<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MERIDIAN DIAGNOSTICS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
OHIO 31-0888197
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
</TABLE>
3471 RIVER HILLS DRIVE
CINCINNATI, OHIO 45244
(513) 271-3700
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
EDWARD E. STEINER, ESQ.
KEATING, MUETHING & KLEKAMP
1800 PROVIDENT TOWER
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-6468
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
WITH COPIES TO:
PATRICK G. QUICK, ESQ.
FOLEY & LARDNER
FIRSTAR CENTER
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
(414) 271-2400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment
plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE PRICE(1) FEE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Common Stock, without par value... 1,725,000 $9.8125 $16,926,562 $5,837
=====================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 solely
for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 18, 1996
1,500,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Selling Shareholder. See "Principal Shareholders and Selling Shareholder."
Meridian Diagnostics, Inc. (the "Company") will receive no proceeds from the
sale of Common Stock by the Selling Shareholder. The Common Stock of the Company
is quoted on the Nasdaq National Market under the symbol "KITS." On April 17,
1996, the last reported sale price of the Common Stock was $9.625 per share. See
"Price Range of Common Stock."
-------------------------
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) SHAREHOLDER(2)
- ------------------------------------------------------------------------------------------------
Per Share.................................... $ $ $
- ------------------------------------------------------------------------------------------------
Total(3)..................................... $ $ $
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</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of this Offering, all of which are payable by the
Selling Shareholder, estimated at $350,000.
(3) The Selling Shareholder has granted to the Underwriters a 30-day option to
purchase up to an additional 225,000 shares of Common Stock solely to cover
over-allotments, if any, on the same terms and conditions as set forth
above. If the option is exercised in full, the total Price to Public, total
Underwriting Discount and total Proceeds to Selling Shareholder will be
$ , $ and $ , respectively. See "Underwriting."
-------------------------
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters and subject to various
conditions, including their right to reject orders in whole or in part. It is
expected that the shares of Common Stock will be ready for delivery on or about
May , 1996.
-------------------------
CLEARY GULL REILAND & MCDEVITT INC.
THE OHIO COMPANY
RONEY & CO.
The date of this Prospectus is May , 1996.
<PAGE> 3
The Company's diagnostic test kits are based on multiple core diagnostic
technologies, each of which enable the visualization and identification of
antigen/antibody reactions for specific pathogens. As a result, the Company is
able to develop and manufacture diagnostic test kits in a variety of formats
that satisfy customer needs and preferences. Shown above are various test
formats, including Premier, ImmunoCard and Meritec, for Clostridium difficile, a
serious pathogen of the gastrointestinal tract.
[Photogrpah of various test formats, including Premier, ImmunoCard and Meritec]
<PAGE> 4
The Company's FiltraCheck-UTI product allows hospitals, laboratories and
alternate site markets to rapidly screen for the presence of urinary tract
infection. On those tests that show no presence of active infection, the need to
culture the specimen, a time intensive and costly procedure, can be eliminated.
[photograph of Company's FiltraCheck-UTI product]
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Northwestern Atrium, 500 West Madison Street, Suite 1400, Chicago,
Illinois, and at 7 World Trade Center, Suite 1300, New York, New York. Copies of
such material can also be obtained, at prescribed rates, by mail from the Public
Reference Section of the Commission at its Washington, D.C. address set forth
above. In addition, material filed by the Company can be obtained and inspected
at the offices of the Nasdaq Stock Market, Inc., 9513 Key West Avenue,
Rockville, Maryland 20850, on which the Common Stock is quoted.
This Prospectus constitutes part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933 (the
"Securities Act"). This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the Common Stock offered hereby. Any statements contained in this
Prospectus as to the terms of any document are not necessarily complete, and in
such instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS RELATING TO THE
COMPANY WHICH ARE NOT DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN THE
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, ON ORAL OR
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED. Written or
telephone requests should be directed to Gerard Blain, 3471 River Hills Drive,
Cincinnati, Ohio 45244, telephone (513) 271-3700. The following documents, which
have been filed by the Company with the Commission, are hereby incorporated by
reference in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1995 and March 31, 1996; and
(3) The description of the Common Stock contained in the Registration
Statement on Form 8-A filed on August 15, 1986 and amended August 20, 1986.
All documents filed by Meridian Diagnostics, Inc. pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this
Offering shall be deemed to be incorporated by reference in this Prospectus. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
The Company owns the following trademarks: CALAS(R), FiltraCheck-UTI(R),
ImmunoCard(TM), Merifluor(R), Meritec(TM), MeriStar(R), Macro-Con(R),
MONOLERT(R), MONOSPOT(R), ECOFIX(R), HYDROFLUOR(R) and Para-Pak(R).
<PAGE> 6
[Insert gatefold here]
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, information
in this Prospectus relating to share data reflects 3-for-2 stock splits
effective March 27, 1992 and October 2, 1995, 3% stock dividends effective
December 23, 1993 and December 8, 1994 and a 5% stock dividend effective
December 14, 1992 and assumes that the Underwriters' over-allotment option is
not exercised. The Company's fiscal year ends on September 30. See "Glossary of
Selected Terms" for definitions of certain terms used herein.
THE COMPANY
Meridian Diagnostics, Inc. develops, manufactures and markets a diverse
line of disposable diagnostic test kits and related diagnostic products used for
the rapid diagnosis of infectious diseases. The Company's products aid in the
diagnosis of such common medical conditions as gastrointestinal infections,
mononucleosis, urinary tract infections and respiratory infections. The
Company's products provide accuracy, simplicity and speed, enabling healthcare
providers to reduce costs while improving quality. All of the Company's products
are used in procedures performed in vitro (outside the body) and require little
or no special instrumentation or equipment.
The global market for infectious disease tests continues to expand as new
disease states are identified, new therapies become available and worldwide
standards of living and access to healthcare improve. Technological advances
permitting accurate diagnostic testing to occur outside the traditional hospital
or laboratory setting have affected this market. These technological
developments have contributed to the emergence of alternate site markets, such
as physicians' offices, outpatient clinics, nursing homes and health maintenance
organizations (HMOs), as important diagnostic product segments. The increasing
pressures to contain global healthcare costs have accelerated this shift to
alternate site markets and also increased the use of diagnostic tests. With
rapid and accurate diagnosis of infectious disease, physicians can pinpoint
therapies quickly, leading to faster recovery, shorter hospital stays and
reduced expense. These technological advances should also contribute to the
development of new markets, including veterinary laboratories, water treatment
facilities and consumer self-testing in the over-the-counter market.
The Company's product line consists of over 100 diagnostic products
relating to five disease states. The Company's diagnostic tests, which generally
range from $1 per test to $13 per test, provide rapid results (often in minutes
or hours) are easy to use and require less technical expertise than conventional
tests. Conventional diagnostic testing requires highly skilled technicians to
perform complicated test procedures that generally have turnaround times of 24
to 48 hours. For many of the disease states, the Company has the broadest
product line or the only alternative to more expensive, time consuming
conventional procedures.
The Company's products are based on multiple core diagnostic technologies,
each of which enables visualization and identification of antigen/antibody
reactions for specific pathogens. As a result, the Company is able to develop
and manufacture diagnostic tests in a variety of formats that satisfy customer
needs and preferences. The Company targets niche diagnostic test markets, which
are characterized by a large number of low volume users. Historically, the
larger diagnostic companies have not concentrated on this segment of the market.
The Company's marketing group utilizes industry contacts and key customer
focus sessions to identify new product opportunities. Through the use of
cross-functional teams that include marketing, research and development and
manufacturing personnel, the marketing group guides the development process to
meet customers' needs with products that are easier to use, require less
technical expertise and yield faster results. The Company believes it is well
positioned to develop partnerships with key customers because it is an
integrated manufacturer, has a broad product line, offers tests in multiple
formats and is willing to invest resources in building relationships and
facilitating open communications with those customers. To illustrate, in January
1996, the Company signed a three-year exclusive agreement, with the Columbia/HCA
Healthcare Corporation, a hospital alliance of approximately 350 hospitals, for
all parasitology transport products and specific infectious disease diagnostic
products. In April 1996, the Company signed a three-year, primary
3
<PAGE> 8
source agreement with Laboratory Corporation of America, consisting of over 35
laboratories, for the supply of certain products for parasitology, virology and
other infectious diseases.
The Company's research and development activities focus on developing
diagnostic solutions. Over the past five years, the Company has developed
internally 19 new products. The Company believes that its ability to bind
various chemicals to various solid phases, including plastics, membranes, latex
beads and immunofluorescent dyes to develop testing formats, gives it a
competitive advantage. The Company estimates that, from the conceptualization of
a product, it takes approximately 18 to 24 months to begin to generate revenues.
The Company markets its products through a direct sales force, in the U.S.
and Italy, supplemented by a network of U.S. and international distributors.
Over the last three years, the Company's international sales have nearly tripled
from $2.1 million in fiscal 1992 to $5.8 million in fiscal 1995 and currently
represent 23% of net sales.
The Company has developed and implemented a strategy for growth consisting
of the following six principal elements:
- Developing New Product Applications from Core Technologies and Formats
- Acquiring and Licensing Products and Technology
- Increasing International Sales
- Developing Partnerships with Consolidated Healthcare Organizations
- Entering New Markets
- Accessing Alternate Site Markets for Diagnostic Testing
Since 1990, the Company has realized substantial growth in net sales and
primary net earnings per share. Net sales increased to $25.1 million in fiscal
1995 from $8.5 million in fiscal 1990, a compound annual growth rate of
approximately 24%. Over the same period, primary earnings per share increased at
a compound annual growth rate of approximately 37%.
The Company is an Ohio corporation, its principal executive offices are
located at 3471 River Hills Drive, Cincinnati, Ohio 45244, and its telephone
number is (513) 271-3700.
THE OFFERING
Common Stock Offered by the Selling
Shareholder............................. 1,500,000 shares
Common Stock to be Outstanding after the
Offering................................ 14,257,006 shares (1)
Use of Proceeds......................... The Company will receive no
proceeds from the sale of Common
Stock offered hereby.
Nasdaq National Market Symbol........... KITS
- ---------------
(1) Does not include 805,933 shares of Common Stock issuable upon the exercise
of stock options outstanding at March 31, 1996.
4
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Net sales..................... $11,085 $14,003 $16,171 $21,877 $25,110 $11,574 $12,776
Gross profit.................. 7,112 9,421 11,073 14,359 17,101 7,752 8,777
Operating income.............. 1,356 2,616 3,525 4,814 6,576 2,671 3,269
Earnings before income
taxes...................... 1,518 2,605 3,101 3,983 5,960 2,376 3,345
Net earnings.................. 959 1,653 1,889 2,441 3,524 1,375 1,984
Primary earnings per common
share...................... 0.08 0.13 0.15 0.20 0.29 0.11 0.14
Dividends paid per common
share
Regular.................... 0.02 0.04 0.06 0.08 0.10 0.05 0.06
Special.................... 0.02(1) 0.01(1) --(1) --(1) -- -- 0.03
Primary weighted average
number of common shares
outstanding................ 12,129 12,222 12,264 12,277 12,355 12,300 14,072(2)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
<S> <C>
BALANCE SHEET DATA
Cash and short-term investments.............................................. $ 10,244
Working capital.............................................................. 14,578
Total assets................................................................. 35,915
Long-term debt, including current maturities................................. 5,127
Shareholders' equity......................................................... 27,090
</TABLE>
- ---------------
(1) The Company paid a special 5% stock dividend in fiscal 1992 and special 3%
stock dividends in fiscal 1993 and fiscal 1994. See "Dividend Policy."
(2) Reflects the effect of the conversion of the Company's 7 1/4% Convertible
Subordinated Debentures into shares of Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
5
<PAGE> 10
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as other information included elsewhere herein or incorporated
herein by reference, prior to purchasing the shares of Common Stock offered
hereby.
NEW PRODUCT DEVELOPMENT AND ACQUISITIONS
The diagnostic test industry is characterized by ongoing technological
developments and changing customer requirements. As a result, the Company's
success and continued growth depend, in part, on its ability in a timely manner
to develop or acquire rights to, and successfully introduce into the
marketplace, enhancements of existing products or new products that incorporate
technological advances, meet customer requirements and respond to products
developed by the Company's competition. There can be no assurance that the
Company will be successful in developing or acquiring such rights to products on
a timely basis or that such products will adequately address the changing needs
of the marketplace. See "Business -- Strategy," "-- Products," "-- Marketing and
Sales" and "-- Research and Development."
INTERNATIONAL OPERATIONS
Approximately 23% of the Company's net sales for fiscal 1995 were
attributable to international sales, primarily in Western Europe. Although the
majority of the Company's international sales have been made in U.S. dollars,
the Company is subject to the risks associated with fluctuations in currency
exchange rates. The Company is also subject to other risks associated with
international operations, including tariff regulations, requirements for export
licenses and medical licensing and approval requirements. See "Business --
Strategy."
CHANGING MARKET CONDITIONS
The healthcare industry is in transition with a number of changes that
affect the market for diagnostic test products. Changes in the healthcare
delivery system have resulted in major consolidation among reference
laboratories and in the formation of multi-hospital alliances, reducing the
number of institutional customers for diagnostic test products. There can be no
assurance that the Company will be able to enter into and/or sustain contractual
or other marketing or distribution arrangements on a satisfactory commercial
basis with these institutional customers. See "Business -- Market Trends."
COMPETITION
The market for the Company's products is characterized by substantial
competition and rapid change. Hundreds of companies in the United States supply
immunodiagnostic tests. These companies range from multinational healthcare
entities, for which immunodiagnostics is one line of business, to small start-up
companies. Many of the Company's competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company.
See "Business -- Competition."
DEPENDENCE ON KEY DISTRIBUTORS
The Company's sales to two of its distributors were approximately $8.6
million, or approximately 34% of total sales, in fiscal 1995. These distributors
resell the Company's products and other laboratory products to end-user
customers. The loss of either of these distributors could have a material
adverse effect on the Company's sales and results of operations. See
"Business -- Marketing and Sales" and "-- Customers."
GOVERNMENT REGULATION
The Company's products generally require governmental clearance before
marketing in the U.S. and in certain foreign countries. The Company may be
required to submit test data from clinical trials to establish "substantial
equivalence" of its products with previously approved products. If so required,
the Company may commence marketing in the U.S. only when the regulatory agency
issues a written order finding such "substantial equivalence," which may take
longer than the 90-to 120-day period estimated for such review. Any product for
which "substantial equivalence" cannot be established must proceed through the
more lengthy pre-market approval procedures. There is no assurance that the
Company will be able to obtain the
6
<PAGE> 11
necessary clearances or timely clearances to market future products. See
"Business -- Government Regulation."
Third party payors (including state and federal governments) are
increasingly concerned about escalating health care costs and can indirectly
affect the pricing or the relative attractiveness of the Company's products by
regulating the maximum amount of reimbursement they will provide for diagnostic
testing services. If reimbursement amounts for diagnostic testing services are
decreased in the future, such decreases may reduce the amount that will be
reimbursed to hospitals or physicians for such services and consequently could
reduce the price the Company can charge for its products.
In recent years, the federal government has been examining the nation's
health care system from numerous standpoints, including the cost of and access
to health care and health insurance. Proposals impacting the health care system
are constantly under consideration and could be adopted at any time. It is
unclear what effect the enactment of such proposals would have on the Company.
COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
After the Offering, the Company's officers, directors, principal
shareholders and their affiliates will beneficially own approximately 42% of the
Company's outstanding Common Stock, all of which shares are eligible for sale
under Securities and Exchange Commission Rule 144 under the Securities Act of
1933. As a result, these shareholders, if they were to act in concert, would
have the ability to influence significantly most matters requiring approval by
shareholders of the Company, including the election of a majority of the
directors. In addition, the Board of Directors has the authority to issue up to
1,000,000 shares of undesignated preferred stock and to determine the rights,
preferences, privileges and restrictions, including voting rights, of such
shares without any future vote or action by the shareholders. The voting power
of these principal shareholders, officers and directors or the issuance of
preferred stock under certain circumstances could have the effect of delaying or
preventing a change in control of the Company. Ohio corporation law contains
provisions that may discourage takeover bids for the Company that have not been
negotiated with the Board of Directors. Such provisions could limit the price
that investors might be willing to pay in the future for shares of the Common
Stock. In addition, sales of substantial amounts of such shares in the public
market could adversely affect the market price of the Common Stock and the
Company's ability to raise additional capital at a price favorable to the
Company. Agreements with the Selling Shareholder and the Company's other
officers and directors not to offer or otherwise dispose of Common Stock without
the consent of Cleary Gull Reiland & McDevitt Inc. will expire 360 and 90 days,
respectively, after the date of this Prospectus. See "Principal Shareholders and
Selling Shareholder" and "Description of Capital Stock."
7
<PAGE> 12
CAPITALIZATION
The table sets forth the capitalization of the Company at March 31, 1996.
The table should be read in conjunction with the Company's Consolidated
Financial Statements and related notes thereto appearing elsewhere in this
Prospectus or incorporated herein by reference.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Long-term debt, including current maturities(1)................................ $ 5,127
--------------
Shareholders' equity:
Preferred stock, without par value; 1,000,000 shares authorized, none
issued.................................................................... --
Common stock, without par value; 50,000,000 shares authorized,
14,257,006 shares outstanding(2).......................................... 2,373
Additional paid-in capital................................................... 20,434
Retained earnings............................................................ 4,500
Foreign currency translation adjustment...................................... (217)
--------------
Total shareholders' equity................................................ 27,090
--------------
Total capitalization................................................. $ 32,217
===========
</TABLE>
- ---------------
(1) The Company has an unused $6,000,000 line of credit with a commercial bank.
(2) As of March 31, 1996, options to acquire 805,933 shares of Common Stock were
outstanding.
8
<PAGE> 13
DIVIDEND POLICY
The Company follows a cash dividend policy consisting of regular quarterly
and special year-end dividends. The Board has set a targeted payout ratio of 45%
to 55% of annual net earnings. Approximately 30% to 35% of forecasted annual net
earnings is intended to be paid in regular quarterly dividends with any balance
being paid as a year-end special dividend. All or a portion of the year-end
dividend may be paid in stock. The declaration and amount of dividends are
determined by the Board of Directors in its discretion based upon its evaluation
of earnings, cash flow requirements and future business developments. There is
no assurance that dividends will continue.
On January 25, 1996, the Company increased its quarterly dividend rate to
$0.035 per share. The second of such dividends will be paid on May 3, 1996 to
shareholders of record on April 25, 1996.
The Company paid a $0.02 per share cash dividend in the first quarter of
fiscal 1995 and paid $0.0267 per share cash dividends for each other quarter of
fiscal 1995. In addition, the Company declared and paid a three-for-two stock
split payable on October 2, 1995. On December 1, 1995, the Company paid a
special fiscal 1995 year-end dividend of $0.025 per share.
The Company paid a $0.016 per share cash dividend in the first quarter of
fiscal 1994 and $0.02 per share cash dividends for each other quarter of fiscal
1994. In addition, the Company declared and paid a special fiscal 1994 year-end
dividend in the form of a 3% stock dividend effective December 1, 1993.
9
<PAGE> 14
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"KITS." The following table sets forth, for the fiscal periods indicated, the
high and low closing sales prices for the Common Stock as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1994
First Quarter.............................................................. $6 1/2 $5 1/4
Second Quarter............................................................. 7 1/8 5 1/2
Third Quarter.............................................................. 6 1/8 5
Fourth Quarter............................................................. 5 1/2 4 3/8
FISCAL YEAR ENDED SEPTEMBER 30, 1995
First Quarter............................................................. 5 4 3/8
Second Quarter............................................................. 6 1/2 4 5/8
Third Quarter.............................................................. 7 3/8 5 7/8
Fourth Quarter............................................................. 9 1/2 6
FISCAL YEAR ENDED SEPTEMBER 30, 1996
First Quarter.............................................................. 12 1/4 7 3/4
Second Quarter............................................................. 11 3/8 9 1/8
Third Quarter (through April 17)........................................... 10 7/8 9 5/8
</TABLE>
On April 17, 1996, the last reported sales price for the Common Stock on
the Nasdaq National Market was $9 5/8 per share. As of March 31, 1996, there
were approximately 825 holders of record of the Common Stock, which the Company
believes represents a total of approximately 6,000 beneficial shareholders.
10
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth the Company's selected historical
consolidated financial data for the fiscal years 1991 through 1995 and for the
six months ended March 31, 1995 and 1996. The selected consolidated financial
data for the five fiscal years in the period ended September 30, 1995 are
derived from the financial statements of the Company which have been audited by
Arthur Andersen LLP. The selected financial data for the six months ended March
31, 1995 and 1996 are derived from the Company's unaudited quarterly financial
statements. In the opinion of management, the six month financial data reflect
all adjustments necessary for a fair presentation of such data. The results for
the first six months of fiscal 1996 are not necessarily indicative of the
results to be expected for the full year. The information below should be read
in conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Net sales..................... $11,085 $14,003 $16,171 $21,877 $25,110 $11,574 $12,776
Cost of sales................. 3,973 4,582 5,098 7,518 8,009 3,822 3,999
------- ------- ------- ------- ------- ------- -------
Gross profit.......... 7,112 9,421 11,073 14,359 17,101 7,752 8,777
------- ------- ------- ------- ------- ------- -------
Research and development...... 1,102 1,157 1,165 1,433 1,432 713 697
Selling and marketing......... 2,564 3,166 3,716 4,747 5,229 2,421 2,815
General and administration.... 2,090 2,482 2,667 3,365 3,864 1,947 1,996
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 5,756 6,805 7,548 9,545 10,525 5,081 5,508
------- ------- ------- ------- ------- ------- -------
Operating income...... 1,356 2,616 3,525 4,814 6,576 2,671 3,269
Net interest (expense)
income..................... 135 (39) (122) (839) (699) (366) 7
Other (expense) income........ 27 28 (302) 8 83 71 69
------- ------- ------- ------- ------- ------- -------
Earnings before income
taxes............... 1,518 2,605 3,101 3,983 5,960 2,376 3,345
Income taxes.................. 559 952 1,212 1,542 2,436 1,001 1,361
------- ------- ------- ------- ------- ------- -------
Net earnings.......... $ 959 $ 1,653 $ 1,889 $ 2,441 $ 3,524 $ 1,375 $ 1,984
======= ======= ======= ======= ======= ======= =======
Primary earnings per common
share...................... $ 0.08 $ 0.13 $ 0.15 $ 0.20 $ 0.29 $ 0.11 $ 0.14
Dividends paid per common
share
Regular.................... 0.02 0.04 0.06 0.08 0.10 0.05 0.06
Special.................... 0.02 0.01 -- -- -- -- 0.03
Primary weighted average
number of common shares
outstanding................ 12,129 12,222 12,264 12,277 12,355 12,300 14,072
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and short-term
investments................ $ 1,590 $ 1,810 $ 9,476 $ 8,832 $ 8,919 $ 8,161 $10,244
Working capital............... 4,046 5,164 13,759 13,000 15,826 14,074 14,578
Total assets.................. 10,997 14,099 26,247 32,329 34,569 32,751 35,915
Long-term debt, including
current maturities......... 99 1,808 12,812 15,051 12,881 15,855 5,127
Shareholders' equity.......... 9,519 10,676 11,617 13,232 18,878 13,905 27,090
</TABLE>
11
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus or incorporated herein by reference.
GENERAL
Since its founding in 1976, the Company has evolved into a fully integrated
medical diagnostic company with a diverse product line, an established
distribution network and a highly focused product development effort. Since
1991, the Company has realized substantial growth in net sales and net earnings,
primarily as the result of developing, licensing, acquiring or entering into
supply agreements for new products, improving these products, expanding
international sales and realizing operating efficiencies.
The Company utilizes its core technologies to develop and offer products
that aid in the diagnosis of various disease states. The Company's current
product line consists of nearly 100 medical diagnostic products which test for
specific diseases within five major disease states. The product lines which have
the largest impact on Company sales are used for the collection, transportation
and concentration of parasites, and products used to diagnose C. difficile and
certain viral and respiratory diseases. See "Business-Products."
On October 10, 1995, the Company called for the redemption of the
outstanding balance of its 7 1/4% Convertible Subordinated Debentures due in
2001. At that time, approximately $7,400,000 of the principal amount of the
Debentures was outstanding. Of the originally issued $11,500,000 principal
amount, $113,000 was redeemed for cash on November 30, 1995. The balance was
converted into Common Stock at $5.97 per share.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 31.5 34.4 31.9 33.0 31.3
----- ----- ----- ----- -----
Gross profit........................... 68.5 65.6 68.1 67.0 68.7
----- ----- ----- ----- -----
Research and development......................... 7.2 6.5 5.7 6.2 5.5
Selling and marketing............................ 23.0 21.7 20.8 20.9 22.0
General and administrative....................... 16.5 15.4 15.4 16.8 15.6
----- ----- ----- ----- -----
Total operating expenses............... 46.7 43.6 41.9 43.9 43.1
----- ----- ----- ----- -----
Operating income....................... 21.8 22.0 26.2 23.1 25.6
Net interest (expense) income.................... (0.8) (3.8) (2.8) (3.2) 0.1
Other expense (income)........................... (1.8) -- 0.3 0.6 0.5
----- ----- ----- ----- -----
Earnings before income taxes........... 19.2 18.2 23.7 20.5 26.2
Income taxes..................................... 7.5 7.0 9.7 8.6 10.7
----- ----- ----- ----- -----
Net earnings........................... 11.7% 11.2% 14.0% 11.9% 15.5%
===== ===== ===== ===== =====
</TABLE>
Comparison of Six Months ended March 31, 1996 and 1995
Net sales increased $1,202,000, or 10% over the comparable fiscal 1995
period, to $12,776,000 for the six months ended March 31, 1996. These increases
are attributable primarily to strong unit volume growth in the Premier, Para-Pak
and ImmunoCard lines. In the Premier and ImmunoCard formats, this growth was
attributable to those products used for identification of Toxin A, H. pylori,
EHEC, Mycoplasma and Rotavirus. In Para-Pak, the growth was attributable to the
core parasitology transport format plus Para-Pak
12
<PAGE> 17
Ultra, introduced last fall. In addition, the Inova line of products, first
licensed for sale in Italy in fiscal 1995, added over $170,000 of sales volume
for the six months results.
The increase in sales of $1,202,000 was comprised of volume of $957,000, or
8%, pricing of $186,000, or 2%, and currency of $59,000.
