warrant Holder as shown on the Warrant register.
16. Governing Law. This Agreement and the Warrant issued hereunder
shall be governed by and construed in accordance with the substantive laws of
the State of Delaware.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
COMPANY:
EDITEK, Inc.
By:_________________________________
Peter J. Health, Vice President
Finance & CFO
WARRANT HOLDER:
-----------------------------------
Samuel C. Powell
10
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statements No.
33-89646 on Form S-8 dated February 21, 1995, No. 33-91840 on Form S-3 dated
July 21, 1995, No. 33-86744 on Form S-3 dated December 13, 1994, No. 33-78590
on Form S-3 dated June 20, 1994, No. 33-74078 on Form S-3 dated February 2,
1994, No. 33-71490 on Form S-8 dated November 11, 1993, No. 33-71596 on
Form S-8 dated November 11, 1993, No. 33-49474 on Form S-8 dated July 10, 1992,
No. 33-48566 on Form S-3 dated June 25, 1992, No. 33-15025 on Form S-8 dated
June 29, 1987, and No. 33-10393 on Form S-8 dated December 16, 1986 of our
report dated February 23, 1996 with respect to the consolidated
financial statements and schedule of EDITEK, Inc., included in the
Annual Report (Form 10-K) for the year ended December 31, 1995.
Ernst & Young LLP
Raleigh, North Carolina
March 27, 1996
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 258
<SECURITIES> 0
<RECEIVABLES> 1,159
<ALLOWANCES> 130
<INVENTORY> 937
<CURRENT-ASSETS> 3,092
<PP&E> 3,227
<DEPRECIATION> (2,630)
<TOTAL-ASSETS> 3,806
<CURRENT-LIABILITIES> 2,610
<BONDS> 0
1,566
0
<COMMON> 0
<OTHER-SE> (628)
<TOTAL-LIABILITY-AND-EQUITY> 3,806
<SALES> 7,037
<TOTAL-REVENUES> 7,525
<CGS> 6,589
<TOTAL-COSTS> 15,569
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> (8,043)
<INCOME-TAX> (0)
<INCOME-CONTINUING> (8,043)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,043)
<EPS-PRIMARY> (.85)
<EPS-DILUTED> 0
</TABLE>
Independent Auditors' Report
The Board of Directors and Stockholders
Medtox Laboratories, Inc.:
We have audited the accompanying consolidated balance sheet of Medtox
Laboratories, Inc. and subsidiary as of December 31, 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the years in the two-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Medtox Laboratories,
Inc. and subsidiary as of December 31, 1994 and the results of their operations
and their cash flows for each of the years in the two-year period ended
December 31, 1994 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 31, 1995
