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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to _______________________
Commission file number 000-21615 .
BOSTON BIOMEDICA, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2652826
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
375 WEST STREET,
WEST BRIDGEWATER, MASSACHUSETTS 02379
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(Address of Principal Executive Offices) (zip code)
Registrant's telephone number, including area code (508) 580-1900
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OFTHE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated be reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at February 28, 1997 was $30,074,188. The aggregate market
value was computed by reference to the closing price as of that date. (For
purposes of calculating this amount only, all directors, executive officers and
greater than 10% shareholders of the Registrant are treated as affiliates.)
The number of shares outstanding of the Registrant's only class of
common stock as of February 28, 1997 was 4,378,157.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's definitive Proxy Statement for its 1997
annual meeting, are incorporated by reference into Part III of this Report, and
portions of the Registrants Registration Statement on Form S-1 (Registration No.
333-10759) are incorporated by reference into Part IV of this Report.
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PART I
ITEM 1. BUSINESS
The Company is a worldwide provider of proprietary quality control
products for use with in vitro diagnostic test kits ("test kits") for the
detection, analysis and monitoring of infectious diseases, including AIDS,
Hepatitis and Lyme Disease. These products are used to develop test kits, to
permit the monitoring of laboratory equipment and personnel, and to help ensure
the accuracy of test results. The Company's products are derived from human
plasma and serum using proprietary manufacturing processes. The Company believes
its Quality Control Panel products are viewed as the current industry standard
for the independent assessment of the performance of HIV and Hepatitis test
kits. The Company also manufactures diagnostic test kit components and provides
specialty laboratory services, including clinical trials. The Company's
customers include test kit manufacturers, regulatory agencies and end-users of
test kits such as blood banks, hospital laboratories and clinical reference
laboratories. Currently the Company's products are used in connection with the
detection of more than 15 infectious diseases, and its specialty laboratory
services are used in connection with the detection of over 100 such diseases.
The Company's strategy is to leverage its scientific capabilities in
microbiology, immunology, virology, and molecular biology to (i) capitalize on
the emerging end-user market, (ii) develop new products and services, (iii)
enhance technical leadership, (iv) capitalize on complementary business
operations, and (v) pursue strategic acquisitions and alliances.
INDUSTRY OVERVIEW
Infectious Disease Test Kits and Testing Methods. Test kits contain in
one compact package all of the materials necessary to run a test for an
infectious disease. These include the disposable diagnostic components,
instructions, and reaction mixing vessels (generally 96-well plates or test
tubes) which are coated with the relevant infectious disease antigens,
antibodies or other materials. To perform the test, either a technician or a
specially designed instrument typically mixes the solutions from the test kit
with human blood specimens in a specific sequence according to the test kit
instructions. The mixture must then "incubate" for up to 18 hours, during which
time a series of biochemical reactions trigger signals (including color, light
and radioactive count) which indicate the presence or absence and amount of
specific markers of the particular disease in the specimen.
Test kits generally employ one of three methods for infectious disease
testing: microbiology, immunology or molecular biology. Traditional microbiology
tests use a growth medium that enables an organism, if present, to replicate and
be detected visually. Immunology tests detect the antigen or antibody, which is
an indicator (marker) of the pathogen (e.g., virus, bacterium, fungus or
parasite). Molecular diagnostic methods, such as the polymerase chain reaction
("PCR"), test for the presence of nucleic acids (DNA or RNA) which are specific
to a particular pathogen.
Most infectious disease tests currently use microbiological or
immunological methods. However, molecular diagnostic methods are increasingly
being used in research laboratories worldwide and the Company believes that soon
they will be accepted for routine use in the clinical laboratory setting. The
Company believes that the advent of molecular diagnostic methods will complement
rather than diminish the need to test by microbiological and immunological
procedures, because different test methods reveal different information about a
disease state. The Company anticipates that as new test methods become more
widespread, they will account for a larger portion of the Company's business.
Quality Control for In Vitro Diagnostic Test Kits. Customers employ
quality control products in order to develop and use test kits (both infectious
and non-infectious). Quality control products help ensure that test kits detect
the correct analyte (specificity), detect it the same way every time
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(reproducibility or precision), and detect it at the appropriate levels
(sensitivity). The major element of this quality control process is the
continuous evaluation of test kits by the testing of carefully characterized
samples that resemble the donor or patient samples routinely used with the test.
Quality control is used in both the infectious and non-infectious disease
markets, although currently it is not as prevalent among end-users of infectious
disease test kits.
The market for quality control products consists of three main customer
segments: (i) manufacturers of test kits, (ii) regulatory agencies that oversee
the manufacture and use of test kits and (iii) end-users of test kits, such as
hospitals, clinical reference laboratories and blood banks.
COMPANY PRODUCTS AND SERVICES
OVERVIEW
The Company offers three product groups in infectious disease
diagnostics: Quality Control Panels, Accurun(TM) Run Controls and Diagnostic
Components. These products are used throughout the entire test kit life cycle,
from initial research and development, through the regulatory approval process
and test kit production, to training, troubleshooting and routine use by
end-users. The Company's Quality Control Panels, which combine human blood
specimens with comprehensive quantitative data useful for comparative analysis,
help ensure that test kits detect the correct analyte (specificity), detect it
the same way every time (reproducibility), and detect it at the appropriate
levels (sensitivity). The Company's Accurun(TM) Run Controls enable end-users of
test kits to confirm the validity of results by monitoring test performance,
thereby minimizing false negative test results and improving error detection. In
addition, the Company provides Diagnostic Components, which are custom processed
human plasma and serum products, to test kit manufacturers.
The Company's specialty clinical laboratory services include both
routine and sophisticated infectious disease testing in microbiology, immunology
and molecular biology. The Company seeks to focus its specialty laboratory
services in advanced areas of infectious disease testing, and provides contract
research and clinical trials for domestic and foreign test kit manufacturers.
PRODUCTS
The Company manufactures its products from human plasma and serum which
are obtained from nonprofit and commercial blood centers, primarily in the
United States. The Company has acquired and developed an inventory of
approximately 50,000 individual blood units and specimens (with volumes ranging
from 1 ml to 800 ml) which provides most of the raw material for its products.
QUALITY CONTROL PANELS
Quality Control Panels consist of blood products characterized by the
presence or absence of specific disease markers and a Data Sheet containing
comprehensive quantitative data useful for comparative analysis. These Quality
Control Products are designed for measuring overall test kit performance and
laboratory proficiency, as well as for training laboratory professionals. The
Company's Data Sheets, containing comprehensive quantitative data useful for
comparative analysis, are an integral part of its Quality Control Products.
These Data Sheets are created as the result of extensive testing of proposed
panel components in both the Company's laboratories and at major testing
laboratories on behalf of the Company in the United States and Europe, including
national public health laboratories, research and clinical laboratories and
regulatory agencies. These laboratories are selected based on their expertise in
performing the appropriate tests on a large scale in an actual clinical setting;
this testing process provides the Company's customers with the benefit that the
Quality Control Panels they purchase from the Company have undergone rigorous
testing in actual clinical settings. In addition, the Company provides
information on its Data Sheets on the reactivity of panel components in all FDA
licensed test
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kits and all leading European test kits for the target pathogen, as well as for
all other appropriate markers of this pathogen. For example, the Company's HIV
panel Data Sheets include anti-HIV by IFA, ELISA and western blot; HIV antigen
by ELISA; and HIV RNA by several molecular diagnostic procedures. The Company's
Data Sheets require significant time and scientific expertise to prepare. The
following table describes the types of Quality Control Panel products currently
offered by the Company.
<TABLE>
<CAPTION>
QUALITY CONTROL PANEL PRODUCTS
- -------------------------------- ----------------------------------- --------------------------------- ---------------------
PRODUCT LINE DESCRIPTION USE CUSTOMERS
- -------------------------------- ----------------------------------- --------------------------------- ---------------------
<S> <C> <C> <C>
Seroconversion Panels Plasma samples collected from a Compare the clinical Test kit
single individual overra specific sensitivity of competing manufacturers and
time period showing conversion manufacturers' test kits, regulators.
from negative to positive for enabling the user to assess the
markers of an infectious sensitivity of a test in
disease.- detecting a developing
antigen/antibody.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------
Performance Panels A set of 10 to 50 serum and Determine test kit performance Test kit
plasma samples collected from against all expected levels of manufacturers and
many different individuals and reactivities in the evaluation regulators.
characterized for the presence or of new, modified and improved
absence of a particular disease test methods.
marker.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------
Sensitivity Panels Precise dilutions of human plasma Evaluate the low-end analytical Test kit
or serum human plasma or serum sensitivity of a test kit. manufacturers
containing a known amount of an
infectious disease marker as
calibrated against international
standards.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------
Qualification Panels Dilutions of human plasma or Demonstrate the consistent Clinical reference
serum manifesting a full range of lot-to-lot performance of test laboratories, blood
reactivities in test kits for a kits, troubleshoot problems, banks, and hospital
specific marker. evaluate proficiency, and train laboratories
laboratory technicians.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------
OEM Panels Custom-designed Qualification Train laboratory personnel on Custom designed
Panels for regulators and test new test kits or equipment. with test kit
kit manufacturers for manufacturers and
distribution to customers or for regulators as an
internal use. end-user product or
for internal use.
- -------------------------------- ----------------------------------- --------------------------------- ---------------------
</TABLE>
The Company first introduced Quality Control Panels in 1987. The
Company currently offers a broad range of Quality Control Panels that address a
variety of needs of manufacturers and regulators of test kits as well as blood
banks, hospitals, clinical laboratories and other end-users. Prices for the
Company's quality control seroconversion, performance and sensitivity panels
range from $450 to $2,000 each, and its qualification and OEM panels range from
$100 to $200 per panel.
-4-
Seroconversion and Performance Panels are comprised of unique
and rare plasma specimens obtained from individuals during the short period of
time when the markers for a particular disease are converting from negative to
positive. As a result, the quantity of any such panel is limited, so that the
Company must replace these panels as they sell out with another panel comprised
of different specimens equally unique and rare. The Company believes that its
inventory and relationships with blood centers affords it a competitive
advantage in acquiring such plasma for replacement panels and developing new
products to meet market demand. There can be no assurance that the Company will
be able to continue to obtain such specimens.
Quality Control Panels currently span the immunologic markers for AIDS
(i.e., HIV), Hepatitis B and C, Lyme Disease and ToRCH (Toxoplasma, rubella,
cytomegalovirus and herpes simplex virus). New introductions this year include
molecular Performance Panels for HBV and HCV, qualification panels for HIV, HBV
and HCV, and additional Seroconversion Panels for HIV, HBV, and HCV.
ACCURUN(TM) RUN CONTROLS
End-users of test kits utilize Run Controls to confirm the validity of
results by monitoring test performance, thereby minimizing false negative test
results and improving error detection. Run controls consist of one or more
specimens of known reactivity that are tested together with donor or patient
samples in an assay to determine whether the assay is performing within the
manufacturer's specifications. Clinical laboratories generally process their
patient specimens in a batch processing mode, and typically include 25 to 100
specimens to be tested in each batch (a "run"). Large laboratories may perform
several runs per day, while smaller laboratories may perform only a single run
each day, or sometimes only several runs per week. A clinical laboratory using a
Run Control will place the Run Control product in a testing well or test-tube,
normally used for a specimen, and will test it in the same manner that it tests
the donor or patient specimens. It will then compare the results generated to an
acceptable range, determined by the user, to measure whether the other specimens
are being accurately tested. The Run Control result must be within the
acceptable range to be considered valid. This is often tracked visually using a
Levey-Jennings chart. Depending upon a particular laboratory's quality control
practices, it may use several Run Controls on each run or it may simply use a
Run Control in a single run at the beginning and end of the day.
The Company's Accurun(TM) family of products is targeted at the
emerging market of end-users of infectious disease test kits. The Company
believes that it offers the most comprehensive line of Run Controls in the
industry, and that its Accurun(TM) products, in combination with its Quality
Control Panel products, provide an extensive line of products for quality
assurance in infectious disease testing. The Company intends to continue to
expand its line of Accurun(TM) products, thereby providing its customers with
the convenience and cost effectiveness of a single supplier for independent run
controls.
The Company introduced its first four Accurun(TM) Run Control products
in the fourth quarter of 1993 and has since developed and released for sale an
additional 25 Accurun(TM) products. A limited number of these products are
available for diagnostic purposes; the others currently are limited to research
use. Current Accurun(TM) Run Control products range in price from $15 to $45 per
milliliter and are described in the following table.
-5-
<TABLE>
<CAPTION>
ACCURUN(TM) RUN CONTROLS
- ------------------------------- -------------------------------- ---------------------- ------------------------------
PRODUCT LINE DESCRIPTION CURRENT NUMBER OF PRIMARY CUSTOMERS
PRODUCTS
- ------------------------------- -------------------------------- ---------------------- ------------------------------
<S> <C> <C> <C>
Accurun(TM)1-99 Multi-marker Run Control 4 Blood Banks
for immunological tests
- ------------------------------- -------------------------------- ---------------------- ------------------------------
Accurun(TM)100-199 Single-marker Run Control 18 Hospitals and clinical
for immunological tests reference laboratories
- ------------------------------- -------------------------------- ---------------------- ------------------------------
Accurun(TM)200-299 Multi-marker Run Control 1 Research and specialty
for molecular tests laboratories
- ------------------------------- -------------------------------- ---------------------- ------------------------------
Accurun(TM)300-399 Single-marker Run Control 3 Research and specialty
for immunological tests laboratories
- ------------------------------- -------------------------------- ---------------------- ------------------------------
Accurun(TM)800-899 Negative Run Control for 3 All laboratories
immunological and molecular
tests
- ------------------------------- -------------------------------- ---------------------- ------------------------------
</TABLE>
The Company has received 510(k) clearance from the FDA to market its
Accurun 1(R) line, for diagnostic purposes, and intends to apply for such
clearance for the remainder of its Accurun(TM) products. All of the Company's
Accurun Run Controls will require FDA premarket clearance or approval prior to
being marketed for diagnostic use. An application for clearance for diagnostic
use for one additional Accurun(TM) product has been submitted by the Company to
the FDA, and the Company anticipates that applications for approximately 16
additional Accurun(TM) products will be prepared and submitted to the FDA by the
end of 1997. Failure to obtain, or delays in obtaining, such clearance or
approval would adversely affect the Company's strategy of capitalizing on the
end-user market.
DIAGNOSTIC COMPONENTS
Diagnostic Components are the individual materials supplied to
infectious disease test kit manufacturers and combined (often after further
processing by the manufacturer) with other materials to become the various fluid
components of the manufacturer's test kit. The Company supplies Diagnostic
Components in four product lines: Normal Human Plasma, Normal Human Serum,
Basematrix, and Characterized Disease State Serum and Plasma. Normal Human
Plasma and Serum are both the clear liquid portion of blood which contains
proteins, antibodies, hormones and other substances, except that the Serum
product has had the clotting factors removed. Basematrix, the Company's
proprietary processed serum product that has been chemically converted from
plasma, is designed to be a highly-stable, lower cost substitute for most Normal
Human Serum and Plasma applications. Characterized Disease State Serum and
Plasma are collected from specific blood donors pre-selected because of the
presence or absence of a particular disease marker. The Company often customizes
its Diagnostic Components by further processing the raw material to meet the
specifications of the test kit manufacturer. The Company's Diagnostic Components
range in price from $0.25 to $60 per milliliter, with the majority selling
between $0.50 and $5 per milliliter.
-6-
SERVICES
The Company seeks to focus its specialty laboratory services in both
the clinical reference laboratory testing and advanced research areas. The
Company concentrates its services in those areas of infectious disease testing
which are complementary to its quality control and diagnostic products
businesses.
Specialty Clinical Laboratory Testing. The Company operates an
independent specialty clinical laboratory which performs both routine and
sophisticated infectious disease testing in microbiology, immunology and
molecular biology, with special emphasis in AIDS, Viral Hepatitis and Lyme
Disease. The Company's specialty clinical laboratory combines traditional
microbiology, advanced immunology, and current molecular diagnostic techniques,
such as PCR, to detect and identify microorganisms, their antigens and related
antibodies, and their nucleic acids (i.e., DNA and RNA). Customers include
physicians, clinics, hospitals and other clinical/research laboratories.
Contract Research. The Company offers a variety of contract research
services in molecular biology, cell biology and immunology to governmental
agencies, diagnostic test kit manufacturers and biomedical researchers.
Molecular biology services include DNA sequencing, recombinant DNA support,
probe labeling and custom PCR assays. Cell biology and immunology services
include sterility testing, virus infectivity assays, cultivations of virus or
bacteria from clinical specimens, preparation of viral or bacterial antigens or
nucleic acids, and production of antibodies. The Company is currently providing
research services for assessment of the efficiency of candidate HIV vaccines in
a monkey model system under two separate contracts with the National Institute
for Allergy and Infectious Disease ("NIAID"), a part of the National Institutes
of Health ("NIH"). Each of these contracts has a two year term which expires in
September 1997. In addition, since 1983, the Company, through its BTRL
subsidiary, has provided blood processing and repository services for the
National Cancer Institute ("NCI"), also a part of the NIH. The repository stores
over 2,000,000 specimens and processes or ships up to several thousand specimens
per week in support of various NIH cancer and virus research programs. A new one
year NCI repository contract was signed in February 1997 which includes four one
year renewal options exercisable by NCI. The total value of the contract in the
first year is $916,000, and including all options, is $4.8 million. There can be
no assurance that any of these options will be exercised.
Clinical Trials. The Company conducts clinical trials for domestic and
foreign test kit manufacturers. Test kit manufacturers must conduct such trials
to collect data for submission to the United States FDA and other regulatory
agencies. By providing this service, the Company is able to maintain close
contact with test kit manufacturers and regulators, and is able to evaluate new
technologies in various stages of development. The Company believes that the
reputation of its laboratory and scientific staff, its large number of Quality
Control Panels, and its inventory of characterized serum and plasma specimens
assist the Company in marketing its clinical trial services to its customers.
The Company has performed clinical trials for a number of United States and
foreign test kit manufacturers seeking to obtain FDA approval for their
infectious disease test kits.
Drug Screening Program. As a subcontractor for an NIH AIDS grant held
by the University of North Carolina at Chapel Hill, the Company has established
an anti-HIV drug screening program to test a large number of natural products
(largely plant derivatives) to determine whether they inhibit HIV replication in
an in vitro assay system. These in vitro assays are also offered as a service to
researchers and pharmaceutical companies who wish to test various candidate
anti-viral agents for anti-HIV activity.
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RESEARCH AND DEVELOPMENT
The Company's research and development effort is focused on the
development of (i) new and improved Quality Control Products for the emerging
end-user market, (ii) new products for existing customers, (iii) Diagnostic
Components for use with test kits for both new test methodologies and new
diseases, and (iv) infectious disease testing services using PCR and other
amplification assays for AIDS, Viral Hepatitis, Lyme Disease and Chlamydia,
among others. The Company has approximately 20 full or part-time employees
dedicated to its research and development effort. For 1996 the Company increased
spending on research and development as a percentage of revenues compared to
1995 and expects to continue to increase such expenditures as a percentage of
revenues for the next several years. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations." The
Company's research scientists work closely with sales, marketing and
manufacturing personnel to identify and prioritize the development of new
products and services.
The Company's product development activities center on the
identification and characterization of materials for the manufacture of new
Quality Control Products and the replacement of sold-out products. During 1996,
the Company introduced 30 new Seroconversion, Performance and Sensitivity Panel
products as well as 25 new Accurun(TM) Run Controls; in addition, during 1996,
the Company released six Qualification Panel products. The Company is developing
new Quality Control Products for use with molecular diagnostic tests for HIV,
HCV and HBV. Recently the Company expanded its Quality Control Product line
beyond the retrovirus and Viral Hepatitis diagnostics area to include sexually
transmitted diseases (e.g., Syphilis), tick-borne diseases (e.g., Lyme Disease),
and respiratory and other infections (e.g., Tuberculosis) and is continuing to
develop new Quality Control Products for these and other diseases. The Company
has increased the number of Quality Control Products it offers from
approximately 20 in 1990 to approximately 191 products in 1996.
The Company is also developing new and improved infectious disease
specialty tests for Lyme Disease and other tick-borne diseases for use in its
specialty laboratory business. The Company is also pursuing new applications of
PCR technology to infectious disease diagnostics, such as amplification assays
for the pathogens of AIDS, Viral Hepatitis, Lyme Disease and Chlamydia, and for
the direct detection of other infectious agents in blood, tissues and other body
fluids.
From time to time in the past, the Company has funded a portion of its
research and development activities from grants provided by various agencies and
departments of the U.S. government. See "-- Services."
STRATEGIC ALLIANCES
University of North Carolina at Chapel Hill. The Company is directly
supporting a drug discovery program at UNC, in which a full-time research
scientist is working to develop synthetic derivatives of anti-HIV compounds that
have been discovered pursuant to the Company's joint collaboration with UNC.
This research scientist is also working to introduce modifications to these
derivatives that would make them more soluble, less toxic, or otherwise enhance
their anti-viral properties. UNC has licensed to the Company exclusive worldwide
rights to three series of patent applications filed by the Company and UNC with
respect to three classes of anti-HIV compounds. Two such compounds have
exhibited therapeutic indices in in vitro test model systems in excess of those
recorded for AZT under comparable test conditions. The Company is expending
approximately $100,000 per year for research and development relating to these
compounds. In addition, under this license, the Company will also have the
rights to any new anti-HIV compounds or derivatives developed in the course of
this sponsored research, provided the Company obtains certain regulatory
approvals from the FDA. See "-- Services."
-8-
Ajinomoto Co., Inc. The Company entered into an agreement with
Ajinomoto Co., Inc. in October 1995 pursuant to which the Company is performing
research regarding among other things, whether tests for certain amino acids in
plasma can be used to determine a person's immune status, particularly in
chronic fatigue syndrome. This project is funded by Ajinomoto and has a three
year budget of approximately $1,000,000. Discoveries and inventions arising from
the research will be owned by Ajinomoto, but the Company has the right of first
refusal to obtain certain exclusive licenses from Ajinomoto of any patented
technology arising from the research. The Company is entitled to certain
royalties based upon a percentage of sales of products arising out of the
research. This agreement expires in September 1998.
BioSeq, Inc. In October 1996, the Company entered into a strategic
alliance with BioSeq, Inc. an early stage biotechnology company that is
developing a technology that may, through the use of pressure, be able to more
precisely control chemical reactions. The Company believes that this technology
may be useful for sequencing, synthesizing and characterizing nucleic acids and
proteins, which may then allow for the more precise identification of infectious
disease agents. See also Note 4 to the Company's Notes to Consolidated Financial
Statements in Item 8 hereunder regarding the Company's investment in BioSeq,
Inc.
SALES AND MARKETING
The Company's sales and marketing efforts are directed by a Senior Vice
President of Sales and Marketing who supervises 18 sales people and four other
full-time sales and marketing employees.
The Company's marketing strategy is focused upon addressing the needs
of its customers in the infectious disease testing market throughout the entire
test kit life-cycle, from initial research and development, through the
regulatory approval process and test kit production, to training,
troubleshooting and routine use by end-users such as clinical laboratories,
hospitals and blood banks.
The Company recently has begun to focus its sales and marketing efforts
on the emerging end-user market for quality control products for infectious
disease test kits. To promote this objective, the Company has implemented a
major marketing platform, known as "Total Quality System" ("TQS"). TQS is a
package of Quality Control Products, including the Company's Accurun(TM) Run
Controls, which is designed to provide test kit end-users with the products
needed in an overall quality assurance program. These products enable
laboratories to evaluate each of the key elements involved in the testing
process: the test kit, laboratory equipment and laboratory personnel. The
Company believes that TQS effectively addresses the need for end-users to ensure
the accuracy of their test results. The Company intends to continue to expand
its sales and marketing activities with respect to its Accurun(TM) line of Run
Control products.
The Company's products are currently sold through a combination of
telephone, mail, third party distributors and limited direct sales efforts.
Domestically, products are sold through an in-house tele-sales group consisting
of seven sales representatives, two sales managers and one customer service
representative. Internationally, the Company distributes its products both
directly and through 18 independent distributors located in Japan, Australia,
South America, Southeast Asia, Israel and Europe. The Company's international
sales manager oversees the Company's foreign distributors. Export sales,
including sales to distributors, for the years ended December 31, 1994, 1995,
and 1996 were $2.3 million, $3.1 million, and $3.9 million, respectively.
The Company's Specialty Clinical Laboratory Testing services are
marketed primarily through a direct domestic sales force consisting of seven
sales representatives managed by a sales director. The sales representatives are
located throughout the eastern and mid-western United States. They are supported
internally by a client services representative.
-9-
The Company emphasizes high quality products and services, technical
knowledge, and responsiveness to customer needs in its marketing activities for
both products and services. The Company educates its distributors, customers and
prospective customers about its products through a series of detailed marketing
brochures, technical bulletins and pamphlets, press releases and direct mail
pieces. These materials are supplemented by advertising campaigns in major
industry publications, technical presentations, and exhibitions at local,
national and international trade shows and expositions.
CUSTOMERS
The Company's customers for Quality Control Products and Diagnostic
Components comprise three major groups: (i) international diagnostics and
pharmaceutical manufacturing companies, such as Abbott Diagnostics, Behring,
Boehringer Mannheim, Chiron, Fujirebio, Hoffman LaRoche, Ortho Diagnostics
(Johnson and Johnson), Sanofi Diagnostics and Sorin Biomedica; (ii) regulatory
agencies such as the United States FDA, the British Public Health Laboratory
Service, the French Institut National de la Transfusion Sanguine, and the German
Paul Ehrlich Institute; and (iii) end-users of diagnostic test kits, such as
hospital clinical laboratories, public health laboratories and blood banks,
including the Swiss Red Cross, United Blood Services and Kaiser Permanente. The
Company's Specialty Clinical Laboratory Testing services are sold to hospital
and clinical laboratories, blood banks, researchers and other health care
providers. The Company's Contract Research services are typically offered under
contracts to governmental agencies, diagnostic test kit manufacturers and
biomedical researchers.
The Company does not have long-term contracts with its customers for
Quality Control Products and Diagnostic Components. The Company's products are
sold to its customers pursuant to purchase orders for discrete purchases.
Although the Company believes that its relationships with these customers are
satisfactory, termination of the Company's relationship with any one of such
customers could have a material adverse effect on the Company.
During the fiscal years 1994, 1995 and 1996, sales to the Company's
three largest customers accounted for an aggregate of approximately 20% of the
Company's net sales, although the customers were not identical in each period
and no one customer accounted for more than 10% of net sales.
MANUFACTURING AND OPERATIONS
The Company manufactures and assembles substantially all of its
products at its facility in West Bridgewater, Massachusetts. Raw materials are
acquired from a variety of vendors and through a program of donor recruitment,
donor screening, product collection, product characterization and donor
management. All important materials have multiple sources of supply.
The Company also operates a specialty clinical laboratory in New
Britain, Connecticut and a research and development laboratory in Rockville,
Maryland. See "Item 2 -- PROPERTIES."
COMPETITION
The market for the Company's products and services is highly
competitive. Many of the Company's competitors are larger than the Company and
have greater financial, research, manufacturing, and marketing resources.
Important competitive factors for 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 technical 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 products and services do not reflect technological advances, the
Company's ability to compete in those products and services could be adversely
affected.
-10-
In the area of Quality Control Products, the Company competes in the
United States primarily with NABI (formerly North American Biologicals, Inc.) in
Run Controls and Quality Control Panel products, and Dade International and
Blackhawk Biosystems Inc. in Run Controls. In Europe, the Netherlands Red Cross
has recently begun offering several Run Control and panel products. The Company
believes that all three of these competitors currently offer a more limited line
of products than the Company, although there can be no assurance these companies
will not expand their product lines.