European sales increased from $2,469,000 to $2,970,000, or 20%, for the
six-month period principally from volume growth in the Premier, ImmunoCard and
Para-Pak formats plus the new volume from the Inova line. This increase is
comprised of volume of $389,000, or 16%, price of $53,000, or 2%, and currency
of $59,000, or 2%.
Gross profit increased $1,025,000, or 13%, in the six months ended March
31, 1996, to $8,777,000, from $7,752,000 in the prior year period. As a
percentage of net sales, gross profit improved to 68.7% for the six-month period
from 67.0% in the prior year period. Product mix, driven by growth in excess of
20% for Premier and Para-Pak and 15% for ImmunoCard for the second fiscal
quarter coupled with the positive effect of volume, price and currency and
favorable inventory variances were the basis for this improvement in
profitability.
Total operating expenses increased $427,000, or 8%, to $5,508,000 for the
six months ended March 31, 1996, compared to $5,081,000 in the comparable prior
year period. Total operating expenses were 43.1% of net sales for the six
months, a decrease from 43.9% in the prior year period.
Research and development expenses decreased 2% to $697,000 for the
six-month period compared to $713,000 in the prior year period. Increases in
personnel costs and licensing fees were largely offset by reductions in outside
contract research and casual labor, used more heavily last year, plus reductions
in indirect expenses such as repairs, laboratory supplies and travel. Clinical
trial expense did not vary materially from the prior year periods.
Selling and marketing expenses increased $394,000, or 16%, to $2,815,000
for the six-month period from $2,421,000 in the prior year period. The increase
is attributable to personnel costs in the U.S. associated with the addition of a
third sales region and, in Europe, from added personnel in the sales support and
product management functions. Other increases included higher travel,
promotion/advertising associated with new products (Premier Cryptosporidium,
Premier EHEC, Premier HSV Plus, Para-Pak and the Inova line) plus depreciation
expense associated with the new U.S. headquarters facility.
General and administrative expenses increased approximately 2% to
$1,996,000 for the six-month period from $1,947,000 in the prior year period.
Increased personnel costs, primarily in Europe and a one-time state filing fee
associated with the increase in the number of authorized shares of Common Stock
were the primary reasons for the increase. The overall increase was offset, in
part, by a provision for doubtful accounts recorded in the second fiscal quarter
of last year.
Operating income as a result of the above increased $599,000, or 22%, to
$3,269,000 for the six months from $2,671,000 in the prior year period. As a
percent of sales, operating income improved to 25.6% from 23.1% in the prior
fiscal period.
Other income (net) increased $370,000 for the six month period ended March
31, 1996. Interest income (net) improved $372,000 for the six month period
primarily from the reduction in interest expense as a result of the conversion
of the Convertible Subordinated Debentures as of November 30, 1995.
Comparison of Fiscal Years ended September 30, 1995 and 1994
Net sales increased $3,233,000, or 15%, to $25,110,000 in fiscal 1995 from
$21,877,000 in fiscal 1994. This increase was primarily from unit volume growth
in the Premier, ImmunoCard, Merifluor and mononucleosis lines plus OEM sales of
Epstein-Barr Virus. The major growth areas are in those tests used for
identification of infectious diseases such as C. difficile, Toxin A,
mononucleosis, Mycoplasma and Herpes simplex virus. Of the increase of
$3,233,000, $1,112,000, or 34%, was attributable to the full year sales of the
infectious disease product line acquired in January 1994 from an affiliate of
Ortho Diagnostics Systems, Inc. (ODSI).
13
<PAGE> 18
The increase in sales of $3,233,000 was more than accounted for by volume
of $3,271,000, or 15%, offset marginally by price decreases of $38,000 with no
impact from currency translation. European sales increased $1,175,000, or 30%,
to $5,102,000 from $3,927,000 as a result of continued strong unit growth in the
Premier line, up 45% (Toxin A, H. pylori and EHEC -- introduced during the
second quarter); the mononucleosis line, up 21%; lmmunoCard, which almost
tripled largely from new products (Mycoplasma, mononucleosis, Rotavirus and H.
pylori); and Merifluor, up 81%. The increase in net sales was accounted for by
volume, $951,000, or 24%, and price, $223,000, or 6%. The effect of currency
translations was negligible.
Gross profit increased $2,742,000, or 19%, to $17,101,000 for fiscal 1995
from $14,359,000 in fiscal 1994. As a percentage of sales, gross profit
increased to 68.1% in fiscal 1995 from 65.6% in fiscal 1994. This improvement
was due primarily to the transfer and in-house manufacture of the product lines
acquired from ODSI in June 1993 and January 1994, which prior to October 1994
were purchased under a supply agreement with ODSI. Fiscal 1994 costs also
included integration of the ODSI infectious disease product line into Meridian's
manufacturing facilities in Cincinnati. Other factors contributing to the
improvement included continued favorable efficiency and volume variances from
the sales increase, the new warehouse facilities, and the reduction in factory
overhead including decreased rent expense from the new on-site warehouse, lower
insurance and employee benefit expense, plus a reduction in travel.
Operating expenses increased $980,000, or 10%, to $10,525,000 for fiscal
1995 from $9,545,000 in fiscal 1994, but declined as a percentage of sales from
43.6% in fiscal 1994 to 41.9% in fiscal 1995. Research and development expenses
were marginally lower than the prior year, and decreased from $1,433,000 in
fiscal 1994 to $1,432,000 in fiscal 1995. Selling and marketing expenses
increased $481,000, or 10%, versus fiscal 1994, mainly from higher personnel
costs in the U.S. and Europe, higher convention, meeting, sample and promotion
expenses associated with new product introductions and the full year impact of
the infectious disease product line acquired from ODSI. General and
administrative expenses increased $499,000, or 15%, due to increased personnel
costs in the U.S. and Europe stemming from the higher level of business, an
increase in depreciation from the expanded office facilities plus the full year
impact of depreciation from assets acquired from ODSI and a general increase in
the provision for doubtful accounts to reflect added coverage given the
increasing sales level.
Operating income increased $1,762,000, or 37%, to $6,576,000 in fiscal 1995
from $4,814,000 in fiscal 1994 primarily due to the factors described above. As
a percent of sales, operating income improved to 26.2% in fiscal 1995 compared
to 22.0% in fiscal 1994.
Other expenses decreased $214,000, or 26%, to $616,000 compared to $831,000
in fiscal 1994. This decrease was more than accounted for from higher investment
income stemming from an improvement in interest rates compared to fiscal 1994
plus commission income related to the sale of certain tissue culture products
acquired from ODSI and sold to VAI Diagnostics, Inc. in March 1994. Gains/losses
in foreign exchange were not material in either fiscal year. The cumulative
foreign currency translation adjustment changed by $32,000 during the year as a
result of strengthening of the U.S. dollar against the lira during the period.
The Company's effective tax rate increased for the year as a result of a
higher proportion of income from the Company's European subsidiary in Italy,
which is taxed at a significantly higher rate than the U.S. domestic rate. The
effective tax rate was 40.9% in fiscal 1995 compared to 38.7% for the prior
year.
Comparison of Fiscal Years ended September 30, 1994 and 1993
Net sales increased $5,706,000, or 35%, to $21,877,000 in fiscal 1994 from
$16,171,000 in fiscal 1993. This increase resulted primarily from higher unit
volumes resulting from the June 1993 acquisition of the infectious mononucleosis
product line and the January 1994 acquisition of the infectious disease product
line from ODSI, plus strong unit growth in the lmmunoCard and Merifluor product
lines.
The increase in sales of $5,706,000 was comprised of volume of $5,139,000,
or 32%, price of $899,000, or 5%, offset by currency of ($332,000) or (2%).
European sales increased $1,447,000, or 58%, to $3,927,000 from $2,480,000
largely due to MONOSPOT and MONOLERT products acquired from ODSI in June 1993,
plus unit growth in the Para-Pak, Merifluor and Premier product lines. This
increase in net sales was attributed to volume of $1,114,000, or 45%, price of
$665,000, or 27%, offset by currency of ($332,000), or
14
<PAGE> 19
(14%). The increase from pricing stemmed from the expiration in fiscal 1994 of
contract supply prices in effect at the time of the mononucleosis product line
acquisition in fiscal 1993.
Gross profit increased $3,286,000, or 30%, to $14,359,000 for the year,
from $11,073,000 in fiscal 1993. As a percentage of sales, gross profit declined
to 65.6% in fiscal 1994 from 68.5% in fiscal 1993. This decline is due to
several factors including the impact of the lower margin ODSI product line
acquisitions -- in part provided under a supply agreement -- which ended June
30, 1994, except for MONOSPOT which ended in October 1995. Other factors
impacting gross profit were increased manufacturing costs, higher scrap and
obsolescence costs stemming from product development including validation
batches, minor product discontinuations and additional costs associated with
packaging standardization. Also impacting manufacturing cost was the transfer
and integration of the ODSI infectious disease product line into Meridian's
facilities in Cincinnati.
Operating expenses increased $1,997,000, or 26%, to $9,545,000 for fiscal
1994 from $7,548,000 in fiscal 1993, but declined as a percentage of sales to
43.6% in fiscal 1994 from 46.7% in fiscal 1993. Research and development expense
increased $268,000, or 23%, over fiscal 1993 primarily from higher personnel
costs, increased clinical trial activity and laboratory supplies associated with
new product development and depreciation expense stemming from equipment
acquired during the year from ODSI. Selling and marketing expenses increased
$1,031,000, or 28%, primarily as a result of the amortization of the purchase
price of the ODSI product line acquisitions, higher personnel costs in the U.S.
and Europe from the addition of sales representatives and higher promotional
expenses in the U.S. associated with new products and, in Europe, from the
expansion of the direct sales and distribution to customers in Italy. General
and administrative expenses increased $698,000, or 26%, due to amortization of
the ODSI acquisitions, increased personnel costs in the U.S. and Europe to
support the continued growth in the business, higher depreciation expense
related to equipment acquired from ODSI plus an increase in the provision for
potential doubtful accounts.
Operating income as a result of the above increased $1,289,000, or 37%, to
$4,814,000 in fiscal 1994 from $3,525,000 in fiscal 1993.
Other expense increased in fiscal 1994 by $406,000, which was more than
accounted for by higher interest expense and amortization of debt expenses
attributed to the $11,500,000 of 7 1/4% Convertible Subordinated Debentures
issued in September 1993. These increases in debenture-related expenses were
offset by the one time write-off of $405,000 in fiscal 1993 of expenses
associated with the Company's planned offering of Common Stock, which was
withdrawn on July 29, 1993. The after tax impact on earnings of this withdrawal
cost was $255,000 or $0.02 per share in 1993, as adjusted.
The Company's effective tax rate declined marginally for the year as a
result of a higher proportion of the income in the U.S. which is taxed at a
significantly lower rate than in Italy. The effective tax rate was 38.7% in
fiscal 1994 compared to 39.1% in fiscal 1993. Effective October 1, 1993 the
Company adopted Financial Accounting Standards Statement No. 109, "Accounting
for Income Taxes." Prior period financial statements have not been restated to
reflect the new accounting method since the cumulative effect of this change as
well as the effect of this new standard on income tax expense for Fiscal 1994
was not material.
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected unaudited consolidated quarterly
results of operations of the Company for fiscal 1994, fiscal 1995 and the first
two quarters of fiscal 1996. Historically, the fourth quarter of the fiscal year
has been the strongest. The results of operations for any quarter are not
necessarily indicative of results for any future period. Quarterly earnings per
share do not necessarily total to year-end amounts due to rounding.
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995 FISCAL 1996
-------------------------------------- -------------------------------------- -----------------
DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- -------- -------- --------- ------- -------- -------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $3,625 $5,891 $5,717 $ 6,644 $5,106 $6,469 $6,782 $ 6,753 $5,522 $7,255
Net earnings........... 200 610 603 1,028 430 945 985 1,164 629 1,355
Primary earnings per
common share......... .01 .05 .05 .09 .04 .08 .08 .09 .05 .10
</TABLE>
15
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and short-term investments of
$10,244,000 and working capital of $14,577,745. Trade accounts receivable
increased $51,000 or 1% while inventories increased $298,000 or 10% compared to
September 30, 1995. Receivables decreased in the U.S. by $395,000, primarily
from special extended payment terms at September 30, 1995 which have been
remitted. Receivables in Europe increased $446,000 in line with the increase in
sales of 20% for this six month period versus last year. The change in
inventories reflects higher stock levels associated with projected sales.
On October 10, 1995, the Company called for the redemption of the
outstanding balance of its 7 1/4% Convertible Subordinated Debentures due in
2001. At that time approximately $7,400,000 of the principal amount of the
Debentures was outstanding. Of the originally issued $11,500,000 principal
amount, $113,000 was redeemed for cash on November 30, 1995. The balance was
converted into Common Stock at $5.97 per share.
Construction of 19,000 square feet of additional and renovated
manufacturing and administrative space, which began in August 1994, was
completed in September 1995 at a total cost of $1,400,000. This construction was
funded by a construction loan which was repaid on April 16, 1996 and which
reduced long-term debt by $2,418,000. Total capital expenditures for the year,
including the above mentioned project, were $2,500,000. The Company commenced
renovation of the former administrative offices and laboratory manufacturing
space in October 1995 at an estimated cost of $1,200,000 which will complete the
Company's expansion project begun in late 1993. Completion of this phase is
expected to be June 1996. The Company's anticipated total capital expenditures
for fiscal 1996 are $1,900,000.
Cash flow from operations is expected to continue to fund working capital
requirements for the foreseeable future. Currently, the Company has available a
$6,000,000 line of credit with a commercial bank.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121 (Statement 121) on accounting for the impairment of long-lived
assets to be held and used. Statement 121 also establishes accounting standards
for long-lived assets that are to be disposed. Statement 121 is required to be
applied prospectively for assets to be held and used. The initial application of
Statement 121 to assets held for disposal is required to be reported as the
cumulative effect of a change in accounting principle. The Company is required
to adopt Statement 121 no later than fiscal 1997. The Company has not yet
determined when it will adopt Statement 121 and the impact, if any, that the
adoption will have on its financial position or results of operations.
In October 1995, the FASB issued Statement No. 123 (Statement 123)
establishing financial accounting and reporting standards for stock-based
employee compensation plans. Statement 123 encourages the use of the fair value
based method to measure compensation cost for stock-based employee compensation
plans, however, it also continues to allow the intrinsic value based method of
accounting as prescribed by APB Opinion NO. 25, which is currently used by the
Company. If the intrinsic value based method continues to be used, Statement 123
requires pro forma disclosures of net income and earnings per share, as if the
fair value based method of accounting had been applied. The fair value based
method requires that compensation cost be measured at the grant date based upon
the value of the award and recognized over the service period, which is normally
the vesting period. The Company is required to adopt Statement 123 no later than
fiscal 1997. The Company has not yet determined when it will adopt Statement 123
or the valuation method it will use.
16
<PAGE> 21
BUSINESS
GENERAL
The Company develops, manufactures and markets a diverse line of disposable
diagnostic test kits and related diagnostic products used for the rapid
diagnosis of infectious diseases. To meet market demands, the Company's products
provide accuracy, simplicity and speed, leading to opportunities for
improvements in diagnosis and reductions in health care costs. All of the
Company's products are used in procedures performed in vitro (outside the body)
and require little or no special instrumentation or equipment.
The Company's product development strategy is to combine existing
technologies with new product designs both through internal product development
and through product acquisitions, licensing or supply arrangements. Internal
product development activities focus on the development or enhancement of
immunodiagnostic technologies and applications to simplify, accelerate or
increase the accuracy of diagnoses of certain infectious diseases. Since 1991,
the Company has also acquired or obtained rights to distribute a number of
products and technologies.
The Company utilizes its resources to serve each of the strategic domestic
and international medical markets it has targeted: hospital networks and
clinical and hospital laboratories; alternate site markets, including
physicians' offices, outpatient clinics, nursing homes and health maintenance
organizations (HMOs); and new markets, including veterinary laboratories, water
treatment facilities and consumer self-testing. The Company currently markets
approximately 100 products representing five major disease states through a
direct sales force, in the U.S. and Italy, supplemented by a network of national
and international distributors. International sales in approximately 50
countries were approximately 23% of total fiscal 1995 sales, with approximately
88% of international sales originating in Western Europe. The majority of the
remaining international sales were in Canada, Mexico and the Pacific Rim.
IMMUNODIAGNOSTICS OVERVIEW
In vitro diagnostic testing is the process of analyzing constituents of
blood, urine, stool, other bodily fluids or tissue for the presence of specific
infectious diseases. Immunodiagnostic testing, which is the leading method of in
vitro testing for infectious diseases, tests for antigens and antibodies. When
an infectious disease caused by pathogens, such as bacteria, viruses and fungi,
and their related antigens is present, the body responds by producing an
(homologus) antibody. The antibody binds specifically with the antigen in a
lock-and-key fashion and initiates a biochemical reaction to attempt to
neutralize and ultimately to eliminate the antigen. The ability of an antibody
to bind with a specific antigen provides the basis for immunodiagnostic testing.
Immunodiagnostic testing detects the presence of specific infectious
diseases through the "visualization," such as color changes or the formation of
visible aggregates, of the biochemical reactions caused by the antigen/antibody.
Most immunodiagnostic tests utilize one of two alternative methods to determine
the presence of a specific disease in a patient specimen. In one method, the
test employs the antibody to detect directly the presence of an antigen. When
the antigen is difficult to detect, a test employs the antigen to detect the
presence of an antibody.
MARKET TRENDS
The global market for infectious disease tests continues to expand as new
disease states are identified, new therapies become available and worldwide
standards of living and access to healthcare improve. More importantly, within
this market there is a continuing shift from conventional testing, which
requires highly trained personnel and lengthy turnaround times for test results,
to more technologically advanced testing which can be performed and completed in
minutes or hours by less highly trained personnel.
Technological advances permitting accurate testing to occur outside the
traditional hospital or laboratory setting have also affected the diagnostic
products market. These technological developments have contributed to the
emergence of alternate site markets, such as physicians' offices, outpatient
clinics, nursing homes and health maintenance organizations (HMOs), as important
diagnostic market segments. These technological
17
<PAGE> 22
advances should also contribute to the development of new markets for the
Company's products, including veterinary laboratories, water treatment
facilities and consumer self-testing in the over-the-counter market.
The increasing pressures to contain total healthcare costs have accelerated
the increased use of diagnostic testing and the market shift to alternate sites.
With rapid and accurate diagnoses of infectious disease, physicians can pinpoint
appropriate therapies quickly, leading to faster recovery, shorter hospital
stays and less expense. In addition, these pressures have led to a major
consolidation among reference laboratories and the formation of multi-hospital
alliances that has reduced the number of institutional customers for diagnostic
products and resulted in changes in buying practices. Specifically, multi-year
exclusive or primary source marketing or distribution contracts with
institutional customers have become more common, replacing less formal
distribution arrangements of shorter duration and involving lower product
volumes.
STRATEGY
The Company continues to execute its long-term strategy consisting of the
following elements:
- Developing New Product Applications from Core Technologies and
Formats. The Company employs a market-driven product development strategy
to adapt or enhance diagnostic testing technologies and product formats in
response to newly identified disease states and to customer demands for
improvements in product accuracy, simplicity, speed and cost-efficiency.
The Company accomplishes this by monitoring existing markets, interacting
closely with customers and recognizing emerging diseases and therapies.
Since 1991, the Company has developed and introduced 19 internally
developed products.
- Acquiring and Licensing Products and Technology. The Company intends to
acquire, license or enter into supply arrangements to obtain innovative
diagnostic testing technologies and product formats that complement its
existing operations and address the needs of the Company's existing and
targeted customer base. Management regularly identifies and reviews
opportunities through its broad industry contacts and recognized position
in the industry. Since 1991, the Company has acquired, licensed or entered
into supply arrangements relating to 19 products. In fiscal 1996, the
Company entered into a supply arrangement to market an additional 64
products through Baxter Healthcare Corporation.
- Increasing International Sales. The Company has targeted increasing
international sales as an attractive source of growth. The Company has
made recent investments to develop a major presence in Italy through its
Italian subsidiary Meridian Diagnostics Europe srl ("MDE"), added
management to expand its ability to serve Latin American markets and
strengthened its distribution channels into the European market. Over the
last three years, the Company's international sales have almost tripled
from $2.1 million in fiscal 1992 to $5.8 million in fiscal 1995 and
represented 23% of total consolidated sales in fiscal 1995.
- Developing Partnerships With Consolidated Healthcare Organizations. The
Company seeks to develop strategic partnerships with the major reference
laboratories and other consolidated healthcare providers. The Company
believes it is well positioned to develop partnerships with key customers
because it is an integrated manufacturer, has a broad product line, offers
tests in multiple formats, and is willing to invest resources in building
relationships and facilitating open communications with those customers.
In January 1996, the Company signed a three-year exclusive agreement with
the Columbia/HCA Healthcare Corporation, a hospital alliance of
approximately 350 hospitals, for the Company to provide all parasitology
transport products and specific infectious disease diagnostic products. In
April 1996, the Company signed a three-year, primary source agreement with
Laboratory Corporation of America, consisting of over 35 laboratories, for
the supply of certain products for parasitology, virology and other
infectious diseases.
- Entering New Markets. The Company continues to monitor and identify the
emergence of new immunodiagnostic testing opportunities arising from the
discovery of new pathogens or new linkages between existing pathogens and
new diseases. In April 1995, the Company introduced the first
immunodiagnostic test for toxigenic E. coli, a bacteria found in
inadequately cooked meats. The Company plans to apply for approvals to
test both animals (United States Department of Agriculture (USDA)) and
food products (Association of Analytical Chemists (AOAC)) that may contain
this highly toxic organism. In July 1994, the Company agreed to provide
its Hydrofluor product, the first
18
<PAGE> 23
product that tests for water-borne parasitic pathogens, specifically
Giardiasis and Cryptosporidiosis, for distribution through an independent
supplier to water treatment facilities. The Company has entered into an
agreement with Johnson & Johnson to market the Company's rapid diagnostic
test for urinary tract infections to the consumer market, subject to
pre-market approval by the FDA, the timing of which cannot be predicted.
- Accessing Alternate Site Markets for Diagnostic Testing. The Company
seeks strong licensing/ distribution partners having sales and marketing
strengths to enable it to more effectively promote the Company's products
into alternate site markets. The Company believes that its products are
readily adaptable for use in alternate site markets. In August 1995, the
Company entered into an exclusive licensing agreement with a third party
which through its 120 representatives will distribute the Company's
urinary tract infection product to the physician office market. The
Company continues to evaluate the suitability of certain of its other
products for the consumer market.
PRODUCTS
The Company has expertise in the development and manufacture of products
based on multiple core diagnostic technologies, each of which enables the
visualization and identification of antigen/antibody reactions for specific
pathogens. As a result, the Company is able to develop and manufacture
diagnostic tests in a variety of formats that satisfy customer needs and
preferences, whether in a hospital, commercial or reference laboratory or
alternate site location. These technologies include enzyme immunoassay,
immunofluorescence, particle agglutination, membrane filtration/concentration,
immunodiffusion, complement fixation and chemical stains.
Enzyme Immunoassay (EIA). Products incorporating the EIA technology
achieve extremely high levels of accuracy in detecting disease-related antigens
or antibodies through the use of special color-based enzyme-substrate reactions.
The Company utilizes this technology in its multiple test format -- Premier --
for large volume users, and in its single test formats -- ImmunoCard and
MONOLERT -- for single physician users.
Immunofluorescence. When the microscopic visualization of an
antigen-antibody reaction is necessary or desired, immunofluorescence technology
is frequently utilized. Fluorescing immunochemicals, in the presence of the
target antigen or antibody, can be viewed via a special microscope. The Company
utilizes this technology in its Merifluor products.
Particle Agglutination. This technology utilizes microparticles (e.g.,
latex, red blood cells) coated with specific antigens or antibodies that form
visible aggregates in the presence of a specimen containing the complementary
antigen or antibody. This technology is rapid and economical and is used in the
Company's Meritec, MeriStar and MONOSPOT products.
Membrane Filtration/Concentration. The Company utilizes this technology to
detect infection-causing bacteria present in human urine. These bacteria are
concentrated on a unique filter membrane for detection via the addition of a
special dye solution. This technology is utilized in the Company's proprietary
rapid, single-unit FiltraCheck-UTI test format.
Other Technologies. The Company utilizes other technologies that include
immunodiffusion, complement fixation and chemical stains. The Company also
manufactures and markets specimen collection transportation, preservation and
concentration products, such as Para-Pak and Macro-Con.
19
<PAGE> 24
The Company's product line consists of nearly 100 medical diagnostic
products representing five major disease states. Currently, the most important
product lines from the perspective of sales are Para-Pak and related products
and products to diagnose C. difficile, viral diseases and respiratory diseases.
The Company's products generally range in list price from $1 per test to $13 per
test. A discussion of the Company's key products and their competitive advantage
is reflected in the table below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INFECTIOUS DISEASE CATEGORY KEY PRODUCT(S) PRODUCT APPLICATION
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PARASITIC DISEASES
-- Giardiasis Para-Pak, Premier, Meritec Products for the diagnosis and collection,
-- Cryptosporidiosis Para-Pak Ultra preservation, transportation and
-- Amebiasis Macro-Con Ultra concentration of parasites.
- ------------------------------------------------------------------------------------------------------------------
GASTROINTESTINAL DISEASES
-- Stomach Ulcers (H. pylori) Premier, ImmunoCard U.S. patients make 20 million annual
visits to their physicians for gastric
distress. The H. pylori bacteria has been
associated with more than 90% of duodenal
ulcers and may be related to cancer of the
stomach.
-- Toxigenic E. coli Premier E. coli is a potentially lethal bacteria
that infects undercooked food and can
cause kidney failure.
-- Antibiotic-associated Diarrhea Premier, ImmunoCard, Meritec Toxin producing strains of C. difficile
(C. difficile) can cause PMC (pseudomembranous colitis)
that results in rapid colon degeneration.
-- Pediatric Diarrhea (Rotavirus) ImmunoCard, Meritec This viral disease, which causes rapid
dehydration, is transmitted rapidly
through pediatric populations in
hospitals, schools and daycare settings.
- ------------------------------------------------------------------------------------------------------------------
RESPIRATORY DISEASES
-- Pneumonia (Mycoplasma ImmunoCard, MeriStar Pneumonia is the fifth leading cause of
pneumoniae) death worldwide, 20% of which is caused by
Mycoplasma pneumoniae
-- Valley Fever (Coccidioides Premier, Meritec Fungal pathogens can cause flu-like
immitis) illness and/or severe pneumonia, that are
life-threatening in AIDS and other
immuno-compromised patients.