In the Diagnostic Components area, the Company competes against
integrated plasma collection and processing companies such as Serologicals, Inc.
and NABI, as well as smaller, independent plasma collection centers and brokers
of plasma products. In the Diagnostic Components area, the Company competes on
the basis of quality, breadth of product line, technical expertise and
reputation.
In the Specialty Clinical Laboratory Testing services portion of the
Company's business, it competes with large national reference laboratories, such
as LabCorp of America, Corning Clinical Laboratories and SmithKline Beecham
Clinical Laboratories, as well as several independent regional laboratories,
hospital laboratories, government contract laboratories and large research
institutions. The Company believes that by focusing on the specialty clinical
laboratory market, it is able to offer its customers a higher value-added
service on the more complex diagnostic tests than the larger national reference
laboratories.
INTELLECTUAL PROPERTY
None of the Company's Quality Control Products or Diagnostic Components
have been patented. The Company has decided to hold as trade secrets current
technology used to prepare Basematrix and other blood-based products. The
Company relies primarily on a combination of trade secrets and non-disclosure
and confidentiality agreements, and in certain limited circumstances, patents,
to establish and protect its proprietary rights in its technology and products.
There can be no assurance that others will not independently develop or
otherwise acquire the same, similar or more advanced trade secrets and know-how.
The Company has two United States patents and, jointly with UNC, has
filed three series of United States and foreign patent applications relating to
compounds, pharmaceutical compositions and therapeutic methods in connection
with the Company's drug discovery program at UNC.
The Company has no reason to believe that its products and proprietary
methods infringe the proprietary rights of any other party. There can be no
assurance, however, that other parties will not assert infringement claims in
the future.
GOVERNMENT REGULATION
The manufacture and distribution of medical devices, including products
manufactured by the Company that are intended for in vitro diagnostic use, are
subject to extensive government regulation in the United States and in other
countries.
In the United States, the Food, Drug, and Cosmetic Act ("FDCA")
prohibits the marketing of in vitro diagnostic products until they have been
cleared or approved by the FDA, a process that is time-consuming, expensive, and
uncertain. In vitro diagnostic products must be the subject of either a
premarket notification clearance (a "510(k)") or an approved premarket approval
application ("PMA"). With respect to devices reviewed through the 510(k)
process, a Company may not market a device for diagnostic use until an order is
issued by FDA finding the product to be substantially equivalent to a legally
marketed device. A 510(k) submission may involve the presentation of a
substantial volume of data, including clinical data, and may require a
substantial period of review. With respect to devices reviewed through the PMA
process, a Company may not market a device until FDA has approved a PMA
application, which must be supported by extensive data, including preclinical
and clinical trial data, literature, and manufacturing information to prove the
safety and effectiveness of the device.
-11-
The Company's Accurun Run Controls, when marketed for diagnostic use,
have been classified by the FDA as medical devices. The Accurun 1(R)
Multi-Marker Run Control, which include eight analytes, has been cleared through
the 510(k) process. The Company expects that, in the future, most of its
products that need FDA premarket review also will be reviewed through the 510(k)
process. The FDA could, however, require that some products be reviewed through
the PMA process, which generally involves a longer review period and the
submission of more information to FDA. There can be no assurance that the
Company will obtain regulatory approvals on a timely basis, if at all. Failure
to obtain regulatory approvals in a timely fashion or at all could have a
material adverse effect on the Company.
All of the Company's Quality Control Products, with the exception of
Accurun 1(R), are marketed "for research use only," which do not require FDA
premarket clearance or approval, and not for diagnostic uses, which do require
FDA premarket clearance or approval. The labeling of these products limits their
use to research. It is possible, however, that some purchasers of these products
may use them for diagnostic purposes despite the Company's intended use. In
these circumstances, the FDA could allege that these products should have been
cleared or approved by the FDA prior to marketing, and initiate enforcement
action against the Company, which could have a material adverse effect on the
Company.
Once cleared or approved, medical devices are subject to pervasive and
continuing regulation by the FDA, including, but not limited to, good
manufacturing practices ("GMP") regulations governing testing, control, and
documentation; and reporting of adverse experiences with the use of the device.
Ongoing compliance with GMP and other applicable regulatory requirements is
monitored through periodic inspections. FDA regulations require agency clearance
or approval for certain changes if they do or could affect the safety and
effectiveness of the device, including, for example, new indications for use,
labeling changes or changes in design or manufacturing methods. In addition,
both before and after clearance or approval, medical devices are subject to
certain export and import requirements under the FDCA. Product labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. Products may be promoted by the
Company only for their approved use. Failure to comply with these and other
regulatory requirements can result, among other consequences, in failure to
obtain premarket approvals, withdrawal of approvals, total or partial suspension
of product distribution, injunctions, civil penalties, recall or seizures of
products and criminal prosecution.
The Company believes that its Quality Control Panels are not regulated
by the FDA because they are not intended for diagnostic purposes. The Company
believes that its Diagnostic Components, which are components of in vitro
diagnostic products, may be subject to certain regulatory requirements under the
FDCA and other laws administered by the FDA, but do not require that the Company
obtain a premarket approval or clearance. There can be no assurance, however,
that the FDA would agree or that the FDA will not adopt a different
interpretation of the FDCA or other laws it administers, which could have a
material adverse effect on the Company.
Laws and regulations affecting some of the Company's products are in
effect in many of the countries in which the Company markets or intends to
market its products. These requirements vary from country to country. Member
states of the European Economic Area (which is composed of the European Union
members and the European Free Trade Association members) are in the process of
adopting various product and services "Directives" to address essential health,
safety, and environmental requirements associated with the subject products and
services. The "Directives" cover both quality system requirements (ISO Series
9000 Standards) and product and marketing related requirements. In addition,
some jurisdictions have requirements related to marketing of the Company's
products. There can be no assurance that the Company will be able to obtain any
regulatory approvals required to market its products on a timely basis, or at
all. Delays in receipt of, or failure to receive such approvals, or the failure
to comply with regulatory requirements in these countries or states could lead
to compliance
-12-
action, which could have a material adverse effect on the Company's business,
financial condition, or results of operations.
The Company's service-related business (clinical trials, infectious
disease testing, and contract research) is subject to other national and local
requirements. The Company's facilities are subject to review, inspection,
licensure or accreditation by some states, national professional organizations
(College of American Pathologists), and other national regulatory agencies
(Health Care Financing Administration). Studies to evaluate the safety or
effectiveness of FDA regulated products (primarily human and animal drugs or
biologics) must also be conducted in conformance with relevant FDA requirements,
including Good Laboratory Practice ("GLP") regulations, investigational new drug
or device regulations, Institutional Review Board ("IRB") regulations and
informed consent regulations.
The Clinical Laboratory Improvement Amendments of 1988 ("CLIA")
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 currently holds permits issued by HHS (CLIA license),
Centers for Disease Control and Prevention (Importation of Etiological Agents or
Vectors of Human Diseases), the U.S. Department of Agriculture (Importation and
Transportation of Controlled Materials and Organisms and Vectors) and the U.S.
Nuclear Regulatory Commission (in vitro testing with byproduct material under
general license, covering the use of certain radioimmunoassay test methods).
The Company is also subject to government regulation under the Clean
Water Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, the Atomic Energy Act, and other national, state and local
restrictions relating to the use and disposal of biohazardous, radioactive and
other hazardous substances and wastes. The Company is an exempt small quantity
generator of hazardous waste and has a U.S. Environmental Protection Agency
identification number. The Company is also registered with the U.S. Nuclear
Regulatory Commission for use of certain radioactive materials. The Company is
also subject to various state regulatory requirements governing the handling of
and disposal of biohazardous, radioactive and hazardous wastes. The Company has
never been a party to any environmental proceeding.
Internationally, some of the Company's products are subject to
additional regulatory requirements, which vary significantly from country to
country. Each country in which the Company's products and services are offered
must be evaluated independently to determine the country's particular
requirements. In foreign countries, the Company's distributors are generally
responsible for obtaining any required government consents.
EMPLOYEES
As of December 31, 1996 the Company employed 191 persons, all of whom
were located in the United States. Eighty of these persons were employed in West
Bridgewater, Massachusetts, 62 in New Britain, Connecticut, and 49 at the
Rockville, Maryland site. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that it has a satisfactory
relationship with its employees.
-13-
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
current executive officers of the Registrant as of December 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard T. Schumacher 46 President; Chief Executive Officer and
Chairman of the Board
Kevin W. Quinlan 46 Senior Vice President, Finance; Chief
Financial Officer; Treasurer and Director
Patricia E. Garrett, Ph.D. 53 Senior Vice President, Regulatory Affairs
& Strategic Programs
Mark M. Manak, Ph.D. 45 Senior Vice President, Research and
Development
Richard C. Tilton, Ph.D. 60 Senior Vice President, Specialty
Laboratory Services
Barry M. Warren 49 Senior Vice President, Sales & Marketing
Ronald V. DiPaolo, Ph.D. 52 Vice President of Operations
</TABLE>
Mr. Schumacher, the founder of the Company, has been the President
since 1986, and Chief Executive Officer and Chairman since 1992. Mr. Schumacher
served as the Director of Infectious Disease Services for Clinical Science
Laboratory, a New England-based medical reference laboratory, from 1986 to 1988.
From 1972 to 1985, Mr. Schumacher was employed by the Center for Blood Research,
a nonprofit medical research institute associated with Harvard Medical School.
Mr. Schumacher received a B.S. in zoology from the University of New Hampshire.
Mr. Quinlan, a Director of the Company since 1986, has been Senior Vice
President, Finance, Treasurer, and Chief Financial Officer since January 1993.
From 1990 to December 1992, he was the Chief Financial Officer of ParcTec, Inc.
a New York-based leasing company. Mr. Quinlan served as Vice President and
Assistant Treasurer of American Finance Group, Inc. from 1981 to 1989 and was
employed by Coopers & Lybrand from 1975 to 1980. Mr. Quinlan is a certified
public accountant and received a M.S. in accounting from Northeastern University
and a B.S. in economics from the University of New Hampshire.
Dr. Garrett has been Senior Vice President, Regulatory Affairs &
Strategic Programs since 1988. From 1980 to 1987, Dr. Garrett served as the
Technical Director of the Chemistry Laboratory, Department of Laboratory
Medicine at the Lahey Clinic Medical Center. Dr. Garrett earned her Ph.D. from
the University of Colorado and was a postdoctoral research associate at Harvard
University, Oregon State University, Massachusetts Institute of Technology and
the University of British Columbia.
Dr. Manak has served as Senior Vice President, Research and Development
since 1992. From 1980 to 1992, he served as Senior Research Scientist, Molecular
Biology, of Biotech Research Laboratories. Dr. Manak received his Ph.D. in
biochemistry from the University of Connecticut and completed postdoctoral
research work in biochemistry/virology at Johns Hopkins University.
Dr. Tilton has served as Senior Vice President, Specialty Laboratory
Services since the Company's acquisition of BBI Clinical Laboratories, Inc.
("BBICL") in 1993 and was one of the founders of BBICL, where he served as
President from 1989 to 1993. Dr. Tilton has 25 years of experience in university
hospital clinical microbiology laboratories and is board certified in medical
and public health microbiology. Dr. Tilton received his Ph.D. in microbiology
from the University of Massachusetts.
Mr. Warren has served as Senior Vice President, Sales & Marketing since
1993. From 1985 to 1993, Mr. Warren served as Group Director of Marketing of
Organon Teknika, a manufacturer of
-14-
infectious disease reagents. Mr. Warren received an M.A. in political science
from Loyola University of Chicago and a B.A. from Loyola University.
Dr. DiPaolo has been Vice President of Operations since 1993. Prior to
joining the Company, Dr. DiPaolo served as Vice President and General Manager of
the Biomedical Products Division of Collaborative Research, a medical research
products company from 1986 to 1989. From 1975 to 1986 he was employed by DuPont
New England Nuclear, an in vitro test kit manufacturer. Dr. DiPaolo received his
Ph.D. in biochemistry from Massachusetts Institute of Technology and later
completed postdoctoral research at the Eunice Shriver Center in Waltham,
Massachusetts.
Officers are elected by, and serve at the pleasure of, the Board of
Directors.
ITEM 2. PROPERTIES.
The Company's corporate offices and manufacturing facilities are
located in a two story, 22,500 square foot building in West Bridgewater,
Massachusetts. The Company owns and operates this building. The Company is
currently expanding the manufacturing capacity by approximately 7,500 square
feet, and believes that following these renovations, its facility in West
Bridgewater will be sufficient to meet its foreseeable needs.
The Company leases its laboratory facilities in Rockville, Maryland and
New Britain, Connecticut. The Rockville facility contains 21,000 square feet and
is occupied under a five-year lease that is due to expire on June 30, 1997. The
Company is currently considering extending the lease for an additional period,
as well as relocating its laboratory. The New Britain facility has 15,000 square
feet, most of which is dedicated to laboratory space. The lease is for five
years and is due to expire on July 30, 2000; the Company has an option to renew
for an additional five years.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against the Company or
its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of fiscal 1996 to a
vote of security holders of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS.
The Company completed an initial public offering of its Common Stock,
$.01 par value, (the "Common Stock") on October 31, 1996. The Common Stock is
listed on the NASDAQ National Market under the symbol "BBII". For the period
from October 31, 1996 through December 31, 1996, the high and low closing prices
of the Company's Common Stock on NASDAQ were 8 1/2 and 6 3/4, respectively.
As of December 31, 1996, there were 20,000,000 shares of Common Stock
authorized of which 4,378,157 shares of Common Stock were outstanding, held of
record by approximately 166 stockholders.
The Company has not declared or paid any dividends on its Common Stock.
Payment of dividends on Common Stock is restricted under the Company's loan
agreement with its bank.
-15-
ITEM 6. SELECTED FINANCIAL DATA
The statement of income data for each of the fiscal years in the four
year period ended December 31, 1996, and the balance sheet data as of December
31, 1993, 1994, 1995 and 1996, have been derived from the consolidated financial
statements of the Company which have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The statement of income data of the Company for the
fiscal year ended December 31, 1992 and the balance sheet data as of December
31, 1992 have been derived from consolidated financial statements of the Company
which have been audited by other independent public accountants. This data
should be read in conjunction with "Item 8"--"Consolidated Financial Statements
and Supplementary Data", and "Item 7"--"Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
(2)(3) (1)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C>
REVENUE:
Product sales $ 8,470 $6,622 $5,982 $3,942 $2,955
Services
7,039 5,649 4,741 5,215 1,680
-------- -------- -------- -------- --------
Total revenue 15,509 12,271 10,723 9,157 4,635
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of product sales 4,252 3,564 3,194 2,088 1,638
Cost of services 4,856 4,168 3,416 3,965 1,443
Research and development 797 375 469 279 222
Selling and marketing 2,188 1,340 1,192 894 353
General and administrative 2,401 2,316 2,047 1,619 745
-------- -------- -------- -------- -------
Total operating costs and expenses 14,494 11,763 10,318 8,845 4,401
-------- -------- -------- -------- --------
Income from operations 1,015 508 405 312 234
Interest expense, net 213 336 244 179 113
-------- -------- -------- -------- --------
Income before income taxes and 802 172 161 133 121
extraordinary item
Provision for income taxes (321) (69) (64) (41) (45)
-------- -------- -------- -------- --------
Income before extraordinary item 481 103 97 92 76
Extraordinary item-gain on elimination of debt,
net of income taxes -- -- -- 50 --
-------- -------- -------- -------- --------
Net income $ 481 $ 103 $ $ 142 $ 76
97
-------- -------- -------- -------- --------
Net income per share(4) $ 0.14 $ 0.04 $ 0.04 $ 0.06 $ 0.04
Weighted average common and common equivalent
shares outstanding(4) 3,340 3,151 2,587 2,438 2,160
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital(5) $12,836 $4,829 $4,686 $ 3,612 $2,457
Total assets 19,798 9,928 8,076 6,870 4,828
Long term debt, less current 41 4,216 3,180 2,381 1,760
maturities(5)
Total stockholders' equity 16,290 3,187 3,041 2,762 1,837
Dividends -- -- -- -- --
</TABLE>
- ------------------
(1) Effective July 1, 1992, the Company acquired through its BTRL subsidiary the
net assets of a division of Cambridge Biotech Corporation for $762,000 which
increased 1992 revenues by $1,450,000.
(2) On June 30, 1993, the Company exercised its option to pre-pay the
acquisition note in connection with the 1992 purchase of BTRL at a
substantial discount from the balance due, resulting in an extraordinary
gain of $50,000 net taxes of $33,000. The 1993 net income per share before
such extraordinary gain was $0.04.
(3) Effective January 1, 1993, the Company acquired the net assets of North
American Laboratory Group Ltd., Inc. for $425,000, which increased 1993
revenues by $2,019,000.
(4) The effect of the common stock equivalents on net income per share has been
excluded from the calculation for years ended December 31, 1992 through 1994
as its inclusion was antidilutive.
(5) The Company's demand line of credit with outstanding amounts of $1,091,000
and $1,895,000 as of December 31, 1992 and 1993, respectively, has been
presented as part of long-term debt (and excluded from current liabilities
in calculating working capital) for 1992 and 1993 to be consistent with its
reclassification to long-term debt in 1994, 1995 and 1996 due to a
modification of its maturity date.
-16-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The Company generates revenue from products and services provided to
the in vitro diagnostic infectious disease industry. Products consist of three
groups: Quality Control Panels, Accurun(TM) Run Controls and Diagnostic
Components. Services consist of Specialty Clinical Laboratory Testing, Contract
Research, Clinical Trials and Drug Screening. In the three full years since the
Company's acquisition of Biotech Research Laboratories ("BTRL") and BBI Clinical
Laboratories, Inc. ("BBICL"), the Company has experienced a shift in revenue mix
towards increased product sales, as product revenue as a percentage of total
revenue increased from 43.1% in 1993 to 54.6% in 1996, with a corresponding
decrease in the percentage of total revenue provided by services.
The Company's gross profit margin increased from 33.9% in 1993 to 41.3%
in 1996 principally as a result of the increased percentage of higher margin
product revenues. Within products, the Company's Quality Control Products
(Accurun(TM) Run Controls and Quality Control Panels) have higher margins than
the Company's Diagnostic Components. Within services, Contract Research gross
margins are lower than other services. However, such contracts enable the
Company to maintain certain scientific staff and capability that it might
otherwise not be able to afford. The Company intends to continue to concentrate
on the growth in sales of its Quality Control Products.
Historically, the Company's results of operations have been subject to
quarterly fluctuations due to a variety of factors, including customer
purchasing patterns, primarily driven by end-of-year expenditures, and seasonal
demand during the summer months for certain laboratory testing services. In
particular, the Company's sales of its Quality Control Products and Diagnostic
Components typically have been highest in the fourth quarter and lowest in the
first quarter of each fiscal year, whereas Specialty Clinical Laboratory Testing
has generally reached a seasonal peak during the third quarter, coinciding with
the peak incidence of Lyme Disease. Research Contracts are generally for large
dollar amounts spread over a one or two year period, and upon completion,
frequently do not have renewal phases. As a result they can cause large
fluctuations in revenue and net income. In addition to staff dedicated to
internal research and development, certain of the Company's technical staff work
on both Contract Research for customers and Company sponsored research and
development. The allocation of certain technical staff to such projects depends
on the volume of Contract Research. As a result, research and development
expenditures fluctuate due to increases or decreases in Contract Research.
To develop new Quality Control Products and support increased sales,
the Company hired additional research and development staff in the second half
of 1995 and sales and marketing staff in 1996. The Company intends to continue
to add staff to these departments. This should cause both research and
development and selling and marketing expenses to increase as a percentage of
revenue in 1997, compared to 1996. General and administrative expenses are not
expected to increase at the same rate, as the Company has already incurred
significant infrastructure expenses.
The Company does not have any foreign operations. However, the Company
does have significant export sales to agents under distribution agreements, as
well as directly to test kit manufacturers. All sales are denominated in U.S.
dollars. Export sales for the years ended December 31, 1994, 1995, and 1996 were
$2.3 million, $3.1 million, and $3.9 million, respectively. The Company expects
that export sales will continue to be a significant source of revenue and
operating income.
-17-
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
of total revenue represented by certain items reflected in the Company's
consolidated statements of operations:
YEAR ENDED DECEMBER 31
1996 1995 1994
---- ---- ----
Revenue:
Products 54.6% 54.0% 55.8%
Services 45.4 46.0 44.2
---- ---- ----
Total revenue 100.0 100.0 100.0
Gross profit 41.3 37.0 38.4
Operating expenses:
Research and development 5.1 3.1 4.4
Selling and marketing 14.1 10.9 11.1
General and administrative 15.5 18.9 19.1
---- ---- ----
Total operating expenses 34.7 32.9 34.6
---- ---- ----
Income from operations 6.5 4.1 3.8
Interest expense 1.4 2.7 2.3
--- --- ---
Income before income taxes 5.1 1.4 1.5
Net income 3.1 0.8 0.9
=== === ===
Product gross profit 49.8% 46.2% 46.6%
Services gross profit 31.0% 26.2% 28.0%
YEARS ENDED DECEMBER 31, 1996 AND 1995
Total revenue increased 26.4%, or $3,239,000, to $15,509,000 in 1996
from $12,271,000 in 1995. The increase in revenues was the result of a 27.9%
increase in product revenues of $1,848,000 to $8,470,000 from $6,622,000, and a
24.6% increase in service revenues of $1,390,000 to $7,039,000 from $5,649,000
in 1995. The increase in product revenue was attributable to an increase in the
volume of sales of Quality Control Products, particularly Accurun. The increase
in service revenue was primarily the result of increased volume of specialty
clinical laboratory testing and a favorable mix shift towards higher priced
molecular testing, and the impact of two new research contracts. This was
partially offset by lower volume of clinical trial services.
Gross profit increased 41.0%, or $1,862,000, to $6,400,599 for 1996
from $4,539,000 in 1995. Products gross profit increased 38.0%, or $1,160,000,
to $4,217,000 in 1996 from $3,057,000 in 1995 as the products sales increase was
positively impacted by an increase in products gross profit margin (to 49.8% in
1996 from 46.2%). The products gross margin increase was a result of a favorable
mix shift towards Accurun sales. Services gross profit increased 47.3%, or
$701,000, to $2,183,000 in 1996 from $1,481,000 in 1995 as the testing volume
increased at a faster rate than laboratory headcount increased, and thereby
caused the services gross profit margin to increase to 31.0% in 1996 from 26.2%
in 1995.
Research and development expenditures increased 112.1%, or $421,000, to
$797,000 in 1996 from $376,000 in 1995. The increase resulted from increased
costs of personnel hired in the second half of 1995 to step-up the rate of new
product introductions, and increased research project expenditures. Development
projects included Accurun(TM), molecular and immunological Run Controls,
specialized molecular assays, and expenditures related to the Company's drug
discovery program.
Selling and marketing expenses increased 63.3%, or $848,000, to
$2,188,000 in 1996 from $1,340,000 in 1995. The increase was attributable
primarily to additional sales and marketing staff and overhead; increased
advertising, promotion, trade show and travel expenses due to the commencement
of the Company's "Total Quality System" (TQS) marketing campaign; and costs
associated with participation by the Company's Specialty Clinical Laboratory in
the Roche Diagnostics' Amplicor( Access program in connection with Roche's
launch of their new FDA approved HIV PCR test kit. The
-18-
Amplicor( kit is primarily used to monitor the HIV viral load (level) in
patients prior to and during drug therapy.
General and administrative costs increased 3.7%, or $85,000, to
$2,401,000 in 1996 from $2,316,000 in 1995. This increase was attributable
primarily to additional staffing in support of revenue growth and higher reserve
provisions for doubtful accounts associated with the increased volume of revenue
related to testing in situations in which payment to the Company depends on
collecting from the patient rather than a healthcare institution.
Net interest expense decreased 36.6%, or $123,000, to $213,000 in 1996
from $336,000 in 1995, as the proceeds from the Company's initial public
offering were used to pay down almost all debt in early November, and the
remaining amount invested in short term, investment grade securities.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Total revenue increased 14.4%, or $1,548,000, to $12,271,000 in 1995
from $10,723,000 in 1994. The increase in revenues was the result of a 10.7%
increase in product revenues of $640,000 to $6,622,000 from $5,981,000, and a
19.1% increase in service revenues of $908,000 to $5,649,000 from $4,741,000 in
1995 compared to 1994. The increase in product revenue was attributable to an
increase in prices at the beginning of 1995 and an increase in the volume of
sales of Quality Control Products and Basematrix (part of the Diagnostic
Components group), which increase was partially offset by the absence of
revenues in 1995 from two OEM Quality Control Panel contracts which were
completed in 1994. The Company also reduced emphasis on certain lower margin
Diagnostic Components as it focused more effort on sales of its proprietary
Basematrix product, which carries a higher margin. During 1995, the Company
reorganized its sales and marketing department and believes that this had an
adverse effect on sales growth for the period. The increase in service revenue
was primarily the result of increased specialty clinical laboratory testing, two
new research contracts and increased clinical trial services, particularly in
the area of HIV.
Gross profit increased 10.4%, or $426,000, to $4,539,000 for 1995 from
$4,113,000 in 1994. Products gross profit increased 9.7%, or $270,000, to
$3,057,000 in 1995 from $2,787,000 in 1994 as the products sales increase was
offset by a small decrease in products gross profit margin (to 46.2% in 1995
from 46.6%). The products gross margin decrease was a result of a small increase
in material handling personnel costs. Services gross profit increased 11.8%, or
$156,000, to $1,481,000 in 1995 from $1,326,000 in 1994 as the sales increase
was offset by a decrease in services gross profit margin to 26.2% in 1995 from
28.0% in 1994. Services gross margin declined primarily as a result of increased
personnel costs in the specialty clinical laboratory and an increase in contract
research activities, which carry a lower margin.
Research and development expenditures decreased 20.0%, or $94,000, to
$376,000 in 1995 from $469,000 in 1994. The decrease resulted from certain
technical staff being utilized for Company sponsored research and development in
1994 and Contract Research in 1995. Development projects included Accurun(TM),
molecular and immunological Run Controls, specialized molecular assays, and the
development of a second generation Lyme Disease western blot test kit for
internal use by the Company's specialty testing laboratory.
Selling and marketing expenses increased 12.4%, or $148,000, to
$1,340,000 in 1995 from $1,192,000 in 1994. The increase was primarily
attributable to additional sales and marketing staff and overhead, partially
offset by lower trade show and travel expenses as the Company realized greater
benefits from its distributor network.
General and administrative costs increased 13.1%, or $269,000, to
$2,316,000 in 1995 from $2,047,000 in 1994. This increase was primarily
attributable to additional staffing in support of revenue growth and higher
reserve provisions for doubtful accounts associated with the increased volume of
revenue related to testing in situations where payment to the Company depends on
collecting from the patient rather than a healthcare institution. These
increases were partially offset by lower professional
-19-
fees. Also included in general and administrative expense was approximately
$60,000 of nonrecurring costs associated with the move of the specialty testing
laboratory into a larger, custom-designed facility.
Interest expense increased 37.8%, or $92,000, to $336,000 in 1995 from
$244,000 in 1994, as the Company funded its working capital needs primarily
through increased borrowings.
LIQUIDITY AND CAPITAL RESOURCES
On October 31, 1996 the Company's Common Stock commenced trading on the
NASDAQ as a result of its initial public offering of its common stock ("IPO"),
selling 1,600,000 shares at $8.50 per share. Net proceeds received after
underwriting discounts, commissions and offering costs was approximately
$11,633,000. On November 5, 1996, the Company repaid substantially all of its
outstanding bank debt which totaled approximately $3.9 million.
The Company has financed its operations to date through cash flow from
operations, borrowings from banks and sales of equity. With the repayment of
debt from the IPO proceeds, the Company expects its cash flow and cash position
to meet existing operational needs, although amounts repaid on its Revolving
Line of Credit Agreement (the "Revolver") will be available for reborrowing as
needed.
Net cash provided by operations for 1996 was $1,460,000 as compared to
cash used in operations of $29,000 in 1995. This increase in cash flow was
primarily attributable to an increase in net income, improved working capital
position, and an increase in deferred revenue from a payment of $306,000 under a
research contract for future clinical trial services. Cash flow used in
operations in 1994 was $554,000 as working capital needs due to sales growth
exceeded cash generated from net income adjusted by non cash expenses.
Cash used in investing activities for 1996, 1995 and 1994 amounted to
$1,412,000, $1,320,000, and $405,000, respectively. In addition to equipment
purchases in 1996, the Company purchased common stock in BioSeq, Inc. for
$732,500 which represents an ownership position of approximately 14% in BioSeq,
Inc. The increased use of cash in 1995 compared to 1994 was the result of the
purchase of the Company's West Bridgewater facility.
During 1996, net cash generated from common stock issued, including the
IPO, approximated $12,600,000. This was used to pay down net debt of $4,577,000.
Net cash provided by borrowings for 1995 and 1994 amounted to $1,240,000 and
$846,000, and net proceeds from the sale of Common Stock for the same periods
amounted to $176,000 and $170,000, respectively. The proceeds of such debt were
used for working capital, to acquire the West Bridgewater property and to
purchase capital equipment.
In 1996, 1995 and 1994 capital expenditures amounted to $669,000,
$1,316,000, and $405,000, respectively. In 1995, $806,000 of the Company's
capital expenditures related to the purchase of the West Bridgewater facility.
On April 26, 1996 the Company entered into a new five year distribution
agreement with Kyowa Medex, Co., Ltd., a foreign distributor, extending a six
year old relationship. Simultaneously, Kyowa Medex, Co., Ltd. purchased 117,647
shares of the Company's Common Stock at a price of $8.50 per share.
The Company anticipates capital expenditures to increase over the near
term as it expects to use approximately $1.0 million from the IPO proceeds to
expand its manufacturing capacity in West Bridgewater during 1997, of which
approximately $500,000 will be spent on building expansion and approximately
$500,000 will be spent on equipment. The Company expects to make a final
investment in BioSeq in 1997 of $750,000 which will increase its ownership
position to 19.9%. This final payment is mandated if BioSeq attains certain
technical milestones by July 31, 1997, and at the Company's option by December
31, 1997 if such milestones are not achieved. The Company believes that existing
cash balances, the borrowing capacity available under the Revolver, and cash
generated from operations are sufficient to fund operations and anticipated
capital expenditures for the foreseeable future. Except for purchase orders in
connection with the manufacturing expansion, and the BioSeq investment described
above, there were no material financial commitments for capital expenditures as
of December 31, 1996.
-20-
In March 1997, the Company entered into an Asset Purchase Agreement
with Source Scientific, Inc. to acquire substantially all of their assets. Also
in March, the Company entered into a new line of credit agreement with its bank
replacing the Revolver. See Note 12 to the Company's Notes to Consolidated
Financial Statements in Item 8 hereunder.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 128
("SFAS 128"), "Earnings per Share", which requires the presentation of basic and
diluted earning per share (EPS). Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Basic EPS replaces
primary EPS. Diluted EPS is computed similarly to fully diluted EPS under the
existing rules. The Company will adopt SFAS 128 as of December 15, 1997 and upon
adoption, will restate all prior period EPS data presented. The Company has not
yet quantified what the impact of SFAS 128 will be on EPS.
FORWARD - LOOKING INFORMATION
The Annual Report on Form 10-K contains forward-looking statements
concerning the Company's financial performance and business operations. The
Company wishes to caution readers of this Annual Report on Form 10-K that actual
results might differ materially from those projected in the forward-looking
statements contained herein.
Factors which might cause actual results to differ materially from
those projected in the forward-looking statements contained herein include the
following: inability of the Company to develop the end user market for quality
control products; inability of the Company to integrate the business of Source
Scientific, Inc. into the Company's business; inability of the Company to grow
the sales of Source Scientific, Inc. to the extent anticipated; inability of
Source Scientific, Inc. to repay the $650,000 loan made by the Company; a
material adverse change in the business, financial condition or prospects of
BioSeq, Inc., an early stage biotechnology company in which the Company has made
a significant investment; inability of the Company to obtain an adequate supply
of the unique and rare specimens of plasma and serum necessary for certain of
its products; significant reductions in purchases by any of the Company's major
customers; and the potential insufficiency of Company resources, including human
resources, plant and equipment and management systems, to accommodate any future
growth. Certain of these and other factors which might cause actual results to
differ materially from those projected are more fully set forth under the
caption "Risk Factors" in the Company's Registration Statement on Form S-1 (SEC
File No. 333-10759).
-21-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
-------------- --------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,082,642 $ 11,463
Accounts receivable, less allowances of $352,058 in 1996 and
$142,372 in 1995 3,415,994 3,075,870
Inventories (Note 2) 4,180,334 3,676,851
Prepaid expense and other 239,950 254,199
Deferred income taxes (Note 7) 283,200 110,766
-------------- --------------
Total current assets 16,202,120 7,129,149
-------------- --------------
Property and equipment, net (Note 3) 2,699,158 2,614,982
OTHER ASSETS:
Long term investment (Note 4) 732,500 -
Goodwill and other intangibles, net (Note 1) 95,302 100,820
Notes receivable and other 69,234 83,422
-------------- --------------
897,036 184,242
-------------- --------------
TOTAL ASSETS $ 19,798,314 $ 9,928,373
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long term debt (Note 6) $ 12,820 $ 436,509
Accounts payable 991,839 745,216
Accrued compensation 840,666 395,755
Accrued income taxes 427,140 36,582
Other accrued expenses 264,262 303,820
Deferred revenue 829,477 523,401
-------------- --------------
Total current liabilities 3,366,204 2,441,283
-------------- --------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities (Note 6) 40,948 4,215,501
Deferred income taxes (Note 7) 101,580 84,641
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Note 10):
Common stock, $.01 par value; authorized 20,000,000 shares in
1996 and 1995; issued and outstanding 4,378,157 in 1996 and issued
2,640,417 in 1995 43,782 26,404
Additional paid-in capital 15,258,656 2,798,620
Retained earnings 987,144 505,924
-------------- --------------
16,289,582 3,330,948
Less treasury stock, at cost-80,000 shares in 1995 and none in 1996 - (144,000)
-------------- --------------
Total stockholders' equity 16,289,582 3,186,948
-------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 19,798,314 $ 9,928,373
============== ==============
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
-22-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
REVENUE:
Product sales $ 8,469,890 $ 6,621,631 $ 5,981,378
Services 7,039,406 5,649,099 4,741,376
-------------- ------------- -------------
Total revenue 15,509,296 12,270,730 10,722,754
COSTS AND EXPENSES:
Cost of product sales 4,252,068 3,564,241 3,194,217
Cost of services 4,856,630 4,167,625 3,415,777
Research and development 796,805 375,712 469,358
Selling and marketing 2,188,152 1,339,792 1,191,573
General and administrative 2,400,681 2,315,814 2,047,256
-------------- ------------- -------------
Total operating costs and expenses 14,494,336 11,763,184 10,318,181
Income from operations 1,014,960 507,546 404,573
Interest expense, net 212,969 335,899 243,694
-------------- ------------- -------------
Income before income taxes 801,991 171,647 160,879
Provision for income taxes (Note 7) (320,771) (68,657) (64,351)
-------------- ------------- -------------
Net income $ 481,220 $ 102,990 $ 96,528
============== ============= =============
Net income per share $ 0.14 $ 0.04 $ 0.04
============== ============= =============
Weighted average common and common
equivalent shares outstanding 3,340,236 3,151,477 2,587,137
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
-23-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------
Additional Total
$.01 Par Paid-In Retained Treasury Stockholders'
Shares Value Capital Earnings Stock Equity
------------ ---------- -------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 2,525,028 $ 25,250 $ 2,430,100 $ 306,406 - $ 2,761,756
Issuance of common stock 29,862 299 139,403 139,702
Stock options and warrants exercised 23,975 240 30,197 30,437
Tax benefit of stock options exercised 12,800 12,800
Net income 96,528 96,528
------------ ---------- -------------- ------------ ----------- ---------------
BALANCE, December 31, 1994 2,578,865 25,789 2,612,500 402,934 - 3,041,223
Issuance of common stock 8,535 85 58,160 58,245
Stock options and warrants exercised 47,200 472 117,068 117,540
Conversion of note payable 5,817 58 9,542 9,600
Treasury stock purchased - 80,000 shares (144,000) (144,000)
Tax benefit of stock options exercised 1,350 1,350
Net income 102,990 102,990
------------ ---------- -------------- ------------ ----------- ---------------
BALANCE, December 31, 1995 2,640,417 26,404 2,798,620 505,924 (144,000) 3,186,948
Issuance of common stock, net of
issuance costs 1,637,647 16,377 12,371,469 144,000 12,531,846
Stock options and warrants exercised 85,760 858 67,210 68,068
Conversion of note payable 14,333 143 21,357 21,500
Net income 481,220 481,220
------------ ---------- -------------- ------------ ----------- ---------------
BALANCE, December 31, 1996 4,378,157 $ 43,782 $ 15,258,656 $ 987,144 - $ 16,289,582
============ ========== ============== ============ =========== ===============
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
-24-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 481,220 $ 102,990 $ 96,528
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 600,495 441,356 360,512
Provision for doubtful accounts 247,080 181,084 102,099
Deferred rent (87,152) (45,792) 5,908
Deferred income taxes (155,495) (61,765) (42,798)
Tax benefit of stock options exercised - 1,350 12,800
Changes in operating assets and liabilities:
Accounts receivable (587,204) (997,112) (529,157)
Note receivable and other assets 14,188 (61,343) (3,720)
Inventories (503,483) (67,335) (567,420)
Prepaid expenses 14,249 (98,082) (3,500)
Accounts payable 246,623 (42,190) (86,130)
Accrued compensation and other expenses 883,063 94,126 100,767
Deferred revenue 306,076 523,401 -
------------- ------------ -------------
Net cash provided by (used in) operating activities 1,459,660 (29,312) (554,111)
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for additions to property and equipment (669,154) (1,316,217) (404,639)
Purchase of intangible assets (9,999) (4,000) -
Purchase of long term investment (732,500) - -
------------- ------------ -------------
Net cash used in investing activities (1,411,653) (1,320,217) (404,639)
------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 226,300 1,517,867 1,734,425
Repayments of long-term debt (4,803,042) (277,789) (887,989)
Proceeds of common stock issued 13,581,315 175,785 170,139
Offering costs associated with common stock issued (981,401) - -
Purchase of treasury stock - (144,000) -
------------- ------------ -------------
Net cash provided by financing activities 8,023,172 1,271,863 1,016,575
------------- ------------ -------------
INCREASE (DECREASE) IN CASH: 8,071,179 (77,666) 57,825
Cash, beginning of year 11,463 89,129 31,304
------------- ------------ -------------
Cash, end of year $ 8,082,642 $ 11,463 $ 89,129
============= ============ =============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Conversion of note payable to common stock $ 21,500 $ 9,600 -
Noncash exercise of warrants to stockholder $ 180,650 - -
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 85,460 $ 168,994 $ 33,718
Interest paid $ 300,587 $ 331,495 $ 254,133
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
-25-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Boston Biomedica, Inc. ("BBI") and Subsidiaries (together, the
"Company") provide infectious disease diagnostic products, contract research and
specialty infectious disease testing services to the in-vitro diagnostic
industry, government agencies, blood banks, hospitals and other health care
providers worldwide. The Company is subject to risks common to companies in the
Biotechnology industry, including but not limited to, development by the Company
or its competitors of new technological innovations, dependence on key
personnel, protection of proprietary technology, and compliance with FDA
government regulations.
Significant accounting policies followed in the preparation of these
consolidated financial statements are as follows:
(I) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BBI and
its wholly-owned subsidiaries, Biotech Research Laboratories, Inc. ("BTRL") and
BBI Clinical Laboratories, Inc. ("BBICL"). All significant intercompany accounts
and transactions have been eliminated in the consolidation. Certain amounts
included in the prior year's financial statements may have been reclassified to
conform to the current presentation.
(II) USE OF ESTIMATES
To prepare the financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. In particular, the Company records reserves for estimates
regarding the collectability of accounts receivable as well as the net
realizable value of its inventory. Actual results could differ from the
estimates and assumptions used by management.
(III) REVENUE RECOGNITION
Product revenues are recognized as sales upon shipment of the products
or, for specific orders at the request of the customer, on a bill and hold basis
after completion of manufacture. All bill and hold transactions meet specified
revenue recognition criteria which include normal billing, credit and payment
terms, and transfer to the customers of all risks and rewards of ownership.
Accounts receivable as of December 31, 1996 and 1995 include bill and hold
receivables of $23,000 and $179,000, respectively.
The Company periodically enters into barter transactions whereby the
Company exchanges inventory for testing services. Revenue on these transactions
are recognized when both the products have been shipped and the testing services
have been completed and are recorded at the estimated fair market value of the
inventory based upon standard Company prices. The revenue recognized on these
transactions for the years ended December 31, 1996, 1995 and 1994 was $244,000,
$213,000, and $192,000, respectively.
Services are recognized as revenue upon completion of tests for
specialty laboratory services.
Revenue under long-term contracts, including funded research and
development contracts, is recorded under the percentage of completion method,
wherein costs plus profit is recorded as service revenue and billed monthly as
the work is performed. Certain customers make advance payments that are deferred
until revenue recognition is appropriate. Unbilled amounts for fee retainage are
included in accounts receivable at December 31, 1996 and 1995, and are
immaterial. When the current contract estimates indicate a loss, provision is
made for the total anticipated loss. The Company does not believe there are any
material collectability issues associated with these receivables.
Total revenue related to funded research and development contracts was
approximately $1,126,000, $728,000, and $660,000 for the years ended December
31, 1996, 1995 and 1994, respectively. Total contract costs associated with
these agreements were approximately $975,000, $575,000 and $511,000 for the
years ended December 1996, 1995 and 1994, respectively.
-26-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(IV) CASH AND CASH EQUIVALENTS
The Company's policy is to invest available cash in short-term,
investment grade, interest bearing obligations, including money market funds,
municipal notes, and bank and corporate debt instruments. Securities purchased
with initial maturities of three months or less, are valued at cost plus accrued
interest, which approximates market, and classified as cash equivalents. At
December 31, 1996 the Company's cash equivalents consisted of $6,091,120
invested in a money market fund and a banker's acceptance of $1,991,522.
(V) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
(VI) INVENTORIES
Inventories are stated at the lower of average cost or net realizable
value and include material, labor and manufacturing overhead.
(VII) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. For financial reporting
purposes, depreciation is recognized using accelerated and straight-line
methods, allocating the cost of the assets over their estimated useful lives
ranging from five years to ten years for certain manufacturing and laboratory
equipment, five years for office equipment and management information systems,
three years for automobiles and fifteen years for the building. Upon retirement
or sale, the cost and related accumulated depreciation of the asset are removed
from the books. Any resulting gain or loss is credited or charged to income.
(VIII) GOODWILL AND INTANGIBLES
Goodwill results from excess of the purchase prices over the acquired
net assets of BTRL and BBICL and is amortized on a straight line basis over ten
years. Other intangibles primarily consist of patents, licenses, and
intellectual property rights and are amortized over four to ten years.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 121 requires that an impairment loss be recognized for
long-lived assets and certain identified intangibles when the carrying amount of
these assets may not be recoverable. The Company has adopted SFAS 121 effective
in 1996 and the adoption did not have a material impact on the financial
statements.
(IX) INCOME TAXES
The Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred taxes arise from temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. A valuation allowance is provided for net
deferred tax assets if, based on the weighted available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized. Tax credits are recognized when realized using the flow through method
of accounting.
(X) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally cash and cash equivalents, and
accounts receivable. The Company places its cash in federally chartered banks,
each of which is insured up to $100,000 by the Federal Deposit Insurance
Corporation. The Company limits credit risk in cash equivalents by investing
only in short term, investment grade securities including money market funds
restricted to such securities. Concentration of credit risk with respect to
accounts receivable is limited to certain customers to whom the Company makes
substantial sales (see also Note 5). The Company does not require collateral
from its customers. To reduce risk, the Company routinely assesses the financial
strength of its customers and, as a consequence, believes that its trade
accounts receivable credit risk exposure is limited.
-27-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(XI) DEFERRED REVENUE
Deferred revenue consists of payments received from customers in
advance of services performed.
(XII) COMPUTATION OF NET INCOME PER SHARE
Net income per common share is computed based upon the weighted average
number of common shares and common equivalent shares (using the treasury stock
method) outstanding after certain adjustments described below. Common equivalent
shares consist of common stock options and warrants outstanding. In accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83, all
common and common equivalent shares issued during the twelve month period prior
to the initial filing of the Company's S-1 Registration Statement (August 23,
1996) have been included in the calculation as if they were outstanding for all
periods using the treasury stock method and an initial public offering price of
$8.50 per share. Fully diluted net income per common share is not presented as
it does not differ from primary earnings per share.
RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement No. 128
("SFAS 128"), "Earnings per Share", which requires the presentation of basic and
diluted earning per share (EPS). Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Basic EPS replaces
primary EPS. Diluted EPS is computed similarly to fully diluted EPS under the
existing rules. The Company will adopt SFAS 128 as of December 15, 1997 and upon
adoption, will restate all prior period EPS data presented. The Company has not
yet quantified what the impact of SFAS 128 will be on EPS.
(2) INVENTORIES
The Company purchases human plasma and serum from various private and
commercial blood banks. Upon receipt, such purchases generally undergo
comprehensive testing, and associated costs are included in the value of raw
materials. Most plasma is manufactured into Basematrix and other diagnostic
components to customer specifications. Plasma and serum with the desired
antibodies or antigens are sold or manufactured into Quality Control Panels,
Accurun(TM) run controls, and reagents ("Finished Goods"). Panels and reagents
are unique to specific donors and/or collection periods, and require substantial
time to characterize and manufacture due to stringent technical specifications.
Panels play an important role in diagnostic test kit development, licensure and
quality control. Panels are manufactured in quantities sufficient to meet
expected user demand which may exceed one year. Inventory balances at December
31, 1996 and 1995 consist of the following:
1996 1995
-------------- --------------
Raw materials $ 1,359,569 $ 1,298,131
Work-in-process 697,749 565,667
Finished goods 2,123,016 1,813,053
-------------- --------------
$ 4,180,334 $ 3,676,851
============== ==============
-28-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 consist of the
following:
1996 1995
-------------- --------------
Laboratory equipment $ 1,751,737 $ 1,630,872
Management information systems 1,247,190 834,768
Office equipment 394,957 332,496
Automobiles 196,663 178,465
Leasehold improvements 122,419 108,892
Land, building and improvements 956,386 941,175
-------------- --------------
4,669,352 4,026,668
Less accumulated depreciation 1,970,194 1,411,686
-------------- --------------
Net book value $ 2,699,158 $ 2,614,982
============== ==============
Depreciation expense for the years ended December 31, 1996 and 1995 was
approximately $585,500, and $425,700, respectively.
(4) LONG TERM INVESTMENT
In October 1996, the Company entered into a License Agreement, Purchase
Agreement, Stockholders' Agreement and Warrant Agreement with BioSeq, Inc.
("BioSeq") a privately held, technology based development stage company.
The Company has agreed to purchase convertible preferred stock
equivalent to approximately 19% of the capital stock of BioSeq for an aggregate
of $1,482,500 in three installments. Of the $1,482,500, $210,000 was invested at
the date of the agreements and $522,500 was invested in November 1996. The
Company must make the remaining $750,000 installment if BioSeq attains certain
technical milestones by July 31, 1997. If such milestones are not attained by
BioSeq by July 31, 1997, the Company will still have the option to make the
remaining $750,000 investment until December 31, 1997. Under the operative
documents, the Company has price anti-dilution protection, pre-emptive rights
and the right to board representation. In addition, the Company was granted
warrants to acquire additional shares of common stock of BioSeq for additional
consideration under certain conditions, provided that this right is not
exercisable to the extent it would cause the Company's ownership to equal or
exceed 20%. The Company is accounting for its investment in BioSeq on the cost
basis in accordance with the provisions of APB 18 since its cumulative
investment is and must remain less that 20% of the equity of BioSeq and the
Company does not exert significant influence or control. Due to the uncertainty
of technology based development stage enterprises and in accordance with the
provisions of SFAS 121, the Company will perform a periodic analysis of the
investment to determine whether the carrying value of its investment in BioSeq
has been impaired. If so determined, the Company would adjust the carrying value
of its investment by taking a charge to earnings.
Upon the earlier of payment of the final installment of the Company's
aggregate $1,482,500 investment and December 31, 1997, the Company will be
granted a worldwide right to use the BioSeq technology relating to sequencing
and analysis services. The License will be exclusive until BioSeq commences
selling on a commercial basis the equipment used in the DNA sequencing and
analysis process, at which time the License will become non-exclusive. The
License provides that the Company will pay BioSeq royalties ranging from five
percent to ten percent of net revenues arising out of the services performed by
the Company with the licensed technology. The Company will account for the
royalty as a cost of revenue as the revenues are earned.
-29-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) REVENUE FROM SIGNIFICANT CUSTOMERS AND EXPORT SALES
The Company performs contract research and certain other services under
contracts, subcontracts and grants from United States Government Agencies,
primarily the National Institutes of Health ("NIH"). Revenue from such
contracts, subcontracts and grants was approximately $1,920,000 in 1996,
$1,628,000 in 1995 and $1,677,000 in 1994.
Export sales accounted for approximately $3,914,000, or 25% of
consolidated revenue in 1996; $3,104,000, or 25% in 1995; and $2,279,000, or 21%
in 1994.
(6) LONG TERM DEBT
The Company's revolving line of credit ("Revolver") has a due date of
June 30, 1998 and bears interest at prime plus 1/2%. Borrowings under the
Revolver are limited to 80% of eligible accounts receivable plus the lesser of
40% of inventory or $1,500,000. The Company had $3,500,000 available under it's
Revolver as of December 31, 1996. Amounts outstanding under the Revolver, if
any, are collateralized by all of the Company's assets and a $2 million life
insurance policy of an officer/stockholder. The Revolver contains covenants
regarding the Company's debt-to-equity ratio and certain minimum debt service
coverage ratios. The Revolver further provides for restrictions on the payment
of dividends, limitations on the acquisition of property and equipment,
limitations on additional borrowings, and certain minimum stock ownership levels
by the officer/stockholder referred to above.
In December 1995, the Company purchased its corporate headquarters and
manufacturing facility in West Bridgewater, MA from its former landlord at a
price of $806,800 including closing costs, and borrowed $750,000 from its bank
to finance the purchase. This mortgage on this property was repaid in December
1996 from proceeds of the Company's initial public offering of common stock. See
also Note 3.
During 1996, convertible debt in the amount of $21,500 was converted
into 14,333 shares of common stock at a price of $1.50 per share. During 1995,
convertible debt in the amount of $9,600 was converted into 5,817 shares of
common stock at a price of $1.65 per share.
The Company prepaid substantially all debt out of the proceeds of its
initial public offering. At December 31, 1996 and 1995, the Company had the
following debt outstanding:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Revolving line of credit agreement due June 30, 1998. $ - $ 2,784,307
Four notes payable to one bank which had interest rates from 8.22% to 9.25%, and
due dates from October 1998 through December 2000. Collateralized by all the
assets of the Company. - 995,445
Note payable to a bank, due in 84 fixed payments of principal and interest of
$11,729, bearing interest fixed at 8.30% for the first five years, and floating at
prime plus 1.0% for the remaining term. Collateralized by a mortgage and all
of the assets of the Company. - 750,000
Subordinated convertible note payable, which was converted by the holder into
common stock at $1.50 per share. - 21,500
Other installment note payable with an interest rate of 9.75% and due August 2001.
Collateralized by office and laboratory equipment and furniture. 53,768 100,758
------------ -------------
Total long term debt 53,768 4,652,010
Less: current maturities (12,820) (436,509)
------------ -------------
$ 40,948 $ 4,215,501
============ =============
</TABLE>
Debt maturities beyond current are $14,128 in 1998, $15,569 in 1999, and $11,251
in 2000.
-30-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) INCOME TAXES
The Company's effective tax rate does not significantly differ from the
federal and state income tax statutory rates. The components of the provision
for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Current expense: federal and state $ 476,206 $ 130,422 $ 91,242
Deferred (benefit) expense: federal and state (155,495) (61,765) (26,891)
------------ ------------ -----------
Total $ 320,711 $ 68,657 $ 64,351
============ ============ ===========
</TABLE>
Significant items making up deferred tax liabilities and deferred tax
assets are as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Current deferred taxes:
Inventory $ 87,158 -
Accounts receivable allowance 115,548 $ 56,863
Other accruals 80,494 53,903
------------- -------------
Total deferred tax assets 283,200 110,766
Long term deferred taxes:
Accelerated tax depreciation (176,015) (207,361)
Goodwill 13,551 (22,795)
Tax credits - 106,710
State net operating loss carryforwards 60,884 38,805
------------- -------------
Total deferred tax liabilities (101,580) (84,641)
------------- -------------
Total net deferred tax (liabilities) assets $ 181,620 $ 26,125
============= =============
</TABLE>
As of December 31, 1996, the state net operating loss carryforwards
expire at various dates beginning in 1999 through 2007.
(8) COMMITMENTS AND CONTINGENCIES
The Company leases certain office space, laboratory, and research
facilities under operating leases with various terms through July 2000. All the
real estate leases include renewal options at increasing levels of rent.
One of the facility leases includes scheduled base rent increases over
the term of the lease. The amount of base rent payments is being charged to
expense on the straight-line method over the term of the lease. As of December
31, 1996 and 1995, the Company has recorded a liability of $53,900 and $141,100,
respectively, included in accrued expenses to reflect the excess of rent expense
over cash payments since inception of the lease. In addition to base rent, the
Company pays a monthly allocation of the operating expenses and real estate
taxes for the above facilities.
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$365,700, $477,600, and $549,700, respectively. At December 31, 1996, the
remaining fixed lease commitment was as follows:
Year Ended Amount
-------------- ----------
1997 254,600
1998 117,300
1999 124,800
2000 79,700
--------
$576,400
--------
Commencing in February 1995, the Company committed under a sponsored
research agreement with a university to fund a research scientist at a cost of
$13,125 per quarter for three years which costs are charged to research and
development expense. In return, the Company has exclusive rights to any anti-HIV
compounds or derivatives developed in the course of this research, provided the
Company obtains certain regulatory approvals from the FDA.
-31-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) RETIREMENT PLAN
In January 1993, the Company adopted a retirement savings plan for its
employees, which has been qualified under Section 401(k) of the Code. Eligible
employees are permitted to contribute to the plan through payroll deductions
within statutory limitations and subject to any limitations included in the
plan. To date, the Company has made no contributions to the plan.
(10) STOCKHOLDERS' EQUITY
COMMON STOCK
On October 31, 1996, the Company commenced trading on the Nasdaq
National Market as a result of the initial public offering of its common stock
("IPO"), raising net proceeds of $11,633,000 from the sale of 1,600,000 shares
at $8.50 per share.
On April 26, 1996, the Company entered into a Stock Purchase Agreement
and Exclusive Distributor Agreement for five years with a foreign distributor.
Pursuant to the Stock Purchase Agreement, the Company issued 117,647 shares of
redeemable common stock at a price per share of $8.50, for which it received net
proceeds of $898,503. Issuance costs were $101,497. Completion of the IPO
terminated the redemption feature. The distributor is restricted from selling
these securities for a one-year period after completion of the IPO. The Company
issued the 80,000 shares of Treasury Stock in connection with this transaction.