- ------------------------------------------------------------------------------------------------------------------
UROGENITAL DISEASE
-- Urinary Tract Infection FiltraCheck-UTI In the U.S., 65 million cultures are
performed yearly to detect potential
urinary tract infection.
-- Chlamydia Premier, Merifluor Chlamydia is the leading
sexually-transmitted disease.
- ------------------------------------------------------------------------------------------------------------------
VIRAL DISEASES
-- Infectious Mononucleosis ImmunoCard, MONOLERT, Infectious mononucleosis, a viral disease
MONOSPOT common among young adolescents, is
transmitted easily from person-to-person.
-- Herpes simplex Virus (HSVI and Premier Oral Herpes infections affect up to 80% of
HSVII) the population. Genital Herpes can be
life-threatening to newborns.
-- Cytomegalovirus Merifluor Cytomegalovirus infections are potentially
deadly in transplant procedures and among
immuno-compromised blood recipients.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 25
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE COMPANY'S COMPETITIVE ADVANTAGE MARKET
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Leading supplier of parasitology diagnostics. In October 1995, - Hospital Laboratories
introduced two new products that resulted in easier processing, - Reference Laboratories
safer handling and reduced processing time of the specimen and - Veterinary Laboratories
lower cost disposal of the transport container.
- ----------------------------------------------------------------------------------------------------
Historically, a physician-performed endoscopy, an extremely - Hospital Laboratories
uncomfortable and expensive procedure, was employed to diagnose - Reference Laboratories
gastric distress. The Company's tests allow accurate, quick - Veterinary Laboratories
diagnoses utilizing patient blood serum. The Company is the only
manufacturer to provide testing formats which accommodate both
small and large volume users.
In November 1995, introduced the first and only FDA cleared
diagnostic test that detects all toxigenic strains of E. coli
directly from stool samples. Previous techniques required a
minimum of 24 hours to culture E. coli organisms.
Market leader with a broad range of products.
Offers the clinician rapid results which are critical in
preventing the spread of this highly infectious virus.
- ----------------------------------------------------------------------------------------------------
The Company provides the broadest range of diagnostic reagents - Hospital Laboratories
for detecting respiratory diseases. The product is the only rapid - Reference Laboratories
test providing results in only ten minutes. The product provides - State Health Laboratories
increased accuracy over common diagnostic methods, allowing for a - Veterinary Laboratories
safer, more effective treatment.
- ----------------------------------------------------------------------------------------------------
This product allows for rapid screening for the presence of - Hospital Laboratories
urinary tract infection. Therapy can be rapidly administered, - Reference Laboratories
often while the patient is still in the physician's office. - Physicians' Office
Laboratories
- Consumer (pending)
- Public Health Laboratories
Both product formats enable rapid, accurate testing.
- ----------------------------------------------------------------------------------------------------
The Company provides a broad range of innovative technologies - Hospital Laboratories
including MONOLERT which use synthetic peptides to detect the - Reference Laboratories
virus which causes mononucleosis. - Physicians' Office
Laboratories
- Student Health Laboratories
Premier HSV Plus detects both HSVI and HSVII rapidly from a
variety of body sites.
Quickly detects "immediate early antigen" in a rapid, direct
fluorescence format.
- ----------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 26
MARKETING AND SALES
The Company's marketing efforts are focused on a continual process of
seeking ways to assist healthcare providers in improving outcomes for patients
exposed to serious infectious diseases. Rapid, accurate diagnosis can mean
faster recovery, shorter hospital stays and less expense, both for the patient
and the healthcare system.
The Company believes that its marketing goals are best served by forming
partnerships with key customers to develop concepts for future products and
technology applications. These partnerships facilitate close customer
interaction, including product strategy sessions.
Marketing utilizes its strong industry contacts, plus key customer focus
sessions, to identify new product and other opportunities. Through the use of
cross-functional teams that include marketing, research and development and
manufacturing personnel, marketing guides the development process to meet
customers' needs with products that are easier to use, require less technical
expertise, and yield faster results -- often in minutes or hours rather than
days.
Changes in the healthcare delivery system have resulted in major
consolidation among reference laboratories and the formation of multi-hospital
alliances. The Company has structured its marketing, selling and customer
service to anticipate and respond to these changes. This involved the addition
of sales and marketing personnel; the expansion of technical services staff to
support the Company's customers and distribution network through a toll-free
service hotline; and the implementation of major marketing programs to target
key customers.
The Company markets products through direct sales forces, both domestically
and in Italy, and national and international independent distributors. In the
United States, the Company's direct sales force consists of a director of sales,
three regional sales managers, three regional virology specialists and 17
technical sales representatives. Where the Company utilizes distributors, the
Company nonetheless participates in selling efforts involving key customers. In
Italy, the Company's direct sales force consists of a director of sales, a
product specialist and seven technical sales representatives.
The Company's sales and marketing efforts in Europe, North Africa and the
Middle East are managed through MDE's European headquarters in Milan, Italy.
MDE's strategy has been to appoint one or two distributors in each of the
countries in its targeted markets, and to maintain a direct sales organization
within Italy. The Company has approximately 50 independent distributors in
approximately 50 foreign countries. The Company has additional key distributor
relationships in Canada, Latin America and the Pacific Rim.
RESEARCH AND DEVELOPMENT
The Company's research and development activities focus on developing
diagnostic solutions. Working in conjunction with the marketing department, the
Company's research and development department focuses its activities on
enhancements to and new applications for the Company's technologies. Over the
past five years the Company has developed internally 19 new products. The
research and development department has access to a number of diagnostic
technologies, each of which can be applied to satisfy new product specifications
that marketing has established. A critical expertise of the Company's product
development staff is its ability to bind various chemicals to various solid
phases, including plastics, membranes, latex beads and immunofluorescent dyes,
to develop testing formats. The Company believes that it has certain proprietary
know-how in these areas.
The research and development department initiates the Company's quality
process through its technology transfer mechanism which begins the establishment
of manufacturing standards. By working closely with the manufacturing
department, the same standards can be imposed to ensure consistently
high-quality products. The Company estimates that, from the conceptualization of
a product, it takes approximately 18 to 24 months to begin to generate revenues.
The research and development department is comprised of the Vice President
of Research and Development and 15 research scientists. The disciplines
represented in the group include biochemistry, immunology, mycology,
bacteriology, virology and parasitology. In fiscal 1994 and 1995 and the six
months
22
<PAGE> 27
ended March 31, 1996, the Company spent $1,433,000, $1,432,000 and $697,000,
respectively, on its research and development activities.
CUSTOMERS
The principal customers for the Company's products are hospitals,
commercial and reference laboratories and, to an increasing degree, alternate
site markets, such as physicians' offices, outpatient clinics, nursing homes and
HMOs, and new markets, such as veterinary laboratories, water treatment
facilities and consumer self-testing. No end-use customer comprised more than 5%
of the Company's sales in fiscal 1995. Two distributors together accounted for
approximately 34% of the Company's fiscal 1995 sales. However, the Company does
not believe that the loss of either of these distributors would have a long-term
material adverse effect on the Company because of its ability to sell to the
end-use customers served by these distributors through alternative means.
MANUFACTURING
The Company's manufacturing is performed at its Cincinnati facility. All
manufacturing operations are regulated by, and in compliance with, FDA-mandated
Good Manufacturing Practices ("GMPs") for medical devices. To maintain the
highest quality standards, the Company utilizes both external and internal
quality auditors who routinely evaluate the Company's manufacturing processes.
The Company's immunodiagnostic products require the production of highly
specific and sensitive antigens and antibodies. The Company produces
substantially all of its own requirements including: monoclonal antibodies,
polyclonal antibodies, synthetic peptides, plus a variety of fungal, bacterial
and viral antigens. For the majority of its raw materials acquired from third
parties, the Company has developed dual sources. As a result, the Company
believes it has access to sufficient raw materials for its products. Products
are generally produced for inventory and products are sold to customers out of
its finished goods inventory. The Company believes it has sufficient
manufacturing capacity for anticipated growth. Manufacturing backlog is not an
element of the Company's industry. See "-- Properties."
COMPETITION
The market for diagnostic tests is a multi-billion dollar international
industry which is highly competitive. Many of the Company's competitors are
larger with greater financial, research, manufacturing, and marketing resources.
Important competitive factors of the Company's products include product quality,
price, ease of use, customer service and reputation. In a broader sense,
industry competition is based upon scientific and technological capability,
proprietary know-how, access to adequate capital, the ability to develop and
market products and processes, the ability to attract and retain qualified
personnel and the availability of patent protection. To the extent that the
Company's product lines do not reflect technological advances, the Company's
ability to compete in those product lines could be adversely affected.
Companies competing in the diagnostic test industry generally focus on a
limited number of tests or limited segments of the market. As a result, the
diagnostic test industry is highly fragmented and segmented. Hundreds of
companies in the United States alone supply immunodiagnostic tests. These
companies range from multi-national healthcare companies, for which
immunodiagnostics is one line of business, to small start-up companies. Of
central importance in the industry are mid-sized medical diagnostic specialty
companies, like the Company, that offer multiple, broad product lines and have
the ability to deliver high value new products quickly to the marketplace. Among
the companies with which the Company competes in the marketing of one or more of
its products are Abbott Laboratories, Becton, Dickinson and Company, Diagnostic
Products Corporation, QUIDEL Corporation and the Wampole Laboratories Division
of Carter-Wallace, Inc.
INTELLECTUAL PROPERTY, PATENTS AND LICENSES
In general, the Company does not seek patent protection for its products
and instead strives to maintain the confidentiality of its proprietary know-how.
The Company owns or licenses U.S. and foreign patents for 11 of its products.
The patents or licenses thereof for these products were acquired in connection
with the purchase of the products or the licensing of the technology on which
the products are based. In the absence of patent protection, the Company may be
vulnerable to competitors who successfully replicate the Company's
23
<PAGE> 28
production and manufacturing techniques and processes. The Company's laboratory
and research personnel are required to execute confidentiality agreements
designed to protect the Company's proprietary products.
The Company has no reason to believe that its products and proprietary
rights infringe the proprietary rights of any third parties. There can be no
assurance, however, that third parties will not assert infringement claims in
the future.
GOVERNMENT REGULATION
FDA Regulation of Medical Devices. The Company's products are regulated by
the FDA as "devices" pursuant to the Federal Food, Drug and Cosmetic Act (the
"FDCA"). Under the FDCA, medical devices are classified into one of three
classes (i.e., Class I, II or III). Class I and II devices are not expressly
approved by the FDA but, instead, are "cleared" for marketing. Class III devices
generally must receive "pre-market approval" from the FDA as to safety and
effectiveness.
A 510(k) clearance will be granted if the submitted data establishes that
the proposed device is "substantially equivalent" to an existing Class I or
Class II medical device or to a Class III medical device for which the FDA has
not required pre-market approval. The 510(k) clearance process for
"substantially equivalent" devices allows product sales to be made after the
filing of an application and upon acknowledgment by the FDA, typically within 90
to 120 days after submission. If the FDA requests additional information, the
product cannot be sold until the application has been supplemented and upon
acknowledgment by the FDA within 90 to 120 days of the supplemental application.
If there are no existing FDA-approved products or processes comparable to a
diagnostic product or process, approval by the FDA involves the more lengthy
pre-market approval procedures.
Each of the products currently marketed by the Company has been cleared by
the FDA pursuant to the 510(k) clearance process or is exempt from such
requirements. The Company believes that most, but not all, products under
development will be classified as Class I or II medical devices and will be
eligible for 510(k) clearance. One example of a product in development that is
subject to the FDA's more lengthy pre-market approval process is the adaptation
of the Company's rapid diagnostic test for urinary tract infections to the
consumer market.
Other Medical Device Regulation. Sales of the Company's products in
foreign countries are subject to foreign government regulation, the requirements
of which vary substantially from country to country. The time required to obtain
approval by a foreign country may be longer or shorter than that required for
FDA approval, and the requirements may differ.
Other Approvals. The Company intends to seek appropriate certifications
and approvals from the Association of Analytical Chemists (AOAC) and the United
States Department of Agriculture (USDA) to enable the Company to market an
immunodiagnostic test for toxigenic E. coli in both food products and animals.
The Company has no direct experience in obtaining these certifications and
approvals, but the Company believes the time required and applicable procedures
will be similar to those required for FDA approval. However, there is no
assurance that the Company will receive these certifications and approvals.
The Clinical Laboratory Improvement Act of 1988 ("CLIA 88") prohibits
laboratories from performing in vitro tests for the purpose of providing
information for the diagnosis, prevention or treatment of any disease or
impairment of, or the assessment of, the health of human beings unless there is
in effect for such laboratories a certificate issued by the U.S. Department of
Health and Human Services ("HHS") applicable to the category of examination or
procedure performed.
The Company is an exempt small quantity generator of hazardous waste and
has a U.S. Environmental Protection Agency identification number. All hazardous
waste is manifested and disposed of properly. The Company is in compliance with
the applicable portions of the Federal and state hazardous waste regulations and
has never been a party to any environmental proceeding.
24
<PAGE> 29
EMPLOYEES
As of March 31, 1996, the Company had 161 full-time employees, including 40
in sales, marketing and technical support, 74 in manufacturing, 17 in research
and product development and 30 in administration and finance.
None of the Company's employees is represented by a labor organization and
the Company is not a party to any collective bargaining agreement. The Company
has never experienced any strike or work stoppage and considers its relationship
with its employees to be excellent.
PROPERTIES
The Company's corporate offices, manufacturing facility and research and
development facility are located in two buildings totaling 75,000 square feet on
4.1 acres of land in a suburb of Cincinnati. These properties are owned by the
Company. The Company believes these facilities are in good condition, well
maintained and suitable for its long-term needs.
The Company believes its manufacturing and laboratory facilities are in
compliance with all applicable rules and regulations and maintained in a manner
consistent with GMPs.
MDE conducts its operations in a two-story building in the Milan, Italy
area consisting of approximately 18,000 square feet. The Company believes these
facilities are in good condition, well maintained and suitable for MDE's
long-term operations.
25
<PAGE> 30
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of April 17, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
William J. Motto....................... 54 Chairman of the Board, Chief Executive
Officer and Director
John A. Kraeutler...................... 47 President and Chief Operating Officer
Gerard Blain........................... 56 Vice President and Chief Financial
Officer
Christine A. Meda...................... 47 Vice President, Marketing
Ching Sui Arthur Yi, Ph.D.............. 49 Vice President, Research and
Development
Antonio A. Interno..................... 47 Vice President
James A. Buzard, Ph.D.(1)(2)........... 68 Director
Gary P. Kreider(1)(2).................. 57 Director
Robert J. Ready(1)(2).................. 56 Director
Jerry L. Ruyan......................... 49 Director
</TABLE>
- ---------------
(1) Audit Committee Member
(2) Compensation Committee Member
William J. Motto has more than 25 years experience in the pharmaceutical
and diagnostics products industries, is a founder of the Company and has been
Chairman of the Board since March 1977. From that date until June 1986 Mr. Motto
served as President. He served as Chief Executive Officer from June 1986 until
September 1989, and assumed that title again May 1995. Before forming the
Company, Mr. Motto served in various capacities for Wampole Laboratories, Marion
Laboratories, Inc. and Analytab Products, Inc., a division of American Home
Products Corp.
John A. Kraeutler has more than 20 years of experience in the medical
diagnostics industry and joined the Company as Executive Vice President and
Chief Operating Officer in January 1992. In July 1992, Mr. Kraeutler was named
President of the Company. Mr. Kraeutler most recently served as Vice President,
General Manager for a division of Carter-Wallace, Inc. Prior to that, he held
key marketing and technical positions with Becton, Dickinson and Company and
Organon, Inc.
Gerard Blain joined the Company as Vice President and Chief Financial
Officer on March 1, 1994. Prior to joining the Company, Mr. Blain was Vice
President and Controller of Marion Merrell Dow, Inc. Mr. Blain had been with
Marion Merrell Dow, Inc. and its predecessor companies since 1966.
Christine A. Meda has 15 years of experience in the diagnostics industry
and joined the Company as Senior Director of Marketing in July 1994. In October
1995, she was appointed Vice President of Marketing. Ms. Meda served as Director
of Sales and Marketing of Diagnostic Products Corporation from 1991 until
joining the Company. During the period 1984 to 1991, she held various other
management positions in both sales and marketing at Diagnostic Products
Corporation.
Ching Sui Arthur Yi, Ph.D., has more than 17 years experience in the
diagnostics industry and has been Vice President, Research and Development of
the Company since August 1989. From May 1986 until he joined the Company, he was
Director of Product Development of Cambridge BioScience Corporation. Previously
he was a partner of BioClinical System Inc. from July 1983 to April 1986,
Manager of Research and Development, Terumo Medical Corporation From March 1982
to June 1983 and Senior Scientist of Leeco Diagnostics from August 1979 to
February 1982.
Antonio A. Interno was appointed as a Vice President in August 1991. He has
been Managing Director of MDE since February 1990. Prior to that time, he was
the marketing manager for Diagnostics International Distribution SPA, a major
Italian diagnostics distributor.
James A. Buzard, Ph.D., has been a Director of the Company since May 1990
and serves as Chairman of the Compensation Committee. From March 1981 until
December 1989, he was Executive Vice President of
26
<PAGE> 31
Merrell Dow Pharmaceuticals Inc. From December 1989 until his retirement in
February 1990 he was Vice President of Marion Merrell Dow Inc. He has been a
business consultant since February 1990.
Gary P. Kreider has been a Director since 1991. For over five years Mr.
Kreider has been a Senior Partner of the Cincinnati law firm of Keating,
Muething & Klekamp, counsel to the Company.
Robert J. Ready has been a Director of the Company since May 1986 and
serves as Chairman of the Audit Committee. In 1976, Mr. Ready founded LSI
Industries, Inc., Cincinnati, Ohio, which engineers, manufactures and markets
commercial/industrial lighting and graphics products, and has served as its
President and Chairman of its Board of Directors since that time.
Jerry L. Ruyan has more than 20 years experience in the diagnostics
products and medical industries, is a founder of the Company, has been a
Director of the Company since March 1977 and served as Chief Executive Officer
from July 1992 to May 1995. In May 1995, Mr. Ruyan reduced his day-to-day
involvement in the Company in order to pursue outside interests. He relinquished
the title of Chief Executive Officer at that time and continues to serve as a
Director. Mr. Ruyan served as the President of the Company from June 1986 to
July 1992. From June 1986 through January 1992, Mr. Ruyan served as Chief
Operating Officer, and from March 1977 through June 1986 he served as Vice
President. Before forming the Company, Mr. Ruyan served as a technical
representative for Analytab Products, Inc. and prior to that as a Senior
Microbiologist for Henry Ford Hospital, Detroit, Michigan.
27
<PAGE> 32
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER
The following table sets forth beneficial ownership of Common Stock at
March 31, 1996, and after this offering by the Selling Shareholder.
<TABLE>
<CAPTION>
PRIOR TO THE OFFERING AFTER THE OFFERING
---------------------------------- ----------------------------------
COMMON STOCK SHARES TO COMMON STOCK
NAME BENEFICIALLY OWNED(1) PERCENTAGE BE SOLD BENEFICIALLY OWNED(1) PERCENTAGE
- ---------------------------- --------------------- ---------- --------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
William J. Motto(2)(3)...... 4,625,918 32.3% -- 4,625,918 32.3%
Jerry L. Ruyan(2)(4)........ 2,503,516 17.5% 1,500,000 1,003,516 7.0%
John A. Kraeutler........... 63,378 * -- 63,378 *
Gerard Blain................ 11,482 * -- 11,482 *
Christine A. Meda........... 3,225 * -- 3,225 *
Ching Sui Arthur Yi, Ph.D... 21,255 * -- 21,255 *
Antonio A. Interno.......... 351,553 2.4% -- 351,553 2.4%
James A. Buzard, Ph.D....... 14,807 * -- 14,807 *
Gary P. Kreider............. 30,916 * -- 30,916 *
Robert J. Ready............. 16,063 * -- 16,063 *
--------------------- ---------- --------- --------------------- ----------
All Directors and Executive
Officers as a Group (Ten
Persons).................. 7,642,113 52.0% 1,500,000 6,142,113 41.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes exercisable stock options for Mr. Motto of 44,840 shares, Mr. Ruyan
of 44,840 shares, Mr. Buzard of 13,556 shares, Mr. Ready of 16,063 shares,
Mr. Kreider of 11,050 shares, Mr. Kraeutler of 59,659 shares, Mr. Blain of
9,607 shares, Dr. Yi of 5,642 shares, Mr. Interno of 229,236 shares and Ms.
Meda of 3,225 shares.
(2) Messrs. Motto and Ruyan are parties to an agreement with the Company
pursuant to which they must offer their shares for sale to the Company, and
if it declines to purchase, to the other individual, based on the current
market price, if either of them desires to sell more than 1% of the Common
Stock in any three-month period.
(3) Includes 80,226 shares owned by Mr. Motto's three children in their
individual capacities and 462,873 shares owned as trustees. Mr. Motto
disclaims beneficial ownership of all shares held by his children in their
individual capacities. Also includes 61,146 shares of Common Stock held by
the William J. Motto Charitable Remainder Unitrust.
(4) Includes 125,765 shares held by Mr. Ruyan as Trustee of the Ruyan Family
Charitable Remainder Unitrust and 4,081 shares held as custodian for his
son.
28
<PAGE> 33
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, without par value, and 1,000,000 shares of preferred stock,
without par value. The following description of certain matters relating to the
capital stock of the Company is a summary and is qualified in its entirety of
the provisions of the Company's Articles of Incorporation and Code of
Regulations.
COMMON STOCK
The Company had 14,257,006 shares issued and outstanding immediately prior
to the date of this Prospectus. Holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of
shareholders. Shareholders have the right to cumulate their votes in the
election of directors.
Subject to preferences which may be granted to holders of preferred stock,
holders of Common Stock are entitled to share in such dividends as the Board of
Directors, in its discretion, may validly declare from funds legally available.
In the event of liquidation, each outstanding share of Common Stock entitles its
holder to participate ratably in the assets remaining after payment of
liabilities and any preferred stock liquidation preferences.
Shareholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or any other securities of the
Company and there are no redemption or sinking fund provisions with regard to
the Common Stock. All outstanding shares of Common Stock are fully paid, validly
issued, and non-assessable.
The vote of the holders of 66 2/3% of all outstanding shares is required to
amend the Articles of Incorporation and to approve mergers, reorganizations and
similar transactions.
PREFERRED STOCK
Preferred stock may be issued from time to time in series having such
designated preferences and rights, qualifications and limitations as the Board
of Directors may determine without any approval of shareholders. Preferred stock
could be given voting and conversion rights which would adversely affect the
voting power and equity of holders of Common Stock and could have preference to
Common Stock with respect to dividend and liquidation rights. The preferred
stock could have the effect of acting as an anti-takeover device to prevent a
change of control of the Company. None of the preferred stock is outstanding and
the Company has no plans at present to issue any such shares.
PROVISIONS AFFECTING BUSINESS COMBINATIONS
Ohio law governs the rights of shareholders of the Company. Chapter 1704 of
the Ohio Revised Code may be viewed as having an antitakeover effect. This
statute, in general, prohibits an "issuing public corporation" (the definition
of which would include the Company) from entering into a "Chapter 1704
Transaction" with the beneficial owner (or affiliates of such beneficial owner)
of 10% or more of the outstanding shares of the corporation (an "interested
shareholder") for at least three years following the date on which the
interested shareholder attains such 10% ownership, unless the board of directors
of the corporation approves, prior to such person becoming an interested
shareholder, either the transaction or the acquisition of shares resulting in a
10% ownership. A "Chapter 1704 Transaction" is broadly defined to include, among
other things, a merger or consolidation with, sale of substantial assets to, or
the receipt of a loan, guaranty or other financial benefit (which is not
proportionately received by all shareholders) by the interested shareholder.
Following the expiration of such three-year period, a Chapter 1704 Transaction
with the interested shareholder is permitted only if either (i) the transaction
is approved by the holders of at least two-thirds of the voting power of the
corporation (or such different proportion as set forth in the corporation's
articles of incorporation), including a majority of the outstanding shares,
excluding those owned by the interested shareholder, or (ii) the business
combination results in the shareholders other than the interested shareholder
receiving a prescribed "fair price" for their shares. One significant effect of
Chapter 1704 is to cause an interested shareholder to negotiate with the board
of directors of a corporation prior to becoming an interested shareholder.
29
<PAGE> 34
In addition, Section 1707.043 of the Ohio Revised Code requires a person or
entity that makes a proposal to acquire the control of a corporation to repay to
that corporation any profits made from trades in the corporation's stock within
18 months after making the control proposal.
Section 1701.831 of the Ohio Revised Code contains provisions which permit
a "control share acquisition" of an "issuing public corporation" only with the
prior authorization of a majority of the disinterested shareholders, which could
operate as a deterrent to an acquisition of the Company. However, as permitted
by this Section, the Company's Articles of Incorporation contain a provision
exempting the Company from the operation of this Section. As a result, these
provisions of the Ohio Revised Code will not act as a deterrent to an
acquisition of the Company or the accumulation of a large amount of the
Company's Common Shares. However, the Company's Articles of Incorporation could
be amended in the future to make Section 1701.831 applicable to the Company with
the vote of two-thirds of the shares eligible to vote on the proposal.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for the Company's Common Stock is The
Fifth Third Bank, Cincinnati, Ohio.
30
<PAGE> 35
UNDERWRITING
The several Underwriters named below have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Selling Shareholder the aggregate number of shares of Common Stock (assuming
the Underwriters' over-allotment option is not exercised) set forth below
opposite their respective names.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Cleary Gull Reiland & McDevitt Inc........................................
The Ohio Company..........................................................
Roney & Co................................................................
---------
Total........................................................... 1,500,000
========
</TABLE>
The Underwriting Agreement provides that all of the Common Stock being
offered, excluding shares covered by the over-allotment option granted to the
Underwriters, must be purchased if any are purchased.
The Company has been advised that the several Underwriters propose to offer
the Common Stock to the public at the public offering price set forth on the
cover page of this Prospectus and may offer to selected dealers at such price
less a concession of not more than $ per share; that the Underwriters may
allow and such dealers may reallow a concession of $ per share on sales to
certain other dealers; and that the public offering price and concessions and
reallowances to dealers may be changed by the Underwriters.