On August 8, 1996 the Board of Directors approved a 1-for-2 reverse
stock split and an increase in authorized common shares to 20,000,000, and
authorized 1,000,000 shares of preferred stock (par value $.01), which were
approved by the stockholders on September 10, 1996. The stock split has been
retroactively reflected in the accompanying financial statements and notes for
all periods presented.
OPTIONS AND WARRANTS
The Company has two stock option plans which are administered by a
committee of the Board of Directors who determines the employees and affiliated
persons to receive options and the number and option price of shares covered by
each such option. Options granted under both plans may be either incentive stock
options or non-qualified stock options. In general, for incentive stock options,
the option price shall not be less than the fair market value at the time the
option is granted. Generally, options become exercisable at the rate of 25% at
the end of each of the four years following the anniversary of the grant.
Options issued expire ten years from the date of grant, or 30 days from the date
of termination or affiliation.
At December 31, 1996, 897,600 shares have been reserved for
non-qualified stock options, of which 98,875 are available for future grants. At
December 31, 1996, 750,000 shares have been reserved for incentive stock
options, of which 574,462 are available for future grants.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for the plans. Accordingly, no compensation cost has been recognized
for the plans. Had compensation cost for the plans been determined on the fair
value at the grant dates for awards under the plans in 1996 and 1995 using the
minimum value method consistent with SFAS No. 123 for grants prior to the IPO,
the Company's net income would have been reduced by $77,500 or $0.02 per share
in 1996, and by $23,300 or $0.01 per share in 1995. In computing these pro forma
amounts the Company has assumed a risk-free interest rate equal to approximately
6.18%, no dividends, and expected average option life of approximately five
years. There were no options granted subsequent to the IPO. SFAS 123 does not
apply to awards prior to 1995, and additional awards in future years are
anticipated. The average fair value of options granted during 1996 and 1995 is
estimated as $1.93 and $1.59, respectively, on the date of the grant.
The Company has issued warrants in connection with certain debt
financings. As of December 31, 1996, 120,000 shares of Common Stock have been
reserved for issuance pursuant to the exercise of such warrants at a weighted
average exercise price of $2.50 per share.
-32-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) STOCKHOLDERS' EQUITY - (CONTINUED)
The Company has reserved shares of its authorized but unissued common
stock for the following:
<TABLE>
<CAPTION>
Stock Options Warrants
--------------------------------------------------------------------
Weighted Weighted Total
Average price Average price ----------------------------
Shares per share Shares per share Shares Exercisable
---------------- --------------- -------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance outstanding, December 31, 1993 881,850 2.14 306,138 2.66 1,187,988 712,163
Granted - - - - -
Exercised (19,375) 0.68 (4,600) 3.75 (23,975)
Expired (81,525) 2.69 - - (81,525)
---------------- -------------- ---------------
Balance outstanding, December 31, 1994 780,950 2.12 301,538 2.73 1,082,488 827,576
Granted 73,187 6.00 - - 73,187
Exercised (6,000) 1.88 (41,200) 2.58 (47,200)
Expired (47,850) 2.64 - - (47,850)
---------------- -------------- ---------------
Balance outstanding, December 31, 1995 800,287 2.45 260,338 2.85 1,060,625 879,038
Granted 140,600 7.27 - - 140,600
Exercised (1,500) 4.50 (84,260) 2.88 (85,760)
Expired (21,500) 6.05 (56,078) 3.54 (77,578)
================ ============== ===============
Balance outstanding, December 31, 1996 917,887 3.10 120,000 2.50 1,037,887 839,272
================ ============== ===============
The following table summarizes information concerning options outstanding and exercisable as of December 31, 1996:
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ---------------------------------
Range of Exercise Prices Weighted Weighted Weighted
Average Number of Average Number of Average
Remaining Life Options Exercise Price Options Exercise Price
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.25 - $1.65 3.49 359,500 1.21 359,500 1.21
$2.50 - $4.50 5.59 359,600 2.98 328,538 2.89
$6.00 - $8.50 9.40 198,787 6.86 31,234 6.00
=============== ================
917,887 719,272
=============== ================
</TABLE>
(11) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited (Amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
---------- ---------- ---------- ----------
Total revenue $ 3,084 $ 3,844 $ 4,015 $ 4,566
Gross profit 1,051 1,621 1,752 1,976
Net income (loss) (97) 179 163 236
Income (loss) per share (0.04) 0.06 0.05 0.06
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
---------- ---------- ---------- ----------
Total revenue $ 2,728 $ 2,837 $ 2,896 $ 3,810
Gross profit 853 1,105 1,107 1,474
Net income (loss) (39) 3 (19) 159
Income (loss) per share (0.01) 0.00 (0.01) 0.05
</TABLE>
-33-
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) SUBSEQUENT EVENTS
SOURCE SCIENTIFIC ACQUISITION
On March 26, 1997 the Company entered into an Asset Purchase Agreement
to acquire substantially all of the assets and business and assume selected
liabilities of Source Scientific, Inc. ("Source") for $2.1 million in cash. A
substantial majority of this purchase price will be allocated to goodwill and
other intangibles Goodwill is expected to be amortized over 10 years. Source is
a developer and manufacturer of a broad line of clinical instrumentation and
biomedical devices for the worldwide in vitro diagnostic industry. The Company
has advanced Source $650,000 in the form of senior secured demand notes to fund
working capital, product development and other operational needs. The notes bear
interest of 15%. The Company expects to make additional advances prior to
closing. The proposed acquisition is subject to standard conditions, including
Source shareholder approval and will be recorded in accordance with purchase
accounting.
NEW LOAN AGREEMENT
Effective March 28, 1997, the Company terminated its Revolver and
entered into a $7.5 million uncollateralized revolving line of credit ("New
Line") with its bank. The New Line matures on June 30, 1999; bears interest at
the Company's option based on either base rate, LIBOR plus 1.75%, or overnight
money market rate plus 1.75%; and carries a facility fee of .25% per annum,
payable quarterly. The New Line contains covenants regarding the Company's ratio
of total liabilities-to-equity, minimum tangible net worth, and minimum debt
service coverage ratio. The New Line further provides for restrictions on the
payment of dividends, and limitations on additional borrowings.
(13) SUPPLEMENTARY PRO FORMA EARNINGS PER SHARE - (UNAUDITED)
If the Offering had been completed on January 1, 1995, a portion of the
proceeds would have been used to retire all debt outstanding at that time, and
all debt incurred in 1995 and 1996 would not have been needed. Based on the
foregoing, supplemental pro forma net earnings per share of common stock would
have been $.19 and $.09 for the years ended December 31, 1996 and 1995,
respectively. Such net earnings per share of common stock are based on 3,544,183
and 3,626,391 shares of common stock respectively, consisting of 3,069,269 and
3,151,477 shares of common stock and common stock equivalents plus 474,914
shares assumed to be issued at $8.50 per share as if the Offering had occurred
on January 1, 1995 to retire indebtedness outstanding during 1995.
-34-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
BOSTON BIOMEDICA, INC.:
We have audited the accompanying consolidated balance sheets of Boston
Biomedica, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Boston
Biomedica, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 4, 1997, except as to
Note 12, for which the date is
March 28, 1997
-35-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 is incorporated by reference to
the information under Part I, Item 1 - Business under the caption "Executive
Officers of the Registrant" at page 14 of this Report, and to the information in
the Registrant's definitive Proxy Statement which is expected to be filed by the
Registrant within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated by reference to
the information in the Registrant's definitive Proxy Statement which is expected
to be filed by the Registrant within 120 days after the close of its fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is incorporated by reference to
the information in the Registrant's definitive Proxy Statement which is expected
to be filed by the Registrant within 120 days after the close of its fiscal
year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Item 13 is incorporated by reference to
the information in the Registrant's definitive Proxy Statement which is expected
to be filed by the Registrant within 120 days after the close of its fiscal
year.
-36-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
<TABLE>
<CAPTION>
(A) 1. INDEX TO FINANCIAL STATEMENTS:
<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and 1995.......................................22
Consolidated Statements of Income for the three years ended December 31, 1996......................23
Consolidated Statements of Changes in Stockholders' Equity for the three years ended
December 31, 1996.................................................................24
Consolidated Statements of Cash Flows for the three years ended December 31, 1996..................25
Notes to Consolidated Financial Statements.........................................................26
Report of Independent Accountants..................................................................35
(A) 2. FINANCIAL STATEMENT SCHEDULES:
Schedule II-Valuation and Qualifying Accounts......................................................42
Report of Independent Accountants..................................................................43
</TABLE>
All supplemental schedules other than as set forth above are omitted as
inapplicable or because the required information is included in the Consolidated
Financial Statements or the Notes to Consolidated Financial Statements.
(A) 3. EXHIBITS:
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
3.1 Amended and Restated Articles of Organization of the Company**
3.2 Amended and Restated Bylaws of the Company**
4.1 Specimen Certificate for Shares of the Company's Common Stock**
4.2 Description of Capital Stock (contained in the Restated Articles of Organization of the Company
filed as Exhibit 3.1) **
10.1 Agreement, dated January 17, 1994, between Roche Molecular Systems, Inc. and the Company**
10.2 Exclusive License Agreement, dated December 6, 1994, between the University of North Carolina at
Chapel Hill and the Company**
10.3 Contract, dated September 30, 1995, between the National Institutes of Health and the Company (No.
1-AI55273) **
10.4 Contract, dated September 30, 1995, between the National Institutes of Health and the Company (No.
1-AI-55277) **
10.5 Contract, dated March 1, 1993, between National Cancer Institute and the Company **
10.6 Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. and the Company**
10.7 Lease Agreement, dated June 30, 1992, for Rockville, Maryland Facility between Cambridge Biotech
Corporation and the Company**
10.8 Lease Agreement, dated July 28, 1995, for New Britain, Connecticut Facility between MB Associates
and the Company**
10.9 Worcester County Institution for Savings Warrant dated December 1, 1995 (No. 1) **
10.10 Worcester County Institution for Savings Warrant dated July 26, 1993 (No. 2) **
10.11 Stock Purchase Agreement, dated June 5, 1990, between G&G Diagnostics Limited Partnership I and
the Company, as amended**
-37-
10.12 Purchase and Sale Agreement, dated December 11, 1995, for 375 West Street Property between James
Leonard, Trustee, C.W.B. Trust and the Company**
10.13 Purchase and Sale Agreement, dated December 20, 1995, for 80 Manley Street Property between the
Company and Donald M. Leonard, Trustee, Live Oak Realty Trust**
10.14 Stock Purchase Agreement, dated April 26, 1996, between Kyowa Medex Co., Ltd. and the Company**
10.15 1987 Non-Qualified Stock Option Plan**++
10.16 Employee Stock Option Plan**++
10.17 Underwriters Warrants, each dated November 4, 1996, between the Company and each of Oscar Grus &
Son Incorporated and Kaufman Bros., L.P. **
10.20 Purchase Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company**
10.21 Warrant Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company**
10.22 Stockholders' Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company**
10.23 License Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company**
10.24.1 Commercial Loan Agreement, dated as of March 28, 1997, between
The First National Bank of Boston and the Company
10.25 Asset Purchase Agreement, dated March 26, 1997 between Source Scientific, Inc. and the Company
11.1 Statement re: Computation of Per Share Earnings
21.1 Subsidiaries of the Company
27 Financial Data Schedule
</TABLE>
- ------------------------
++ Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby
incorporated by reference.
(B) REPORTS ON FORM 8-K.
The Registrant did not file any Current Reports on Form 8-K
during the quarter ended December 31, 1996.
-38-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1997 Boston Biomedica, Inc.
By: /s/ Richard T. Schumacher
-------------------------
Richard T. Schumacher
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
---------- ------ ----
<S> <C> <C>
/s/ Richard T. Schumacher President, Chief Executive Officer, March 28, 1997
---------------------------------- and Chairman of the Board
Richard T. Schumacher (Principal Executive Officer)
/s/ Kevin W. Quinlan Senior Vice President, Finance; March 28, 1997
----------------------------------- Chief Financial Officer; Treasurer
Kevin W. Quinlan and Director
(Principal Accounting Officer)
/s/ Calvin A. Saravis Director March 28, 1997
-----------------------------------
Calvin A. Saravis
/s/ Henry A. Malkasian Sr. Director March 28, 1997
-----------------------------------
Henry A. Malkasian Sr.
/s/ Francis E. Capitanio Director March 28, 1997
-----------------------------------
Francis E. Capitanio
</TABLE>
-39-
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Reference
<S> <C> <C>
3.1 Amended and Restated Articles of Organization of the Company A**
3.2 Amended and Restated Bylaws of the Company A**
4.1 Specimen Certificate for Shares of the Company's Common Stock A**
4.2 Description of Capital Stock (contained in the Restated Articles of A**
Organization of the Company filed as Exhibit 3.1)
10.1 Agreement, dated January 17, 1994, between Roche Molecular Systems, Inc. and A**
the Company
10.2 Exclusive License Agreement, dated December 6, 1994, between the University of A**
North Carolina at Chapel Hill and the Company
10.3 Contract, dated September 30, 1995, between the National Institutes of Health A**
and the Company (No. 1-AI55273)
10.4 Contract, dated September 30, 1995, between the National Institutes of Health A**
and the Company (No. 1-AI-55277)
10.5 Contract, dated March 1, 1993, between National Cancer Institute and the Company A**
10.6 Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. and the Company A**
10.7 Lease Agreement, dated June 30, 1992, for Rockville, Maryland Facility between A**
Cambridge Biotech Corporation and the Company
10.8 Lease Agreement, dated July 28, 1995, for New Britain, Connecticut Facility A**
between MB Associates and the Company
10.9 Worcester County Institution for Savings Warrant dated December 1, 1995 (No. 1) A**
10.10 Worcester County Institution for Savings Warrant dated July 26, 1993 (No. 2) A**
10.11 Stock Purchase Agreement, dated June 5, 1990, between G&G Diagnostics Limited A**
Partnership I and the Company, as amended
10.12 Purchase and Sale Agreement, dated December 11, 1995, for 375 West Street A**
Property between James Leonard, Trustee, C.W.B. Trust and the Company
10.13 Purchase and Sale Agreement, dated December 20, 1995, for 80 Manley Street A**
Property between the Company and Donald M. Leonard, Trustee, Live Oak Realty
Trust
10.14 Stock Purchase Agreement, dated April 26, 1996, between Kyowa Medex Co., Ltd. A**
and the Company
10.15 1987 Non-Qualified Stock Option Plan* A**
10.16 Employee Stock Option Plan* A**
10.17 Underwriters Warrants, each dated November 4, 1996, between
the Company and B** each of Oscar Grus & Son Incorporated and
Kaufman Bros., L.P.
-40-
10.20 Purchase Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company A**
10.21 Warrant Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company A**
10.22 Stockholders' Agreement, dated October 7, 1996, between BioSeq, Inc. and the A**
Company
10.23 License Agreement, dated October 7, 1996, between BioSeq, Inc. and the Company A**
10.24.1 Commercial Loan Agreement, as of dated March 28, 1997, between
The First Filed herewith National Bank of Boston and the
Company
10.25 Asset Purchase Agreement, dated March 26, 1997 between Source Scientific, Inc. Filed herewith
and the Company
11.1 Statement re: Computation of Per Share Earnings Filed herewith
21.1 Subsidiaries of the Company Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
- ------------------------
A Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-10759)(the "Registration Statement"). The
number set forth herein is the number of the Exhibit in said registration
statement.
B Incorporated by reference to the Registration Statement, where the
Exhibit was filed as Exhibit No. 10.17 and contained in Exhibit 1.1.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby
incorporated by reference.
-41-
SCHEDULE II
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Recoveries
Balance at for Accounts Uncollectible Balace at
Beginning Additions to Previously Accounts End of
Allowance for Doubtful Accounts of Period Allowance Written Off Written Off PPeriod
------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
1996 $ 142,372 $ 429,677 $ 62,753 $(282,744) $ 352,058
1995 94,723 181,084 - (133,435) 142,372
1994 43,956 102,099 - (51,332) 94,723
</TABLE>
-42-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
BOSTON BIOMEDICA, INC.:
In connection with our audits of the consolidated financial statements
of Boston Biomedica, Inc. and Subsidiaries, as of December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996, which
financial statements are included in this Annual Report on Form 10-K, we have
also audited the consolidated financial statement schedule listed in Item 14
herein.
In our opinion, this consolidated financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 4, 1997
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EXECUTION
COMMERCIAL LOAN AGREEMENT
By and Among
BOSTON BIOMEDICA, INC., BTRL CONTRACTS AND
SERVICES, INC., BBI CLINICAL LABORATORIES, INC. and
BBI-SOURCE SCIENTIFIC, INC.
as the Borrower
and
THE FIRST NATIONAL BANK OF BOSTON
as the Lender
Dated: As of March 28, 1997
COMMERCIAL LOAN AND SECURITY AGREEMENT
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TABLE OF CONTENTS
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<TABLE>
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Page
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Preamble......................................................................................... 1
Section 1 - Definitions; Use of Terms; Incorporation by Reference................................ 2
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Section 2 - Establishment of Revolving Line of Credit 6
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2.1 Revolving Line of Credit 6
2.2 Interest Rate on Loans 7
2.3 Repayment of Loans 7
2.4 Security for the Loans 7
2.5 Use of Proceeds 7
2.6 Loan Advances 7
2.7 Other Advances and Payments 7
2.8 Loan Statements 8
2.9 Review of Line of Credit 8
Section 3 - Representations, Covenants and Warranties 9
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3.1 General Representations, Covenants and Warranties 9
3.1.1 Business; Supplementary Information Regarding Borrower 9
3.1.2 Due Organization and Existence; Authorization 9
3.1.3 Articles of Organization; Stock; Accurate Records 10
3.1.4 Binding Documents; Violation of Other Agreements 10
3.1.5 Title To Assets; Security Interests and Mortgages; Leases;
Royalties; etc. 10
3.1.6 Investments 10
3.1.7 Litigation; Outstanding Orders 11
3.1.8 Financial Statements Delivered 11
3.1.9 Other Liabilities; Tax Returns; No Adverse Changes 11
3.1.10 No Agency Between Borrower and Lender 11
3.1.11 Regulation U 11
3.1.12 ERISA 12
3.1.13 Necessary Permits and Licenses 12
3.1.14 Governmental Approvals Not Required 12
3.1.15 Adequate Financing 12
3.1.16 No Event of Default 13
3.1.17 Compliance with Leases 13
3.1.18 President and Chief Executive Officer 13
3.1.19 Compliance with Certain Environmental Laws 13
3.1.20 Recent Changes of Name or Structure 13
3.1.21 Payment of Wages 14
3.2 Certain Affirmative Covenants 14
3.2.1 Payment of Obligations 14
3.2.2 Books and Records 14
3.2.3 Inspection 14
3.2.4 Commercial Purposes 14
3.2.5 Notice of Adverse Matters 14
3.2.6 Principal Lending Business 14
3.2.7 Maintenance of Corporate Existence; Compliance with Laws 15
3.2.8 Payment of Taxes and Filing of Returns 15
3.2.9 Maintenance of Property and Assets 15
3.2.10 Collection Costs; Legal Fees; etc. 15
3.2.11 Insurance 16
3.2.12 Further Agreements; Compliance with Other Agreements;
Payment of Other Obligations; Tax Returns; Notice of Litigation
and of Events of Default 16
3.2.13 Certain Environmental Matters 17
3.2.14 Changes in Master Exhibit 18
3.2.15 Key Man Life Insurance 18
3.3 General Negative Covenants 18
3.3.1 Other Debt 18
3.3.2 Payment of Dividends 19
3.3.3 Loans by the Borrower 19
3.3.4 Investments 19
3.3.5 Mergers, etc. 19
3.3.6 Sales of Assets 19
3.3.7 Negative Pledge 19
3.3.8 No Liens; Permitted Encumbrances 20
3.3.9 Continuance of Business 21
Section 4 - Financial and Reporting Covenants 21
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4.1 Reporting Covenants 21
4.1.1 Quarterly Financial Statements 21
4.1.2 Annual Financial Statements 21
4.1.3 Officer's Certificate 22
4.1.4 Other Information 22
4.2 Financial Covenants 23
Section 5 - Conditions of Closing 24
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5.1 Conditions of Closing 24
5.2 Date References 25
Section 6 - Events of Default 25
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Section 7 - Remedies 28
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7.1 General Remedies 28
7.2 Cumulative Remedies 28
Section 8 - Waiver; Termination 28
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8.1 Waiver By The Borrower 28
8.2 Lender's Option To Waive 29
Section 9 - Miscellaneous 29
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9.1 Deposits As Collateral; Set-Off 29
9.2 Survival of Covenants; Binding Effect 29
9.3 Termination of Agreement 30
9.4 Conflict of Terms 30
9.5 Prior Discussions; Amendments in Writing; Counterparts;
Filing As Financing Statement 30
9.6 General Indemnification 31
9.7 Destruction of Documents; Jurisdiction 31
9.8 Notices 31
9.9 Application of Proceeds 32
9.10 Continuance of Defaults 32
9.11 Severability 32
9.12 Headings 32
9.13 Governing Law; Sealed Instrument 32
9.14 Force Majeure 33
9.15 Interpretation of Agreement 33
Master Exhibit
Exhibit 4.1.3 Officer's Compliance Certificate
Exhibit 4.2.1
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COMMERCIAL LOAN AGREEMENT
This Commercial Loan Agreement (this "Agreement") is dated as of March 28,
1997, and is by and among BOSTON BIOMEDICA, INC. ("BBI"), BTRL CONTRACTS AND
SERVICES, INC. ("BTRL"), BBI CLINICAL LABORATORIES, INC. ("BBICL"), formerly
known as BBI-NORTH AMERICAN CLINICAL LABORATORIES, INC. and BBI-SOURCE
SCIENTIFIC, INC. ("BSS"), each of which is a Massachusetts corporation validly
created, legally existing and in good standing under the laws of the
Commonwealth of Massachusetts and each of which has its "Notice Address" at 375
West Street, West Bridgewater, Massachusetts 02379 (BBI, BTRL, BBICL and BSS,
together with their respective successors and assigns, are collectively referred
to herein as the "Borrower") and THE FIRST NATIONAL BANK OF BOSTON, a national
banking association having an office and "Notice Address" at Bank of
Boston-Worcester Tower, P.O. Box 15073, 100 Front Street, Worcester,
Massachusetts 01608-1438 (together with its successors and assigns, the
"Lender").
WHEREAS, BTRL, BBICL and BSS are each wholly-owned subsidiaries of BBI,
formed to acquire certain assets determined to be useful and necessary to the
business conducted by BBI; and
WHEREAS, the Borrower desires to induce the Lender to lend certain sums and
otherwise to extend credit or grant financial accommodations, all to or for the
benefit of the Borrower pursuant to and in accordance with the terms of this
Agreement; and
WHEREAS, the Lender is willing to enter into this Agreement and grant such
financial accommodations to or for the benefit of the Borrower in accordance
with the terms of this Agreement only if the Borrower shall make and enter into
certain agreements, covenants, representations and warranties as set forth
herein and as further set forth and contained in the Financing Instruments (as
hereinafter defined), all of the terms and conditions of which Financing
Instruments are hereby incorporated herein by reference;
NOW THEREFORE, in order to induce the Lender to lend certain sums, to extend
credit and to grant financial accommodations, all to or for the benefit of the
Borrower, and in consideration thereof and in consideration of the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower hereby
represents and warrants to the Lender, and hereby covenants and agrees with the
Lender, all as follows:
SECTION 1
DEFINITIONS; USE OF TERMS;
INCORPORATION BY REFERENCE
In this Agreement:
1.1 "ACCOUNTS" shall mean and refer to any and all of the Borrower's rights
to payment for goods sold or leased or for services rendered, which are not
evidenced by an Instrument or Chattel Paper, whether or not such rights have
been earned by performance, and shall include all receivables, notes, drafts,
acceptances, other forms of obligations and "accounts" as defined in the UCC,
all in whatever form and however arising or created;
1.2 "BALANCE SHEET NET WORTH" shall have the meaning given to that term in
Section 4.2(b) below;
1.3 "BANKRUPTCY CODE" shall have the meaning given to that term in
subsection 6.7.1 below;
1.4 "BORROWER" shall have the meaning given to that term in the first
paragraph on the first page of this Agreement;
1.5 "CEO" shall have the meaning given to that term in subsection 3.1.18
below;
1.6 "CLOSING DATE" shall have the meaning given to that term in Section 5.1
below;
1.7 "COMMITMENT EXPIRATION DATE" shall mean the earlier to occur of: (a) the
Maturity Date; (b) the occurrence of an Event of Default hereunder; or (c) upon
termination as provided in Section 9.3 below;
1.8 "CONNECTICUT OFFICE" shall mean 75 North Mountain Road, New Britain,
Connecticut 06053
1.9 "DEBT SERVICE RATIO" shall have the meaning given to that term in
Section 4.2.5(c) below;
1.10 "DEFAULT" shall mean an Event of Default or event or condition that,
but for the requirement that time elapse or notice be given, or both, would
constitute an Event of Default;
1.11 "EQUIPMENT" shall mean all motor vehicles (whether or not subject to
motor vehicle registration), rolling stock, machinery, furniture, office
equipment, plant equipment, fixtures, tools, spare parts, accessories, dies,
molds and all other like goods, property and assets owned now or hereafter by
the Borrower and used in the operation or furtherance of the Borrower's
business; and "equipment" as defined in the UCC;
1.12 "EVENT OF DEFAULT" shall have the meaning given to that term in Section
6 below;
1.13 "FACILITY FEE" shall have the meaning given to that term in subsection
2.4 below;
1.14 "FINANCING INSTRUMENTS" shall mean and refer to any and all agreements
(including this Agreement), Instruments, Documents, and other writings including
without limitation, security agreements, loan agreements, notes, guarantees,
mortgages, deeds of trust, collateral assignments, subordination agreements,
contracts, notices, leases, financing statements and all other written matter,
whether heretofore, now, or hereafter executed by or on behalf of the Borrower
and delivered to the Lender in connection with the transactions described in
this Agreement or contemplated hereby, together with all agreements and
documents referred to therein or contemplated thereby;
1.15 "GAAP" shall mean and refer to generally accepted accounting principles
as adopted in the United States;
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1.16 "INDEMNIFIED PARTY" shall have the meaning given to that term in
subsection 9.6 below;
1.17 "INTEREST RATE PROTECTION CONTRACTS" shall mean interest rate swap
agreements, interest rate collar agreements, options on any of the foregoing and
any other agreements or arrangements designed to provide protection against
fluctuations in interest rates, in each case purchased by the Borrower from a
lender with respect to Loans and approved by the Lender;
1.18 "INVESTMENT" shall mean the purchase or acquisition of any share of
capital stock, partnership interest, evidence of indebtedness or other equity
security of any other Person (including any subsidiary), any loan, advance or
extension of credit (excluding Accounts and costs and estimated earnings in
excess of billings arising in the ordinary course of business) to, or
contribution to the capital of, any other Person (including any subsidiary), any
real estate held for sale or investment, any securities or commodities futures
contracts held, any other investment in any other Person (including any other
Borrower or any subsidiary), and the making of any commitment or acquisition of
any option to make an Investment;
1.19 "INVENTORY" shall mean and refer to any and all of the following owned
by the Borrower: goods, wares, merchandise, raw materials, supplies, components,
work in process, finished goods and all packaging, advertising, shipping
material, labels and other devices, names, or marks affixed thereto for purpose
of selling the same; tangible personal property held by the Borrower for
processing, sale, license, or lease, or furnished or to be furnished by the
Borrower under contracts of sale or service or to be used or consumed in the
Borrower's business; items referred to above which are in transit, returned,
rejected, repossessed or detained; and "inventory" as defined in the UCC;
1.20 "IRC" shall mean and refer to the Internal Revenue Code of 1986, as
amended, and regulations as promulgated and in effect, from time to time,
thereunder;
1.21 "LENDER" shall have the meaning given to that term in the first
paragraph on the first page of this Agreement;
1.22 "LIENS" shall mean and refer to any and all: mortgages, pledges,
security interests, encumbrances, liens, or charges of any kind including, but
not limited to, agreements to give any of the foregoing; conditional sales or
other title retention agreements or devices, or any leases in the nature
thereof; and the filing of, or agreement to give, any financing statement under
the Uniform Commercial Code of any jurisdiction;
1.23 "LINE OF CREDIT MAXIMUM AMOUNT" shall mean and refer to the amount of
Seven Million Five Hundred Thousand and 00/100 Dollars ($7,500,000.00);
1.24 "LOANS" shall have the meaning given to that term in Section 2.1 below;
1.25 "MARGIN STOCK" shall have the meaning given to that term in subsection
3.1.12 below;
1.26 "MARYLAND OFFICE" shall mean 3 Taft Court, Rockville, Maryland 20850;
1.27 "MATURITY DATE" shall mean June 30, 1999;
1.28 "NOTE" shall mean that certain Commercial Term Revolving Promissory
Note, dated of even date herewith, from the Borrower, made payable to the order
of the Lender, in the face amount of the Line of Credit Maximum Amount, as the
same may be hereafter amended, modified, substituted, extended or restated, from
time to time;
1.29 "NOTICE ADDRESS" shall have the meaning given to that term in the first
paragraph on the first page of this Agreement;
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1.30 "OBLIGATIONS" shall mean and refer to any and all indebtedness,
liabilities, duties, undertakings, covenants and agreements (including those of
payment or of performance) of the Borrower to the Lender or any affiliate of the
Lender, all of every kind, nature and description, and arising pursuant to the
terms of the Financing Instruments or otherwise, including, without limitation:
1.30.1 the Borrower's liability to repay the Loans, together
with the payment of all interest and other monies due pursuant to the
terms of the Note, and any and all substitutions, renewals, extensions,
amendments and rewritings of the Loans or the Note and all present and
future advances made thereunder and including all Interest Rate
Protection Contracts;
1.30.2 the faithful performance and observance by the Borrower
of all agreements, covenants and conditions contained in this Agreement
and in each of the other Financing Instruments; and
1.30.3 any and all such indebtedness, liabilities, duties,
undertakings, covenants and agreements whether or not the same are: now
existing or hereafter arising; imposed by agreement or by operation of
law; due or not due, absolute or contingent, liquidated or
unliquidated, voluntary or involuntary; evidenced by a writing;
presently contemplated by the parties; the joint or the several
liabilities of the Borrower; direct or indirect; related or unrelated
to the transactions described in or contemplated by the Financing
Instruments; liabilities or undertakings of the Borrower as surety,
guarantor or endorser with respect to obligations of one or more other
parties; specifically described as secured or unsecured; hereafter
acquired by the Lender by assignment, other transfer or operation of
law; the result of any transaction whatsoever between the Borrower and
the Lender; or by reason of any cause of action which the Lender may
have against the Borrower;
1.31 "PERMITTED ACQUISITION" shall mean any domestic corporation,
partnership, limited liability company, joint venture or other form of domestic
entity that is engaged in the business of the Borrower or any business
reasonably related or complimentary thereto.