The Selling Shareholder has granted the Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
additional 225,000 shares of Common Stock to cover over-allotments, at the same
price per share being paid by the Underwriters for the other shares offered
hereby. If the Underwriters exercise this option in whole or in part, each of
the Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments, if any,
made in connection with the Offering made hereby.
The Company and its present executive officers and directors and the
Selling Shareholder have agreed with the Underwriters that they will not offer
or sell any shares of Common Stock for 90 days and 360 days, respectively, from
the effective date of the Registration Statement without the prior written
consent of Cleary Gull Reiland & McDevitt Inc.
The Underwriting Agreement provides that the Company and the Selling
Shareholder will indemnify the several Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with this offering, the Underwriters and selling group
members (if any) may engage in passive market making transactions in the Common
Stock on the Nasdaq National Market immediately prior to the commencement of
sales in this offering, in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of displaying bids on the Nasdaq National Market
limited by the bid prices of independent market makers and purchases limited by
such prices and effected in response to order flow. Net purchases by a passive
market maker on each day are limited to a specific percentage of the passive
market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Keating, Muething & Klekamp, Cincinnati,
Ohio. Gary P. Kreider, a partner in Keating, Muething & Klekamp, serves as a
director of the Company. Members of that firm beneficially own 34,357 shares of
Common Stock. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Foley & Lardner, Milwaukee, Wisconsin.
31
<PAGE> 36
EXPERTS
The audited financial statements and schedules included or incorporated by
reference in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
32
<PAGE> 37
GLOSSARY OF SELECTED TERMS
The following glossary defines terms used to describe the Company's
business.
ANTIBODY. Highly specific proteins that bind with and counteract antigens.
Immunoassays make use of the specific binding properties of antibodies with
antigens in diagnostic tests.
ANTIGEN. A foreign substance, generally produced by a bacterium, virus or
fungus which immunoassays measure, that induces the formation of antibodies.
ASPERGILLUS. A fungus which is an opportunistic pathogen and may produce a
severe and persistent infection.
ASSAY. Any test procedure used to detect or measure a specific substance
in body fluids.
BLASTOMYCES. A fungus which causes infection due to inhalation through the
pulmonary route. Infection is marked by tumors in the skin or by lesions in the
lungs, bones, tissues, liver, spleen and kidneys.
C. DIFFICILE. A bacteria (Clostridium difficile) which causes a series
diarrheal disease affecting the digestive system. Toxigenic strains of C.
difficile produce two toxins having pathogenic effects in humans. Toxin A causes
enteric fluid accumulation, diarrhea and intestinal hemorrhaging. It has been
hypothesized that, once the colon is damaged by toxin A, toxin B can enter the
circulatory system and cause widespread tissue deterioration.
COCCIDIOIDES. A fungus which causes infection due to the inhalation of
spores. The primary form of the disease is an acute respiratory infection. It is
primarily endemic in arid areas such as southern Arizona and Southern California
and is commonly known as "Valley Fever".
CRYPTOCOCCUS. An opportunistic yeastlike organism which infects humans,
causing an infection involving the skin, lungs, brain and spinal column,
commonly associated with immunocompromised patients, such as those suffering
from AIDS and cancer.
CRYPTOSPORIDIUM. A severe parasitic infection of the gastrointestinal
tract causing severe diarrhea, abdominal pain and electrolyte imbalance.
CYTOMEGALOVIRUS. One of a group of herpes viruses that infect humans. This
virus can cause a variety of symptoms, but the majority of infections are very
mild or subclinical.
ENZYME. Protein which accelerates reactions between substances; used to
produce a color in enzyme immunoassays.
ENZYME IMMUNOASSAY ("EIA"). Immunoassay using an enzyme conjugated to the
antigen or a specific antibody which is used to detect its homologous antibody
or antigen.
FUNGAL SEROLOGY. Diagnosis of fungus-related systemic and respiratory
infections.
GIARDIA. The most common single-celled parasite which is spread via
contaminated food and water and direct person-to-person contact. Representing
the most common parasitic disease, it infects the small intestine, producing
diarrhea, gastrointestinal discomfort, electrolyte imbalance, nausea and weight
loss.
H. PYLORI. Helicobacter pylori is the most common and important cause of
gastritis and has been linked to the cause of chronic recurrent duodenal ulcers.
Treatments that eradicate H. pylori have produced dramatic reductions in ulcer
recurrence.
HERPES SIMPLEX VIRUS. A herpes virus which is characterized by the
formation of clusters of small vesicles and causes an inflammatory skin disease.
HISTOPLASMA. A fungus which causes infection due to the inhalation or
ingestion of spores. The infection is usually asymptomatic, but may cause acute
pneumonia.
IMMUNOASSAY. Procedure using antigens and antibodies to detect and measure
minute concentrations of biological materials; includes radioimmunoassay and
nonisotopic assays, which do not use radioactive materials, such as enzyme
immunoassay.
IMMUNODIAGNOSTIC. Diagnosis based on blood serum reactions to antigens.
33
<PAGE> 38
IMMUNODIFFUSION. A technique of study of antigen-antibody reactions by
observing precipitates formed by the combination of specific antigens and
antibodies which have diffused in a gel in which they had been separately
placed.
IMMUNOFLUORESCENCE. The use of fluorescence-labeled antibodies to identify
bacterial, viral or other antigenic material specific to the labeled antibody.
IN VITRO. Outside the living body, for example, in a test tube.
MONONUCLEOSIS. A common, acute, self-limited disease caused by the
Epstein-Barr virus.
MONOCLONAL ANTIBODY. An antibody produced from a single clone of a plasma
cell against a single antigenic epitope.
PARASITOLOGY. The study of the diseased condition resulting from parasitic
infection.
PARTICLE AGGLUTINATION. A test format in which antigens or antibodies bind
to solid particles enabling visualization of test result.
PATHOGEN. An agent that causes disease such as a bacterium, virus or
fungi.
PNEUMOCYSTIS. A microorganism which is the causative agent of a highly
contagious, epidemic pneumonia.
POLYCLONAL ANTIBODY. Antibodies produced from a series of plasma cells
against a variety of antigenic epitopes.
REAGENTS. Biological chemicals required to perform immunoassays; includes
antibodies and antigens.
STREP A. A classification of streptococci based upon cell-wall
carbohydrate antigens. Streptococci Group A are bacteria which cause conditions
such as septic sore throat, scarlet fever, and rheumatic fever.
34
<PAGE> 39
MERIDIAN DIAGNOSTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of September 30, 1995 and 1994....................... F-3
Consolidated Statements of Earnings for the Years Ended September 30, 1995, 1994 and
1993.............................................................................. F-4
Consolidated Statements of Shareholders' Equity for the Years Ended September 30,
1995, 1994 and 1993............................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1994
and 1993.......................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Consolidated Balance Sheets as of March 31, 1996 (unaudited) and September 30,
1995.............................................................................. F-16
Consolidated Statements of Earnings for the Six Months Ended March 31, 1996 and 1995
(unaudited)....................................................................... F-18
Consolidated Statements of Shareholders' Equity for the Six Months Ended March 31,
1996 (unaudited).................................................................. F-19
Consolidated Statements of Cash Flows for the Six Months Ended March 31, 1996 and
1995 (unaudited).................................................................. F-20
Notes to Consolidated Financial Statements (unaudited).............................. F-21
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Meridian Diagnostics, Inc.:
We have audited the accompanying consolidated balance sheets of MERIDIAN
DIAGNOSTICS, INC. and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended September 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Meridian Diagnostics, Inc.
and subsidiaries as of September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
November 10, 1995
F-2
<PAGE> 41
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments (Note 2).................................. $ 8,918,637 $ 8,831,983
Accounts receivable, less allowance of $164,136 in 1995 and $113,183 in
1994 for doubtful accounts.............................................. 6,482,999 5,169,989
Inventories (Note 3)...................................................... 3,032,655 3,020,071
Prepaid expenses and other................................................ 321,775 108,423
Deferred tax assets....................................................... 324,910 282,929
------- -------
Total current assets............................................... 19,080,976 17,413,395
------- -------
Property, Plant and Equipment:
Land...................................................................... 269,217 273,688
Buildings and improvements................................................ 6,162,668 3,716,649
Machinery, equipment and furniture........................................ 5,525,455 4,595,550
Construction in progress.................................................. -- 1,063,702
------- -------
11,957,340 9,649,589
Less -- accumulated depreciation and amortization......................... 4,816,905 4,248,561
------- -------
Net property, plant and equipment.................................. 7,140,435 5,401,028
------- -------
Other Assets (Notes 1 and 4):
Long-term receivable...................................................... 12,670 --
Deferred tax assets....................................................... 87,879 59,841
Deferred debenture offering costs, net of accumulated amortization of
$133,357 in 1995 and $96,876 in 1994.................................... 395,731 665,595
Covenants not to compete, net of accumulated amortization of $1,827,718 in
1995 and $1,337,375 in 1994............................................. 2,432,876 2,923,219
License agreements, net of accumulated amortization of $772,433 in 1995
and $714,878 in 1994.................................................... 362,680 420,235
Patent, tradenames and distributorships, net of accumulated amortization
of $475,762 in 1995 and $267,365 in 1994................................ 1,837,238 2,045,635
Other intangible assets, net of accumulated amortization of $85,570 in
1995 and $43,503 in 1994................................................ 620,192 685,218
Cost in excess of net assets acquired, net of accumulated amortization of
$458,482 in 1995 and $255,753 in 1994................................... 2,598,511 2,714,964
------- -------
Total other assets................................................. 8,347,777 9,514,707
------- -------
Total assets....................................................... $34,569,188 $32,329,130
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations (Note 5)......................... $ 381,932 $ 367,969
Current portion of capital lease obligations (Note 5)..................... 63,561 --
Accounts payable.......................................................... 689,869 1,843,489
Accrued payroll and payroll taxes......................................... 723,946 650,530
Other accrued expenses.................................................... 937,348 649,732
Income taxes payable...................................................... 458,707 902,069
------- -------
Total current liabilities.......................................... 3,255,363 4,413,789
------- -------
Long-Term Obligations (Note 5).............................................. 12,285,668 14,683,369
------- -------
Capital Lease Obligations (Note 5).......................................... 149,925 --
------- -------
Shareholders' Equity (Note 7):
Preferred stock, no par value, 1,000,000 shares authorized; none issued... -- --
Common stock, no par value, 25,000,000 shares authorized; 12,924,814 and
12,292,935 shares issued and outstanding, respectively, stated at....... 1,487,159 1,179,583
Additional paid-in capital................................................ 13,895,901 10,824,012
Retained earnings......................................................... 3,747,930 1,448,736
Cumulative foreign currency translation adjustment........................ (252,758) (220,359)
------- -------
Total shareholders' equity......................................... 18,878,232 13,231,972
------- -------
Total liabilities and shareholders' equity......................... $34,569,188 $32,329,130
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE> 42
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales........................................... $25,109,711 $21,876,773 $16,170,990
Cost of Sales....................................... 8,008,529 7,518,179 5,097,988
----------- ----------- -----------
Gross profit.............................. 17,101,182 14,358,594 11,073,002
----------- ----------- -----------
Operating Expenses:
Research and development.......................... 1,432,315 1,432,928 1,165,210
Selling and marketing............................. 5,228,717 4,747,398 3,715,517
General and administrative........................ 3,864,294 3,364,584 2,667,172
----------- ----------- -----------
Total operating expenses.................. 10,525,326 9,544,910 7,547,899
----------- ----------- -----------
Operating income.......................... 6,575,856 4,813,684 3,525,103
Other Income (Expense):
Licensing and related fees........................ 102,698 -- 55,000
Interest income................................... 435,686 253,644 56,551
Interest expense.................................. (1,134,844) (1,092,345) (178,950)
Cost of withdrawn stock offering.................. -- -- (404,499)
Other, net........................................ (19,470) 8,420 48,153
----------- ----------- -----------
Total other income (expense).............. (615,930) (830,281) (423,745)
----------- ----------- -----------
Earnings before income taxes.............. 5,959,926 3,983,403 3,101,358
Income Taxes (Note 6)............................... 2,435,815 1,542,282 1,211,904
----------- ----------- -----------
Net earnings.............................. $ 3,524,111 $ 2,441,121 $ 1,889,454
=========== =========== ===========
Primary Weighted Average Number of Common Shares
Outstanding....................................... 12,354,752 12,277,392 12,263,791
=========== =========== ===========
Primary Earnings Per Common Share................... $ .29 $ .20 $ .15
=========== =========== ===========
Fully Diluted Weighted Average Number of Common
Shares Outstanding................................ 14,541,603 NA NA
=========== =========== ===========
Fully Diluted Earnings Per Common Share............. $ .28 NA NA
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 43
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE
COMMON FOREIGN
SHARES ADDITIONAL CURRENCY
ISSUED AND COMMON PAID-IN RETAINED TRANSLATION
OUTSTANDING STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
----------- ---------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1992... 7,705,453 $ 851,975 $ 7,563,763 $ 2,258,187 $ 2,560 $10,676,485
Net earnings.................... -- -- -- 1,889,454 -- 1,889,454
Cash dividends paid -- $.06 per
share as adjusted............. -- -- -- (702,325) -- (702,325)
Exercise of stock options....... 1,249 900 4,839 -- -- 5,739
3% stock dividend............... 231,201 154,142 1,811,067 (1,965,209) -- --
Foreign currency translation
adjustment.................... -- -- -- -- (252,341) (252,341)
----------- ---------- ----------- ---------- --------- -----------
Balance at September 30, 1993... 7,937,903 1,007,017 9,379,669 1,480,107 (249,781) 11,617,012
Net earnings.................... -- -- -- 2,441,121 -- 2,441,121
Cash dividends paid -- $.08 per
share as adjusted............. -- -- -- (908,209) -- (908,209)
Exercise of stock options....... 18,689 12,638 39,988 -- -- 52,626
3% stock dividend............... 238,698 159,928 1,404,355 (1,564,283) -- --
Foreign currency translation
adjustment.................... -- -- -- -- 29,422 29,422
----------- ---------- ----------- ---------- --------- -----------
Balance at September 30, 1994... 8,195,290 1,179,583 10,824,012 1,448,736 (220,359) 13,231,972
Net earnings.................... -- -- -- 3,524,111 -- 3,524,111
Fractional shares............... (570) (293) (3,049) -- -- (3,342)
Cash dividends paid -- $.10 per
share as adjusted............. -- -- -- (1,224,917) -- (1,224,917)
Exercise of stock options....... 42,849 14,961 34,131 -- -- 49,092
3 for 2 stock split............. 4,097,645 -- -- -- -- --
Debenture Conversions (Note
5)............................ 589,600 292,908 3,040,807 -- -- 3,333,715
Foreign currency translation
adjustment.................... -- -- -- -- (32,399) (32,399)
----------- ---------- ----------- ---------- --------- -----------
Balance at September 30, 1995... 12,924,814 $1,487,159 $13,895,901 $ 3,747,930 $(252,758) $18,878,232
=========== ========== =========== ========== ========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 44
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings............................................... $ 3,524,111 $ 2,441,121 $ 1,889,454
Non-cash items --
Depreciation and amortization of property, plant and
equipment............................................. 863,436 703,190 580,979
Amortization of intangible assets....................... 1,147,987 1,009,950 471,045
Deferred interest expense............................... 154,950 94,978 --
Revenues received in advance recorded in income......... -- -- (55,000)
Deferred income taxes................................... (70,019) (263,977) 28,079
Changes in current assets excluding cash and short-term
investments............................................. (1,611,612) (1,865,471) (1,328,516)
Changes in current liabilities excluding current portion of
long-term obligations................................... (1,150,277) 2,305,066 516,355
Long-term receivable and payable........................... (2,470) -- --
----------- ----------- -----------
Net cash provided by operating activities.......... 2,856,106 4,424,857 2,102,396
----------- ----------- -----------
Cash Flows from Investing Activities:
Property, plant, and equipment acquired, net............... (2,472,177) (1,426,485) (718,135)
Product line acquisition --
Inventory and equipment................................. -- (571,446) (262,972)
Covenants not to compete................................ -- (1,100,000) (1,500,000)
Patent, tradenames, customer lists and other............ -- (1,375,000) (1,394,000)
Cost in excess of net assets acquired................... -- (346,434) (297,722)
Proceeds from sale of product line......................... -- 500,000 --
Acquisition of license agreements.......................... -- (55,898) (80,000)
Advance royalties paid..................................... -- (25,000) --
----------- ----------- -----------
Net cash used for investing activities............. (2,472,177) (4,400,263) (4,252,829)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from subordinated debentures, net of offering
costs................................................... -- -- 10,737,530
Proceeds from other long-term obligations.................. 1,284,005 634,970 --
Repayment of long-term obligations......................... (388,246) (462,339) (219,145)
Dividends paid............................................. (1,224,917) (908,209) (702,325)
Proceeds from issuance of common stock..................... 45,750 52,626 5,739
Effect of exchange rate changes on cash.................... (13,867) 14,749 (6,229)
----------- ----------- -----------
Net cash provided by (used for) financing
activities....................................... (297,275) (668,203) 9,815,570
----------- ----------- -----------
Net Increase (Decrease) in Cash and Short-Term Investments... 86,654 (643,609) 7,665,137
Cash and Short-Term Investments at Beginning of Period....... 8,831,983 9,475,592 1,810,455
----------- ----------- -----------
Cash and Short-Term Investments at End of Period............. $ 8,918,637 $ 8,831,983 $ 9,475,592
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for --
Income taxes............................................ $ 2,882,336 $ 1,034,000 $ 1,195,000
Interest................................................ 883,356 852,265 160,062
Capitalized lease obligations.............................. 259,240 -- --
Estimated contingent consideration related to product line
acquisitions (Note 5)................................... -- 1,972,000 --
Conversion of debentures to common stock, net of
amortization of deferred debenture offering costs of
$186,285 (Note 5)....................................... 3,333,715 -- --
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 45
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Meridian Diagnostics, Inc. and its subsidiaries, Omega
Technologies, Inc., Meridian Diagnostics Europe s.r.1. ("MDE") and Meridian
Diagnostics International, Inc. (collectively, "Meridian" or the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(b) SHORT-TERM INVESTMENTS -- The Company adopted Statement of Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115), in 1995. In accordance with FAS 115, prior years'
financial statements have not been restated to reflect the change in accounting
method. There was no cumulative effect as a result of adopting FAS 115 in 1995.
Debt securities for which the Company does not have the intent or ability
to hold to maturity are classified as available for sale, along with any equity
securities. At September 30, 1995, the Company's investments in debt and equity
securities were classified as cash and short-term investments due to their
short-term nature. These investments are diversified among high credit quality
securities. The estimated fair value of cash investments approximates cost, and
therefore, there are no unrealized gains or losses as of September 30, 1995.
(c) INVENTORIES -- Inventories are stated at the lower of cost, determined
on a first-in, first-out basis, or market.
(d) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are
stated at cost. Upon retirement or other disposition of property, plant and
equipment, the cost and related accumulated depreciation and amortization are
removed from the accounts and the resulting gain or loss is reflected in
earnings. Maintenance and repairs are expensed as incurred. Depreciation and
amortization are computed on the straight-line method in amounts sufficient to
writeoff the cost over the estimated useful lives as follows:
Buildings and improvements -- 5 to 33 years
Machinery, equipment and furniture -- 3 to 10 years
(e) OTHER ASSETS -- Other assets are stated at cost less accumulated
amortization and are being amortized on a straight line basis over their
estimated useful lives:
Covenants not to compete -- 7 to 10 years
License agreements -- 3 to 10 years
Patents, tradenames and distributorships -- 10 to 15 years
Cost in excess of net assets acquired and other intangible
assets -- 15 years
Deferred debenture offering costs -- 8 years
Subsequent to their acquisition, the Company continually evaluates whether
subsequent events and circumstances have occurred that indicate the remaining
estimated useful lives of intangible assets may warrant revision or that the
remaining balances of these assets may not be recoverable. When factors indicate
that an intangible asset should be evaluated for possible impairment, the
Company uses an estimate of the related product line's cash flow over the
remaining life of the asset in measuring whether the asset is recoverable.
(f) INCOME TAXES -- The provision for income taxes includes federal,
foreign, state and local income taxes currently payable and those deferred
because of temporary differences between income for financial reporting and
income for tax purposes. Research and experimentation credits are reflected as a
reduction in income taxes when realized.
F-7
<PAGE> 46
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Prior period
financial statements have not been restated to reflect the new accounting
method. The cumulative effect of this change, as well as the effect of this new
standard on income tax expense for the year ended September 30, 1994, and for
each of the quarters in the period then ended, is not material.
(g) EARNINGS PER COMMON SHARE -- Primary earnings per common share are
based on the weighted average number of common shares outstanding during the
year. No material dilution results from outstanding stock options which are the
only common stock equivalent. Fully diluted earnings per share are dilutive for
fiscal 1995 only and include the impact of assuming the convertible subordinated
debentures are converted, net of the impact of pro forma interest expense.
On September 12, 1995, the Company's Board of Directors declared a
three-for-two stock split to shareholders of record on September 22, 1995. On
November 16, 1994, the Company's Board of Directors declared a 3% stock
dividend. On December 1, 1993, the Company's Board of Directors declared a 3%
stock dividend. On November 23, 1992, the Company's Board of Directors declared
a 5% stock dividend, and in March 1992, the Company's Board of Directors
declared a three-for-two stock split. All data with respect to earnings per
share, dividends per share and weighted average number of shares outstanding has
been retroactively adjusted to reflect the stock splits and stock dividends.
(h) RESEARCH AND DEVELOPMENT COSTS -- Research and development costs are
charged to earnings as incurred.
(i) REVENUE RECOGNITION -- Revenue is recognized from sales when a product
is shipped. Income from licensing agreements is recognized as earned and as
stipulated by the respective agreements.
(j) TRANSLATION OF FOREIGN CURRENCY -- Assets and liabilities of foreign
operations are translated using year-end exchange rates and revenues and
expenses are translated using exchange rates prevailing during the year, with
gains or losses resulting from translation included in a separate component of
shareholders' equity. Gains and losses resulting from transactions in foreign
currencies were immaterial.
(k) SEGMENT DATA AND MAJOR CUSTOMERS -- The Company was formed in June 1976
and functions as a research, development, manufacturing, marketing and sales
organization with primary emphasis in the field of diagnostic tests for
infectious diseases. The Company grants credit under normal terms to its
customers, primarily to hospitals, commercial laboratories and distributors in
the United States and Europe.
A summary of the Company's international operations is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales...................................... $5,811,000 $4,609,000 $2,930,000
Operating profit............................... 1,233,000 801,000 462,000
Pre-tax income................................. 979,000 579,000 446,000
Identifiable assets............................ 4,583,000 3,904,000 2,657,000
Accounts receivable............................ 2,538,000 2,052,000 1,313,000
</TABLE>
Consolidated sales in thousands of dollars to individual customers
constituting 10% or more of net sales were as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Customer A............................ $6,033 (24%) $5,042 (23%) $4,254 (26%)
Customer B............................ 2,569 (10%) 2,073 (9%) 1,823 (11%)
</TABLE>
F-8
<PAGE> 47
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments (with maturities of less than 4 months) are
comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash and money market funds................................. $1,562,795 $2,865,966
Commercial paper............................................ 3,655,842 3,996,017
Corporate and municipal put bonds........................... 3,700,000 1,970,000
---------- ----------
$8,918,637 $8,831,983
========== ==========
</TABLE>
At September 30, 1995 and 1994, the market value of the Company's
investments approximated cost. The municipal put bonds are putable every seven
days and the principal balance is secured by a bank letter of credit.
(3) INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Raw materials............................................... $1,165,319 $1,354,412
Work-in-process............................................. 626,077 649,205
Finished goods.............................................. 1,241,259 1,016,454
---------- ----------
$3,032,655 $3,020,071
========== ==========
</TABLE>
(4) PRODUCT AND LICENSE AGREEMENT ACQUISITIONS
(a) PRODUCT LINES -- In January 1994, the Company acquired a product line
from an affiliate of Ortho Diagnostic Systems, Inc. ("ODSI"), a subsidiary of
Johnson & Johnson, comprised of products used primarily for the detection of
certain infectious diseases including Chlamydia, Herpes and various viral
respiratory infections. The Company also acquired inventory, equipment, certain
license rights, a trademark, customer lists, a noncompetition agreement and
technical information for the manufacture of the products.
The purchase included $3,300,000 in cash paid to ODSI and $82,000 of
expenses. As additional consideration, Meridian will pay ODSI up to 6% of
product sales made during the nine-year period beginning in January 1995. The
Company has recorded the estimated present value of this additional
consideration (Note 5).
In a separate agreement dated March 14, 1994, the Company sold to VAI
Diagnostics, Inc. certain tissue culture products and assets acquired in January
1994 from the affiliate of ODSI mentioned above. The $650,000 proceeds consisted
of cash of $500,000, which was paid upon execution of the agreement, and
$150,000 in an unsecured promissory note due in mid-1997. No gain or loss was
recognized on this transaction.
Also, in June 1993, the Company acquired a product line from ODSI which
consisted of the branded products MONOSPOT and MONOLERT, which are rapid tests
for infectious mononucleosis. The acquisition included certain patent and
trademark rights, customer lists, inventory, technical information for the
manufacture of the products, certain equipment and a noncompetition agreement.
The purchase included $3,100,000 in cash paid to ODSI at the acquisition
date, inventory purchased at unit prices specified in the agreement which
aggregated approximately $233,000 and $122,000 of expenses. As
F-9
<PAGE> 48
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional consideration, Meridian will pay ODSI 6% of product sales made during
the three-year period beginning July 1, 1996. The Company has recorded the
estimated present value of this additional consideration (Note 5). The Company
also assumed ODSI's royalty obligations (equal to 4.25% of MONOLERT sales) to
The Scripps Research Institute ("Scripps"). The obligation to pay royalties to
Scripps expires in 2009.