1.32 "PERMITTED ACQUISITION VENTURE" shall mean any Investment in a
Permitted Acquisition for which (a) the Borrower has provided the Lender, in
advance of such Acquisition, with all of the material information, reports,
financial statements and any other material used by the Borrower to determine
the suitability and prudence of such Investment; and (b) the Borrower has
satisfied the Lender that such Investment will not result in the Borrower
failing to meet any of the Financial Standards contained in subsections 4.2.1,
4.2.2 and 4.2.4 hereof;
1.33 "PERMITTED ENCUMBRANCES" shall have the meaning given to that term in
Section 3.3.8 below;
1.34 "PERSONS" shall mean and refer to any and all individuals,
corporations, partnerships, joint stock associations, business or other trusts,
governments or any agencies or subdivisions thereof, joint ventures, limited
liability companies or partnerships, or other entities or associations
whatsoever;
1.35 "REPORTING REQUIREMENTS" shall have the meaning given to that term in
Section 4.1 below;
1.36 "REVOLVING LINE OF CREDIT" shall have the meaning given to that term in
Section 2.1 below;
1.37 "TANGIBLE NET WORTH" shall have the meaning given to that term in
Section 4.2.5(b) below;
1.38 "TOTAL DEBT" shall have the meaning given to that term in Section
4.2.5(a) below;
1.39 "UCC" shall mean the Uniform Commercial Code as in effect from time to
time in The Commonwealth of Massachusetts;
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1.40 The following terms shall have the respective meanings ascribed to them
in the UCC: "ACCOUNT DEBTOR", "CHATTEL PAPER", "DEPOSIT ACCOUNT", "DOCUMENT",
"FARM PRODUCTS", "GENERAL INTANGIBLES", and "INSTRUMENT";
1.41 Terms defined elsewhere in this Agreement shall have the respective
meanings ascribed to them where so defined;
1.42 All exhibits to this Agreement are hereby incorporated herein by
reference;
1.43 The use of the singular of terms which are defined in the plural shall
mean and refer to any one of the matters or items included in such definition;
and
1.44 Use of the connective "or" is not intended to be exclusive; the term
"may not" is intended to be prohibitive and not permissive; use of "includes"
and "including" is intended to be interpreted as expansive and amplifying and
not as limiting in any way; and pronouns used herein shall be deemed to include
the singular and the plural and all genders.
SECTION 2
ESTABLISHMENT OF REVOLVING LINE OF CREDIT
2.1 Revolving Line of Credit. Subject to all of the terms and conditions
contained in this Agreement and the other Financing Instruments, the Lender
hereby agrees to establish for the benefit of the Borrower a certain revolving
line of credit (the "REVOLVING LINE OF CREDIT"), in the maximum principal amount
of up to the Line of Credit Maximum Amount, as evidenced by and payable as
provided in the Note. All advances of principal under the Revolving Line of
Credit (each such advance is hereinafter referred to as a "LOAN" and
collectively as the "Loans") shall be made in accordance with the provisions of
this Agreement and the Note. The Lender has opened or hereby opens, for and in
the name of the Borrower, loan accounts for the purposes of administering the
Loans.
2.2 Interest Rate on Loans. The principal amount outstanding, from time to
time, of each of the Loans shall bear interest in accordance with the provisions
of the Note.
2.3 Repayment of Loans. Principal and interest under the Loans shall be paid
to the Lender in accordance with the provisions of the Note.
2.4 Facility Fee. The Borrower agrees to pay to the Lender a Facility Fee
(the "FACILITY FEE") of one-quarter of one percent (.25%) per annum of the
amount which equals the average unused portion of the Line of Credit Maximum
Amount during each calendar quarter, or part thereof, that any Loan remains
outstanding. The Facility Fee shall be paid by the Borrower to the Lender on a
calendar quarterly basis, in arrears. The Facility Fee shall be earned when
paid, non-refundable and in addition to all interest and all other amounts due
and payable with respect to the Loans or otherwise pursuant to the Financing
Instruments.
2.5 Use of Proceeds. All of the proceeds of the Loans shall be used to
finance Investments in Permitted Acquisition Ventures and for general corporate
purposes, including, but not limited to, working capital, capital expenditures
and equipment leasing.
2.6 Loan Advances. After the date hereof, Loans shall be made by advances by
the Lender to one or more of the accounts maintained by the Borrower pursuant to
Section 3.2.6 hereof (hereafter, the "Main Operating Account"). Subject to the
terms and conditions hereof, the Lender may make Loans to the Borrower (i) to
cover checks drawn by Borrower on the Main Operating Account and (ii) to cover
other authorized charges whether given
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to the Lender orally, telephonically or in writing and (iii) to cover other
charges due and payable hereunder. As an accommodation to the Borrower, and to
avoid the necessity that the Lender communicate with the Borrower each time
checks are presented for payment against the Main Operating Account, the
Borrower requests the Bank to make a Loan charged to the Loan Account sufficient
to cover checks and other authorized charges on each occasion that the same are
presented. All actions of the Lender in connection with the ordinary
administration of the foregoing are hereby ratified and confirmed and shall be
conclusive and binding upon the Borrower. Each request by the Borrower to Lender
for an advance under the Revolving Line of Credit shall constitute a
representation by the Borrower that as of the date of such request (a) each of
the representations and warranties set forth herein are true, (b) the Borrower
is in compliance with all of the covenants, terms and conditions hereof, and (c)
no event or circumstances exist which constitute or with the lapse of time or
notice, or both, would constitute or result in the occurrence of an Event of
Default (as hereinafter defined).
2.7 Other Advances and Payments. Whether or not the entire amount available
under the Revolving Line of Credit shall have been advanced to or for the
benefit of the Borrower, and whether or not the Loans shall be payable (by
maturity or by acceleration) or an Event of Default shall have occurred under
this Agreement, the Lender shall be entitled (but shall not be obligated and may
not be required) to make, at its sole discretion, additional advances from time
to time:
2.7.1 in payment or reimbursement, as the case may be, of any
and all payments made or amounts owing pursuant to applicable
provisions of the Financing Documents;
2.7.2 to pay the Lender's usual and customary charges for (a)
services rendered by it to the Borrower at the Borrower's request which
charges relate to the Obligations; and (b) charges otherwise required
to be paid by the Borrower pursuant to this Agreement; and
2.7.3 otherwise to or for the benefit of the Borrower, as
requested or consented to by the Borrower, as the Lender may in its
discretion deem proper or expedient;
and each such additional advance shall be a part of the Obligations and shall at
all times be subject to the terms and conditions of this Agreement and secured
as provided in the Financing Instruments.
2.8 Loan Statements. All advances to or for the benefit of the Borrower
pursuant to this Agreement shall be charged to the loan account or accounts
opened in the Borrower's name on the Lender's books. The Lender periodically
shall render to the Borrower statements of such loan account or accounts,
setting forth the daily loan balance and total accrued interest during the
subject period, which, when so rendered, shall be considered prima facie
evidence of the correctness thereof except to the extent that the Lender
receives written notice of any exceptions proposed by the Borrower within a
reasonable time, but in no event later than one hundred twenty (120) days from
the date of such statement. If for any reason the Borrower has not paid interest
charges and/or any fees for services, expenses incurred or other charges owed to
the Lender by the Borrower, the Lender, at its option and discretion, may at any
time or times debit such charges, expenses, and fees to the Borrower's loan
account and such amounts shall be added to the principal amount thereof, or the
Lender may debit such interest, charges and fees, and any other unpaid
Obligations then due, to any deposit or other account of the Borrower at the
Lender. Such debits shall not constitute a waiver of any Event of Default. Any
item received in payment towards the Borrower's outstanding indebtedness which
requires clearance or payment shall not be considered to have been credited
until final clearance and final payment.
2.9 Review of Line of Credit. The Lender agrees (a) to review the Revolving
Line of Credit annually on or before June 30 of each year commencing in 1998, to
determine whether the Maturity Date will be extended for an additional
twelve-month period beyond the Maturity Date then in effect; and (b) to notify
the Borrower of such determination in accordance with the notice provisions of
the Agreement. Notwithstanding the foregoing, any
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determination by the Lender to extend the Maturity Date shall not be binding and
enforceable against the Lender until the execution of an Extension Agreement or
other appropriate documentation, executed by the parties hereto.
SECTION 3
REPRESENTATIONS, COVENANTS AND WARRANTIES
In addition to such other representations, covenants and warranties as are
contained herein, or elsewhere in the Financing Instruments or as have otherwise
been made to the Lender, the Borrower hereby represents, covenants and warrants
that:
3.1 General Representations, Covenants and Warranties.
3.1.1 Business; Supplemental Information Regarding the
Borrower. BBI is engaged in the business of assaying, processing,
manufacturing, selling, and distributing human blood-based products;
BTRL is engaged in the business of biomedical and biotechnical contract
research and services; BBICL is engaged in the business of providing
clinical reference laboratory services; BSS is, or will be, primarily
engaged in the business of developing clinical instrumentation and
biomedical devices for the in vitro diagnostic industry; each of BBI's
and BSS's principal place of business and chief executive office and
mailing address is located at the Notice Address set forth at the
beginning of this Agreement; BTRL's principal place of business and
mailing address is the address of the Maryland Office and BBICL's
principal place of business and mailing address is the address of the
Connecticut Office. The Borrower does not and will not conduct any
business under any trade name or trade style other than the legal names
of BBI, BTRL, BBICL and BSS or as set forth in the Master Exhibit. Set
forth in the Master Exhibit attached hereto are the names and addresses
of the respective officers and members of the Board of Directors of
each Borrower, the name and title of each officer authorized to execute
the Financial Instruments and thereafter deal with the Lender on behalf
of the Borrower, and locations of all the Borrower's other places of
business or at which the Borrower's properties may be kept or located,
which information is true, accurate and complete; the Borrower agrees
to furnish the Lender with written notice within ten (10) days of any
changes in such information, or any additional information necessary to
insure that said Master Exhibit remains true, accurate and complete.
Nothing in this subsection 3.1.1 shall be construed to permit any
action which is otherwise restricted or prohibited pursuant to the
terms of this Agreement.
3.1.2 Due Organization and Existence; Authorization. Each of
BBI, BTRL, BBICL and BSS (a) is duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts, (b)
has adequate corporate power and authority to own its properties and
assets and to carry on its business activities as and where now
conducted, (c) is qualified to do business as a foreign corporation and
is in good standing in each jurisdiction wherein such qualification is
necessary, and where the failure to so qualify would have a material
adverse effect on the business or property of the Borrower, and (d) has
the corporate power and authority to execute and deliver such of the
Financing Instruments as have been executed by it, and to perform the
Financing Instruments in accordance with the terms thereof.
3.1.3 Articles of Organization; Stock; Accurate Records. The
Articles of Organization and all amendments thereto of each of BBI,
BTRL, BBICL and BSS have been duly filed and are in proper order. All
capital stock issued by BBI, BTRL, BBICL and BSS and currently
outstanding is properly issued, and all books and records of BBI, BTRL,
BBICL and BSS, including but not limited to, the minute book, by-laws
and books of account of each of BBI, BTRL, BBICL and BSS, are accurate
and up-to-date and will be so maintained.
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3.1.4 Binding Documents; Violation of Other Agreements. Each
of BBI, BTRL, BBICL and BSS has taken all steps required by applicable
law to make this Agreement, and each of such Financing Instruments, its
legal, valid and binding obligation enforceable, jointly and severally,
in accordance with its terms, and neither the execution, delivery nor
performance of this Agreement or any of the Financing Instruments is in
violation of any law, the Articles of Organization, Bylaws or other
organizational documents of it, or of any other agreement or instrument
to which it is a party or by which it or any of its assets is or may be
bound, and does not constitute a default under any of the foregoing, or
result in the creation or imposition of a Lien upon any of its
properties or assets other than that in favor of the Lender.
3.1.5 Title To Assets; Security Interests and Mortgages;
Leases; Royalties; etc. The Borrower has title (and good, clear, record
and marketable title in the case of real property) to all assets
reflected in the financial statements hereinafter referred to and
delivered to the Lender, and to all assets acquired since the date of
said financial statements (other than those assets subsequently
disposed of in the ordinary course of business), free of any Lien
except in favor of the Lender and except for the Permitted
Encumbrances.
3.1.6 Investments. The Borrower has no Investment, in equity
or debt, other than short-term, investment grade securities, including
money market funds, except as disclosed in the Master Exhibit.
3.1.7 Litigation; Outstanding Orders. Except as disclosed on
the Master Exhibit attached hereto, there are no actions, suits,
proceedings or investigations pending or, to the knowledge of the
Borrower, any of its agents, servants or employees, threatened against
the Borrower or any of its properties in any court, before any other
tribunal or any federal, state, municipal or other governmental
authority. The Borrower is not in default with respect to any order of
any court, or other tribunal or governmental authority. The execution,
delivery and performance of this Agreement and each of the Financing
Instruments by the Borrower will not constitute a default of any order
of any court, or any other tribunal or governmental authority.
3.1.8 Financial Statements Delivered. The Borrower has
furnished to the Lender its financial statements, including
consolidated balance sheet and statement of profit and loss as at and
for the fiscal year ended December, 1995, as audited by Coopers &
Lybrand, LLP. Said financial statements fairly present the financial
position of the Borrower as at the dates thereof and said statement of
profit and loss fairly presents the results of the operations of the
Borrower for the fiscal years indicated, all in conformity with GAAP
consistently applied.
3.1.9 Other Liabilities; Tax Returns; No Adverse Changes.
Except as may be set forth in the Master Exhibit annexed hereto, (a)
the Borrower has no knowledge of any contingent obligations or
liabilities of the Borrower for taxes or long-term commitments which
are not shown in the balance sheets included in said statements or
noted therein; (b) the Borrower has filed all required tax returns or
extensions therefor and has paid all applicable federal, state and
local taxes shown to be due (other than taxes which may hereafter be
paid without penalty) and the Borrower has no knowledge of any
deficiency or additional assessment in connection therewith for which
no provision has been made on its books; (c) there has been no material
adverse change in the business, properties or condition (financial or
otherwise) of the Borrower since the date of the most recent financial
statement referred to above and (d) the Borrower's Taxpayer
Identification Numbers are 04-2652826 (BBI), 04-3152484 (BTRL),
04-3196246 (BBICL) and BSS has applied for a Taxpayer Identification
Number, which it will promptly supply to the Lender when available .
The Borrower's federal income tax returns have been prepared and filed
for its fiscal year(s) stated in the Master Exhibit.
3.1.10 No Agency Between the Borrower and the Lender. Nothing
herein contained shall be construed to constitute the Borrower as the
Lender's agent for any purpose whatsoever.
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3.1.11 Regulation U. The Borrower does not own, nor has any
present intention of acquiring, any "margin security" as defined in
Regulation U (12 C.F.R. Part 221) of the Board of Governors of the
Federal Reserve System (herein called a "margin security"). None of the
proceeds of the Loans will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the
purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry a margin security or for any other
purpose which might constitute this transaction a "purpose credit"
within the meaning of said Regulation U.
3.1.12 ERISA. The Borrower has not incurred any material
accumulated funding deficiency within the meaning of the Employee
Retirement Income Security Act of 1974, as amended, or incurred any
material liability to the Pension Benefit Guaranty Corporation
established under such Act (or any successor thereto under such Act),
nor does the Borrower foresee that it will incur any such material
accumulated funding deficiency or material liability in the future, in
connection with any employee benefit plan established or maintained by
the Borrower. The making of the Loans will not involve any prohibited
transaction within the meaning of the Employee Retirement Income
Security Act of 1974 or Section 4975 of the Internal Revenue Code, as
amended. There are no facts known to the Borrower which create, or in
the future may (so far as the Borrower can now foresee) create, any
withdrawal or other liability of the Borrower under the Multi-employer
Pension Plan Amendment Act of 1980.
3.1.13 Necessary Permits and Licenses. The Borrower possesses
all franchises, rights, certificates, variances, licenses, permits and
other authorizations, consents and approvals from all administrative,
regulatory or governmental bodies and all patents, trademarks, service
marks, trade names, copyrights, licenses and other rights, in each
case, free from burdensome restrictions, that are necessary in any
material respect for the ownership, maintenance and operation of its
business, properties and assets, and the Borrower is not in violation
of any thereof in any material respect.
3.1.14 Governmental Approvals Not Required. Neither the nature
of the Borrower nor its business or property, nor any relationship
between or among the Borrower and any other Person is such as to
require any consent, authorization, waiver, approval or other action by
or any notice to or filing with any court or administrative, regulatory
or governmental body, including, without limitation, government
agencies, offices and instrumentalities with which the Borrower has
contracts, in connection with the execution and delivery by the
Borrower of this Agreement or the other Financing Instruments or the
fulfillment of or compliance by the Borrower with, or the enforcement
by the Lender of, the terms and provisions hereof or thereof.
3.1.15 Adequate Financing. The Borrower has no reason to
believe that the proceeds of the Loans, together with such other
sources of funds as are now directly and immediately available to the
Borrower, will not be adequate to finance its business operations for
the term of the Loans.
3.1.16 No Event of Default. As of the date hereof, there does
not exist any Event of Default or any event which, but for the giving
of notice or the lapse of time or both, would constitute an Event of
Default under this Agreement, any of the Financing Instruments or under
the provisions of any instrument evidencing any indebtedness of the
Borrower to any other Person.
3.1.17 Compliance with Leases. The Borrower enjoys peaceful
and undisturbed possession as lessee under all leases necessary in any
material respect for the operation of its business or of its properties
and assets, none of which contains any provisions which might
materially affect or impair the operation of its business or such
properties and assets. All such leases are valid and subsisting and are
in full force and effect.
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3.1.18 President and Chief Executive Officer. Richard T.
Schumacher shall continue to perform the traditional functions of
President and chief executive officer of the Borrower and shall
continue to exercise the traditional authority of such officer. In
addition, while any Obligations remain outstanding, BBI shall continue
to own one hundred percent (100%) of the issued and outstanding capital
stock of BTRL, BBICL and BSS.
3.1.19 Compliance with Certain Environmental Laws. Neither the
Borrower, nor any Person for whose conduct the Borrower is responsible,
owns, occupies or operates, or has ever owned, occupied or operated a
site or vessel on which has been stored any hazardous material or oil,
without compliance with all statutes, regulations, ordinances,
directives, and orders of every federal, state, municipal and other
governmental authority which has or claims jurisdiction relative
thereto (the terms "site", "vessel", and "hazardous material",
respectively, as used herein include the definitions of those terms in
Massachusetts General Laws, Ch. 2lE); neither the Borrower, nor any
Person for whose conduct the Borrower is responsible, has ever disposed
of, transported, or arranged for the transport of any hazardous
material or oil without compliance with all such statutes, regulations,
ordinances, directives, and orders; and neither the Borrower, nor any
Person for whose conduct the Borrower is responsible, has ever been
legally responsible for any release or threat of release of any
hazardous material or oil; received notification of any potential or
known release or threat of release of any hazardous material or oil
from any site or vessel owned, occupied or operated by the Borrower, or
any Person for whose conduct the Borrower is responsible, or of the
incurrence of any expense or loss in connection with the assessment,
containment, or removal of any release or threat of release of any
hazardous material or oil from any such site or vessel.
3.1.20 Recent Changes of Name or Structure. Except for BBICL,
the Borrower has not within the preceding four (4) months changed its
name, identity or corporate structure.
3.1.21 Payment of Wages. The Borrower represents and warrants
that all currently owed wages to employees have been paid, and agrees
and covenants that all wages to employees will be paid as and when due.
3.2 Certain Affirmative Covenants.
3.2.1 Payment of Obligations. The Borrower will duly and
punctually pay or cause to be paid, and perform or observe, or cause to
be performed or observed, as the case may be, all of the Obligations
and will pay and perform or observe, or cause to be paid, performed or
observed all other duties or liabilities of any kind of the Borrower to
the Lender, under or as provided in the Financing Instruments, or
otherwise by agreement or applicable law.
3.2.2 Books and Records. The Borrower will maintain its
financial books and records in an accurate, up-to-date, complete and
standardized fashion in accordance with GAAP consistently applied, and
in accordance with any state or federal regulatory requirements
applicable to the Borrower's business or activities.
3.2.3 Inspection. The Borrower will, at all reasonable times
during regular business hours, and upon reasonable advance notice, make
available in its offices, and shall allow the Lender, at the Lender's
expense (unless a Default shall have occurred, in which event such
activities shall be at the Borrower's expense), access to, all of the
Borrower's books and records for inspection, audit, examination and
copying by the Lender and the Lender's representatives, and the
Borrower will, at all reasonable times, permit entry by the Lender upon
the Borrower's premises, including the Maryland Office and the
Connecticut Office, for purposes of inspection of the properties and
assets of the Borrower by the Lender and the Lender's representatives
and agents.
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3.2.4 Commercial Purposes. All advances under the Loans shall
be used exclusively for the Borrower's business purposes and operations
and shall not in any respect be used for personal, family or household
purposes.
3.2.5 Notice of Adverse Matters. The Borrower will,
immediately upon learning thereof, report to the Lender all matters
materially adversely affecting the Borrower's business or financial
condition or assets or property, including, without limitation, any
damage or destruction of any material amount of the Borrower's assets
by fire or other casualty, whether or not insured against.
3.2.6 Principal Lending Business. The Borrower will use the
Lender as its sole lender of account and depository for its main
operating accounts (except for investment accounts); provided however
that BTRL, BBICL and BSS may maintain checking accounts at banks other
than the Lender for purposes of handling their accounts payable and
payroll.
3.2.7 Maintenance of Corporate Existence; Compliance with
Laws. The Borrower will maintain and keep in full force its corporate
existence and good standing and comply with all laws, regulations and
orders of the United States and of any state or states, and other
political subdivision thereof, and of any other governmental authority
which may have jurisdiction over the Borrower or its properties or
businesses.
3.2.8 Payment of Taxes and Filing of Returns. The Borrower
will pay when due all taxes, including without limitation all real and
personal property taxes, assessments and charges and all franchise,
income, unemployment, old age benefit, withholding, sales and other
taxes assessed against it or any of its properties, and otherwise
payable by it, at such times and in such manner as is necessary to
prevent any penalty from accruing or any Lien or charge from attaching
to its properties. The Borrower shall prepare and file when due all
federal, state and local tax, informational and other governmental
returns, reports, extensions, and filings, as may be applicable to the
Borrower. The provisions of this subsection, however, shall not
preclude the Borrower from contesting in good faith and by expeditious
process any such tax, and the Borrower shall not be in default under
this subsection by reason of the existence of a Lien for taxes not then
due, all provided that: (a) an adequate reserve therefor is maintained
on the books of the Borrower; (b) the Lender has been notified in
writing by the Borrower of such contest; (c) the enforcement of any and
all Liens for non-payment of such taxes is effectively stayed; (d) the
Lender is reasonably satisfied that the Borrower has reasonable basis
for such contest or dispute; and (e) the Borrower shall immediately pay
the full amount of such charges and claims in the event the Borrower's
contest or dispute is unsuccessful.
3.2.9 Maintenance of Property and Assets. The Borrower will
safeguard, protect and preserve its property and assets for the benefit
of the Lender, will keep its property and assets free from any adverse
lien, security interest or encumbrance, will keep all tangible property
in good working order and repair, will preserve all beneficial contract
rights, will take commercially reasonable steps to collect all of its
Accounts, and will not waste or destroy any of its property or assets
or any part thereof; and the Borrower will otherwise preserve, maintain
and protect its rights and keep its property and assets in good repair,
working order and condition, and capable of identification, and make
(or cause to be made) all needful and proper repairs or renewals,
replacements, additions and improvements thereto, and shall use its
assets only in the ordinary course of business.
3.2.10 Collection Costs; Legal Fees; etc. The Borrower agrees
to pay, and to reimburse the Lender, on demand, for all fees, costs and
expenses (including, without limitation, attorneys' reasonable fees and
expenses) incurred or paid by the Lender in connection with the
preparation, negotiation, interpretation or amendment of this
Agreement, and of any or all of the Financing Instruments, and of any
other instrument, agreement or document executed and delivered pursuant
thereto or in connection therewith, and for any and all such fees,
costs and expenses incurred in connection with collection of the
Obligations or the
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enforcement of the Lender's rights and remedies under this Agreement or
any of the Financing Instruments or otherwise against the Borrower, or
in the defense of any action against the Lender with respect to the
Lender's rights or remedies in respect of any Obligation; and all of
the foregoing fees, costs, and expenses shall be part of the
Obligations secured by this Agreement, and the other Financing
Instruments.