(b) LICENSE AGREEMENTS -- The Company has entered various license
agreements as follows:
<TABLE>
<CAPTION>
DATE ACQUIRED LICENSOR/PRODUCT TERM COST
- -------------- ----------------------- -------------------------- -----------------------
<S> <C> <C> <C>
October 1993 New England Medical fifteen years $81,000 of which
Center Hospital/E. coli $25,000 to be offset
Test against future
royalties
January 1993 Tacoma Trading ten years $80,000
Company/parasitology
concentration and
transport system
July 1991 Texas BioResource five years, option to $100,000 to be offset
Corp./bacterial urinary extend for two additional against future
tract infection test five-year terms royalties, option to
purchase 25,062 shares
of common stock which
vests at the end of the
agreement
April 1991 Disease Detection ten years, option to $442,000
International, extend for two additional
Inc./rapid tests for ten-year terms
the detection of strep
throat, pregnancy,
Toxoplasma, Rubella,
Cytomegalovirus and
Herpes
</TABLE>
F-10
<PAGE> 49
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM OBLIGATIONS, BANK CREDIT ARRANGEMENTS AND COMMITMENTS
(a) LONG-TERM OBLIGATIONS -- Long-term obligations is comprised of the
following at:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Convertible Subordinated Debentures, unsecured, 7 1/4%
annual interest payable semi-annually on March 1 and
September 1, principal due September 1, 2001............ $ 7,980,000 $11,500,000
Domestic bank notes payable, secured by real estate and
accounts receivable:
Interest at 5.5%, payable in monthly installments of
$16,276 with a balloon payment of $32,552 in March
1996................................................. 113,932 292,969
Interest at prime + 1/2% (9.25% at September 30, 1995),
payable in monthly installments of $6,250 with a
balloon payment of $375,000 in March 1997............ 481,250 556,250
Construction loan, interest at 7% to be converted to a 7%,
twenty-year amortization mortgage note, payable in
monthly installments of $14,878 beginning August 1996
and a balloon payment of $1,478,357 due July 2003....... 1,918,975 634,970
Estimated contingent consideration payable to ODSI,
discounted at 7.25%, payable in quarterly variable
installments, based on a percent of certain product
sales, from 1995 to 2004 (Note 4)....................... 2,163,244 2,067,149
Other..................................................... 10,199 --
----------- -----------
12,667,600 15,051,338
Less -- Current portion................................... 381,932 367,969
----------- -----------
$12,285,668 $14,683,369
=========== ===========
</TABLE>
The Convertible Debentures were called for redemption on October 10, 1995.
Holders of the Debentures have the option of converting their Debentures into
shares of Meridian Diagnostics' common stock prior to the redemption date of
November 30, 1995, at a conversion price of $5.97 per share or, upon delivery of
the Debentures, receiving cash. The Debentures will be redeemed at 105% of their
face amount plus accrued interest. The conversion price of $5.97 per share is
equivalent to a conversion rate of 167.5 shares per each $1,000 principal amount
of Debentures. Through September 30, 1995, $3,520,000 of Debentures were
converted to common stock net of $186,000 of deferred debenture offering costs,
which were charged to additional paid-in capital. As of November 10, 1995,
$1,074,000 of Debentures were outstanding.
On a pro forma basis, assuming full conversion of the Debentures as of
October 1, 1994, primary earnings per share for the year ended September 30,
1995 would have been reduced by $0.01 per share from $0.29 per share to $0.28
per share.
The domestic bank notes payable are part of a bank credit arrangement which
also includes a $6,000,000 line of credit which calls for interest at the prime
rate and is part of the same security agreement. There were no borrowings
outstanding on the line of credit at September 30, 1995. In connection with the
bank credit arrangement, the Company has agreed, among other things, to meet
certain financial ratio requirements and to limit additional indebtedness.
F-11
<PAGE> 50
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities on the above long-term obligations are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 381,932
1997............................................................ 771,672
1998............................................................ 379,451
1999............................................................ 372,479
2000............................................................ 285,985
Thereafter...................................................... 10,476,081
-----------
$12,667,600
===========
</TABLE>
(b) CAPITAL LEASE OBLIGATIONS -- The Company leases equipment with cost and
related accumulated depreciation of $259,240 and $56,953, respectively, under
capital leases expiring in various years through 2002. Amortization of assets
under capital leases is included in depreciation expense.
The future minimum annual rentals under the capital leases at September 30,
1995 are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 73,623
1997............................................................ 75,325
1998............................................................ 22,851
1999............................................................ 22,851
2000............................................................ 21,791
Thereafter...................................................... 34,148
--------
Subtotal........................................................ $250,589
Less portion of payments representing interest.................. (37,103)
--------
Present value of lease payments................................. $213,486
========
</TABLE>
(c) COMMITMENTS -- The Company has royalty agreements with various parties
which require the Company to pay a specified percentage of the sales of certain
products (1% to 10%). Royalty expenses for the years ended September 30, 1995,
1994 and 1993 were approximately $408,000, $357,000 and $280,000 respectively.
F-12
<PAGE> 51
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Currently payable............................ $1,866,090 $1,337,356 $ 884,296
Temporary differences --
Revenue received in advance............... -- -- 18,700
Tax depreciation greater (less) than book
depreciation............................ (26,842) (6,800) (6,561)
State franchise taxes..................... (14,335) (26,520) 2,959
Currently nondeductible expenses.......... (13,720) (42,745) 8,809
Intangible asset amortization............. (155,693) (134,627) --
Other, net................................ 117,224 (5,100) 598
---------- ---------- ----------
1,772,724 1,121,564 908,801
State and local................................ 240,662 201,000 104,116
Foreign........................................ 422,429 219,718 198,987
---------- ---------- ----------
Total provision for income taxes..... $2,435,815 $1,542,282 $1,211,904
========== ========== ==========
</TABLE>
The following is a reconciliation between the statutory federal income tax
rate and the effective rate derived by dividing the provision for income taxes
by earnings before income taxes:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed provision for income
taxes at statutory rate..... $2,026,375 34.0% $1,354,357 34.0% $1,054,462 34.0%
Increase/(decrease) in taxes
resulting from --
State and local income
taxes, net of federal
income tax effect........ 158,837 2.7 132,660 3.3 68,684 2.2
Foreign taxes............... 154,399 2.6 64,703 1.6 69,453 2.2
Research and experimentation
tax credits.............. -- -- -- -- (4,000) (.1)
Amortization of cost in
excess of net assets
acquired................. 8,033 .1 8,033 .2 8,033 .3
Tax exempt income........... (38,003) (.6) (14,022) (.4) (2,608) (.1)
Foreign Sales Corporation
benefit.................. (34,250) (.6) (18,333) (.4) (2,000) (.1)
Officers Life Insurance..... 22,384 .4 -- -- -- --
Other, net.................. 138,040 2.3 14,884 .4 19,880 .7
---------- ---- ---------- ---- ---------- ----
Actual provision for
income taxes...... $2,435,815 40.9% $1,542,282 38.7% $1,211,904 39.1%
========== ==== ========== ==== ========== ====
</TABLE>
F-13
<PAGE> 52
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax assets were as follows at:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
State income taxes......................................... $ 67,966 $ 60,573
Currently nondeductible expenses........................... 126,663 104,073
Intangible asset amortization.............................. 321,843 173,686
Other...................................................... 135,455 118,283
--------- ---------
Total.............................................. $ 651,927 $ 456,615
--------- ---------
Deferred tax liabilities:
Depreciation............................................... (27,295) (113,845)
Other...................................................... (211,843) --
--------- ---------
Total.............................................. $(239,138) $(113,845)
--------- ---------
Net deferred tax assets............................ $ 412,789 $ 342,770
========= =========
</TABLE>
No valuation allowances are recorded against deferred tax assets or
deferred tax liabilities at September 30, 1995 or 1994.
(7) EMPLOYEE BENEFITS
(a) SAVINGS AND INVESTMENT PLAN -- The Company has a profit sharing and
retirement savings plan covering substantially all full-time employees. Profit
sharing contributions to the plan, which are discretionary, are determined by
the Board of Directors. The plan permits participants to contribute to the plan
through salary reduction. Under terms of the plan, the Company will match up to
3% of the employee contributions. Discretionary and matching contributions by
the Company to the plan amounted to approximately $273,000, $270,000, and
$219,000, during 1995, 1994 and 1993, respectively.
(b) STOCK OPTIONS -- At September 30, 1995, 1,431,235 of the authorized but
unissued common shares of the Company were reserved for issuance to directors,
executives, key employees and consultants for stock options. Of the reserved
shares, 773,663 were subject to options outstanding at September 30, 1995.
Options may be granted at exercise prices from 95% to 110% of the market value
of the underlying common stock on the date of grant and become exercisable on
vesting schedules established at the time of grant. All options contain
provisions restricting their transferability and limiting their exercise in the
event of termination of employment or the disability or death of the optionee.
Options may be granted both as Incentive Stock Options designed to provide
certain tax benefits under the Internal Revenue Code and as Nonqualified Options
without such tax benefits.
F-14
<PAGE> 53
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions involving the stock options are shown in the table below:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of period (from $1.05 to
$7.57 per share).................................... 659,715 518,580 395,671
Granted (from $4.69 to $6.42 per share)............... 189,188 185,422 125,413
Expired or canceled................................... (17,817) (8,950) (517)
Exercised*............................................ (57,423) (35,337) (1,987)
------- ------- -------
Outstanding at end of period (from $1.05 to $7.57 per
share).............................................. 773,663 659,715 518,580
======= ======= =======
Exercisable at end of period (from $1.05 to $7.57 per
share).............................................. 353,541 227,136 135,477
======= ======= =======
</TABLE>
- ---------------
* Includes 14,574 shares surrendered in conjunction with the exercise of stock
options.
(c) OTHER BENEFITS -- The Company does not provide postretirement or
postemployment benefits to its employees.
(8) QUARTERLY FINANCIAL DATA -- UNAUDITED (Amounts in thousands, except for per
share data)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED IN FISCAL 1995
-----------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
<S> <C> <C> <C> <C>
Net sales...................................... $ 5,106 $6,469 $ 6,782 $6,753
Gross profit................................... 3,397 4,355 4,525 4,824
Net earnings................................... 430 945 985 1,164
Primary earnings per common share.............. .04 .08 .08 .09
Cash dividends per common share................ .02 .02 .03 .03
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED IN FISCAL 1994
-----------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
<S> <C> <C> <C> <C>
Net sales...................................... $ 3,625 $5,891 $ 5,717 $6,644
Gross profit................................... 2,486 3,557 3,685 4,631
Net earnings................................... 200 610 603 1,028
Primary earnings per common share.............. .01 .05 .05 .09
Cash dividends per common share................ .02 .02 .02 .02
</TABLE>
F-15
<PAGE> 54
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments................................. $10,244,476 $ 8,918,637
Accounts receivable, less allowance of $150,755 and $164,136
for doubtful accounts........................................ 6,534,178 6,482,999
Inventories..................................................... 3,330,673 3,032,655
Prepaid expenses and other...................................... 588,299 165,553
Deferred tax assets............................................. 409,605 324,910
----------- -------------
Total current assets......................................... 21,107,231 18,924,754
----------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land............................................................ 273,822 269,217
Building improvements........................................... 5,968,729 6,162,668
Machinery, equipment and furniture.............................. 5,727,552 5,525,455
Construction in progress........................................ 77,280 --
----------- -------------
12,047,383 11,957,340
Less -- Accumulated depreciation and amortization............... 4,975,620 4,816,905
----------- -------------
Net property, plant and equipment............................ 7,071,763 7,140,435
----------- -------------
OTHER ASSETS:
Long-term receivables, including cash surrender value of
insurance policies........................................... 184,804 168,892
Deferred royalties.............................................. 97,946 74,762
Deferred tax assets............................................. 177,879 87,879
Deferred debenture offering costs, net of accumulated
amortization of $133,357..................................... -0- 395,731
Covenants not to compete, net of accumulated amortization
of $2,072,892 and $1,827,718................................. 2,187,702 2,432,876
License agreements, net of accumulated amortization of
$801,210 and $772,433........................................ 333,903 362,680
Patents, trade names, customer lists and distributorships, net
of accumulated amortization of $579,960 and $475,762......... 1,733,040 1,837,238
Other intangible assets, net of accumulated amortization of
$106,603 and $85,570......................................... 524,397 545,430
Costs in excess of net assets acquired, net of accumulated
amortization of $560,630 and $458,482........................ 2,496,363 2,598,511
----------- -------------
Total other assets........................................... 7,736,034 8,503,999
----------- -------------
Total assets................................................. $35,915,028 $ 34,569,188
========== ==========
</TABLE>
F-16
<PAGE> 55
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations........................ $ 2,723,000 $ 381,932
Current portion of capital lease obligations.................... 108,649 63,561
Accounts payable................................................ 786,117 689,869
Accrued payroll and payroll taxes............................... 505,387 723,946
Other accrued expenses.......................................... 1,109,513 937,348
Income taxes payable............................................ 1,296,820 458,707
----------- -------------
Total current liabilities.................................. 6,529,486 3,255,363
----------- -------------
LONG-TERM OBLIGATIONS............................................. 1,907,959 12,285,668
----------- -------------
CAPITAL LEASE OBLIGATIONS......................................... 387,438 149,925
----------- -------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 1,000,000 shares authorized; none
issued
Common stock, no par value, 50,000,000 shares authorized;
14,257,006 and 12,924,814 shares issued and outstanding
respectively, stated at...................................... 2,372,646 1,487,159
Additional paid-in capital...................................... 20,434,464 13,895,901
Retained earnings............................................... 4,500,496 3,747,930
Foreign currency translation adjustment......................... (217,461) (252,758)
----------- -------------
Total shareholders' equity................................. 27,090,145 18,878,232
----------- -------------
Total liabilities and shareholders' equity................. $35,915,028 $ 34,569,188
========== ==========
</TABLE>
F-17
<PAGE> 56
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------------------
1996 1995
----------- -------------
<S> <C> <C>
NET SALES......................................................... $12,776,481 $ 11,574,417
COST OF SALES..................................................... 3,999,094 3,821,956
----------- -------------
Gross Profit............................................... 8,777,387 7,752,461
----------- -------------
OPERATING EXPENSES:
Research and development........................................ 696,639 713,223
Selling and marketing........................................... 2,814,787 2,420,944
General and administrative...................................... 1,996,180 1,947,312
----------- -------------
Total operating expenses................................... 5,507,606 5,081,479
----------- -------------
Operating income........................................... 3,269,781 2,670,982
----------- -------------
OTHER INCOME (EXPENSE):
Licensing and commission fees................................... 32,938 66,403
Investment income............................................... 242,632 195,940
Interest expense and amortization of debt expenses.............. (236,018) (561,483)
Other, net...................................................... 12,076 874
Currency gains/(losses)......................................... 23,631 3,506
----------- -------------
Total other income (expense)............................... 75,259 (294,760)
----------- -------------
Earnings before income taxes............................... 3,345,040 2,376,222
INCOME TAXES...................................................... 1,360,910 1,000,886
----------- -------------
Net earnings............................................... $ 1,984,130 $ 1,375,336
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING..................... 14,071,922 12,299,598
========== ==========
EARNINGS PER COMMON SHARE......................................... $ .14 $ .11
========== ==========
</TABLE>
F-18
<PAGE> 57
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE
COMMON FOREIGN
SHARES ADDITIONAL CURRENCY
ISSUED AND COMMON PAID-IN RETAINED TRANSLATION
OUTSTANDING STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1995......................... 12,924,814 $1,487,159 $13,895,901 $ 3,747,930 $ (252,758) $18,878,232
Net earnings................... -- -- -- 1,984,130 -- 1,984,130
Cash dividends paid -- -- -- -- (1,231,564) -- (1,231,564)
Exercise of stock options...... 14,308 2,144 10,806 -- -- 12,950
Other awards................... 172 117 1,479 -- -- 1,596
Debenture conversion, net...... 1,317,712 883,226 6,526,278 -- -- 7,409,504
Foreign currency translation
adjustment................... -- -- -- -- 35,297 35,297
----------- ---------- ----------- ---------- --------- -----------
Balance at March 31, 1996...... 14,257,006 $2,372,646 $20,434,464 $ 4,500,496 $ (217,461) $27,090,145
=========== ========== =========== ========== ========= ===========
</TABLE>
F-19
<PAGE> 58
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------------------
1996 1995
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................................... $ 1,984,130 $ 1,375,336
Noncash items --
Loss on disposal of fixed assets............................. 5,869 --
Amortization of royalties.................................... 14,316 --
Depreciation of property, plant and equipment................ 495,255 456,464
Amortization of intangible assets............................ 517,214 468,833
Deferred interest expense.................................... 82,097 77,475
Deferred income taxes........................................ (174,695) (206,530)
Long term receivables........................................ (15,912) --
Changes in other current assets and current liabilities --
Accounts receivable, net..................................... (51,179) (600,667)
Inventories.................................................. (298,018) (114,718)
Prepaid expenses and other................................... (422,746) (188,143)
Accounts payable............................................. 96,248 (1,246,015)
Accrued expenses............................................. (46,394) 377,174
Income taxes payable......................................... 838,113 (44,440)
----------- -------------
Net cash provided by operating activities.................. 3,024,298 354,769
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment acquired, net..................... (361,858) (1,185,438)
Royalty advanced................................................ (37,500) --
----------- -------------
Net cash used for investing activities..................... (399,358) (1,185,438)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term obligations.............................. (364,713) (166,417)
Proceeds from long-term obligations............................. 395,576 907,317
Dividends paid.................................................. (1,231,564) (566,571)
Proceeds from issuance of common stock, net..................... (63,103) 22,646
Effect of exchange rate changes on cash......................... (35,297) (36,895)
----------- -------------
Net cash provided by (used for) financing activities....... (1,299,101) 160,080
----------- -------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS........ 1,325,839 (670,589)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD............ 8,918,637 8,831,983
----------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD.................. $10,244,476 $ 8,161,394
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for --
Income taxes................................................. $ 916,625 $ 1,193,950
========== ==========
Interest..................................................... $ 78,515 $ 447,071
========== ==========
Non-cash activities --
Common stock issued from conversion of subordinated
debentures, net of amortization of deferred debenture
offering cost of $379,847 and net conversion costs of
$77,649..................................................... $ 7,409,504 $ --
========== ==========
</TABLE>
F-20
<PAGE> 59
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The consolidated financial statements included herein have not been
examined by independent public accountants, but include all adjustments
(consisting of normal recurring entries) which are, in the opinion of
management, necessary for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the requirements of the Securities and Exchange
Commission, although the Company believes that the disclosures included in these
financial statements are adequate to make the information not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
(2) INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
Raw materials.............................................. $1,086,710 $ 1,165,319
Work-in-process............................................ 909,404 626,077
Finished goods............................................. 1,334,559 1,241,259
---------- -------------
$3,330,673 $ 3,032,655
========= ==========
</TABLE>
(3) INCOME TAXES
The provisions for income taxes were computed at the estimated annualized
effective tax rates utilizing current tax law in effect, after giving effect to
research and experimentation credits.
(4) EARNINGS PER COMMON SHARE
Net earnings per share has been computed based upon the weighted average
number of shares outstanding during the periods including the effect of the
conversion of the subordinated debentures into common stock. No material
dilution results from outstanding stock options, the only common stock
equivalent. All share and per share information has been adjusted to reflect the
3 for 2 stock split in October 1995. Additionally, all share and per share
information has been adjusted for a 3% stock dividend in November 1994.
(5) TRANSLATION OF FOREIGN CURRENCY
Assets and liabilities of foreign operations are translated using
quarter-end exchange rates, and revenues and expenses are translated using
exchange rates prevailing during the year with gains or losses resulting from
translation included in a separate component of shareholders' equity. Gains and
losses resulting from transactions in foreign currencies were immaterial.
(6) RECLASSIFICATIONS
Certain reclassifications have been made to the accompanying financial
statements to conform to the March 31, 1996 presentation.
F-21
<PAGE> 60
Cryptosporidium and Giardia, common intestinal parasites, can infect the
gastrointestinal tract causing severe diarrhea, abdominal pain, nausea and
weight loss. The Company's Merifluor C/G utilizes fluorescent dyes to illuminate
the organisms making them easier to identify, reducing processing time. This
test is the only test in the marketplace which allows the simultaneous detection
of both Cryptosporidium and Giardia. (photograph depicts fluorescing
Cryptosporidium and Giardia in a patient's specimen)
The Company is the leading supplier of parasitology diagnostic tests and
related products. The Company's broad product offering includes the Premier
Giardia Lamblia targeted to large volume users such as large hospitals and
reference laboratories. (photograph of Premier product)
In October 1995, the Company introduced the Para-Pak ECOfix and Para-Pak
Ultra ECOfix. These products result in easier, safer and faster specimen
processing and lower-cost disposal of the transport container. (photograph of
Para-Pak ECOfix and Para-Pak Ultra ECOfix products)
<PAGE> 61
---------------------------------------------------------------
---------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 6
Capitalization................................ 8
Dividend Policy............................... 9
Price Range of Common Stock................... 10
Selected Consolidated Financial
Data........................................ 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 12
Business...................................... 17
Management.................................... 26
Principal Shareholders and Selling
Shareholder................................. 28
Description of Capital Stock.................. 29
Underwriting.................................. 31
Legal Matters................................. 31
Experts....................................... 32
Glossary of Selected Terms.................... 33
Index to Consolidated Financial Statements.... F-1
</TABLE>
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
1,500,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
-------------------------
CLEARY GULL REILAND & MCDEVITT INC.
THE OHIO COMPANY
RONEY & CO.
MAY , 1996
---------------------------------------------------------------
---------------------------------------------------------------
<PAGE> 62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee*...................... $ 5,837
National Association of Securities Dealers, Inc. filing fee*.............. 2,193
Accounting fees and expenses.............................................. 30,000
Legal fees and expenses................................................... 40,000
Blue Sky fees and expenses................................................ 10,000
Printing and engraving expenses........................................... 90,000
Marketing expenses........................................................ 10,000
Miscellaneous............................................................. 161,970
--------
TOTAL........................................................... $350,000
========
</TABLE>
- ---------------
* Actual; other expenses are estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Ohio Revised Code, Section 1701.13(E), allows indemnification by the
Registrant to any person made or threatened to be made a party to any
proceedings, other than a proceeding by or in the right of the Registrant, by
reason of the fact that he is or was a director, officer, employee or agent of
the Registrant, against expenses, including judgment and fines, if he acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Registrant and, with respect to criminal actions, in which
he had no reasonable cause to believe that his conduct was unlawful. Similar
provisions apply to actions brought by or in the right of the Registrant, except
that no indemnification shall be made in such cases when the person shall have
been adjudged to be liable for negligence or misconduct to the Registrant unless
otherwise deemed appropriate by the court. Indemnification is to be made by a
majority vote of a quorum of disinterested directors or the written opinion of
independent counsel or by the shareholders or by the court. The Registrant's
Code of Regulations extends such indemnification.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
1 -- Form of Proposed Underwriting Agreement
3.1 -- Articles of Incorporation
3.2 -- Code of Regulations (incorporated by reference to Registration Statement No.
33-6052 filed under the Securities Act of 1933)
5 -- Opinion of Keating, Muething & Klekamp as to legality of the Common Stock
23.1 -- Consent of Independent Public Accountants
23.3 -- Consent of Keating, Muething & Klekamp (Contained on Exhibit 5)
24 -- Powers of Attorney (contained on the signature page)
</TABLE>
- ---------------
* Incorporated by reference as indicated.
II-1
<PAGE> 63
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's Annual Report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(i)(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(i)(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has fully caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Cincinnati, State of Ohio, as of the 18th day of
April, 1996.
MERIDIAN DIAGNOSTICS, INC.
By: /s/ William J. Motto
------------------------------------
William J. Motto
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. The persons whose names are marked an
asterisk (*) below hereby designate John A. Kraeutler or Gerard Blain to sign
all amendments, including post-effective amendments to this Registration
Statement as well as any related registration statement (or amendment thereto)
filed pursuant to Rule 462(b) promulgated under the Securities Act of 1933.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- -------------------------------- ---------------
<C> <S> <C>
* /s/ William J. Chairman of the Board and Chief
Motto Executive Officer (Principal
- --------------------------------------------- Executive Officer)
William J. Motto April 18, 1996
* /s/ Gerard Vice President, Chief Financial
Blain Officer and Treasurer
- --------------------------------------------- (Principal Financial Officer
Gerard Blain and Principal Accounting
Officer) April 18, 1996
* /s/ Jerry L. Director
Ruyan
- ---------------------------------------------
Jerry L. Ruyan April 18, 1996
* /s/ James A. Director
Buzard
- ---------------------------------------------
James A. Buzard April 18, 1996
* /s/ Gary P. Director
Kreider
- ---------------------------------------------
Gary P. Kreider April 18, 1996
* /s/ Robert J. Director
Ready
- ---------------------------------------------
Robert J. Ready April 18, 1996
</TABLE>
II-3
<PAGE> 1
Exhibit 1
MERIDIAN DIAGNOSTICS, INC.
1,500,000 SHARES OF COMMON STOCK*
UNDERWRITING AGREEMENT
----------------------
_____________, 1996
CLEARY GULL REILAND & MCDEVITT INC.
THE OHIO COMPANY
RONEY & CO.
As Representatives of the
Several Underwriters Named Herein
c/o Cleary Gull Reiland & McDevitt Inc.
100 East Wisconsin Avenue, Suite 2400
Milwaukee, Wisconsin 53202
Ladies and Gentlemen:
Meridian Diagnostics, Inc., an Ohio Corporation (the
"Company"), and Jerry L. Ruyan (the "Selling Shareholder") confirm their
respective agreements with you (the "Representatives") and each of the other
underwriters identified on Schedule I annexed hereto (collectively, the
"Underwriters"), as set forth below:
1. SECURITIES. Subject to the terms and conditions
herein contained, the Selling Shareholder proposes to issue and sell to the
Underwriters an aggregate of 1,500,000 shares (the "Firm Shares") of common
stock, no par value per share, of the Company (the "Common Stock"). In
addition, the Selling Shareholder has agreed to grant to the Underwriters an
option to purchase up to 225,000 additional shares of Common Stock, as provided
in Section 3 hereof. The Firm Shares and, to the extent such option is
exercised, the Option Shares are collectively referred to herein as the
"Shares."
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company and the Selling Shareholder,
jointly and severally, represent and warrant to, and agree with, each
of the Underwriters, and shall be deemed to represent and warrant to
each of the Underwriters on each Closing Date (as hereafter defined)
that:
__________________________________
* Plus an option to acquire up to 225,000 additional shares of Common Stock
from the Selling Shareholder to cover over-allotments.
<PAGE> 2
(i) The Company meets the requirements for use
of Form S-3 under the Securities Act of 1933, as amended (the "Act").
The Company has filed a registration statement on such Form (Reg. No.
333-_____) with respect to the Shares, including a prospectus subject
to completion, with the Securities and Exchange Commission (the
"Commission") under the Act, and one or more amendments to such
registration statement may have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (A)
if the Commission has declared such registration statement, as it may
have been amended, effective under the Act, a prospectus in the form
most recently included in an amendment to such registration statement
(or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule
430A under the Act or permitted by Rule 424(b) under the Act and as
have been provided to and approved by the Underwriters prior to the
execution of this Agreement, or (B) if the Commission has not declared
such registration statement, as it may have been amended, effective
under the Act, an amendment to such registration statement, including
a form of prospectus, a copy of which amendment has been furnished to
and approved by the Underwriters prior to the execution of this
Agreement. As used in this Agreement, the term "Registration
Statement" means such registration statement, as amended at the time
when it was or is declared effective, including (1) all financial
schedules and exhibits thereto, (2) all documents (or portions
thereof) incorporated by reference therein filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including any
documents filed after the date of the Preliminary Prospectus (as
hereinafter defined) or Prospectus (as hereinafter defined) and so
incorporated by reference and (3) any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each
prospectus subject to completion filed with such registration
statement or any amendment thereto (including the prospectus subject
to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective),
including all documents (or portions thereof) incorporated by
reference therein filed under the Exchange Act, as well any additional
registration statement, and any amendments thereto, filed with the
Commission after the effectiveness of the foregoing registration
statement and prior to the execution of this Agreement or hereafter in
accordance with this Agreement for purposes of registering a portion
of the Shares under the Act; and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act or, if no prospectus is required to be filed pursuant to
said Rule 424(b), such term means the prospectus included in the
Registration Statement, in either case including all documents (or
portions thereof) incorporated by reference therein filed under the
Exchange Act.
(ii) Neither the Commission nor any state
securities commission has issued any order preventing or suspending
the use of any Preliminary Prospectus nor, to the knowledge of the
Company and the Selling Shareholder, have any proceedings for that
purpose been initiated or threatened. When any Preliminary Prospectus
was filed with the Commission, it (A) contained (or incorporated by
reference) all statements
-2-
<PAGE> 3
required to be stated therein in accordance with, and complied
in all material respects with the requirements of, the Act,
the Exchange Act and the respective rules and regulations of
the Commission thereunder and (B) did not include (or
incorporate by reference) any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances
under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is
declared effective, it (1) contained (or incorporated by
reference) or will contain (or incorporate by reference) all
statements required to be stated therein in accordance with,
and complied or will comply in all material respects with the
requirements of, the Act, the Exchange Act and the respective
rules and regulations of the Commission thereunder and (2) did
not or will not include (or incorporate by reference) any
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. When the Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or
supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing
such amendment or supplement to the Prospectus was or is
declared effective), on the date when the Prospectus is
otherwise amended or supplemented and on the Firm Closing Date
and any Option Closing Date (both as hereinafter defined), the
Prospectus, as amended or supplemented at any such time, (AA)
contained (or incorporated by reference) or will contain (or
incorporate by reference) all statements required to be stated
therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act, the
Exchange Act and the respective rules and regulations of the
Commission thereunder and (BB) did not or will not include (or
incorporate by reference) any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing
provisions of this subsection (ii) do not apply to statements
or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the
Prospectus or any amendment or supplement thereto with respect
to the last paragraph on the outside front cover of the
Prospectus concerning the terms of the offering by the
Underwriters, the paragraphs on the inside front cover page of
the Prospectus relating to stabilization practices and passive
market making and the concession and reallowance amounts
appearing under the caption "Underwriting." Neither the
Company nor any person that controls, is controlled by or in
under common control with the Company has distributed or will
distribute prior to each Closing Date any offering material in
connection with the offering and sale of the Shares other than
a Preliminary Prospectus, the Prospectus, the Registration
Statement or other materials permitted by the Act and provided
to the Representatives.
(iii) The documents that are incorporated by
reference in each Preliminary Prospectus, the Prospectus or
the Registration Statement or from which information is so
incorporated by reference, when they became effective or were
filed with the Commission, as the case may be, complied with
the requirements of the Act or
-3-
<PAGE> 4
the Exchange Act, as applicable, and any document so filed and
incorporated by reference subsequent to the effective date of the
Registration Statement shall, when it is filed with the Commission,
comply with the requirements of the Act and the Exchange Act, as
applicable, and when read together with the other information included
in such Preliminary Prospectus, the Prospectus or the Registration
Statement, as the case may be, do not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(iv) The Company's only subsidiaries are listed
in Exhibit A hereto (the "Subsidiaries"). The Company and the
Subsidiaries have been duly organized and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation. The Company and each of the
Subsidiaries are duly qualified to transact business as foreign
corporations and are in good standing under the laws of all other
jurisdictions where the ownership or leasing of their respective
properties or the conduct of their respective businesses requires such
qualification, except where the failure to be so qualified does not
amount to a material liability or disability to the Company and the
Subsidiaries, taken as a whole.
(v) The Company and each of the Subsidiaries
have full power (corporate and other) to own or lease their respective
properties and conduct their respective businesses as described in the
Registration Statement and the Prospectus or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus; and the Company
has full power (corporate and other) to enter into this Agreement and
to carry out all the terms and provisions hereof to be carried out by
it.
(vi) The issued shares of capital stock of each
of the Company's directly-owned Subsidiaries as set forth in Exhibit A
hereto have been duly authorized and validly issued; are fully paid
and nonassessable and are all owned beneficially by the Company free
and clear of any security interests, liens, encumbrances, equities or
claims. The outstanding quotas of Meridian Diagnostics Europe, s.r.l.
("MDE") have been duly authorized and validly issued, are fully paid
and nonassessable and are owned beneficially as set forth in Exhibit A
hereto free and clear of any security interests, liens, encumbrances,
equities or claims. There are no outstanding options, warrants or
other rights of any description, contractual or otherwise, entitling
any person to subscribe for or purchase any shares of capital stock of
any Subsidiary.
(vii) The Company has an authorized, issued and
outstanding capitalization as set forth in the Prospectus or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus. All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. No holder of outstanding shares of capital stock of
the Company is entitled as such to any preemptive or other rights to
subscribe for any of the Shares or any other Common Stock, and no
shares of Common Stock have been issued in violation
-4-
<PAGE> 5
of such rights. No holder of securities of the Company has any right,
which has not been fully exercised or waived, to require the Company
to register the offer or sale of any securities owned by such holder
under the Act in the public offering contemplated by this Agreement.
(viii) The capital stock of the Company conforms
to the description thereof contained in the Prospectus or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus. There are no outstanding options, warrants or other
rights to subscribe for or purchase Common Stock, except as described
in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus).
(ix) The consolidated financial statements and
schedules, if any, of the Company and the Subsidiaries included, and
incorporated by reference, in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial position of the
Company and the Subsidiaries and their results of operations and
changes in financial condition as of the dates and periods therein
specified. Such financial statements and schedules have been prepared
in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as
otherwise noted therein). The selected financial data set forth under
the caption "Selected Consolidated Financial Data" in the Prospectus
(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly presents on the basis stated in the
Prospectus (or such Preliminary Prospectus) the information included
therein.
(x) Arthur Andersen LLP, who have certified
certain financial statements of the Company and the Subsidiaries and
delivered their report with respect to the audited consolidated
financial statements and schedules included, or incorporated by
reference, in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus), are independent public accountants as required by the
Act, the Exchange Act and the related published rules and regulations
thereunder.
(xi) The execution and delivery of this
Agreement has been duly authorized by the Company. This Agreement has
been duly executed and delivered by the Company and, assuming due
execution by the other parties hereto, is the legal, valid and
binding obligation of the Company, enforceable by any such party
against the Company in accordance with its terms.
(xii) No legal or governmental proceedings are
pending to which the Company or any of the Subsidiaries is a party or
to which the property of the Company or any of the Subsidiaries is
subject that are required to be described in the Registration
Statement or the Prospectus and are not described therein (or, if the
Prospectus is not in existence, the most recent preliminary
Prospectus), and no such proceedings have been threatened against
the Company or any of the Subsidiaries or with respect to any of their
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<PAGE> 6
respective properties; and no contract or other document is required
to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not
described therein (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or filed as required.
(xiii) The compliance by the Company with the
provisions of this Agreement and the consummation of the other
transactions herein contemplated do not (A) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority or regulatory body, except such as have been
obtained or such as may be required under state securities or blue sky
laws ("Blue Sky Laws"), the National Association of Securities
Dealers, Inc. ("NASD") and, if the Registration Statement (as amended)
filed with respect to the Shares is not effective under the Act as of
the time of execution hereof, such as may be required (and shall be
obtained as provided in this Agreement) under the Act, or (B) conflict
with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, lease or other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the Company
or any of the Subsidiaries or any of their respective properties are
bound, or the charter documents, Code of Regulations or by-laws of the
Company or any of the Subsidiaries, or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company or any of the
Subsidiaries.
(xiv) The Company has not, directly or
indirectly, (A) taken any action designed to cause or to result in, or
that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares
or (B) since the filing of the Registration Statement (1) sold, bid
for, purchased, or paid anyone any compensation for soliciting
purchases of, the Shares or any Common Stock or (2) paid or agreed to
pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
(xv) Subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), (A) the Company and the Subsidiaries have not
incurred any material liability or obligation, direct or contingent,
nor entered into any material transaction not in the ordinary course
of business; (B) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock; and (C) there has not
been any material change in the capital stock, short-term debt or
long-term debt of the Company and the Subsidiaries or any change or
development involving or that could be expected to involve a material
adverse change in the condition (financial or otherwise), management,
business, prospects, net worth or results of operations of the Company
and the Subsidiaries ("Material Adverse Change"), except in each case
as
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<PAGE> 7
described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(xvi) The Company and each of the Subsidiaries
have good and marketable title in fee simple to all items of real
property and marketable title to all personal property owned by each
of them, in each case free and clear of any security interests, liens,
encumbrances, equities, claims and other defects, except such as do
not materially and adversely affect the value of such property and do
not interfere with the use made or proposed to be made of such
property by the Company or such Subsidiary, and any real property and
buildings held under lease by the Company or any such Subsidiary are
held under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made
or proposed to be made of such property and buildings by the Company
or such Subsidiary, in each case mentioned in this paragraph except as
described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(xvii) No labor dispute with the employees of the
Company or any of the Subsidiaries exists or is threatened or imminent
that could result in a Material Adverse Change, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xviii) The Company and the Subsidiaries own or
possess, or can acquire on reasonable terms, all material patents,
patent applications, trademarks, service marks, trade names, licenses,
copyrights and proprietary or other confidential information currently
employed by them in connection with their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Change, except as
described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus). The
Company and the Subsidiaries have taken reasonable action to protect
proprietary or other confidential information currently employed by
them in connection with their respective businesses, including without
limitation causing appropriate employees to execute enforceable
confidentiality agreements. The patents, registered trademarks and
registered service marks described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus) have been issued or registered as so described, and the
Company has maintained such patents and registrations in accordance
with applicable requirements.
(xix) The Company and each of the Subsidiaries
are insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as are prudent and customary
in the businesses in which they are engaged; neither the Company nor
any such Subsidiary has been refused any insurance coverage sought or
applied for; and neither the Company nor any such Subsidiary has any
reason
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<PAGE> 8
to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not result in a Material Adverse Change,
except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus).
(xx) No Subsidiary is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such Subsidiary's capital stock, from
repaying to the Company any loans or advances to such Subsidiary from
the Company or from transferring any of such Subsidiary's property or
assets to the Company or any other subsidiary of the Company, except
as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus).
(xxi) The Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
their respective businesses, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material
Adverse Change, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xxii) Neither the Company nor any Subsidiary is
an "investment company", an "affiliated person" of or "promoter" or
"principal underwriter" for an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended. The
Company will conduct its operations in a manner that will not subject
it to registration as an "investment company" under such act.
(xxiii) The Company has filed all foreign,
federal, state and local tax returns that are required to be filed or
has requested extensions thereof (except in any case in which the
failure so to file would not result in a Material Adverse Change) and
has paid all taxes required to be paid by it and any other assessment,
fine or penalty levied against it, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or
penalty that is currently being contested in good faith or as
described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(xxiv) Neither the Company nor any of the
Subsidiaries is in violation of any federal, state or foreign law or
regulation relating to occupational safety and health, the environment
or the storage, handling or transportation of hazardous or toxic
materials, pollutants or contaminants, including, without limitation,
all rules and requirements of the State of Ohio Fire Marshall, Bureau
of Underground Storage Tank Regulations, and the Company and the
Subsidiaries have received all permits, licenses
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<PAGE> 9
or other approvals required of them under applicable federal, state
and foreign occupational safety and health and environmental laws and
regulations to conduct their respective businesses, and the Company
and each Subsidiary is in compliance with all terms and conditions of
any such permit, license or approval, except any such violation of
laws or regulations, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of
such permits, licenses or approvals which would not, singly or in the
aggregate, result in a Material Adverse Change, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxv) Each certificate signed by any officer of
the Company and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by
the Company and the Selling Shareholder to each Underwriter as to the
matters covered thereby.
(xxvi) Except for the shares of capital stock of
each of the Subsidiaries owned by the Company and such Subsidiaries,
neither the Company nor any Subsidiary owns any material amount of
shares of stock or any other equity securities of any corporation or
has any equity interest in any firm, partnership, association or other
entity, except as described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(xxvii) The Company and each of the
Subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (A) transactions are
executed in accordance with management's general or specific
authorizations; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(C) access to assets is permitted only in accordance with management's
general or specific authorization; and (D) the recorded accountability
for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(xxviii) Neither the Company nor any Subsidiary is,
nor with the giving of notice or passage of time or both, would be, in
violation or in breach of: (A) its respective Articles of
Incorporation or By-laws (or other corporate governing documents); (B)
any statute, ordinance, order, rule or regulation applicable to the
Company or such Subsidiary; (C) any order or decree of any court,
regulatory body, arbitrator, administrative agency or other
instrumentality of the United States or other country or jurisdiction
having jurisdiction over the Company or such Subsidiary; or (D) any
provision of any agreement, lease, franchise, license, indenture,
permit, mortgage, deed of trust, evidence of indebtedness or other
instrument to which the Company or such Subsidiary is a party or by
which any property owned or leased by the Company or such Subsidiary
is bound or affected, except where such violation or breach would not
result in a Material Adverse Change, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
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<PAGE> 10
(xxix) Neither the Company nor any person that
controls, is controlled by (including the Subsidiaries) or is under
common control with the Company has, directly or indirectly: (A) made
any unlawful contribution to any candidate for political office, or
failed to disclose fully any contribution in violation of law; or (B)
made any payment to any federal, state or foreign governmental officer
or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof or applicable
foreign jurisdictions, except where such illegal contribution, payment
or failure to disclose would not result in a Material Adverse Change.
(xxx) The Company and the Subsidiaries are in
compliance with the requirements of the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder,
except to the extent that failure to be in such compliance would not
result in a Material Adverse Change.
(xxxi) Neither the Company nor any of the
Subsidiaries nor any affiliate of the Company or any of the
Subsidiaries does business with the government of Cuba or with any
person or affiliate located in Cuba within the meaning of Section
517.075 of the Florida Statutes, and the Company agrees to comply with
such Section if, prior to the completion of the distribution of the
Shares, the Company, any of its Subsidiaries or any affiliate of the
Company or any of its Subsidiaries commences doing such business.
(xxxii) The Company has obtained for the benefit
of the Underwriters the written agreement, enforceable by the
Representatives, of each of the officers and directors of the Company,
that for a period commencing on the date of such agreement and
continuing until 90 days after the date of the Prospectus, such
persons will not, without the prior written consent of Cleary Gull
Reiland & McDevitt Inc. ("Cleary Gull"), directly or indirectly,
offer, sell, transfer, or pledge, contract to sell, transfer or
pledge, or cause or in any way permit to be sold, transferred,
pledged, or otherwise disposed of, any: (A) shares of Common Stock;
(B) rights to purchase shares of Common Stock (including, without
limitation, shares of Common Stock that may be deemed to be
beneficially owned by any such shareholder in accordance with the
applicable regulations of the Commission and shares of Common Stock
that may be issued upon the exercise of a stock option, warrant or
other convertible security); or (C) securities that are convertible or
exchangeable into shares of Common Stock, except as may be provided in
any such written agreement.
(xxxiii) None of the Company, any Subsidiary, any
officer or director of the Company or any Subsidiary, or any person
who owns, of record or beneficially, five percent (5%) or more of
any class of securities issued by the Company is: (A) an officer,
director or partner of any brokerage firm, broker or dealer that is a
member of the NASD ("NASD Member") or (B) directly or indirectly, a
"person associated with" an NASD Member or an "affiliate" of an NASD
Member, as such terms are used in the NASD Rules of Fair Practice. In
addition, neither the Company nor any Subsidiary has issued or
transferred
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<PAGE> 11
any Common Stock, warrants, options or other securities, or any other
items of value, to any of the Underwriters or any "related person" of
any Underwriter, as such term is used in the NASD Rules of Fair
Practice, except as provided in this Agreement.
(b) The Selling Shareholder represents and warrants to
and agrees with the several Underwriters and the Company, and shall be deemed
to represent and warrant to the several Underwriters and the Company on each
Closing Date, that:
(i) The Selling Shareholder has duly executed
a durable power of attorney and custody agreement ("Durable Power of
Attorney and Custody Agreement") naming __________ and __________, or
either of them, as the Selling Shareholder's attorney(s)-in-fact
("Attorneys-in-Fact") for the purpose of entering into and carrying
out this Agreement and naming __________ as custodian ("Custodian") of
the Shares of the Selling Shareholder for the purpose of selling the
Shares to the Underwriters on each Closing Date and receiving payment
therefor.
(ii) All consents, approvals, authorizations
and orders necessary for the execution and delivery by the Selling
Shareholder of this Agreement and the Durable Power of Attorney and
Custody Agreement and for the sale and delivery of the Shares have
been obtained. The Selling Shareholder has, and at the time of
delivery thereof hereunder the Selling Shareholder will have, good and
valid title to the Shares, free and clear of all voting trust
arrangements, liens, encumbrances, security interests, equities,
claims and community or marital property rights, other than any
created by the Durable Power of Attorney and Custody Agreement or this
Agreement for the benefit of the Underwriters. The Selling
Shareholder has full right, power and authority to enter into this
Agreement and the Durable Power of Attorney and Custody Agreement and
to sell, assign, transfer and deliver the Shares hereunder, free and
clear of all voting trust arrangements, liens, encumbrances, security
interests, equities, claims and community or marital property rights,
other than any created by the Durable Power of Attorney and Custody
Agreement or this Agreement for the benefit of the Underwriters. Upon
delivery of and payment for such Shares hereunder, the Underwriters
will acquire good and valid title thereto, free and clear of all
voting trust arrangements, liens, encumbrances, security interests,
equities, claims and community or marital property rights.
(iii) The Selling Shareholder has not
distributed and will not distribute any Preliminary Prospectus, the
Prospectus or any other material in connection with the offering and
sale of the Shares. The Selling Shareholder has not taken and will
not take, directly or indirectly, any action designed to or which
could cause or result in, under the Exchange Act or otherwise,
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Stock.
(iv) The execution, delivery and performance by
the Selling Shareholder of this Agreement and the Durable Power of
Attorney and Custody
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<PAGE> 12
Agreement will not, if applicable, constitute a breach, or be in
contravention, of any provision of any agreement, franchise, license,
indenture, mortgage, deed of trust or other instrument to which the
Selling Shareholder is a party or by which the Selling Shareholder or
the Selling Shareholder's property may be bound or affected, or any
statute, rule or regulation applicable to the Selling Shareholder, or
violate any order or decree of any court, regulatory body,
administrative agency or other governmental body having jurisdiction
over the Selling Shareholder or any of such Selling Shareholder's
property. No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body is required for the execution and delivery of, and performance
under, this Agreement by the Selling Shareholder or the consummation
by the Selling Shareholder of the transactions contemplated by this
Agreement, except for compliance with the Act, the Exchange Act, the
Blue Sky Laws applicable to the public offering of the Shares by the
Underwriters and the clearance of such offering with the NASD. The
Selling Shareholder hereby represents and warrants that each
Attorney-in-Fact has been duly appointed as attorney-in-fact by the
Selling Shareholder for the purpose of entering into and carrying out
this Agreement, and the Durable Power of Attorney and Custody
Agreement has been duly executed and delivered by or on behalf of the
Selling Shareholder to the Representative.
(v) This Agreement and the Durable Power of
Attorney and Custody Agreement are each valid and binding agreements
of the Selling Shareholder enforceable in accordance with their
respective terms.
(vi) The Selling Shareholder has deposited in
custody, under the Durable Power of Attorney and Custody Agreement,
certificates in negotiable form for the Shares (including the maximum
number of Option Shares) for the purpose of further delivery pursuant
to this Agreement. The Selling Shareholder agrees that the Shares on
deposit with the Custodian are subject to the interests of the
Underwriters, that the arrangements made for such custody, and the
appointment of the Attorneys-in-Fact pursuant to the Durable Power of
Attorney and Custody Agreement, are to that extent irrevocable, and
that the obligations of the Selling Shareholder hereunder and under
the Durable Power of Attorney and Custody Agreement shall not be
terminated, except as provided in this Agreement and the Durable Power
of Attorney and Custody Agreement, by any act of the Selling
Shareholder, by operation of law, whether by the death or incapacity
of the Selling Shareholder or by the occurrence of any other event.
If the Selling Shareholder should die or become incapacitated or if
any other event should occur before the delivery of the Shares
hereunder, the certificates for Shares then on deposit with the
Custodian shall, to the extent such Shares are purchased by the
Underwriters, be delivered by the Custodian in accordance with the
terms and conditions of this Agreement and the Durable Power of
Attorney and Custody Agreement as if such death, incapacity or other
event had not occurred, regardless of whether or not the Custodian
shall have received notice thereof. The Selling Shareholder
represents that each Attorney-in-Fact has been authorized by the
Selling Shareholder to execute and deliver this Agreement and the
Custodian has been authorized to receive and acknowledge receipt
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<PAGE> 13
of the proceeds of sale of the Shares sold by the Selling Shareholder
against delivery thereof and otherwise to act on behalf of the Selling
Shareholder.
(vii) Insofar as it relates to the Selling
Shareholder, each Preliminary Prospectus, as of its date, has
conformed in all material respects with the requirements of the Act
and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make
the statements therein not misleading; and on the effective date of
the Registration Statement and at all times subsequent thereto up to
each Closing Date, (A) the Registration Statement and the Prospectus,
as they relate to such Selling Shareholder, did or will conform to the
requirements of the Act, and (B) neither the Registration Statement
nor the Prospectus as it relates to such Selling Shareholder did or
will include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading.
(viii) The information contained in the Selling
Shareholder's Directors' and Officers' Questionnaire completed in
connection with the proposed sale of the Shares and delivered to the
Representatives was, as of the date of such questionnaire, and is, as
of the date of this Agreement, true and correct.
3. PURCHASE, SALE AND DELIVERY OF SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Selling Shareholder agrees to sell the Firm Shares to the
Underwriters, and each of the Underwriters agrees to purchase from the Selling
Shareholder the number of Firm Shares as hereinafter set forth at the price per
share of $________. The obligation of each Underwriter to the Selling
Shareholder shall be to purchase from the Selling Shareholder the number of
full Firm Shares set forth opposite the name of such Underwriter in Schedule I
annexed hereto.
(b) On the Firm Closing Date (as hereinafter defined),
the Custodian on behalf of the Selling Shareholder will deliver to the
Representatives, at the offices of Cleary Gull, 100 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, or through the facilities of The Depository Trust
Company, for the accounts of the several Underwriters, certificates
representing the Firm Shares against payment in Milwaukee, Wisconsin of the
purchase price therefor by certified or official bank check or checks in New
York Clearing House (next day) funds payable to the order of the Custodian. As
referred to in this Agreement, the "Firm Closing Date" shall be on the third
full business day after the date of the Prospectus, at 9:00 a.m., Milwaukee,
Wisconsin time, or at such other date or time not later than ten full business
days after the date of the Prospectus as the Representatives and the
Attorneys-in-Fact (or either of them) may agree. The certificates for the Firm
Shares to be so delivered will be in denominations and registered in such names
as the Representatives request by notice to the Attorneys-in-Fact, or either of
them, prior to the Firm Closing Date, and such certificates will be made
available for checking and packaging at 9:00 a.m., Milwaukee, Wisconsin time on
the
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<PAGE> 14
first full business day preceding the Firm Closing Date at a location to be
designated by the Representatives.
(c) In addition, on the basis of the representations,
warranties and agreements herein contained, and subject to the terms and
conditions herein set forth, the Selling Shareholder hereby agrees to sell to
the Underwriters, and the Underwriters, severally and not jointly, shall have
the right at any time within thirty days after the date of the Prospectus to
purchase up to the number of Option Shares from the Selling Shareholder at the
purchase price per share to be paid for the Firm Shares, for use solely in
covering any over-allotments made by the Underwriters in the sale and
distribution of the Firm Shares. The option granted hereunder may be exercised
upon notice by the Representatives to the Attorneys-in-Fact, or either of them,
within thirty days after the date of the Prospectus setting forth the aggregate
number of Option Shares to be purchased by the Underwriters and sold by the
Selling Shareholder, the names and denominations in which the certificates for
such shares are to be registered and the date and place at which such
certificates will be delivered. Such date of delivery ("Option Closing Date")
shall be determined by the Representatives, provided that the Option Closing
Date, which may be the same as the Firm Closing Date, shall not be earlier than
the Firm Closing Date and, if after the Firm Closing Date, shall not be earlier
than three nor later than ten full business days after delivery of such notice
to exercise. Certificates for the Option Shares will be made available for
checking and packaging at 9:00 a.m., Milwaukee, Wisconsin time, on the first
full business day preceding the Option Closing Date at a location to be
designated by the Representatives. The manner of payment for and delivery of
(including the denominations of and the names in which certificates are to be
registered) the Option Shares shall be the same as for the Firm Shares.
(d) The Representatives have advised the
Attorneys-in-Fact that each Underwriter has authorized the Representatives to
accept delivery of the Shares and to make payment therefor. It is understood
that the Representatives, individually and not as representatives of the
Underwriters, may (but shall not be obligated to) make payment for any Shares
to be purchased by any Underwriter whose funds shall not have been received by
the Representatives by the Firm Closing Date or the Option Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall
not relieve such Underwriter from any obligation under this Agreement. As
referred to in this Agreement, "Closing Date" shall mean either the Firm
Closing Date or the Option Closing Date.