3.2.11 Insurance. The Borrower will maintain insurance at all
times with financially sound and reputable companies as are reasonably
satisfactory to the Lender, in such amounts and against such risks as
are customarily insured against by businesses operating in a similar
line of business in a similar area, and consistent with sound business
practice, in no event less than the greater of (a) the amount required
to avoid coinsurance or (b) the total aggregate outstanding principal
indebtedness owing by the Borrower to the Lender, including without
limitation casualty insurance covering the Borrower's property and
assets against the hazards of fire, flood, sprinkler leakage, burglary,
theft, pilferage, loss in transit, those hazards covered by extended
coverage, and such other hazards as the Lender may require, all such
insurance to be in such form, for such periods and with such companies
as shall be reasonably acceptable to the Lender. All premiums thereon
shall be paid by the Borrower and if the Borrower fails to do so, the
Lender may at its option (but without obligation) procure such
insurance and charge the cost to the Borrower's Main Operating Account;
provided, however, that any such payment by the Lender shall not
constitute satisfaction of the Borrower's obligations with respect to
payment hereunder, or a waiver by the Lender of any Event of Default
with respect to such non-payment. In order to evidence compliance with
the insurance coverages required under this Section 3.2.11, the
Borrower shall deliver to the Lender one or more certificates of
insurance for all such casualty insurance policies and endorsements
thereto. Annually thereafter, the Borrower shall deliver certificates
of such insurance coverages to the Lender, along with satisfactory
evidence of general liability, products liability, workmens
compensation and other insurance coverage, in form and substance
satisfactory to the Lender.
3.2.12 Further Agreements; Compliance With Other Agreements;
Payment of Other Obligations; Tax Returns; Notice of Litigation and of
Events of Default.
The Borrower will:
3.2.12.1 from time to time execute and deliver or
cause to be executed and delivered, and furnish to the Lender
such other agreements, documents, instruments or statements,
and do or cause to be done such other acts as the Lender may
reasonably request, to effect, confirm and secure to the
Lender all rights and advantages intended by this Agreement
and the Financing Instruments;
3.2.12.2 comply with all leases, and with all other
agreements to which the Borrower is a party if a default under
any such agreement could materially adversely affect any of
the Borrower's property and assets;
3.2.12.3 generally pay all other debts and
liabilities as they become due (except for liabilities, other
than the Obligations, being contested in good faith for which
adequate provision has been made on the books of the Borrower,
provided that all enforcement proceedings are effectively
stayed pending such contest) and not permit the acceleration
of any indebtedness owed by the Borrower to any Person; and
3.2.12.4 give written notice to the Lender within ten
(10) days of the occurrence thereof of any litigation filed by
or against the Borrower which claims in connection therewith
exceed, either individually or when aggregated with other
existing litigation filed by or against the Borrower, the sum
of Twenty-Five Thousand Dollars ($25,000), and the occurrence
or existence of any Event of Default hereunder, or the
existence of any situation or state of facts which, either
with notice or
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lapse of time, or both would constitute an Event of Default
hereunder, and the action the Borrower has taken or proposes
to take with respect thereto, all provided that the receipt of
such notice shall not limit or impair, in any way the Lender's
rights hereunder.
3.2.13 Certain Environmental Matters. The Borrower shall:
3.2.13.1 not store (except in compliance with all
laws, ordinances, and regulations pertaining thereto), or
dispose of any hazardous material or oil on any site or vessel
owned, occupied, or operated by the Borrower or by any Person
for whose conduct the Borrower is responsible;
3.2.13.2 neither directly nor indirectly transport or
arrange for the transport of any hazardous material or oil
except in compliance with all laws, ordinances and regulations
pertaining thereto;
3.2.13.3 provide the Lender with written notice: (a)
upon the Borrower's obtaining knowledge of any potential or
known release, or threat of release, in violation of any
federal, state or local law, ordinance or regulation
pertaining thereto, of any hazardous material or oil at or
from any site or vessel owned, occupied or operated by the
Borrower, or by any Person for whose conduct the Borrower is
responsible or whose liability may result in any lien on any
Collateral; (b) upon the Borrower's receipt of any notice to
such effect from any federal, state or other governmental
authority; or (c) upon the Borrower's obtaining knowledge of
any incurrence of any expense or loss by such governmental
authority in connection with the assessment, containment or
removal of any hazardous material or oil for which expense or
loss the Borrower may be liable or for which expense a Lien
may be imposed on any Collateral.
3.2.14 Changes in Master Exhibit. The Borrower shall promptly
notify the Lender in writing of any changes in or additions to the
information set forth in the Master Exhibit.
3.2.15 Key Man Life Insurance. So long as any of the
Obligations remain outstanding, the Borrower agrees to maintain life
insurance on the life of Richard T. Schumacher providing for a net
payment in cash upon the death of said Richard T. Schumacher in an
amount of not less than One Million Dollars ($1,000,000), and the
Borrower shall pledge or collaterally assign such policy or policies to
the Lender and, at all times, maintain such pledge or collateral
assignment. Such insurance coverage shall include a disability rider in
the full amount of such coverage. The Lender hereby agrees to review on
an annual basis such obligation to provide such life insurance to
determine whether to waive the same, which determination shall be made
in the Lender's sole discretion, and shall include consideration of the
financial performance of the Borrower.
3.3 General Negative Covenants.
3.3.1 Other Debt. The Borrower will not issue any evidence of
indebtedness or create, or incur, assume, guarantee, become
contingently liable for or suffer to exist, any indebtedness in excess
of an aggregate of Five Hundred Thousand Dollars ($500,000) (other than
indebtedness to the Lender) outstanding at any one time, without the
prior written consent of the Lender which consent will not be
unreasonably withheld or delayed; provided, however, that the Borrower
may incur liabilities which are incurred or arise in the ordinary
course of the Borrower's business, including purchase commitments for
materials and supplies, without the prior written consent of the Lender
but shall seek consent of the Lender, which consent shall not be
unreasonably withheld or delayed, for liabilities incurred or arising
with respect to money borrowed or for the purchase or lease of fixed
assets. The Borrower shall not enter into or participate in any
agreement, arrangement or transaction with any Person without the prior
written consent of the Lender, if the effect of such agreement,
arrangement or transaction has, or could reasonably be expected in the
future to have, the effect of (i) rendering the Borrower either
primarily or contingently liable for any indebtedness
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or other obligation of any Person (ii) transferring any asset of the
Borrower to or for the benefit of any Person (except as may be
otherwise expressly permitted by this Agreement); or (iii) subjecting
any of the Borrower's property or assets to any lien in favor of any
third party (other than Permitted Encumbrances), including but not
limited to any creditor or obligee of any Person.
3.3.2 Payment of Dividends. The Borrower will not pay any
dividends either in cash or kind on any class of its stock nor make any
distribution on account of their stock, nor redeem, purchase or
otherwise acquire directly or indirectly any of their stock, without
prior written notice to and written consent of the Lender except in
compliance with this subparagraph 3.3.2.
3.3.3 Loans By the Borrower. Other than as disclosed on the
Master Exhibit, the Borrower will not make any loan or advances to any
Person, including, without limitation, its officers and employees.
3.3.4 Investments. Without the prior written consent of the
Lender, the Borrower will not make any Investments other than short
term, investment grade securities, including money market funds, and
other than Permitted Acquisition Ventures.
3.3.5 Mergers, etc. The Borrower will not merge or consolidate
or be merged or consolidated with or into any other Person, or be a
party to any reorganization, change in legal structure or any sale,
lease, transfer or other disposition of all or substantially all of its
assets.
3.3.6 Sales of Assets. The Borrower will not sell, lease, or
dispose of any of its property or assets except for sales of Inventory
in the ordinary and usual course of its business, and for Equipment no
longer needed in the operation of its business, so long as the Borrower
receives therefor a sum substantially equal to such Equipment's fair
value.
3.3.7 Negative Pledge. Without the prior written consent of the Lender,
the Borrower will not:
3.3.7.1 grant, create, incur, assume or suffer to
exist, or permit any Person, whether by means of a power of
attorney or otherwise, to grant, create, incur, assume or
suffer to exist, any Lien, upon or with respect to, any of the
Borrower's property or assets except for Permitted
Encumbrances; or
3.3.7.2 sign or file, or permit any Person, whether
by means of a power of attorney or otherwise, to sign or file,
under the Uniform Commercial Code of any jurisdiction, any
financing statement which names the Borrower as a debtor, or
sign, or permit any Person, whether by means of a power of
attorney or otherwise, to sign any security agreement
authorizing any secured party thereunder to file such
financing statement, except in connection with Permitted
Encumbrances; or
3.3.7.3 agree with any other Person that the Borrower
will not undertake activities prohibited pursuant to
sub-subsections 3.3.7.1 and 3.3.7.2 hereof.
To the extent that the Borrower violates the provisions of
this subsection 3.3.7 by granting or assigning in favor of any Person,
a Lien, upon or with respect to, any of the Borrower's property or
assets, such Lien is hereby deemed to be a Lien in favor of, and for
the sole benefit of, the Lender, until all of the Obligations have been
paid in full, and in the event that any Person receives any sums from,
or as a result of, the sale, liquidation or distribution of all or any
portion of the Borrower's property or assets on account of such Lien,
such sums are hereby deemed to be held in trust by such Person for the
sole benefit of the Lender, and shall be promptly delivered to the
Lender upon receipt, and shall not be commingled with any other funds
of such Person.
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3.3.8 No Liens; Permitted Encumbrances. The Borrower will not
grant or assume or suffer to exist any Lien with respect to any of its
assets or property, tangible or intangible, whether now owned or
hereafter acquired, except for Liens granted to the Lender pursuant to
this Agreement, and except for the following (collectively, the
"Permitted Encumbrances"): (a) liens in respect of taxes, fees,
assessments and other governmental charges not yet due and payable, or
with respect to which the validity thereof is currently being contested
in good faith by appropriate proceedings in accordance with the
provisions of this Agreement; (b) landlord's liens in respect of rent
not in default or Liens in respect of pledges or deposits under
worker's compensation, unemployment insurance, social security laws or
similar legislation or in connection with appeal and similar bonds
incidental to litigation, mechanics', laborers', and materialmen's and
similar liens, if the obligations secured by such liens are not then
delinquent, and liens securing statutory obligations incidental to the
conduct of the business of the Borrower which do not in the aggregate
materially detract from the value of the property of the Borrower or
materially impair the use thereof in the operation of their respective
businesses; (c) judgment liens which shall not have been in existence
for a period longer than thirty (30) days after the creation thereof
(provided no foreclosure or execution action shall have been commenced)
or if a stay of execution shall have been obtained for a period longer
than thirty days after the expiration of such stay (provided no
foreclosure or execution action shall have yet been commenced) or
judgment liens for which the Borrower has obtained a bond in favor of
the judgment holder in the full amount of the lien and which bond is
otherwise satisfactory to Lender; (d) the security interests, mortgages
or Liens, if any, described in the Master Exhibit annexed hereto; and
(e) Liens otherwise permitted pursuant to Section 3.3.1 hereof.
3.3.9 Continuance of Business. The Borrower will not engage in
any business other than the businesses in which it is currently engaged
or a business reasonably allied thereto, and the Borrower will continue
to conduct and operate its business actively and in good faith.
SECTION 4
FINANCIAL AND REPORTING COVENANTS
4.1 Reporting Covenants. The Borrower agrees to provide the Lender with the
reports, statements, certificates and information set forth in this Section 4,
all of which are referred to as the "Reporting Requirements".
4.1.1 Quarterly Financial Statements. The Borrower will
furnish to the Lender, within forty-five (45) days after the close of
each calendar quarter of its fiscal year, consolidated and
consolidating (except the last in each fiscal year) financial
statements, including balance sheets, and statements of profit and loss
and statements of cash flows reflecting the financial condition of the
Borrower at the end of such period and the results of its operations
for such period and for the period from the beginning of the current
fiscal year to the end of such period, in comparative form with figures
for the corresponding periods of the previous fiscal year, accompanied
by a certificate by the Borrower's chief financial officer or President
to the effect that such financial statements fairly present such
financial condition and results of operations as of the end of and
during such period, in accordance with GAAP consistently applied,
subject only to year-end adjustments and audit. Such quarterly
statements may be furnished to the Lender in the form of the Borrower's
quarterly filings with the Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934, as amended (the "'34 Act"),
on Form 10-Q.
4.1.2 Annual Financial Statements. The Borrower will furnish
the Lender, within ninety (90) days after the close of each fiscal
year, consolidated and consolidating financial statements, including
balance sheets, statements of profit and loss, statements of cash
flows, and statements of changes in shareholders' equity, reflecting
the financial condition of the Borrower at the end of such fiscal year
and the results of its
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operations during such fiscal year (in each case setting forth in
comparative form the corresponding figures for the preceding year) and,
in the case of the consolidated financial statements, audited and
reported upon (in form generally recognized as "unqualified") by
Coopers & Lybrand, LLP, or such other independent certified public
accountant of nationally recognized standing, prepared in accordance
with GAAP, applied consistently in the preparation thereof and with
prior periods, and accompanied by a certificate by the Borrower's chief
financial officer or president that such financial statements fairly
present such financial condition and results of operations as of the
end of and during such period; together with, upon request of the
Lender, an opinion of such certified public accountant that to its
knowledge there has occurred no event which constitutes, or which with
the lapse of time or giving of notice or both would constitute an Event
of Default hereunder, or, if the contrary appears to be true, a
statement of such Event of Default and the nature thereof. Such annual
statements may be furnished to the Lender in the form of the Borrower's
annual filings with the SEC under the '34 Act on Form 10-K.
4.1.3 Officer's Certificates. The Borrower will, upon request
of the Lender but in any event within forty-five (45) days of the end
of each calendar quarter, deliver to the Lender an officer's
certificate signed by its President or chief financial officer
certifying that: (a) the signer has reviewed the relevant terms of the
Financing Instruments and is familiar with the operations and financial
condition of the Borrower; and (b) there is in existence no Event of
Default described in any of the Financing Instruments and no event
which, with the giving of notice or lapse of time, or both, would
result in the occurrence of an Event of Default and the Borrower is in
complete compliance as of the date of such certificate with the
Financial Standards, as demonstrated in such certificate. In the event
of a continuing Event of Default or a continuing condition which, with
the giving of notice or lapse of time, or both, would result in the
occurrence of an Event of Default, the Borrower shall note in such
certificate the nature and period thereof and the action which has been
taken, is being taken or is proposed to be taken with respect thereto,
provided that no such notice, action or proposed action shall affect
Lender's rights hereunder with respect to any Default or Event of
Default. The form of officer's certificate required by this subsection
is attached to this Agreement as Exhibit 4.1.3.
4.1.4 Other Information. In addition to the foregoing, the
Borrower will furnish the Lender from time to time with such financial
information and statements as the Lender may reasonably request, and,
upon request of the Lender, with copies of all financial statements and
financial reports that the Borrower sends or makes available to its
members of its Board of Directors or to any governmental authority,
together with copies of all management letters of substance and other
reports of substance submitted to the Borrower by its independent
accountants in connection with any annual or interim audit; and, upon
request of the Lender, the Borrower will authorize and direct all
accountants and auditors to exhibit and deliver copies of any financial
statements, trial balances or other accounting records of any sort, and
to disclose to the Lender any information they may have concerning the
Borrower's financial or business condition. In addition, the Borrower
will furnish to the Lender, promptly after the same are delivered to
its stockholders or the SEC, copies of all proxy statements, financial
statements and reports as the Borrower shall send to its stockholders
or as the Borrower may file with the SEC or any governmental authority
at any time having jurisdiction over the Borrower or any of them.
4.2 Financial Standards.
The Borrower shall maintain and observe all of the following financial
standards, in each case determined and classified in accordance with GAAP
applied on a consistent basis at the applicable dates or during the applicable
time periods indicated in the following table (the "Financial Standards"):
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<TABLE>
<CAPTION>
APPLICABLE DATE OR TIME APPLICABLE RATIOS
FINANCIAL STANDARDS PERIOD OR MONETARY REQUIREMENTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.2.1: Consolidated Debt Service Quarterly, at the end of At least 1.75:1 (rounded to nearest hundredth),
Ratio each quarter tested on a rolling four-quarter basis
- ---------------------------------------------------------------------------------------------------------------------
4.2.2: Consolidated Total Quarterly Not to exceed 2.0:1 (in each case rounded to the
Liabilities: Tangible Net Worth nearest hundredth)
Ratio
- ---------------------------------------------------------------------------------------------------------------------
4.2.3: Tangible Net Worth Annually At least $15,000,000 plus 50% of net profits for
the fiscal year ended 12/31/96 and thereafter
for each immediately preceding fiscal year for
which the measurement is being taken; provided
however that in the event of a Permitted
Acquisition Venture, such requirement shall be
reduced by the amount of goodwill associated
with such Permitted Acquisition Venture.
- ---------------------------------------------------------------------------------------------------------------------
4.2.4: Profitability Quarterly There can be no more than two consecutive fiscal
quarters with Consolidated Net Income of less
than zero
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
4.2.5 As used in this Agreement:
(a) "Consolidated Total Liabilities" means the aggregate of
all liabilities of the Borrower for money borrowed, incurred from any
source and in any manner whatsoever, all in accordance with GAAP,
including all subordinated debt, plus the capitalization of all
obligations on leases of real and personal property;
(b) "Tangible Net Worth" means the aggregate tangible assets
of the Borrower after excluding the book value of all Intangible
Assets, minus the amount of aggregate liabilities, including all
deferred income taxes, and "Intangible Assets" shall include all
goodwill, organizational expense, licenses, patents, trademarks,
tradenames, copyrights, capitalized research and development expenses,
deferred charges, and all other intangible assets as determined in
accordance with GAAP consistently applied;
(c) "Consolidated Debt Service Ratio" means Adjusted Operating
Cash Flow (as described on Exhibit 4.2.1 attached hereto) divided by
Total Debt Service (as described on Exhibit 4.2.1 attached hereto).
(d) "Consolidated Net Income" means for any fiscal period, the
consolidated gross revenues of the Borrower for such period, less all
expenses and other proper charges (including taxes on income), all
determined in accordance with GAAP.
-17-
4.2.6 Computation According to GAAP. All of the terms used in
the foregoing financial covenants, except to the extent otherwise
specifically defined herein, and all computations made under the
foregoing covenants, shall in all respects be governed by and performed
in accordance with GAAP consistently applied.
SECTION 5
CONDITIONS OF CLOSING
5.1 Conditions of Closing. This Agreement and all of the other Financing
Documents shall become effective and be dated as of the date on which the Lender
has received all of the following items, each of which must be completed, in
both form and substance, acceptable to the Lender in its sole but reasonable
discretion (said date is hereinafter referred to as the "CLOSING DATE"):
(a) This Agreement (together with all of the Exhibits referred
herein attached hereto) and the Note, each as executed by a duly
authorized officer of the Borrower and attested by the Clerk of the
Borrower.
(b) Assignments of the Key Person Life Insurance Policy
referred to in subsection 3.2.15 above, each as executed by a duly
authorized officer of the Borrower, in favor of the Lender, together
with the original of such Policy;
(c) A Certificate of Clerk of the Borrower, certifying: (i)
the adoption by the Board of Directors of the Borrower of resolutions
authorizing and approving the transactions contemplated by this
Agreement and all of the other Financing Instruments; (ii) the Articles
of Organization of each Borrower, along with any and all amendments
thereto, all as certified by the Massachusetts Secretary of State; and
(iii) the By-Laws of each Borrower, along with any and all amendments
thereto; and (iv) if not supplied on the Master Exhibit, the name and
signatures of the officers of the Borrower authorized to sign, for and
on behalf of the Borrower, this Agreement and all of the other
Financing Instruments.
(d) A Certificate of Corporate Legal Existence and Good
Standing for each Borrower, as issued by the Massachusetts Secretary of
State.
(e) An opinion from Counsel for the Borrower in form and
substance satisfactory to the Lender.
(f) Any and all other documents and information which the
Lender may reasonably requested in connection with the transactions
contemplated by this Agreement and all of the other Financing
Documents.
5.2 Date References. The parties hereto acknowledge and agree that all
references contained in the Note and all of the other Financing Instruments
executed in connection with the transactions contemplated herein to the words
"dated of even date herewith" shall mean and refer to the Closing Date.
SECTION 6
EVENTS OF DEFAULT
Notwithstanding any provision to the contrary in any instrument evidencing
any Obligation, the occurrence of any one or more of the following shall
constitute and mean an "Event of Default" under this Agreement:
-18-
6.1 Any statement, report, certificate, representation or warranty, made or
furnished by the Borrower in, or in connection with the execution and delivery
of this Agreement or any of the Financing Instruments, or in compliance with the
provisions of this Agreement or any of the Financing Instruments, or otherwise
furnished to the Lender at any time, shall prove to have been false or erroneous
when made in any material respect, or omits or fails to state a material fact
necessary in order to make the statements contained therein or herein not
misleading;
6.2 The Borrower shall fail to make payment of the principal or interest on
the Loans when and as due;
6.3 The Borrower shall fail to make payment of any other Obligation within
fifteen (15) days of the date when and as due;
6.4 The Borrower shall fail to perform, observe, comply with or satisfy any
covenant, agreement or condition contained in this Agreement (other than payment
of any Obligation) not cured within thirty (30) days of the earlier of (i)
notice by the Lender to the Borrower or (ii) actual knowledge by the Borrower of
the occurrence thereof, plus such additional time as may be required to cure
such default because of delays beyond the Borrower's control, if such default is
susceptible of being cured and if the Borrower is acting in good faith and is
making diligent efforts to cure such default; provided, however, that such cure
period shall not exceed the aggregate of ninety (90) days and shall not apply
to: (a) any transfer or voluntary encumbrance of assets; (b) any failure with
respect to any requirement of the Borrower to give notice to the Lender as
provided herein; (c) the Reporting Requirements or the Financial Standards; or
(d) any event which is otherwise an Event of Default pursuant to any other
subsections of this Section 6; and such cure period shall run concurrently with,
and not in addition to, any and all applicable grace or cure periods contained
in any of the other Financing Instruments;
6.5 The Borrower shall default in payment of (a) any obligation under any
lease which default could materially adversely affect the business operations of
the Borrower; or (b) any obligation or indebtedness to any other Person at any
time outstanding, continued for a period sufficient to cause the acceleration of
the maturity of such obligation or indebtedness (whether or not such obligation
or indebtedness is actually accelerated) and such acceleration could materially
adversely affect the business operations of the Borrower;
6.6 Failure, generally, of the Borrower to pay its debts when due and such
failure could materially adversely affect the business operations of the
Borrower; or the taking of possession, custody or control of, or the attachment
by judicial process of, or issuance of an injunction against, or creation of any
other Lien (other than in favor of the Lender) upon, any part of the Borrower's
property or assets by any Person, which action is not dissolved within thirty
(30) days;
6.7 The Borrower:
6.7.1 files a voluntary petition in bankruptcy (which term
includes any action under Title 11 of the United States Code entitled
"Bankruptcy" and commonly referred to as the "Bankruptcy Code"); or
6.7.2 is adjudicated a bankrupt or insolvent; or
6.7.3 files any petition or answers seeking or acquiescing in
any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under any law
relating to bankruptcy, insolvency or other relief for debtors; or
6.7.4 seeks or consents to or acquiesces in the appointment of
any trustee, receiver, master or liquidator (or other similar official)
of itself or of all or any substantial part of its property; or
6.7.5 makes any general assignment for the benefit of
creditors; or
--19-
6.7.6 admits in writing to its general inability to pay its
debts as they become due;
6.8 Commencement of any bankruptcy, insolvency, or other creditor's relief
proceedings against, or entry by a court of competent jurisdiction of any order,
judgment or decree approving a petition filed against the Borrower, seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future federal or state law or regulation
relating to bankruptcy, insolvency, or other relief for debtors, which
proceeding, order, judgment or decree remains unvacated or unstated for an
aggregate of thirty (30) days, whether or not consecutive, from the date of
entry thereof;
6.9 A material portion of the Borrower's assets shall be damaged by fire or
other casualty, the restoration or replacement cost of which damage exceeds, in
the aggregate, the amount of insurance proceeds readily available (less
applicable deductibles and plus capital in an amount which, in Lender's sole
discretion (a) is available for such purposes and (b) expenditure of such
capital for such purposes is appropriate under the circumstances) for such
restoration or replacement;
6.10 The issuance or existence of any judgment or judgments against the
Borrower by any court of competent jurisdiction, or other governmental authority
of competent jurisdiction, aggregating in excess of One Hundred Thousand Dollars
($100,000) in any fiscal year, and not covered by insurance, not paid within
thirty (30) days of the date thereof;
6.11 The loss, suspension or revocation of any governmental license required
or necessary in connection with the operation of the Borrower's business;
6.12 Service of any process upon the Lender seeking to attach by means of
trustee process any funds of the Borrower or of any Affiliate on deposit with
Lender, which attachment or process is not dissolved within thirty (30) days; or
6.13 The occurrence of any change in the Borrower's condition or affairs
(financial or otherwise) that, in the Lender's reasonable opinion, impairs the
Lender's security or materially increases the Lender's risk under this Agreement
or the Financing Instruments, or the occurrence of any event or circumstance
with respect to the Borrower such that the Lender reasonably deems itself
insecure.
SECTION 7
REMEDIES
7.1 General Remedies. In addition to and without in any way limiting any
other rights and remedies available to the Lender under this Agreement prior to
an Event of Default, or any other rights and remedies available to the Lender
(whether prior to or after an Event of Default) under any of the Financing
Instruments or under applicable law or in equity, upon and at any time or times
after the occurrence of any Event of Default hereunder:
7.1.1 the Lender may declare and cause all or any portion of
the Obligations to be immediately due and payable;
7.1.2 the Lender may decline to honor the credit of the
Borrower or may refuse to make further advances to the Borrower;
7.1.3 the Lender shall have the right to apply to the
Obligations any deposits or other sums at any time credited by or due
from the Lender to the Borrower; and
-20-
7.1.4 the Lender may treat any or all of the Financing
Instruments as being in default and may exercise any rights and
remedies thereunder as it shall deem appropriate.
7.2 Cumulative Remedies. The enumeration of rights and remedies herein, and
in each of the Financing Instruments, shall be cumulative and not exclusive, and
shall be in addition to, and shall not exclusive of, any other rights or
remedies the Lender may have, whether under the UCC or other applicable law, or
in equity, or otherwise. The Lender shall, in its discretion, determine its
choice of rights and remedies and the order in which they shall be exercised,
and whether or not, and which, Collateral is to be proceeded against, and in
which order. The exercise of any right or remedy shall not preclude the exercise
of others.
SECTION 8
WAIVER
8.1 Waiver By the Borrower. The Borrower hereby waives demand, presentment,
protest and notice thereof with respect to any and all instruments, notice of
acceptance hereof, notice of Loan or advances made, credit extended, or any
other action taking in reliance herein, and all other notices and demands of any
kind except as expressly set forth herein.
8.2 Lender's Option To Waive. The Lender may at its sole discretion, at any
time and from time to time, waive any of the requirements or provisions hereof,
or contained within any of the Financing Instruments, or any default hereunder
or under any of the Financing Instruments, but only by an express written waiver
signed by an authorized officer of the Lender; no act other than an express
written waiver, nor any failure to act or delay by the Lender shall constitute a
waiver of any requirement or provision of, or any default under, or any of the
Lender's rights or remedies under, this Agreement or any of the Financing
Instruments. No single or partial waiver by the Lender of any provision of this
Agreement or any of the Financing Instruments, or any breach or default
thereunder, or of any right or remedy which the Lender may have, shall operate
as a waiver of any other provision, breach, default, right or remedy, nor of the
same one on any future occasion.