4. REPRESENTATION OF UNDERWRITERS. The Representatives
will act as the representatives for the several Underwriters in connection with
the public offering of the Shares, and any action under or in respect of this
Agreement taken by the Representatives will be binding upon all of the
Underwriters.
5. INFORMATION FURNISHED BY THE UNDERWRITERS. The
information set forth in the last paragraph on the outside front cover page of
the Prospectus concerning the terms of the offering by the Underwriters, the
paragraphs on the inside front cover page of the Prospectus relating to
stabilization practices and passive market making, and the concession and
reallowance
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<PAGE> 15
amounts appearing under the caption "Underwriting" in the Prospectus constitute
all of the information furnished to the Company by and on behalf of the
Underwriters for use in connection with the preparation of the Registration
Statement and the Prospectus, as such information is referred to in this
Agreement.
6. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the several Underwriters that:
(a) If the effective time of the Registration Statement
is not prior to the execution and delivery of this Agreement, then the Company
will use its best efforts to cause the Registration Statement to become
effective at the earliest possible time and, upon notification from the
Commission that the Registration Statement has become effective, will so advise
the Representatives and counsel to the Underwriters promptly. If the effective
time of the Registration Statement is prior to the execution and delivery of
this Agreement and any information shall have been omitted therefrom in
reliance upon Rule 430A, the Company, at the earliest possible time, will
furnish the Representatives with a copy of the Prospectus to be filed by the
Company with the Commission to comply with Rule 424(b) and Rule 430A under the
Act and, if the Representatives do not object to the contents thereof, will
comply with such Rules. Upon compliance with such Rules, the Company will so
advise the Representatives promptly. The Company will advise the
Representatives and counsel to the Underwriters and the Attorneys-in-Fact
promptly of the issuance by the Commission or any state securities commission
of any stop order suspending the effectiveness of the Registration Statement or
of the institution of any proceedings for that purpose, or of any notification
of the suspension of qualification of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceedings for that purpose, and will
also advise the Representatives and counsel to the Underwriters and the
Attorneys-in-Fact promptly of any request of the Commission for amendment or
supplement of the Registration Statement, of any Preliminary Prospectus or of
the Prospectus, or for additional information, and the Company will not file
any amendment or supplement to the Registration Statement (either before or
after it becomes effective), to any Preliminary Prospectus or to the Prospectus
(including a prospectus filed pursuant to Rule 424(b)), or file any document
under the Exchange Act before the termination of the public offering of the
Shares by the Underwriters if such document would be deemed to be incorporated
by reference in the Registration Statement, if the Representatives have not
been furnished with a copy prior to such filing (with a reasonable opportunity
to review such amendment or supplement) or if the Representatives object to
such filing.
(b) If, at any time when a prospectus relating to the
Shares is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event occurs as a result of which the Prospectus
would include an untrue statement of a material fact, or would omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to supplement the
Prospectus to comply with the Act or to file under the Exchange Act any
document that would be deemed to be incorporated by reference in the
Registration Statement to comply with the Act or the Exchange Act, the Company
promptly will
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<PAGE> 16
advise the Representatives and counsel to the Underwriters and the
Attorneys-in-Fact thereof and will promptly prepare and file with the
Commission, at its expense, an amendment to the Registration Statement or file
such document that will correct such statement or omission or an amendment that
will effect such compliance; and, if any Underwriter is required to deliver a
prospectus after the effective date of the Registration Statement, the Company,
upon request of the Representatives, will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act. The Company consents to the use, in accordance
with the provisions of the Act and with the Blue Sky Laws of the jurisdictions
in which the Shares are offered by the several Underwriters and by dealers, of
each Preliminary Prospectus.
(c) Neither the Company nor any Subsidiary will, prior to
the Option Closing Date, if any, incur any liability or obligation, direct or
contingent, or enter into any material transaction, other than in the ordinary
course of business, or enter into any transaction with an "affiliate," as
defined in Rule 405 under the Act, that is required to be described in the
Prospectus pursuant to Item 404 of Regulation S-K under the Act, except as
described in the Prospectus.
(d) Neither the Company nor any Subsidiary will, prior to
the Option Closing Date, if any, acquire any of the Common Stock nor will the
Company declare or pay any dividend or make any other distribution upon its
Common Stock payable to shareholders of record on a date prior to the Option
Closing Date, except as described in the Prospectus.
(e) The Company will make generally available to its
security holders and the Representatives an earnings statement as soon as
practicable, but in no event later than sixty days after the end of its fiscal
quarter in which the first anniversary of the effective date of the
Registration Statement occurs, covering a period of twelve consecutive calendar
months beginning after the effective date of the Registration Statement, which
will satisfy the provisions of the last paragraph of Section 11(a) of the Act
and Rule 158 promulgated thereunder.
(f) During such period as a prospectus is required by law
to be delivered in connection with sales by an Underwriter or dealer, the
Company will furnish to the Representatives, at the expense of the Company,
copies of the Registration Statement, the Prospectus, any Preliminary
Prospectus and all amendments and supplements to any such documents, including
any document filed under the Exchange Act and deemed to be incorporated by
reference in the Registration Statement, in each case as soon as available and
in such quantities as the Representatives may reasonably request.
(g) The Company will cooperate with the Representatives
and counsel to the Underwriters in qualifying or registering the Shares for
sale under the Blue Sky Laws of such jurisdictions as the Representatives
designate and will continue such qualifications or registrations in effect so
long as reasonably requested by the Representatives to effect the distribution
of the Shares, except that the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
such jurisdiction where it
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<PAGE> 17
is not presently qualified. In each jurisdiction where any of the Shares shall
have been qualified as provided above, the Company will file such reports and
statements as may be required to continue such qualification for a period of
not less than one year from the date of the Prospectus. The Company shall
promptly prepare and file with the Commission, from time to time, such reports
as may be required to be filed by the Act and the Exchange Act, and the Company
shall comply in all respects with the undertakings given by the Company in
connection with the qualification or registration of the Shares for offering
and sale under the Blue Sky Laws.
(h) During the period of three years from the date of the
Prospectus, the Company will furnish to each of the Representatives and to each
of the other Underwriters who may so request, as soon as available, each
report, statement or other document of the Company or its Board of Directors
mailed to its shareholders or filed with the Commission, and such other
information concerning the Company as the Representatives may reasonably
request.
(i) The Company shall take all necessary or appropriate
action within its power to maintain the authorization for trading of the Common
Stock as a Nasdaq National Market security, or take such action to authorize
the Common Stock for listing on the New York Stock Exchange or the American
Stock Exchange, for a period of at least thirty-six months after the date of
the Prospectus.
(j) Except for the issuance and sale by the Company of
Common Stock upon exercise of presently existing outstanding stock options and
the grant of employee stock options pursuant to the Company's 1996 Stock Option
Plan (provided that none of such options shall be exercisable for a period of
90 days after the date of the Prospectus), the Company shall not, for a period
of 90 days after the date of the Prospectus, without the prior written consent
of Cleary Gull, directly or indirectly, offer, sell or otherwise dispose of,
contract to sell or otherwise dispose of, or cause or in any way permit to be
sold or otherwise disposed of, any: (i) shares of Common Stock; (ii) rights to
purchase shares of Common Stock; or (iii) securities that are convertible or
exchangeable into shares of Common Stock.
(k) The Company will maintain a transfer agent and, if
required by law or the rules of The Nasdaq Stock Market or any national
securities exchange on which the Common Stock is listed, a registrar (which, if
permitted by applicable laws and rules, may be the same entity as the transfer
agent) for its Common Stock.
(l) If at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which, in
the opinion of Cleary Gull, the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such rumor, publication
or event necessitates a supplement to the Prospectus), the Company will, after
written notice from Cleary Gull advising the Company of any of the matters set
forth above, promptly consult with Cleary Gull concerning the advisability and
substance of, and, if the Company and Cleary Gull determine that it is
appropriate, disseminate, a press release or other public statement responding
to or commenting on, such rumor, publication or event.
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<PAGE> 18
(m) The Company will comply or cause to be complied with
the conditions to the obligations of the Underwriters in Section 9 hereof.
7. COVENANTS OF THE SELLING SHAREHOLDER. The Selling
Shareholder covenants and agrees with the several Underwriters and the Company
as follows:
(a) If the effective time of the Registration Statement
is not prior to the execution and delivery of this Agreement, the Selling
Shareholder will cooperate to the extent necessary to cause the Registration
Statement to become effective at the earliest possible time; and the Selling
Shareholder will do and perform all things to be done and performed by such
Selling Shareholder prior to each Closing Date, pursuant to this Agreement or
the Durable Power of Attorney and Custody Agreement.
(b) The Selling Shareholder agrees to deliver to the
Custodian on or prior to the First Closing Date a properly completed and
executed United States Treasury Department Form W-9 (or other applicable
substitute form or statement specified by Treasury Department regulations in
lieu thereof).
(c) The Selling Shareholder will pay all federal and
other taxes, if any, on the transfer or sale of the Shares.
(d) For a period of 360 days after the date of the
Prospectus, the Selling Shareholder will not, without the prior written consent
of Cleary Gull, directly or indirectly, offer, sell, transfer, or pledge,
contract to sell, transfer or pledge or cause or in any way permit to be sold,
transferred, pledged or otherwise disposed of any: (i) shares of Common Stock;
(ii) rights to purchase shares of Common Stock (including, without limitation,
shares of Common Stock that may be issued upon exercise of a stock option,
warrant or other convertible security); or (iii) securities that are
convertible or exchangeable into shares of Common Stock, except that the
Selling Shareholder may, during such 360-day period, make bona fide gifts of
Common Stock to donees who agree in writing with the Underwriters to be subject
to the same restrictions as set forth herein.
(e) The Selling Shareholder will furnish any documents,
instruments or other information that the Representatives may reasonably
request in connection with the sale and transfer of the Shares to the
Underwriters.
(f) If the sale to the Underwriters of the Firm Shares is
not consummated for any reason other than termination of this Agreement
pursuant to Section 12 hereof or pursuant to Section 14(b) or 14(d) hereof,
without limiting any other rights the Underwriters may have, the Company agrees
to reimburse the Underwriters upon demand for all out-of-pocket expenses
(including reasonable fees and expenses of counsel for the Underwriters) that
shall have been incurred by the Underwriters in connection with the proposed
purchase and sale of the Shares, and the provisions of Sections 8 and 11 hereof
shall at all times be effective and apply.
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<PAGE> 19
(g) If the sale to the Underwriters of the Firm Shares is
not consummated for any reason other than termination of this Agreement by the
Underwriters pursuant to Section 14 hereof, then the Company and/or the Selling
Shareholder, as the case may be, shall offer to hire, on customary terms and
conditions, all Unreimbursed Representatives (as such term is defined below) as
financial advisors in connection with the first sale, subsequent to the date
hereof, of a material amount of securities of the Comany (without limitation, a
transaction by the Selling Shareholder pursuant to Rule 144 under the Act would
not be a sale of a material amount of Company securities, but a business
combination involving the Company would be a sale of a material amount of
Company securities) by the Company and/or the Selling Shareholder, as the case
may be, in a private or public transaction made in good faith. For purposes of
this Agreement, an "Unreimbursed Representative" shall be a Representative
which has not been reimbursed for its allocated share of expenses in connection
with the transactions contemplated hereby under Section 7(f) or otherwise, it
being agreed that the Company and/or the Selling Shareholder can avoid the
obligation imposed on each of them under this Section 7(g) as to any
Representative by reimbursing such Representative for its allocated share of
expenses relating to the transactions contemplated hereby.
8. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective, or
if this Agreement is terminated for any reason, the Selling Shareholder will
pay the costs, fees and expenses incurred in connection with the public
offering of the Shares. Such costs, fees and expenses to be paid by the
Selling Shareholder include, without limitation:
(a) All costs, fees and expenses (excluding the expenses
incurred by the Underwriters and the reasonable legal fees and disbursements
of counsel for the Underwriters, but including such fees and disbursements
described in subsection (b) of this Section 8) incurred in connection with the
performance of the Company's obligations hereunder, including without limiting
the generality of the foregoing: the registration fees related to the filing of
the Registration Statement with the Commission; the fees and expenses related
to the quotation of the Shares on the Nasdaq National Market or other national
securities exchange; the fees and expenses incurred in connection with the
preparation, printing, shipping and delivery of the Registration Statement,
each Preliminary Prospectus and the Prospectus (including all exhibits and
financial statements) and all agreements and supplements provided for herein,
this Agreement and the Preliminary and Supplemental Blue Sky Memoranda and the
Durable Power of Attorney and Custody Agreement, including, without limitation,
shipping expenses via overnight delivery and/or courier service to comply with
applicable prospectus delivery requirements; and the costs and expenses
associated with the production of materials related to, and travel expenses
incurred by the management of the Company in connection with, the various
meetings to be held between the Company's management and prospective investors.
(b) All registration fees and expenses, including
reasonable legal fees and disbursements of counsel for the Underwriters
incurred in connection with qualifying or registering all or any part of the
Shares for offer and sale under the Blue Sky Laws and the clearing of the
public offering and the underwriting arrangements evidenced hereby with the
NASD, provided that
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<PAGE> 20
Selling Shareholder shall not be liable for legal fees of counsel for the
Underwriters under this subsection (b) to the extent such fees exceed $12,500
(which amount shall not include filing fees required under the Blue Sky Laws
and the rules of the NASD or other disbursements).
(c) All transfer or sales tax imposed upon the transfer
and sale of the Selling Shareholder's Shares to the Underwriters and for all
fees and expenses of the Attorneys-in-Fact and the Custodian. All costs and
expenses incident to the performance of the Selling Shareholder's obligations
hereunder that are not otherwise specifically provided for in this Section will
be borne and paid solely by the Selling Shareholder.
9. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters under this Agreement shall be
subject to the accuracy of the representations and warranties on the part of
the Company and the Selling Shareholder herein set forth as of the date hereof
and as of each Closing Date, to the accuracy of the statements of the Company's
officers, the Selling Shareholder and the Attorneys-in-Fact on behalf of the
Selling Shareholder made pursuant to the provisions hereof, to the performance
by the Company and the Selling Shareholder of their respective obligations
hereunder, and to the following additional conditions, unless waived in writing
by the Representatives:
(a) The Registration Statement shall have been declared
effective by the Commission not later than 10:00 a.m., Washington, D.C. time,
on the date of this Agreement, or such later time as shall have been consented
to by the Representatives; all filings required by Rules 424(b) and 430A under
the Act shall have been timely made; no stop order suspending the effectiveness
of the Registration Statement shall have been issued by the Commission or any
state securities commission nor, to the knowledge of the Company, shall any
proceedings for that purpose have been initiated or threatened; and any request
of the Commission or any state securities commission for including of
additional information in the Registration Statement, or otherwise, shall have
been complied with to the satisfaction of the Representatives.
(b) Since the dates as of which information is given in
the Registration Statement:
(i) there shall not have occurred any adverse
change, or development involving a prospective adverse change, in the
condition (financial or otherwise), management, business, prospects,
net worth or results of operations of the Company and the
Subsidiaries, whether or not arising from transactions in the ordinary
course of business; and
(ii) neither the Company nor any Subsidiary
shall have sustained any loss or interference from any labor dispute,
strike, fire, flood, windstorm, accident or other calamity (whether or
not insured) or from any court or governmental action, order or
decree,
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<PAGE> 21
the effect of which on the Company, in any such case described in clause (i) or
(ii) above, is in the opinion of the Representatives so material and adverse as
to make it impracticable or inadvisable to proceed with the public offering or
the delivery of the Shares on the terms and in the manner contemplated in the
Registration Statement and Prospectus.
(c) The Representatives shall not have advised the
Company that the Registration Statement or the Prospectus contains (or
incorporates by reference) an untrue statement of fact that, in the opinion of
the Representatives or counsel for the Underwriters, is material, or omits to
state a fact that, in the opinion of the Representatives or such counsel, is
material and is required to be stated therein or necessary to make the
statements therein not misleading.
(d) The Representatives shall have received an opinion of
Keating, Muething & Klekamp, counsel for the Company, addressed to the
Representatives, as the representatives of the Underwriters, and dated the Firm
Closing Date or the Option Closing Date, as the case may be, to the effect
that:
(i) the Company and each of the Subsidiaries
have been duly organized and are validly existing as corporations in
good standing under the laws of their respective jurisdictions of
incorporation and are duly qualified to transact business as foreign
corporations and are in good standing under the laws of all other
jurisdictions where the ownership or leasing of their respective
properties or the conduct of their respective businesses requires such
qualification, except where the failure to be so qualified does not
amount to a material liability or disability to the Company and the
Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries
have corporate power to own or lease their respective properties and
conduct their respective businesses as described in the Registration
Statement and the Prospectus, and the Company has corporate power to
enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it;
(iii) the issued shares of capital stock of each
of the Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and are owned beneficially by the Company
free and clear of any perfected security interests or, to the best
knowledge of such counsel, any other security interests, liens,
encumbrances, equities or claims; the outstanding quotas of MDE, to
the extent necessary or applicable, have been duly authorized
and validly issued, are fully paid and nonassessable and are owned
beneficially as set forth in Exhibit A hereto free and clear of any
security interests, liens, encumbrances, equities or claims; there are
no preemptive, preferential or, to such counsel's knowledge, other
rights to subscribe for or purchase any shares of capital stock of any
Subsidiary; and to such counsel's knowledge, no shares of capital
stock of any Subsidiary have been issued in violation of such
rights;
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<PAGE> 22
(iv) the authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus; all of
the issued shares of capital stock of the Company, including, without
limitation, the Shares, have been duly authorized and validly issued
and are fully paid and nonassessable, have been issued in compliance
with all applicable federal and state securities laws and were not
issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities; no holders of
outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the
Shares; and no holders of securities of the Company are entitled to
have such securities registered under the Registration Statement; and
the certificates for the Shares to be delivered hereunder are in due
and proper form and conform to the requirements of applicable law;
(v) the statements set forth under the heading
"Description of Capital Stock" in the Prospectus, insofar as such
statements purport to summarize certain provisions of the capital
stock of the Company, provide a fair summary of such provisions; and
the statements set forth under the headings "Business - Government
Regulations" and "Business - Legal Proceedings" in the Prospectus,
insofar as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, provide a fair summary
of such legal matters, documents and proceedings therein discussed;
(vi) the execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate
action of the Company and this Agreement has been duly executed and
delivered by the Company; and this Agreement is a legal, valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms, except that rights to indemnity or
contribution may be limited by applicable law and except as
enforceability of this Agreement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, and by equitable principles limiting the
right to specific performance or other equitable relief;
(vii) after due inquiry and to the best
knowledge of such counsel, no legal or governmental proceedings are
pending to which the Company or any of the Subsidiaries is a party or
to which the property of the Company or any of the Subsidiaries is
subject that are required to be described in the Registration
Statement or the Prospectus and that are not described therein, and,
to the best knowledge of such counsel, no such proceedings have been
threatened against the Company or any of the Subsidiaries or with
respect to any of their respective properties; and no contract or
other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as
required;
(viii) the compliance by the Company with the
provisions of this Agreement and the consummation of the transactions
herein contemplated do not (A)
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<PAGE> 23
require the consent, approval, authorization, registration or
qualification of or with any governmental authority or regulatory
body, except such as have been obtained and such as may be required
under the Blue Sky Laws or by the NASD, as to which counsel need not
express an opinion, or (B) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other
agreement or instrument, known to such counsel, to which the Company
or any of the Subsidiaries is a party or by which the Company or any
of the Subsidiaries or any of their respective properties are bound,
or the charter documents, Code of Regulations or by-laws of the
Company or any of the Subsidiaries, or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental
authority or any arbitrator known to such counsel and applicable to
the Company or any of the Subsidiaries;
(ix) the Registration Statement is effective
under the Act; any required filing of the Prospectus pursuant to Rule
424(b) has been made in the manner and within the time period required
by Rule 424(b); no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and no
order directed at any document incorporated by reference in the
Registration Statement or the Prospectus or any amendment or
supplement thereto has been issued; and no proceedings for that
purpose have been instituted or threatened or, to the best knowledge
of such counsel, are contemplated by the Commission;
(x) the Registration Statement originally
filed with respect to the Shares and each amendment thereto and the
Prospectus (in each case, including the documents incorporated by
reference therein but not including the financial statements and other
financial information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with
the applicable requirements of the Act, the Exchange Act and the
respective rules and regulations of the Commission thereunder;
(xi) the Company and the Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
their respective businesses;
(xii) this transaction will not cause the
Company to become an "investment company" subject to registration as
such term is defined under the 1940 Act; and
(xiii) the Common Stock is a Nasdaq National
Market security on The Nasdaq Stock Market and is registered under the
Exchange Act.
Such counsel shall also state that they have no reason to
believe that the Registration Statement, as of its effective date, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date or the date of such opinion,
included or includes any untrue statement of a material fact or omitted or
omits to state
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<PAGE> 24
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials and, as to matters
involving the application of laws of any jurisdiction other than the State of
Ohio or the United States, to the extent satisfactory in form and scope to
counsel for the Underwriters, upon the opinion of local counsel reasonably
satisfactory to counsel for the Underwriters, and copies of such opinion shall
be delivered to the Underwriters and counsel for the Underwriters. Such counsel
may state that they are not passing on matters relating to patents and
trademarks.
References to the Registration Statement and the Prospectus in
this subsection (d) shall include any amendment or supplement thereto at the
date of such opinion.
(e) The Representatives shall have received an opinion
from Keating, Muething & Klekamp, counsel for the Selling Shareholder, dated the
Firm Closing Date or the Option Closing Date, as the case may be, to the effect
that:
(i) each of this Agreement and the Durable
Power of Attorney and Custody Agreement has been duly authorized,
executed and delivered by or on behalf of the Selling Shareholder and
such agreement constitutes the valid and binding agreement of the
Selling Shareholder, enforceable in accordance with its respective
terms, except that rights to indemnity or contribution thereunder may
be limited by applicable law and except as enforceability of such
agreement may be limited by bankruptcy or similar laws generally
affecting the rights of creditors and by equitable principles limiting
the right to specific performance or other equitable relief;
(ii) the execution and delivery of this
Agreement and the Durable Power of Attorney and Custody Agreement and
the consummation of the transactions herein and therein contemplated
will not constitute a breach, or be in contravention, of any provision
of any agreement, franchise, license, mortgage, deed of trust or other
instrument to which the Selling Shareholder is a party or by which the
Selling Shareholder or the Selling Shareholder's property may be
bound or affected, or violate any order or decree of any court,
regulatory or governmental body, administrative body or
instrumentality of the United States or other jurisdiction having
jurisdiction over the Selling Shareholder;
(iii) the Selling Shareholder has full legal
right, power and authority, and has secured any consent, approval,
authorization and order required to enter into and perform this
Agreement and the Durable Power of Attorney and Custody Agreement and
to sell, assign, transfer and deliver title to the Shares to be sold
by the Selling Shareholder as provided herein; and upon delivery to
the Underwriters or upon the order of the Representatives against
payment of the agreed consideration therefor in accordance with the
provisions of this Agreement, the Underwriters will acquire good and
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<PAGE> 25
marketable title to the Shares to be sold hereunder by such Selling
Shareholder, free and clear of all voting trust arrangements, liens,
encumbrances, security interests, equities, claims and community or
marital property rights; and
(iv) to such counsel's knowledge, the
information concerning the Selling Shareholder contained in the
Prospectus under the caption "Principal Shareholders and Selling
Shareholder" complies in all material respects with the Act.
In rendering such opinion, counsel for the Selling Shareholder
may rely, to the extent counsel deems such reliance proper, as to matters of
fact upon a certificate of the Selling Shareholder, and copies of such
certificate shall be furnished to the Representatives and counsel for the
Underwriters on or before each Closing Date.
(f) The Representatives shall have received an opinion of
Foley & Lardner, counsel for the Underwriters, dated the Firm Closing Date or
the Option Closing Date, as the case may be, with respect to the issuance and
sale of the Shares, the Registration Statement and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents and shall have exhibited to them such papers and records
as they request for the purpose of enabling them to pass upon such matters.
(g) The Representatives shall have received on each
Closing Date, a certificate of John A. Kraeutler, President and Chief Operating
Officer, and Gerard Blain, Vice President and Chief Financial Officer, of the
Company, to the effect that:
(i) The representations and warranties of the
Company and the Selling Shareholder set forth in Section 2(a) hereof
are true and correct as of the date of this Agreement and as of the
date of such certificate, and the Company has complied with all the
agreements and satisfied all the conditions to be performed or
satisfied by it at or prior to the date of such certificate;
(ii) The Commission has not issued an order
preventing or suspending the use of the Prospectus or any Preliminary
Prospectus or any amendment or supplement thereto; no stop order
suspending the effectiveness of the Registration Statement has been
issued; and to the knowledge of the respective signatories, no
proceedings for that purpose have been initiated or are pending or
contemplated under the Act or under the Blue Sky Laws of any
jurisdiction;
(iii) Each of the respective signatories has
carefully examined the Registration Statement and the Prospectus, and
any amendment or supplement thereto, including any documents filed
under the Exchange Act and deemed to be incorporated by reference in
the Registration Statement, and such documents contain all statements
required to be stated therein, and do not include any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and since the date on which the Registration Statement
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<PAGE> 26
was initially filed, no event has occurred that was required to be set
forth in an amendment or supplement to the Prospectus or in an
amendment to the Registration Statement that has not been so set
forth, and there has been no document required to be filed under the
Exchange Act that upon such filing would be deemed to be incorporated
by reference in the Registration Statement that has not been so filed;
and
(iv) Since the date on which the Registration
Statement was initially filed with the Commission, there has not
occurred any Material Adverse Change or development involving, or
which could be expected to involve, a Material Adverse Change, whether
or not arising from transactions in the ordinary course of business,
except as disclosed in the Prospectus and the Registration Statement
as heretofore amended or (but only if the Representatives expressly
consent thereto in writing) as disclosed in an amendment or supplement
thereto filed with the Commission and delivered to the Representatives
after the execution of this Agreement; since such date and except as
so disclosed or in the ordinary course of business, the Company has
not incurred any liability or obligation, direct or indirect, or
entered into any transaction which is material to the Company; since
such date and except as so disclosed, there has not been any change in
the outstanding capital stock of the Company, or any change that is
material to the Company in the short-term debt or long-term debt of
the Company; since such date and except as so disclosed, the Company
has not acquired any of the Common Stock or other capital stock of the
Company nor has the Company declared or paid any dividend, or made any
other distribution, upon its outstanding Common Stock payable to
shareholders of record on a date prior to such Closing Date; since
such date and except as so disclosed, the Company has not incurred any
material contingent obligations, and no material litigation has
commenced or been threatened against the Company; and, since such date
and except as so disclosed, the Company has not sustained any material
loss or interference from any strike, fire, flood, windstorm, accident
or other calamity (whether or not insured) or from any court or
governmental action, order or decree.