SECTION 9
MISCELLANEOUS
9.1 Deposits As Collateral; Set-Off. Any and all deposits, Deposit Accounts,
and other sums at any time credited by or due to the Borrower from the Lender or
any of its banking or lending affiliates or any lender acting as a participant
under any loan arrangement between the Lender and the Borrower, and any cash,
certificates of deposit, securities, instruments, documents, policies and
certificates of insurance, goods, Accounts, choses in action, Chattel Paper, and
other property of the Borrower in the possession or control of, or in transit to
or from, the Lender, or any of its banking or lending affiliates, or any lender
acting as a participant under any loan arrangement between the Lender and the
Borrower, or any third party acting on the Lender's behalf, regardless of the
reason the Lender, or such other party, receives or is to receive the same
(whether in pledge, or for safekeeping, or as agent for collection or
transmission or otherwise) and regardless of whether the Lender has
conditionally released the same, shall at all times constitute security for any
and all Obligations, and may be applied or set off against such Obligations at
any time, whether or not other collateral is available to the Lender.
-21-
9.2 Survival of Covenants; Binding Effect. All agreements, representations,
covenants and warranties made by the Borrower in this Agreement, the Financing
Instruments, or in any certificate or other document delivered to the Lender in
connection herewith shall survive the termination of this Agreement and survive
the execution and delivery of this Agreement, and shall remain in full force and
effect until all Obligations to the Lender have been paid in full and satisfied,
and the security interests and rights granted to the Lender in any collateral
and its rights and remedies hereunder and under the Financing Instruments shall
continue in full force and effect notwithstanding the fact that the Borrower's
Loan account may from time to time be in a zero or credit position, until all
Obligations have been satisfied. All the terms and provisions of this Agreement
and the Financing Instruments shall be binding upon and inure to and be
enforceable by and against the parties hereto and their respective successors
and assigns.
9.3 Termination of Agreement.
9.3.1 This Agreement shall terminate upon the final and
irrevocable payment in full by the Borrower of the Obligations, or upon
acceleration of the Obligations pursuant to the terms of this
Agreement.
9.3.2 The termination of this Agreement shall not affect any
rights of the Borrower or the Lender arising prior to the effective
date of such termination, as the case may be, and the provisions hereof
shall continue to be fully operative until all transactions entered
into, rights created or Obligations incurred prior to such occurrence
or termination shall have been fully disposed of, concluded or
liquidated. Upon termination of this Agreement, all Obligations
(including, without limitation, the Loans) shall be due and payable
without notice or demand. The security interests, liens and rights
granted to the Lender hereunder and under any instrument or document
delivered pursuant hereto or in connection herewith shall continue in
full force and effect, notwithstanding the termination of this
Agreement or the fact that the Borrower's Accounts may from time to
time be temporarily in a credit position, until all of the Obligations
have been paid in full after the termination hereof. All
representations, warranties, covenants, waivers and agreements
contained herein shall survive the termination hereof unless otherwise
provided.
Notwithstanding the foregoing, if after receipt of any payment of all
or any part of the Obligations, the Lender is for any reason compelled
to surrender such payment to any person or entity because such payment
is determined to be void or voidable as a preference, impermissible
setoff, a diversion of trust funds or for any other reason, this
Agreement shall continue in full force and the Borrower shall be liable
to, and shall indemnify and hold the Lender harmless for, the amount of
such payment surrendered until the Lender shall have been finally and
irrevocably paid in full. The provisions of the foregoing sentence
shall be and remain effective notwithstanding any contrary action which
may have been taken by the Lender in reliance upon such payment, and
any such contrary action so taken shall be without prejudice to the
Lender's rights under this Agreement and shall be deemed to have been
conditioned upon such payment having become final and irrevocable.
9.4 Conflict of Terms. In the event of any conflict or contradiction between
or among any provision or provisions of this Agreement and any provision or
provisions of any of the other Financing Instruments, the provisions of this
Agreement shall govern.
9.5 Prior Discussions; Amendments in Writing; Counterparts; Filing As
Financing Statement. This Agreement and all other Financing Instruments
incorporate all discussions and negotiations between the Borrower and the
Lender, either express or implied, concerning the matters included herein and
therein, any custom or usage to the contrary notwithstanding. No such
discussions or negotiations shall limit, modify, or otherwise affect the
provisions of the Financing Instruments. This Agreement may be amended or
modified only in writing signed by the parties hereto, and in the case of the
Lender signed by a duly authorized officer thereof. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original, but such counterparts together shall constitute one and the same
instrument.
-22-
9.6 General Indemnification. The Borrower shall, and does hereby, further
indemnify and save the Lender harmless from any and all liabilities, damages,
costs, losses and expenses (including, without limitation, court costs and
attorney's reasonable fees and expenses) that the Lender may sustain or incur by
reason of, relating to or arising out of the preparation of this Agreement, or
in collecting or enforcing the Obligations, or in enforcing any of Lender's
rights or remedies, or in the prosecution or defense of any action or proceeding
concerning any matter growing out of or connected with this Agreement, any of
the Financing Instruments, or the Obligations, or on account of the Lender's
relationship with the Borrower (each of which may be defended, compromised,
settled or pursued by the Lender with counsel of Lender's selection, at the sole
expense of the Borrower) except for such claims which have been determined by a
court of competent jurisdiction to have arisen out of the Lender's gross
negligence or bad faith. The within indemnification shall survive termination of
this Agreement. The Borrower's obligations under this subsection constitute part
of the Obligations secured by the security interest created by this Agreement
and by the other Financing Instruments.
9.7 Destruction of Documents; Jurisdiction. This Agreement and all other
Financing Instruments may be reproduced by the Lender by any photographic,
photostatic, microfilm, or similar process, and the Lender may destroy the
original from which any document was so reproduced. Any such reproduction shall
be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made in the regular course of business).
The Borrower acknowledges receipt of a true, correct and complete copy or
counterpart of this Agreement.
9.8 Notices.
9.8.1 All notices or demands hereunder to the parties hereto
shall be made in writing and shall be deemed to have been sufficiently
given for all purposes one business day after being sent by recognized
overnight delivery service for next day delivery service, on the same
business day if delivered by hand and three business days after being
sent by United States mail, certified mail return receipt requested,
first class, postage prepaid, and addressed to the parties at their
respective Notice Addresses set forth above, together with the
following additions: (a) for the Lender, "Attention: Commercial Banking
Group" and (b) for the Borrower, "Attention: Richard T. Schumacher,
President". Either of the parties may change its Notice Address
hereunder by giving notice of such change to the other party in
accordance with the provisions of this subsection.
9.8.2 Notwithstanding any provision herein to the contrary,
the Borrower agrees that the failure or delay by the Lender in giving
any notice or statement hereunder, or any inaccuracy therein or
incompleteness thereof, shall not in any way alter or affect the
absolute and unconditional obligation of the Borrower to pay and
perform in full the Obligations, but any action taken or not taken by
the Borrower as a direct result of such lack or delay of notice, or of
the Borrower's good faith reliance upon a material inaccuracy therein
or the material incompleteness thereof, as the case may be, shall not
in of itself, and to the extent thereof, constitute an Event of Default
hereunder, so long as the Borrower does not otherwise have or receive
notice or knowledge of the material contents or substance of such
notice, or of the inaccuracy or incompleteness thereof, as the case may
be, and the Borrower acts at all times in good faith.
9.9 Application of Proceeds. The proceeds of any collection, sale or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied toward the Obligations in such order and manner as the Lender
determines in its sole discretion, any statute (the application of which may be
waived or modified by agreement), customs or usage to the contrary
notwithstanding. The Borrower shall remain liable to the Lender for any
deficiency remaining following such application.
9.10 Continuance of Defaults. As used herein, and in any of the Financing
Instruments, upon any and each occurrence of an Event of Default, such Event of
Default shall be deemed to continue until cured by the Borrower in accordance
with this Agreement (and the applicable provisions of the Financing Instruments,
as the case may be),
-23-
and until such time as the Borrower requests and receives from the Lender the
Lender's written acknowledgment that such Event of Default (as specified in the
request) has been cured and is no longer continuing, which acknowledgment the
Lender shall not unreasonably withhold or delay.
9.11 Severability. If any provision of this Agreement or any of the
Financing Instruments, or any portion of such provision, or the application
thereof to any person or circumstance, shall to any extent be held invalid or
unenforceable, the remainder of this Agreement and the Financing Instruments or
the remainder of such provision and the application thereof to other persons or
circumstances (other than those as to which it is held invalid or unenforceable)
shall not be affected thereby, and each term and provision hereof and of the
Financing Instruments shall be valid and enforced to the fullest extent
permitted by law. To the extent permitted by law, the parties hereto waive any
provision of law which renders any such provision prohibited or unenforceable in
any respect.
9.12 Headings. Headings appearing in this Agreement are intended for
convenience only and do not constitute and shall not be interpreted to be a part
of this Agreement.
9.13 Governing Law; Sealed Instrument. This Agreement is executed and
delivered in The Commonwealth of Massachusetts, and for all purposes shall be
construed in accordance with and governed by the laws of The Commonwealth of
Massachusetts, and shall take effect as a sealed instrument. The Borrower
submits itself to the jurisdiction of the Courts of The Commonwealth of
Massachusetts for all purposes with respect to this Agreement and the Borrower's
relationship with the Lender.
9.14 Force Majeure. The Lender shall not be responsible for delays or
failures in performance hereunder resulting from causes beyond its control,
including without limitation, acts of God, strikes, lockouts, riots, acts of
war, governmental regulations, fire, communication line failures, power
failures, earthquakes or other disasters.
9.15 Interpretation of Agreement. Should any provision of this Agreement or
the other Financing Instruments require interpretation or construction, it is
agreed by the parties hereto that the court, administrative body, or other
entity interpreting or construing this Agreement or the other Financing
Instruments shall not apply a presumption that the provisions thereof shall be
more strictly construed against one party by reason of the rule of construction
that a document is to be construed more strictly against the party who itself or
through its agents prepared the same, it being agreed that the parties and/or
their respective attorneys and agents have fully participated in the preparation
of all provisions of this Agreement and the other Financing Instruments.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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EXECUTED as an instrument under seal as of the day and year first stated
above.
Borrower:
Signed in the presence of: BOSTON BIOMEDICA, INC.
______________________________ By:_________________________________
Witness Kevin W. Quinlan, Treasurer, hereunto duly
authorized
BTRL CONTRACTS AND SERVICES, INC.
By:_________________________________
Kevin W. Quinlan, Treasurer,
hereunto duly authorized
BBI CLINICAL LABORATORIES, INC.
By:_________________________________
Kevin W. Quinlan, Treasurer,
hereunto duly authorized
BBI-SOURCE SCIENTIFIC, INC.
By:_________________________________
Kevin W. Quinlan, Treasurer,
hereunto duly authorized
-25-
Lender:
THE FIRST NATIONAL BANK OF BOSTON
By:_________________________________
G. Christopher Miller
Vice President
PABOS2:SCS:28634_4
-26-
EXHIBIT 4.1.3
OFFICER'S COMPLIANCE CERTIFICATE
TO: THE FIRST NATIONAL BANK OF BOSTON
Bank of Boston-Worcester Tower
100 Front Street
Worcester, Massachusetts 01608-1438
The undersigned authorized officer of BBI, BTRL, BBICL and BSS
(together, the "Borrower"), hereby certifies, with respect to the Commercial
Loan Agreement dated as of ___________ __, 1997 between The First National Bank
of Boston (the "Lender") and the Borrower, as amended through the date hereof
(the "Loan Agreement"), that (a) the signer has reviewed the relevant terms of
the Financing Instruments and is familiar with the operations and financial
condition of the Borrower; and (b) there is in existence no Event of Default
described in any of the Financing Instruments and no event which, with the
giving of notice or lapse of time, or both, would result in the occurrence of an
Event of Default, except as noted below, if any, and the Borrower is in complete
compliance as of __/__/__ with the Financial Standards (the "Applicable
Financial Statements Date"), as demonstrated below. All capitalized terms used
herein and not otherwise defined shall have the meanings given them in the Loan
Agreement.
<TABLE>
<CAPTION>
APPLICABLE DATE OR TIME APPLICABLE RATIOS ACTUAL AS OF
FINANCIAL STANDARDS PERIOD OR MONETARY REQUIREMENTS __/__/__
<S> <C> <C>
Consolidated Debt Service Ratio Quarterly, at the end of Not to exceed 1.75:1 (in each case ___:___
each quarter rounded to the nearest hundredth).
Consolidated Total Quarterly Not to exceed 2.0:1 (in each case ___:___
Liabilities: Tangible Net rounded to the nearest hundredth).
Worth Ratio
Tangible Net Worth Annually At least $15,000,000 plus 50% of net $____________
profits for the fiscal year ended
12/31/96 and thereafter for each
immediately preceding fiscal year for
which the measurement is being taken,
subject to adjustment in the event of
acquisitions made by the Borrower in
the future, which adjustments shall
be determined by the Lender in its
sole judgment, reasonably exercised.
Profitability Quarterly There can be no more
than two consecutive fiscal
quarters with Consolidated Net
Income of less than zero.
</TABLE>
Comments Regarding Exceptions:
Attached hereto are financial statements as of and for the fiscal
(quarter)(year) ended on the Applicable Financial Statements Date, which have
been certified by the undersigned as required by Section 4.1 of the Loan
Agreement.
-27-
BOSTON BIOMEDICA, INC.
By:_________________________________
Kevin W. Quinlan, Treasurer, hereunto duly
authorized
BTRL CONTRACTS AND SERVICES, INC.
By:_________________________________
Kevin W. Quinlan, Treasurer, hereunto duly
authorized
BBI CLINICAL LABORATORIES, INC.
By:_________________________________
Kevin W. Quinlan, Treasurer,
hereunto duly authorized
BBI-SOURCE SCIENTIFIC, INC.
By:_________________________________
Kevin W. Quinlan, Treasurer,
hereunto duly authorized
DATE: ___________________
-28-
EXHIBIT 4.2.1
A. OPERATING CASH FLOW ("OCF")
Add: 1. Earnings before interest and taxes (EBIT)
2. Depreciation and Amortization
3. Non-cash expenses
Less:4. Cash income taxes paid
5. Capital Expenditures (CAPEX)
6. Non-cash income
7. OCF ___________________
B. ADJUSTMENTS TO OCF ("Adjusted OCF")
Add: 8. Net Equity Raised (1)
9. Financed CAPEX (2)
10. Adjusted OCF ___________________
C. TOTAL DEBT SERVICE ("TDS")
1. Interest Expense
2. Required Payment of Long Term
Debt and Capital Leases
3. TDS ___________________
Adjusted OCF/TDS = Debt Service Ratio
Notes:
(1) "Net Equity Raised" is equity raised which is net of any equity
used to finance acquisitions.
(2) "Financed CAPEX" is bank/lease debt used to finance capital
purchases.
PABOS2:SCS:28634_5
-29-
================================================================================
ASSET PURCHASE AGREEMENT
ACQUISITION OF SUBSTANTIALLY ALL OF THE ASSETS OF
SOURCE SCIENTIFIC, INC.
BY
BBI-SOURCE SCIENTIFIC, INC.,
a wholly owned subsidiary
OF
BOSTON BIOMEDICA, INC.
DATED: MARCH __, 1997
================================================================================
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE 1. PURCHASE AND SALE OF ASSETS..............................4
1.1 Sale of Assets................................................4
1.2 Assumption of Liabilities.....................................4
1.3 Purchase Price and Payment....................................6
1.4 Adjustment to Purchase Price..................................6
1.5 Time and Place of Closing.....................................7
1.6 Delivery of Assumption of Liabilities.........................7
1.7 Transfer of Subject Assets....................................7
1.8 Delivery of Records and Contracts.............................7
1.9 Change of Name................................................7
1.10 Further Assurances...........................................7
1.11 Tax Returns..................................................8
1.12 Allocation of Purchase Price.................................8
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER.................8
2.1 Organization and Qualification of Seller......................8
2.2 Capitalization of Seller......................................9
2.3 Subsidiaries..................................................9
2.4 Authorization of Transaction..................................9
2.5 Present Compliance with Obligations and Laws..................9
2.6 No Conflict of Transaction With Obligations and Laws.........10
2.7 Financial Statements.........................................10
2.8 Absence of Undisclosed Liabilities...........................10
2.9 Absence of Certain Changes...................................11
2.10 Payment of Taxes............................................12
2.11 Title to Properties; Liens; Condition of Properties.........12
2.12 Collectibility of Accounts Receivable.......................13
2.13 Inventories.................................................13
2.14 Intellectual Property Rights................................13
2.15 Contracts and Commitments...................................15
2.16 Labor and Employee Relations................................16
2.17 Employee Benefits and ERISA.................................17
2.18 Environmental Matters.......................................19
2.19 Permits.....................................................21
2.20 Warranty or Other Claims....................................21
2.21 Litigation..................................................21
2.22 Borrowings and Guarantees...................................21
2.23 Financial Service Relations and Powers of Attorney..........21
2.24 Insurance...................................................22
2.25 Minute Books................................................22
-i-
2.26 Finder's Fee................................................22
2.27 Transactions with Interested Persons........................22
2.28 Absence of Sensitive Payments...............................22
2.29 Disclosure of Material Information..........................23
2.30 SEC Filings.................................................23
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BBI AND BUYER.........23
3.1 Organization of BBI and Buyer................................23
3.2 Authorization of Transaction.................................24
3.3 No Conflict of Transaction With Obligations and Laws.........24
3.4 SEC Filings..................................................24
3.5 Litigation...................................................25
3.6 Finder's Fee.................................................25
ARTICLE 4. COVENANTS OF SELLER.....................................25
4.1 Conduct of Business..........................................25
4.2 Authorization from Others....................................26
4.3 Breach of Representations and Warranties.....................26
4.4 Consummation of Agreement....................................26
4.5 Compliance with Securities Laws..............................27
ARTICLE 5. COVENANTS OF BBI AND BUYER..............................27
5.1 Authorization from Others....................................27
5.2 Consummation of Agreement....................................27
5.3 Disclosure of Adverse Change.................................27
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BBI AND BUYER..............27
6.1 Shareholder Authorization....................................27
6.2 Dissenting Stockholders......................................28
6.3 Representations; Warranties; Covenants.......................28
6.4 No Material Adverse Change...................................28
6.5 Opinion of Seller's Counsel..................................28
6.6 Employment Contracts.........................................28
6.7 Non-Competition Contracts....................................28
6.8 Approval of Board of Directors...............................29
6.9 Approval of Buyer's Counsel..................................29
6.10 Absence of Certain Litigation...............................29
6.11 FIRPTA Certificate..........................................29
6.12 Consents and Waivers........................................29
6.13 Escrow Agreement............................................29
6.14 Convertible Debentures......................................29
6.15 Opinion of Auditors.........................................30
6.16 Opinion of Investment Banking Firm..........................30
6.17 Due Diligence...............................................30
6.18 Facility Lease..............................................30
6.19 Reduction of Interest Payments..............................30
6.20 Consents to Transactions....................................30
6.21 Authorization...............................................30
-ii-
6.22 Bulk Sales Law..............................................30
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF SELLER.....................31
7.1 Shareholder Authorization....................................31
7.2 Representations; Warranties; Covenants.......................31
ARTICLE 8. TERMINATION OF AGREEMENT................................31
8.1 Termination..................................................31
8.2 Right to Proceed.............................................31
ARTICLE 9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING............31
9.1 Survival of Warranties.......................................31
9.2 Collection of Assets.........................................31
9.3 Payment of Debts.............................................32
ARTICLE 10. INDEMNIFICATION........................................32
10.1 Definitions.................................................32
10.2 Indemnification by Seller...................................32
10.3 Indemnification by Buyer....................................33
10.4 Defense of Third Party Actions..............................33
10.5 Miscellaneous...............................................34
10.6 Payment of Indemnification..................................34
ARTICLE 11. MISCELLANEOUS..........................................35
11.1 Fees and Expenses..........................................35
11.2 Notices.....................................................36
11.4 Publicity and Disclosures...................................36
11.5 Non-Solicitation............................................37
11.6 Confidentiality.............................................37
11.7 Entire Agreement............................................37
11.8 Severability................................................37
11.9 Assignability...............................................37
11.10 Amendment..................................................37
11.11 Attorney-in-Fact...........................................37
11.12 Governing Law; Venue.......................................38
11.13 Counterparts...............................................38
11.14 Effect of Table of Contents and Headings..................38
-3-
ASSET PURCHASE AGREEMENT
AGREEMENT entered into as of the ____ day of _____________, 1997, among
Boston Biomedica, Inc., a Massachusetts corporation with its principal place of
business in West Bridgewater, Massachusetts ("BBI"), BBI-Source Scientific,
Inc., a Massachusetts corporation and wholly owned subsidiary of BBI ("Buyer")
and Source Scientific, Inc., a California corporation with its principal place
of business in Garden Grove, California ("Seller").
RECITALS:
WHEREAS, Buyer wishes to acquire substantially all of the assets of Seller
and assume certain liabilities and obligations of Seller, and Seller wishes to
convey such assets to Buyer, subject to such liabilities and subject to the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets.
(a) Subject to the provisions of this Agreement and except as
expressly excluded in paragraph 1.1(b), Seller agrees to sell and Buyer agrees
to purchase, at the Closing (as defined in Section 1.5 hereof), all of the
properties, assets and business of Seller of every kind and description,
tangible and intangible, real, personal or mixed, and wherever located,
including without limitation all assets set forth on Schedule 1.1 hereto, all
assets shown or reflected on the Base Balance Sheet (as defined in Section 2.7
hereof) of Seller and all assets acquired or created by Seller in the ordinary
course of business and consistent with the terms hereof since the date of the
Base Balance Sheet through the Closing, and all of Seller's good will and the
exclusive right to use the name of Seller as all or part of a trade or corporate
name. The assets, property and business of Seller to be sold to and purchased by
Buyer under this Agreement are hereinafter sometimes referred to as the "Subject
Assets."
(b) Seller's corporate franchise, stock record books, corporate
record books containing minutes of meetings of directors and stockholders and
such other records as have to do exclusively with Seller's organization or stock
capitalization shall be excluded from the Subject Assets.
1.2 Assumption of Liabilities
(a) Upon the sale and purchase of the Subject Assets, except as
excluded in paragraph 1.2(b), Buyer shall assume and agree to pay or discharge
when due the following:
(i) those liabilities of Seller listed on Schedule
1.2(a) hereto, as derived from the Base Balance Sheet;-
(ii) liabilities for accrued vacation and unreimbursed
expenses for the employees and to the extent set forth in Schedule 1.2(a); and
(iii) all liabilities and obligations incurred by
Seller in the ordinary course of business and consistent with the terms hereof
since the date of the Base Balance Sheet which are outstanding at the time of
the Closing.
The liabilities to be assumed by Buyer under this Agreement are hereinafter
sometimes referred to as the "Assumed Liabilities."
(b) Except to the extent expressly assumed pursuant to Section
1.2(a) above, Buyer does not assume and shall not be liable for any debt,
obligation, responsibility or liability of the Seller, or any Affiliate (as
defined below), or any claim against any of the foregoing, whether known or
unknown, contingent or absolute, or otherwise. Without limiting the foregoing
sentence, Buyer shall have no responsibility with respect to the following,
whether or not disclosed in the Base Balance Sheet or a Schedule hereto:
(i) liabilities and obligations related to or arising
from any transactions with any officer, director or stockholder of Seller or any
person or organization controlled by, controlling, or under common control with
any of them (an "Affiliate");
(ii) liabilities and obligations for taxes of any kind
resulting from the operation of Seller through the Closing and any liabilities
and obligations for taxes of any kind related to or arising from the transfers
contemplated hereby;
(iii) liabilities and obligations for damage or injury
to person or property based upon events occurring prior to the date of Closing;
(iv) liabilities and obligations to employees of
Seller, whether for accident, disability, or workers compensation insurance or
benefits, benefits under employee benefit plans, back pay, accrued vacation, or
obligations related to or resulting from severance of employment by Seller;
(v) workmen's liens on any of the Subject Assets;
(vi) liabilities incurred by Seller in connection with
this Agreement and the transactions provided for herein, including counsel and
accountant's fees, filing fees and expenses related to Seller's proxy material,
transfer and other taxes, and expenses pertaining to its liquidation or the
performance by Seller of its obligations hereunder;
(vii) liabilities of Seller to its dissenting
stockholders, if any to the extent holders of in excess of one-half percent
(0.5%) of the outstanding shares of capital stock of Seller exercise dissenting
stockholder rights under the California General Corporation Law; and
(viii) liabilities of Seller with respect to any
options, warrants, agreements or convertible or other rights to acquire any
shares of its capital stock of any class.
(c) The assumption of Assumed Liabilities by Buyer hereunder
shall be treated as independent of Buyer's existing business and shall not
enlarge any rights of third parties under contracts or arrangements with Buyer
or Seller or any of their respective subsidiaries. Nothing herein shall prevent
Buyer from contesting in good faith any of the Assumed Liabilities.
1.3 Purchase Price and Payment. In consideration of the sale by Seller
to Buyer of the Subject Assets, in addition to the assumption by Buyer of the
Assumed Liabilities, Buyer agrees to pay to Seller and to the Escrow Agent, as
provided hereafter, the aggregate amount of Two Million One Hundred Forty-Four
Thousand Dollars ($2,144,000) (the "Purchase Price"), subject to adjustment as
provided for in Section 1.4 of this Agreement, which shall be payable as
follows:
(a) the sum of One Million Eight Hundred Ninety-Four Dollars
($1,894,000) shall be paid at the Closing to Seller in cash, by certified check
or by federal funds wire transfer; and
(b) the sum of Two Hundred Fifty Thousand Dollars ($250,000.00)
in cash, shall be deposited at the Closing into an interest bearing escrow
account, and held pursuant to an Escrow Agreement, in substantially the form
attached hereto as Exhibit 1.3 (the "Escrow Agreement").
1.4 Adjustment to Purchase Price. The Purchase Price shall be reduced
by One Dollar ($1.00) for each One Dollar ($1.00) that Seller's tangible book
value as of the Closing Date, in accordance with generally accepted accounting
principles, is less than Five Hundred Thousand Dollars ($500,000). Tangible book
value shall be determined by Seller to be Seller's stockholders' equity minus
all intangible assets and is subject to verification by Buyer or, at the option
of Buyer, by Buyer's independent accountants, Coopers & Lybrand L.L.P. ("Coopers
& Lybrand") through an audit or certain procedures as determined by Buyer. Buyer
shall furnish to Seller, for Seller's review and comment, the results of any
audit or procedures performed by Coopers & Lybrand. Any results from Coopers &
Lybrand shall be final and binding on the parties hereto. In the event the
Purchase Price is reduced as provided herein, the amounts of the reduction in
the Purchase Price shall be paid to the Buyer out of the funds held in escrow
pursuant to the Escrow Agreement to the extent of the balance thereof, and shall
then be paid by the Seller. Any amount payable to Buyer as a result of a
Purchase Price adjustment shall be paid to Buyer within five business days of
notice to Seller either of Buyer's verification of Seller's calculation of
Seller's tangible book value or of Coopers & Lybrand's results of audit or
certain procedures performed in assessing the accuracy of Seller's calculation
of Seller's tangible book value as of the Closing Date.
1.5 Time and Place of Closing. The closing of the purchase and sale
provided for in this Agreement (herein called the "Closing") will be held at the
offices of Brown, Rudnick, Freed & Gesmer, counsel to the Buyer, at its offices
at One Financial Center, Boston, Massachusetts on or before May 5, 1997 (the
"Closing Date") or at such other place, date or time as may be fixed by mutual
agreement of the parties.
1.6 Delivery of Assumption of Liabilities. At the Closing, Buyer shall
deliver or cause to be delivered to Seller, among other things, an agreement to
assume the Assumed Liabilities having substantially the provisions of Section
1.2 hereof and in substantially the form set forth as Exhibit 1.6 hereto.