The delivery of the certificate provided for in this
subsection (g) shall be and constitute a representation and warranty of the
Company as to the facts required in the immediately foregoing clauses (i),
(ii), (iii) and (iv) to be set forth in said certificate.
(h) The Representatives shall have received a certificate
from the Selling Shareholder (which may be signed by such Selling Shareholder's
Attorneys-in-Fact, or either of them), dated the Firm Closing Date or the
Option Closing Date, as the case may be, to the effect that: (i) the
representations and warranties of such Selling Shareholder in Sections 2 and 3
of this Agreement are true and correct as of the date of this Agreement and as
of the date of such certificate, as if again made on and as of such Closing
Date, and the Selling Shareholder has complied with all of the agreements and
satisfied all of the conditions to be performed or satisfied by the Selling
Shareholder at or prior to such Closing Date; and (ii) the Selling Shareholder
has no reason to believe that the Registration Statement or any amendment
thereto, including any documents filed under the Exchange Act and deemed to be
incorporated by
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<PAGE> 27
reference in the Registration Statement, at the time it was declared effective
by the Commission contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus, as amended or
supplemented, including any documents filed under the Exchange Act and deemed
to be incorporated by reference in the Registration Statement, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(i) At the time this Agreement is executed and also on
each Closing Date, there shall be delivered to the Representatives a letter
addressed to the Representatives, as representatives of the Underwriters, from
Arthur Andersen LLP, the Company's independent accountants, the first letter to
be dated the date of this Agreement, the second letter to be dated the Firm
Closing Date and the third letter (if applicable) to be dated the Option
Closing Date, which shall be in form and substance satisfactory to the
Representatives and shall, without limitation, contain financial information
concerning the Company and the Subsidiaries as of a date within five days of
the date of such letter. There shall not have been any change or decrease set
forth in any of the letters referred to in this subsection (i) that makes it
impracticable or inadvisable in the judgment of the Representatives to proceed
with the public offering or purchase of the Shares as contemplated hereby.
(j) The Shares shall have been qualified or registered
for sale under the Blue Sky Laws of such jurisdictions as shall have been
specified by the Representatives, and the underwriting terms and arrangements
for the offering shall have been cleared by the NASD.
(k) Such further certificates and documents as the
Representatives may reasonably request (including certificates of officers of
the Company).
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are satisfactory to
the Representatives and to Foley & Lardner, counsel for the Underwriters, which
Representatives and Firm agree to act reasonably in so determining. The Company
and the Selling Shareholder shall furnish the Representatives with such
manually signed or conformed copies of such opinions, certificates, letters and
documents as the Representatives may reasonably request.
If any condition to the Underwriters' obligations hereunder to
be satisfied prior to or at either Closing Date is not so satisfied, this
Agreement at the election of the Representatives will terminate upon
notification to the Company and the Attorneys-in-Fact, or any one of them, for
the Selling Shareholder, without liability on the part of any Underwriter,
including the Representatives, the Company or the Selling Shareholder except
for the provisions of Section 7(f) hereof, the expenses to be paid by the
Selling Shareholder pursuant to Section 8 hereof and except to the extent
provided in Section 11 hereof.
10. MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENT.
The Company will use its best efforts and the Selling Shareholder will use his
best efforts to prevent the issuance of any
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<PAGE> 28
stop order suspending the effectiveness of the Registration Statement and, if
such stop order is issued, to obtain as soon as possible the lifting thereof.
11. INDEMNIFICATION.
(a) The Company and the Selling Shareholder, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act from and against any losses, claims, damages, expenses,
liabilities or actions in respect thereof ("Claims"), joint or several, to
which such Underwriter or each such controlling person may become subject under
the Act, the Exchange Act, Blue Sky Laws or other federal or state statutory
laws or regulations, at common law or otherwise (including payments made in
settlement of any litigation), insofar as such Claims arise out of or are based
upon any breach of any representation, warranty or covenant made by the Company
and/or the Selling Shareholder in this Agreement, or any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or in any application filed under any Blue Sky Law or other
document executed by the Company for that purpose or based upon written
information furnished by the Company and filed in any state or other
jurisdiction to qualify any or all of the Shares under the securities laws
thereof (any such document, application or information being hereinafter called
a "Blue Sky Application") or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading. The Company and
the Selling Shareholder, jointly and severally, agree to reimburse each
Underwriter and each such controlling person for any legal fees or other
expenses incurred by such Underwriter or any such controlling person in
connection with investigating or defending any such Claim; provided, however,
that the Company and the Selling Shareholder will not be liable in any such
case to the extent that any such Claim arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus or
supplement thereto or in any Blue Sky Application in reliance upon and in
conformity with the written information furnished to the Company pursuant to
Section 5 of this Agreement and provided, further, that with respect to any
untrue statement or omission, or alleged untrue statement or omission, made
in any Preliminary Prospectus, the indemnity agreement contained in this
subsection 11 (a) shall not inure to the benefit of any Underwriter from whom
the person asserting any such losses, claims, damages or liabilities purchased
shares if such untrue statement or omission or alleged untrue statement or
omission made in such Preliminary Prospectus is eliminated or remedied in the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto to the Underwriters) and such loss, claim,
damage or liability of such Underwriter results from the fact that there was
not furnished to such person, at or prior to the written confirmation of the
sale of such Shares to such person, a copy of the Prospectus (as so amended or
supplemented) if the Company had previously furnished copies thereof to such
Underwriter. The indemnification obligations of the Company and the Selling
Shareholder as provided above are in addition to and in no way limit any
liabilities the Company and the Selling Shareholder may otherwise have.
(b) Each Underwriter, severally and not jointly, will
indemnify and hold harmless the Company, each of its directors and each of its
officers who signs the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act or the Exchange Act and the
Selling Shareholder against any Claim to which the Company, or any such
director, officer, controlling person or the Selling Shareholder may become
subject under the Act, the Exchange Act, Blue Sky Laws or other federal or
state statutory laws or regulations, at common law or otherwise (including
payments made in settlement of any litigation, if such settlement is effected
with the written consent of such Underwriter and Cleary Gull), insofar as such
Claim arises out of or is based upon any untrue or alleged untrue statement of
any material fact contained in the Registration Statement, any Preliminary
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<PAGE> 29
Prospectus, the Prospectus, or any amendment or supplement thereto, or in any
Blue Sky Application, or arises out of or is based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, in reliance solely upon and
in conformity with the written information furnished by the Representatives to
the Company pursuant to Section 5 of this Agreement. Each Underwriter will
severally reimburse any legal fees or other expenses incurred by the Company,
or any such director, officer, controlling person or the Selling Shareholder in
connection with investigating or defending any such Claim, and from any and all
Claims solely resulting from failure of an Underwriter to deliver a Prospectus,
if the person asserting such Claim purchased Shares from such Underwriter and a
copy of the Prospectus (as then amended if the Company shall have furnished any
amendments thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to
the written confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended) would have cured the defect giving rise to such
Claim. The indemnification obligations of each Underwriter as provided above
are in addition to any liabilities any such Underwriter may otherwise have.
Notwithstanding the provisions of this section, no Underwriter shall be
required to indemnify or reimburse the Company, or any officer, director,
controlling person or Selling Shareholder in an aggregate amount in excess of
the total price at which the Shares purchased by any such Underwriter hereunder
were offered to the public, less the amount of any damages such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(c) Promptly after receipt by an indemnified party under
this section of notice of the commencement of any action in respect of a Claim,
such indemnified party will, if a Claim in respect thereof is to be made
against an indemnifying party under this section, notify the indemnifying party
in writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve an indemnifying party from any liability it
may have to any indemnified party under this section or otherwise, except to
the extent the indemnifying party is actually prejudiced by the failure to give
such notice. In case any such action is brought against any indemnified party,
and such indemnified party notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in and, to the
extent that he, she or it may wish, jointly with all other indemnifying
parties, similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and any
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to the indemnified party and/or
other indemnified parties which are different from or additional to those
available to any indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) Upon receipt of notice from the indemnifying party to
such indemnified party of the indemnifying party's election to assume the
defense of such action and upon
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<PAGE> 30
approval by the indemnified party of counsel selected by the indemnifying
party, the indemnifying party will not be liable to such indemnified party
under this section for any legal fees or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof, unless:
(i) the indemnified party shall have employed
separate counsel in connection with the assumption of legal defenses
in accordance with the proviso to the last sentence of subsection (c)
of this Section (it being understood, however, that the indemnifying
party shall not be liable for the legal fees and expenses of more than
one separate counsel, approved by Cleary Gull, if one or more of the
Underwriters or their controlling persons are the indemnified
parties);
(ii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the
indemnified party's notice to the indemnifying party of commencement
of the action; or
(iii) the indemnifying party has authorized the
employment of counsel at the expense of the indemnifying party.
(e) If the indemnification provided for in this section
is unavailable to an indemnified party under subsection (a) or (b) hereof in
respect of any Claim referred to therein, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall, subject to the limitations
hereinafter set forth, contribute to the amount paid or payable by such
indemnified party as a result of such Claim:
(i) in such proportion as is appropriate to reflect
the relative benefits received by the Company, the Selling Shareholder
and the Underwriters from the offering of the Shares; or
(ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above, but also the relative fault of the Company, the
Selling Shareholder and the Underwriters in connection with the
statements or omissions which resulted in such Claim, as well as any
other relevant equitable considerations.
The relative benefits received by each of the Company, the
Selling Shareholder and the Underwriters shall be deemed to be in such
proportion so that the Underwriters are responsible for that portion
represented by the percentage that the amount of the underwriting discounts and
commissions per share appearing on the cover page of the Prospectus bears to
the public offering price per share appearing thereon, and the Company
(including its officers and directors and controlling persons), and the Selling
Shareholder is responsible for the remaining
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<PAGE> 31
portion. The relative fault of the Company, the Selling Shareholder and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, the Selling Shareholder or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the Claims referred to above shall be deemed to include, subject to
the limitations set forth in subsections (c) and (d) of this section, any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
(f) The Company, the Selling Shareholder and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this section were determined by pro rata or per capita allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method or allocation which does not take into account the equitable
considerations referred to in subsection (e) of this Section. Notwithstanding
the other provisions of this section, no Underwriter shall be required to
contribute any amount that is greater than the amount by which the total price
at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this section are several in proportion to their respective underwriting
commitments and not joint.
12. DEFAULT OF UNDERWRITERS. It shall be a condition to
the obligations of each Underwriter to purchase the Shares in the manner as
described herein, that, except as hereinafter provided in this section, each of
the Underwriters shall purchase and pay for all the Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives of
all such Shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Shares hereunder on
either the Firm Closing Date or the Option Closing Date and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed ten percent (10%) of the total number of
Shares which the Underwriters are obligated to purchase on such Closing Date,
the Representatives may make arrangements for the purchase of such Shares by
other persons, including any of the Underwriters, but if no such arrangements
are made by such Closing Date the nondefaulting Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Shares which such defaulting Underwriters agreed but failed to purchase on
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of Shares with respect to which such default or defaults occur
is greater than ten percent (10%) of the total number of Shares which the
Underwriters are obligated to purchase on such Closing Date, and arrangements
satisfactory to the Representatives for the purchase of such Shares by other
persons are not made within thirty-six hours after such default, then this
Agreement will terminate without liability on the part of any nondefaulting
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<PAGE> 32
Underwriter, the Company or the Selling Shareholder, except for the expenses to
be paid by the Company and the Selling Shareholder pursuant to Section 8 hereof
and except to the extent provided in Section 11 hereof.
In the event that Shares to which a default relates are to be
purchased by the nondefaulting Underwriters or by another party or parties, the
Representatives shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, for not more than seven business days
in order that the necessary changes in the Registration Statement, Prospectus
and any other documents, as well as any other arrangements, may be effected.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. Nothing herein will relieve
a defaulting Underwriter from liability for its default.
13. EFFECTIVE DATE. This Agreement shall become
effective upon the execution and delivery of this Agreement by the parties
hereto. Such execution and delivery shall include an executed copy of this
Agreement sent by telecopier, facsimile transmission or other means of
transmitting written documents.
14. TERMINATION. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof, this Agreement
may be terminated by the Representatives prior to or on the Firm Closing Date
and the over-allotment option from the Company and the Selling Shareholder
referred to in Section 3(c) hereof, if exercised, may be cancelled by the
Representatives at any time prior to or on the Option Closing Date, if in the
judgment of the Representatives, payment for and delivery of the Shares is
rendered impracticable or inadvisable because:
(a) trading in the Common Stock shall have been suspended
by the Commission or the Nasdaq National Market; additional restrictions, not
in force and effect on the date hereof, shall have been imposed upon trading in
securities generally; minimum or maximum prices shall have been established on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market; or trading in securities generally shall have been suspended or
materially limited on either such exchange or on the Nasdaq National Market;
(b) a general banking moratorium shall have been
established by either federal or state authorities in New York, Ohio or
Wisconsin;
(c) any event shall have occurred or shall exist which
makes untrue or incorrect in any material respect any statement or information
contained in the Registration Statement or which is not reflected in the
Registration Statement but should be reflected therein to make the statements
or information contained therein not misleading in any material respect; or
(d) an outbreak or escalation of hostilities or other
national or international calamity, crisis or emergency or any substantial
change in political, financial or economic
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<PAGE> 33
conditions shall have occurred or shall have accelerated to such extent, in the
judgment of the Representatives, as to have a material adverse effect on the
financial markets of the United States, or to make it impracticable or
inadvisable to proceed with completion of the sale of and payment for the
Shares as provided in this Agreement.
Any termination pursuant to this Section shall be without
liability on the part of any Underwriter to the Company or the Selling
Shareholder, or on the part of the Company or the Selling Shareholder to any
Underwriter, except for expenses to be paid by the Selling Shareholder pursuant
to Section 8 hereof or reimbursed by the Selling Shareholder pursuant to
Section 7(f) hereof and except as to indemnification to the extent provided in
Section 11 hereof.
15. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties, covenants
and other statements of the Company, of its officers or directors, of the
Selling Shareholder, and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Shareholder or the Company or any of its or their partners, officers, directors
or any controlling person, as the case may be, and will survive delivery of and
payment for the Shares sold hereunder.
16. NOTICES. All communications hereunder will be in
writing and, if sent to the Representatives, will be mailed, delivered,
telecopied (with receipt confirmed) or telegraphed and confirmed to Cleary Gull
Reiland & McDevitt Inc. at 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, Attention: Chris Barnes, Vice President, with a copy to Patrick G.
Quick, Esq., Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee, Wisconsin
53202-5367; and if sent to the Company, will be mailed, delivered, telecopied
(with receipt confirmed) or telegraphed and confirmed to the Company at
Meridian Diagnostics, Inc., Attention: Gerald Blain, 3471 River Hills Drive,
Cincinnati, Ohio 45244, with a copy to Edward E. Steiner, Esq., Keating,
Muething & Klekamp, 1800 Provident Tower, One East Fourth Street, Cincinnati,
Ohio 45202; and, if sent to the Selling Shareholder, will be mailed, delivered,
telecopied (with receipt confirmed) or telegraphed and confirmed to the
Attorneys-in-Fact, or either of them, in care of the Company, with copies to J.
Jeffrey Brausch, J. Jeffrey Brausch and Company, 203 South Court Street,
Medina, Ohio 44256 and Edward E. Steiner, Esq., Keating, Muething & Klekamp,
1800 Provident Tower, One East Fourth Street, Cincinnati, Ohio 45202
17. SUCCESSORS. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors,
personal representatives and assigns, and to the benefit of the officers and
directors and controlling persons referred to in Section 11 hereof and no other
person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Shares as such from any of the
Underwriters merely by reason of such purchase.
18. PARTIAL UNENFORCEABILITY. If any section, paragraph,
clause or provision of this Agreement is for any reason determined to be
invalid or unenforceable, such
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<PAGE> 34
determination shall not affect the validity or enforceability of any other
section, paragraph clause or provision hereof.
19. APPLICABLE LAW; COUNTERPARTS. This Agreement shall
be governed by and construed in accordance with the internal laws of the State
of Wisconsin without reference to conflict of law principles thereunder. This
Agreement may be signed in various counterparts which together shall constitute
one and the same instrument, and shall be effective when at least one
counterpart hereof shall have been executed by or on behalf of each party
hereto.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholder and the several Underwriters, including the Representatives, all in
accordance with its terms.
Very truly yours,
MERIDIAN DIAGNOSTICS, INC.
(the "Company")
By: _______________________________
William J. Motto
Chairman and Chief Executive Officer
_____________________________________
Jerry L. Ruyan
(the "Selling Shareholder")
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
CLEARY GULL REILAND & MCDEVITT INC.
THE OHIO COMPANY
RONEY & CO.
Acting as Representatives of the
several Underwriters (including themselves)
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<PAGE> 35
identified in Schedule I annexed hereto.
By: CLEARY GULL REILAND & MCDEVITT INC.
By: ____________________________________
Chris Barnes, Vice President
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<PAGE> 36
MERIDIAN DIAGNOSTICS, INC.
EXHIBIT A
---------
Subsidiary Ownership
---------- ---------
Omega Technologies, Inc. 100% owned by the Company
Meridian Diagnostics International, Inc. 100% owned by the Company
Meridian Diagnostics Europe s.r.l. 99% (22,500 quotas) owned
by the Company and 1% owned
(225 quotas) owned by
Todd Motto
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<PAGE> 37
MERIDIAN DIAGNOSTICS, INC.
SCHEDULE I
----------
NUMBER OF FIRM
SHARES TO
NAME OF UNDERWRITER BE PURCHASED
------------------- ------------
Cleary Gull Reiland & McDevitt Inc.
The Ohio Company
Roney & Co.
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<PAGE> 1
Exhibit 3.1
AMENDED ARTICLES OF INCORPORATION
OF
MERIDIAN DIAGNOSTICS, INC.
MERIDIAN DIAGNOSTICS, INC. hereby adopts the following Amended Articles
of Incorporation to supersede and take the place of the existing Articles and
all Amendments thereto:
FIRST. The name of the Corporation shall be Meridian Diagnostics, Inc.
SECOND. The place in Ohio where its principal office is to be located
is 3476 Riverhills Drive, Cincinnati, Hamilton County, Ohio 45244.
THIRD. The purpose for which the Corporation is organized shall be:
To develop, manufacture and sell medical diagnostic products and to do
any other lawful act or acts for which corporations may be formed under
Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH. The maximum number of shares which the Corporation is
authorized to have outstanding is:
A. 101,000 shares of Common Stock, without par value and
B. 10,000 shares of Preferred Stock, without par value.
The holders of the Preferred Stock shall be entitled to receive
dividends out of any funds of the corporation at the time legally available for
dividends when and as declared by the Board of Directors at such rate as shall
be fixed by the Board of Directors before any sum shall be set apart or applied
to the redemption or purchase of or any dividends shall be declared or paid
upon or set apart for any class or series of Common Stock. In the event of any
liquidation, dissolution or winding up of the Corporation, the holders of
Preferred Stock shall be entitled to receive out of the assets of the
Corporation payment of an amount per share as determined by the Board of
Directors as a liquidation price (including accrued dividends, if any) before
any distribution of assets shall be made to the holders of any class or series
of Common Stock.
The Board of Directors shall have he express authority from
time-to-time to adopt amendments to these Articles of Incorporation with
respect to any unissued or treasury shares of Preferred Stock and thereby to
fix or change the division of such shares into series and the designation and
authorized number of shares of each series and to provide for each such series:
voting powers, full or limited or no voting powers; dividend rates; dates of
payment of dividends; dates from which dividends
<PAGE> 2
are cumulative; liquidation prices; redemption rights and prices; sinking fund
requirements; conversion rights; restrictions on the issuance of shares of
other series of Preferred Stock; and such other designations, preferences and
relative participating options or other special rights and qualifications,
powers, limitations or restrictions thereon as may be determined by the Board
of Directors.
FIFTH. No holder of any shares of this Corporation shall have any
pre-emptive rights to subscribe for or to purchase any shares of this
Corporation of any class whether such shares or such class be now or hereafter
authorized or to purchase or subscribe for securities convertible into or
exchangeable for shares of any class or to which shall be attached or
appertained any warrants or rights entitling the holder thereof to purchase or
subscribe for shares of any class.
SIXTH. This Corporation, through its Board of Directors, shall have
the right and power to purchase any of its outstanding shares at such price and
upon such terms as may be agreed upon between the Corporation and any selling
shareholder.
SEVENTH. The provisions of Ohio Revised Code Section 1701.831 relating
to control share acquisitions shall not be applicable to this Corporation.
<PAGE> 3
CERTIFICATE OF AMENDMENT
By Shareholders
to the Articles of Incorporation of
MERIDIAN DIAGNOSTICS, INC.
William J. Motto, who is President, and Richard H. Walter, who is
Secretary, of the above named Ohio corporation for profit with its principal
location at 3471 Riverhills Drive, Cincinnati, Hamilton Co., Ohio, do hereby
certify that a meeting of the shareholders was duly called for the purpose of
adopting this amendment and held on May 16, 1986, at which meeting a quorum of
the shareholders was present in person or by proxy, and by the affirmative vote
of the holders of shares entitling them to exercise 99% of the voting power of
the corporation, the following resolution to amend the articles was adopted:
RESOLVED: That the Amended Articles of Incorporation in ARTICLE FOURTH
be amended so that subparagraphs A and B shall read hereafter as
follows:
A. 15,000,000 shares of Common Stock, without par value and
B. 1,000,000 shares of Preferred Stock, without par value.
IN WITNESS WHEREOF, the above named officers, acting for and on the
behalf of the corporation, have hereto subscribed their names this 21st day of
May, 1986.
BY: William J. Motto
--------------------
William J. Motto
President
BY: Richard H. Walter
--------------------
Richard H. Walter
<PAGE> 4
CERTIFICATE OF AMENDMENT
By Shareholders
to the Articles of Incorporation of
MERIDIAN DIAGNOSTICS, INC.
William J. Motto, who is Chairman of the Board, and Frank J. Seurkamp,
who is Secretary, of the above named Ohio corporation for profit with its
principal location at 3471 Riverhills Drive, Cincinnati, Hamilton Co., Ohio, do
hereby certify that a meeting of the shareholders was duly called for the
purpose of adopting this amendment and held on February 16, 1993, at which
meeting a quorum of the shareholders was present in person or by proxy, and by
the affirmative vote of the holders of shares entitling them to exercise 87.6%
of the voting power of the corporation, the following resolution to amend the
articles was adopted:
RESOLVED: That the Amended Articles of Incorporation in Article Fourth
be amended so that subparagraphs A and B shall read as follows:
A. 25,000,000 shares of Common Stock, without par value and
B. 1,000,000 shares of Preferred Stock, without par value.
IN WITNESS WHEREOF, the above named officers, acting for and on the
behalf of the corporation, have hereto subscribed their names this 16th day of
February, 1993.
BY: William J. Motto
---------------------
William J. Motto
Chairman
BY: Frank J. Seurkamp
---------------------
Frank J. Seurkamp
Secretary
<PAGE> 5
CERTIFICATE OF AMENDMENT
By Shareholders
to the Articles of Incorporation of
MERIDIAN DIAGNOSTICS, INC.
William J. Motto, who is Chairman of the Board, and Jerry L. Ruyan, who
is Secretary, of the above named Ohio corporation for profit do hereby certify
that a meeting of the shareholders was duly called for the purpose of adopting
this amendment and held on January 25, 1996, at which meeting a quorum of the
shareholders was present in person or by proxy, and by the affirmative vote of
the holders of shares entitling them to exercise 83% of the voting power of the
corporation.
RESOLVED: That the Amended Articles of Incorporation in Article Fourth
be amended to that subparagraphs A and B shall read as follows:
A. 50,000,000 shares of Common Stock, without par value and
B. 1,000,000 shares of Preferred Stock, without par value.
IN WITNESS WHEREOF, the above named officers, acting for and on the
behalf of the corporation, have hereto subscribed their names this 30th day of
January, 1996.
BY: /s/William J. Motto
---------------------
William J. Motto
Chairman
BY: /s/Jerry L. Ruyan
---------------------
Jerry L. Ruyan
Secretary
<PAGE> 1
EXHIBIT 5
KEATING, MUETHING & KLEKAMP
ATTORNEYS AT LAW
1800 PROVIDENT TOWER
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
TELEPHONE (513) 579-6400
TDD (513) 579-6461
FACSIMILE (513) 579-6956
April 18, 1996
Direct Dial: (513) 579-6468
Meridian Diagnostics, Inc.
3471 River Hills Drive
Cincinnati, Ohio 45246
Gentlemen:
We have examined the corporate records and proceedings of
Meridian Diagnostics, Inc. (the "Corporation") with respect to:
1. The organization of the Corporation; and
2. The legal sufficiency of all corporate proceedings of
the Corporation in connection with the creation and issuance of all
of the present outstanding and issued shares of Common Stock, no par
value, of the Corporation (the "Common Stock").
Based upon such examination, we are of the opinion:
1. That the Corporation is a duly organized and validly
existing corporation in good standing under the laws of the State of
Ohio; and
2. That the 1,500,000 shares of Common Stock, plus up to
225,000 which may be sold pursuant to an over-allotment option, all of
which are being sold by the selling shareholder are duly authorized,
legally issued, fully paid and non-assessable shares of Common Stock
free of any claim of pre-emptive rights.
<PAGE> 2
We hereby consent to be named in the Registration Statement
and the Prospectus part thereof as the attorneys who will pass upon
legal matters in connection with the aforesaid shares of Common Stock
and to the filing of this opinion as an exhibit to the Registration
Statement, and furthermore consent to all references made to this firm
in the Registration Statement.
Yours truly,
KEATING, MUETHING & KLEKAMP
BY: /s/ EDWARD E. STEINER
--------------------------
Edward E. Steiner
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
April 15, 1996