1.7 Transfer of Subject Assets. At the Closing, Seller shall deliver or
cause to be delivered to Buyer good and sufficient instruments of transfer
transferring to Buyer title to all the Subject Assets including a Bill of Sale
in substantially the form set forth as Exhibit 1.7 hereto, and such other
instruments of transfer as Buyer may require. Such instruments of transfer (a)
shall be in the form and will contain the warranties, covenants and other
provisions (not inconsistent with the provisions hereof) which are usual and
customary for transferring the type of property involved under the laws of the
jurisdictions applicable to such transfers, (b) shall be in form and substance
satisfactory to counsel for Buyer, and (c) shall effectively vest in Buyer good
and marketable title to all the Subject Assets, free and clear of all liens,
restrictions and encumbrances except those specifically disclosed in the
Schedule hereto or in the Base Balance Sheet and which Buyer has agreed herein
may remain in place at and after Closing.
1.8 Delivery of Records and Contracts. At the Closing, Seller shall
deliver or cause to be delivered to Buyer all of Seller's leases, contracts,
commitments and rights, with such assignments thereof and consents to
assignments as are necessary to assure Buyer of the full benefit of the same.
Seller shall also deliver to Buyer at the Closing all of Seller's business
records, tax returns, books and other data relating to its assets, business and
operations (except corporate records and other property of Seller excluded under
Subsection 1.1(b)) and Seller shall take all requisite steps to put Buyer in
actual possession and operating control of the Subject Assets and business of
Seller. After the Closing, Buyer shall afford to Seller and its accountants and
attorneys reasonable access to the books and records of Seller delivered to
Buyer under this Section 1.8 and shall permit Seller to make extracts and copies
therefrom for the purpose of preparing such tax returns of Seller as may be
required after the Closing and for other proper purposes approved by Buyer.
1.9 Change of Name. Immediately following the Closing, Seller shall
file with the California Secretary of State an amendment to its Charter (as
hereafter defined) changing its name to a name which does not include the words
"Source Scientific." At the Closing, Seller shall deliver to the Buyer a consent
in form satisfactory to the Secretary of State of Massachusetts consenting to
the use of the name "Source Scientific" by Buyer or any affiliate thereof.
1.10 Further Assurances. Seller from time to time after the Closing at
the request of Buyer and without further consideration shall execute and deliver
further instruments of transfer
and assignment (in addition to those delivered under Section 1.7) and take such
other action as Buyer may reasonably require to more effectively transfer and
assign to, and vest in, Buyer all of its right, title and interest in and to the
Subject Assets free and clear of all liens and encumbrances, except those
expressly permitted hereby. To the extent that the assignment of any lease,
contract, commitment or right shall require the consent of other parties
thereto, this Agreement shall not constitute an assignment thereof; however,
Seller shall obtain before the Closing any necessary consents or waivers to
assure Buyer of the benefits of such leases, contracts, commitments or rights.
Seller shall cooperate with Buyer to permit Buyer to enjoy Seller's rating and
benefits under the workman's compensation laws and unemployment compensation
laws of applicable jurisdictions, to the extent permitted by such laws. Nothing
herein shall be deemed a waiver by Buyer of its right to receive at the Closing
an effective assignment of each of the leases, contracts, commitments or rights
of Seller.
1.11 Tax Returns. Seller, with the assistance and approval of Buyer,
shall promptly prepare and file on or before the due date or any extension
thereof (together with Buyer's payment for the amount of taxes, if any, shown to
be due thereon which constitute Assumed Liabilities) all required federal, state
and local tax returns with respect to Seller's operations prior to the Closing.
Unless Buyer otherwise requests, Seller shall also take all necessary steps to
terminate its fiscal year for federal income tax purposes on the Closing date.
1.12 Allocation of Purchase Price. The purchase price payable by Buyer
for the Subject Assets pursuant to Section 1.3 and the face amount of the
Assumed Liabilities assumed pursuant to Section 1.2 shall represent payment for
the Subject Assets at the prices shown on a memorandum to be prepared and
initialed by the parties and delivered at the Closing or as soon thereafter as
required information is made available. The prices reflected in said memorandum
shall represent the fair market values of the Subject Assets at the Closing, to
the best of the knowledge and belief of the parties hereto, and the parties
hereto agree that they will not take a position inconsistent with such
allocation for Federal income tax purposes.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer as follows:
2.1 Organization and Qualification of Seller. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, with full power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is conducted by it. The
copies of Seller's Certificate of Incorporation or equivalent document as
amended to date ("Charter"), certified by the California Secretary of State, and
of Seller's by-laws as amended to date, certified by Seller's Secretary (or the
equivalent), and previously delivered to Buyer's counsel, are complete and
correct. Seller is duly qualified to do business as a foreign corporation in
every jurisdiction in which such qualification is required. The states in which
Seller is so qualified are listed on Schedule 2.1.
2.2 Capitalization of Seller. The authorized capital stock of the
Seller consists of 75,000,000 shares of common stock, no par value (the "Common
Stock"), of which 34,540,004 shares are validly issued and outstanding, fully
paid and non-assessable as of the date of this Agreement. Except as set forth on
Schedule 2.2 hereto, there are no (a) outstanding warrants, options or other
rights granted by Seller or, to Seller's knowledge, by any principal
stockholders of Seller (the "Principal Stockholders"), to purchase or acquire,
or pre-emptive rights with respect to the issuance or sale of, the capital stock
of Seller, (b) other securities of Seller directly or indirectly convertible
into or exchangeable for shares of capital stock of the Seller, or (c)
restrictions on the transfer of Seller's capital stock. For purposes of this
Agreement, Principal Stockholders shall include all stockholders of Seller who
hold, of record or beneficially, five percent (5%) or more of the outstanding
shares of Seller's Common Stock.
2.3 Subsidiaries
(a) Seller directly or indirectly owns the indicated amounts of
the issued and outstanding capital stock of the corporations listed on Schedule
2.3 to this Agreement (hereinafter referred to as the "Subsidiaries" or
individually as a "Subsidiary"). The Seller has good and marketable title to the
shares of stock of each of the Subsidiaries which it owns, free of any adverse
claim, lien or restriction, and there are no outstanding options, warrants or
other rights of any kind to acquire any additional shares of stock of any of the
Subsidiaries.
(b) Except as set forth on Schedule 2.3, each Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, with full power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is conducted. The copies of
the Charter and by-laws of each Subsidiary as amended to date, certified by the
Secretary of State of the state of incorporation of such Subsidiary or its
Secretary (or the equivalent) and previously delivered to Buyer's counsel are
complete and correct. Each of the Subsidiaries is duly qualified to do business
as a foreign corporation in every jurisdiction in which such qualification is
required.
(c) Except as set forth on Schedule 2.3, neither Seller nor any
of its Subsidiaries owns any securities issued by any other business
organization or governmental authority, except U.S. Government securities.
Neither Seller nor any of the Subsidiaries is a partner or participant in any
joint venture or partnership of any kind.
2.4 Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by Seller and the Stockholders, if any such action is
necessary, to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and the Agreement is the
valid and binding obligation of Seller, enforceable in accordance with its
terms.
2.5 Present Compliance with Obligations and Laws. Neither Seller nor
any Subsidiary is: (a) in violation of its Charter or by-laws; (b) in default in
the performance of any material obligation, agreement or condition of any
material debt instrument which (with or without the
passage of time or the giving of notice) affords to any person the right to
accelerate any material indebtedness or terminate any material right; (c) in
default or breach of (with or without the passage of time or the giving of
notice) any other material contract to which it is a party or by which it or any
of the Subject Assets are bound except as disclosed in Schedule 2.21; or (d) in
violation of any law, regulation, administrative order or judicial order
applicable to it or its business or the Subject Assets.
2.6 No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery or performance of this Agreement,
nor the performance of the transactions contemplated hereby, will: (i)
constitute a breach or violation of the Charter or by-laws of Seller or any
Subsidiary; (ii) conflict with or constitute (with or without the passage of
time or the giving of notice) a breach of, or default under, any debt instrument
to which Seller or any Subsidiary is a party, or give any person the right to
accelerate any material indebtedness or terminate any material right; (iii)
constitute (with or without the passage of time or giving of notice) a default
under or breach of any other material agreement, instrument or obligation to
which Seller or any Subsidiary is a party or by which it or any of the Subject
Assets are bound; or (iv) result in a violation of any law, regulation,
administrative order or judicial order applicable to Seller or any Subsidiary,
or their businesses or the Subject Assets.
(b) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby by the Seller do not require the consent,
waiver, approval, authorization, exemption of or giving of notice to any
governmental authority.
2.7 Financial Statements. Attached as Schedule 2.7 hereto are the
following audited consolidated financial statements of Seller and its
Subsidiaries and unconsolidated statements of such companies for the fiscal
years ended June 30, 1996 and 1995 and unaudited consolidated financial
statements for the six and three month periods ended December 31, 1996 all of
which statements are complete and correct and fairly present the financial
position of Seller and its Subsidiaries on a consolidated or unconsolidated
basis, as the case may be, on the date of such statements and the results of
their operations on the applicable basis for the periods covered thereby, and
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved and prior periods.
The Seller's unaudited balance sheet as of December 31, 1996 included in
the above financial statements is sometimes referred to hereinafter as the "Base
Balance Sheet."
2.8 Absence of Undisclosed Liabilities. As of the date of the Base Balance
Sheet, Seller and its Subsidiaries had no material liabilities of any nature,
whether accrued, absolute, contingent or otherwise (including without limitation
liabilities as guarantor or otherwise with respect to obligations of others, or
liabilities for taxes due or then accrued or to become due), except: (a) the
Assumed Liabilities; (b) liabilities stated or adequately reserved against on
the Base Balance Sheet; and (c) liabilities disclosed in Schedule 2.8 hereto.
Since the date of the Base Balance Sheet, Seller and its Subsidiaries had no
material liabilities of any nature, whether accrued, absolute, contingent or
otherwise (including without limitation liabilities as guarantor or
otherwise with respect to obligations of others, or liabilities for taxes due or
then accrued or to become due) except (a) the Assumed Liabilities; (b)
liabilities stated or adequately reserved against on the Base Balance Sheet; (c)
liabilities in the aggregate not in excess of [$5,000] arising in the ordinary
course of business; and (d) liabilities disclosed in Schedule 2.8 hereto. There
is no fact which materially adversely affects, or may in the future (so far as
can now be reasonably foreseen) materially adversely affect, the business,
properties, operations or condition of Seller and its Subsidiaries on a
consolidated basis which has not been specifically disclosed herein or in a
schedule furnished herewith.
2.9 Absence of Certain Changes. Except as disclosed in Schedule 2.9
hereto, since the date of the Base Balance Sheet there has not been:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of the Seller or any Subsidiary which change
by itself or in conjunction with all other such changes, whether or not arising
in the ordinary course of business, has been materially adverse with respect to
Seller or any Subsidiary;
(b) any contingent liability incurred by Seller or any Subsidiary as
guarantor or otherwise with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of the properties
of Seller or any Subsidiary which remains in existence on the date hereof or at
the time of Closing;
(d) any obligation or liability incurred by Seller or any Subsidiary
other than obligations and liabilities incurred in the ordinary course of
business;
(e) any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any of the
properties or assets of Seller or any Subsidiary other than in the ordinary
course of business;
(f) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of Seller and its Subsidiaries on a consolidated basis;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of Seller,
or any Subsidiary other than a wholly-owned Subsidiary, or any direct or
indirect redemption, purchase or other acquisition by Seller of its own capital
stock or the stock of any such Subsidiary;
(h) any labor trouble or claim of unfair labor practices involving
Seller or any Subsidiary; any change in the compensation payable or to become
payable by Seller or any Subsidiary to any of their officers, employees or
agents other than normal merit increases in accordance with compensation
programs existing on the date of the Base Balance Sheet, or any bonus payment or
arrangement made to or with any of such officers, employees or agents;
(i) any change with respect to the management or supervisory personnel
of Seller or any Subsidiary;
(j) any payment or discharge of a material lien or liability of Seller
or any Subsidiary which was not shown on the Base Balance Sheet or incurred in
the ordinary course of business thereafter; or
(k) any obligation or liability incurred by Seller or any Subsidiary
to any of their employees, officers, directors or shareholders or any loans or
advances made by Seller or any Subsidiary to any of their employees, officers,
directors or shareholders, except transactions between Seller and a Subsidiary
and normal compensation and expense allowances payable to officers.
2.10 Payment of Taxes. Except as disclosed on Schedule 2.10 hereto, the
Seller and each of its Subsidiaries have filed all federal, state, local, and
foreign government income, excise and franchise tax returns, real estate and
personal property tax returns, sales and use tax returns and all other tax
returns required to be filed by them, and they have paid all taxes owing by them
except taxes which have not yet accrued or otherwise become due for which
adequate provision has been made in the pertinent financial statements referred
to in Section 2.7 above. All transfer, excise and other taxes payable to any
jurisdiction by reason of the sale and transfer of the Subject Assets pursuant
to this Agreement shall be paid or provided for by Seller after the Closing out
of the consideration payable by Buyer hereunder. Except as disclosed on Schedule
2.10 hereto, the federal income tax returns of Seller and the Subsidiaries have
never been examined by the Internal Revenue Service and no extension of time for
the assessment of deficiencies for any year is in effect. The provisions for
taxes reflected in the above-mentioned financial statements are adequate to
cover any tax liabilities of Seller and any Subsidiary in respect of their
respective businesses, properties and operations during the periods covered by
said financial statements and all prior periods. Neither the Internal Revenue
Service nor any other taxing authority is now asserting or threatening to assert
against the Seller or any Subsidiary any deficiency or claim for additional
taxes or interest thereon or penalties in connection therewith.
2.11 Title to Properties; Liens; Condition of Properties.
(a) Set forth on Schedule 2.11 hereto is a listing of (i) all the
real property owned by Seller or any Subsidiary at the date hereof, (ii) all
leases under which Seller or any Subsidiary leases real property at the date
hereof, (iii) a complete description of the machinery, equipment and other
personal property used or owned by Seller or any Subsidiary as of the date
hereof, and (iv) all leases under which Seller or any Subsidiary leases any
personal property at the date hereof. Except as specifically disclosed in
Schedule 2.11 or in the Base Balance Sheet, Seller and its Subsidiaries have
good and marketable title in fee simple to all of their real and personal
property, including property described in said schedule as owned, and all of
their leases are valid and subsisting and fully assignable by Seller or its
Subsidiaries (as the case may be) and no default exists under any thereof.
(b) None of the real or personal property owned or used by Seller or
any Subsidiary is subject to any mortgage, pledge, lien (other than for taxes
not yet due and payable), conditional sale agreement, security title,
encumbrance or other charge, except as specifically disclosed in Schedule 2.11
or in the Base Balance Sheet.
(c) Except as otherwise specified in Schedule 2.11 hereto:
(i) all buildings, machinery and equipment of Seller and each
Subsidiary are in good repair, have been well maintained, substantially conform
with all applicable ordinances, regulations and zoning or other laws, and do not
encroach on property of others, and such machinery and equipment is in good
working order; and
(ii) as of the date hereof, there is no pending or threatened
change of any such ordinance, regulation or zoning or other law and there is no
pending or threatened condemnation of any such property.
2.12 Collectibility of Accounts Receivable. All of the accounts receivable
of Seller and its Subsidiaries shown or reflected on the Base Balance Sheet,
less a reserve for bad debts in the amount shown on the Base Balance Sheet, are,
and those existing at the time of Closing, less the reserve shown on the Base
Balance Sheet, will be, (a) valid and enforceable claims which arose out of
transactions with unaffiliated parties, (b) fully collectible within 90 days
from invoice date through the Seller's normal means of collection, and (c)
subject to no set-off or counterclaim.
2.13 Inventories. Except as set forth in Schedule 2.13, all finished
goods, work in process and raw materials contained in the inventories of Seller
and its Subsidiaries reflected on the Base Balance Sheet are, and those existing
at the Closing will be, of a quality and quantity saleable in the ordinary
course of the business of Seller and its Subsidiaries at prevailing market
prices without discounts. Except as set forth in Schedule 2.13, all inventory
items shown on the Base Balance Sheet are, and those existing at the Closing
will be, priced at lower of cost (FIFO) or market, and reflect write-downs to
realizable values in the case of items which have become obsolete or unsaleable
(except at prices less than cost) through regular distribution channels in the
ordinary course of the business of Seller and its Subsidiaries. Subject to
write-downs complying with the preceding sentence, the values of the inventories
stated in the Base Balance Sheet reflect the normal inventory valuation policies
of Seller and its Subsidiaries and were determined in accordance with generally
accepted accounting principles, practices and methods, consistently applied.
Purchase commitments for raw materials and parts are not in excess of normal
requirements, and none are at prices materially in excess of current market
prices. Sales commitments for finished goods are all at prices in excess of
prices used in valuing inventory, after allowing for selling expenses and a
normal profit margin. Since the date of the Base Balance Sheet, no inventory
items have been sold or disposed of except through sales in the ordinary course
of business at prices no less than prevailing market prices, and in no event
less than cost.
2.14 Intellectual Property Rights.
(a) For purposes of this Section 2.14, "Intellectual Property" means a
patent, patent application, trademark or service mark, trademark or service mark
application, trade name or copyright, and "Computer Software" means all
information, however embodied, with respect to information processing processes
and programs, including software, firmware, databases and manuals and
documentation with respect thereto.
(b) All rights of ownership of, or material licenses to use,
Intellectual Property or Computer Software held by the Seller or any Subsidiary
are listed on Schedule 2.14. There are no Intellectual Property or Computer
Software rights, other than those set forth on such schedule, reasonably
necessary to the conduct of the business of Seller and its Subsidiaries as
presently conducted.
(c) Except as set forth on Schedule 2.14, all rights to Intellectual
Property required to be listed in Schedule 2.14 and in which Seller or any
Subsidiary claims ownership rights:
(i) have been duly registered in, filed in, or issued by the United
States Patent Office, United States Register of Copyrights, or the corresponding
offices of other countries identified on said schedule;
(ii) have been properly maintained and renewed in accordance with
all applicable laws and regulations in the United States and such foreign
countries;
(iii) in the case of copyrightable works of authorship, were
developed and authored as original works of authorship either by full time
employees of Seller or a Subsidiary within the normal scope of their duties as
works for hire, or by third persons as works for hire under an express written
obligation of assignment to Seller or a Subsidiary;
(iv) are owned exclusively by Seller or a Subsidiary, free and
clear of any attachments, liens, or encum brances; no other person has any right
or interest in or license to use or right to license others to use any of the
Intellectual Property;
(v) are freely transferable (except as otherwise
required by law); and
(vi) are not subject to any outstanding order,
decree, judgment or stipulation.
(d) Except as set forth in Schedule 2.14, with respect to any Computer
Software used in or necessary to the business of the Seller and the Subsidiaries
and in which Seller or any Subsidiary claims ownership rights, Seller and each
Subsidiary have: (i) affixed in a timely manner appropriate copyright notices
complying with the Copyright Act of 1976, as amended, and the rules and
regulations of the United States Copyright Office to all copies of such Computer
Software, in object code form or any other form distributed to the public; (ii)
distributed such Computer Software only pursuant to written agreements limiting
the use, reproduction, distribution and disclosure thereof, and requiring the
licensees to preserve the
confidentiality thereof to an extent adequate to protect Seller's rights
therein; and (iii) disclosed or made available the source code or systems
documentation thereof only to employees or consultants of the Seller who
required such disclosure or access for the business purposes of the Seller.
(e) With respect to any Intellectual Property or Computer Software set
forth on Schedule 2.14 which Seller or any Subsidiary holds a license to use,
such license is adequate to the conduct of the business of Seller and its
Subsidiaries as presently conducted.
(f) No proceedings to which Seller or any Subsidiary is a party have
been commenced which (i) challenge the rights of Seller or any Subsidiary in
respect of the Intellectual Property or any Computer Software listed on Schedule
2.14, or (ii) charge Seller or any Subsidiary with infringement of any other
person's rights in Intellectual Property or Computer Software; and no such
proceeding to which Seller or a Subsidiary is not a party has been filed, nor
are any such proceedings threatened to be filed.
(g) To Seller's knowledge, none of the rights in Intellectual Property
or Computer Software listed on Schedule 2.14 is being infringed by any other
person, and neither Seller nor any Subsidiary is infringing upon any
Intellectual Property or Computer Software rights of any other person.
(h) No director, officer or employee of Seller or any of its
Subsidiaries owns, directly or indirectly, in whole or in part, any Intellectual
Property right which Seller or any of its Subsidiaries has used, is presently
using, or the use of which is reasonably necessary to their respective
businesses as now conducted.
(i) In addition to the Intellectual Property described above, Seller
and each of its Subsidiaries have the right to use, free and clear of any claims
or rights of others except claims or rights described in Schedule 2.14, all
trade secrets, customer lists, manufacturing secret processes (collectively
"Trade Secrets") required for or used in the manufacture or marketing of all
products formerly or presently produced by Seller or such Subsidiary, including
products licensed from others. The Seller and its Subsidiaries have adopted
measures adequate to protect their Trade Secrets. Copies of all forms of
confidentiality or non-disclosure agreements utilized by Seller or any
Subsidiary to protect its Trade Secrets have been provided to Buyer. The Seller
and each of its Subsidiaries are not using or in any way making use of any Trade
Secrets of any third party, including without limitation a former employer of
any present or past employee of Seller or any Subsidiary.
(j) To Seller's knowledge, none of the Trade Secrets is being
infringed by any other person, and none of the Trade Secrets infringe upon the
trade secret rights of any other person.
2.15 Contracts and Commitments.
(a) Except for contracts, commitments, plans, agreements and licenses
described
in Schedule 2.15 hereto , neither Seller nor any Subsidiary is a party to or
subject to:
(i) any contract or agreement for the purchase of any commodity,
material, equipment or asset, except purchase orders in the ordinary course for
less than $1,000 each, such orders not exceeding in the aggregate [$5,000];
(ii) any other contracts or agreements creating any obligations of
Seller or any Subsidiary after the date of the Base Balance Sheet;
(iii) any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(iv) any contract or agreement which by its terms does not terminate
or is not terminable without penalty by Seller or such Subsidiary (or its
successor or assign) within one year after the date hereof;
(v) any contract or agreement for the sale or lease of its products
not made in the ordinary course of business;
(vi) any contract with any sales agent or distributor of products of
Seller or any Subsidiary;
(vii) any contract containing covenants limiting the freedom of
Seller or any Subsidiary to compete in any line of business or with any person
or entity; or
(viii) any license or franchise agreement (as licensor or licensee or
franchisor or franchisee).
(b) Except as described in Schedule 2.15, neither Seller nor any
Subsidiary is in default under any contracts, commitments, plans, agreements or
licenses to which they are party or by which they are bound or has knowledge of
any termination, cancellation, limitation or modification or change in any
business relationship with any material supplier or customer. For the purposes
hereof, a supplier or customer is material if it accounts for more than two
percent (2%) of the orders or sales, as the case may be, of Seller and its
Subsidiaries on a consolidated basis.
2.16 Labor and Employee Relations.
(a) Except as shown on Schedule 2.16 hereto, there are no currently
effective consulting or employment agreements or other material agreements with
individual consultants or employees to which Seller or any Subsidiary is a party
or by which they are bound. Complete and accurate copies of all such written
agreements have been delivered to Buyer. Also shown on Schedule 2.16 are the
name and rate of compensation (including all bonus compensation) of each
officer, employee or agent of Seller or any Subsidiary.
(b) Except as shown on Schedule 2.16, none of the employees of Seller
or any Subsidiary is covered by any collective bargaining agreement with any
trade or labor union, employees' association or similar association. Each of
Seller and the Subsidiaries has complied with applicable laws, rules and
regulations relating to the employment of labor, including without limitation
those relating to wages, hours, unfair labor practices, discrimination, and
payment of social security and similar taxes. There are no representation
elections, arbitration proceedings, labor strikes, slowdowns or stoppages,
material grievances or other labor troubles pending or overtly threatened, with
respect to the employees of Seller or any Subsidiary.
(c) There are no complaints against Seller or any Subsidiary pending or
overtly threatened before the National Labor Relations Board or any similar
state or local labor agencies, or before the Equal Employment Opportunity
Commission or any similar state or local agency, by or on behalf of any employee
of Seller or any Subsidiary.
(d) There is no contingent liability for sick leave, vacation time,
severance pay or similar items not set forth on the Base Balance Sheet or on
Schedule 2.16. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not trigger any
severance pay obligation under any contract or at law.
(e) The Seller has provided to Buyer a complete description of all
employment policies under which the Seller or any Subsidiary has operated or
which has been communicated to their employees.
2.17 Employee Benefits and ERISA.
(a) Schedule 2.17 (a) hereto describes all of the employee compensation
and benefit plans, agreements, commitments, practices or arrangements of any
type (including, but not limited to, plans described in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) offered,
maintained or contributed to by Seller or any Subsidiary for the benefit of
current or former employees or directors of Seller or any Subsidiary, or with
respect to which Seller or any Subsidiary has or may have any liability, whether
direct or indirect, actual or contingent (including, but not limited to,
liabilities arising from affiliation under Section 414(b), (c), (m) or (o) of
the Code or Section 4001 of ERISA) (collectively, the "Benefit Plans"). Neither
Seller nor any Subsidiary has incurred any obligation for any withdrawal
liability or liability to make any other contributions with respect to any
employee benefit plan that is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA. Neither Seller nor any Subsidiary has any liability,
whether direct or indirect, actual or contingent, with respect to any employee
pension plan as defined in Section 3(2) of ERISA, and which is intended to meet
the qualification requirements of the Code that is a defined benefit plan (as
defined in Section 3(35) of ERISA) and is subject to Title IV of ERISA, whether
or not terminated (including, but not limited to, liabilities arising from
affiliation under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of
ERISA).
(b) With respect to each Benefit Plan described in Section 2.17(a)
hereto, Seller has delivered to Buyer true and complete copies of: (i) any and
all plan documents (including, but not limited to, all amendments thereto) and
agreements (including, but
not limited to, trust agreements, insurance contracts, and custodial and
investment management agreements); (ii) any and all material employee
communications (including, but not limited to, all summary plan descriptions and
material modifications thereto, claims, review policies, distribution forms, and
loan documents, as applicable); (iii) all returns or reports required at any
time within the last five (5) years by ERISA or the Code (including, but not
limited to, the five (5) most recent actuarial reports, if applicable); (iv) the
most recent annual and periodic accounting of plan assets, if applicable; (v)
the most recent determination letter received from the Internal Revenue Service
(the "Service"), if applicable; and (vi) in the case of any unfunded or
self-insured plan or arrangement, a current estimate of accrued and anticipated
liabilities thereunder.
(c) With respect to each Benefit Plan described on Schedule 2.17(a)
hereto and except as set forth on Schedule 2.17(c) hereto, (i) if intended to
qualify under Section 401(a) of the Code, such plan so qualifies, and its trust
is exempt from taxation under Section 501(a) of the Code; (ii) such plan has
been administered and enforced in accordance with its terms and all applicable
laws, regulations and rulings in all material respects; (iii) no breach of
fiduciary duty has occurred with respect to which Seller or any Subsidiary or
any Benefit Plan may be liable or otherwise damaged in any material respect;
(iv) no material disputes nor any audits or investigations by any governmental
authority are pending or threatened; (v) no "prohibited transaction" (within the
meaning of either Section 4975(c) of the Code or Section 406 of ERISA) has
occurred with respect to which Seller or any Subsidiary or any Benefit Plan may
be liable or otherwise damaged in any material respect; (vi) all contributions
(including, without limitation, normally anticipated matching or discretionary
contributions under defined contribution plans), premiums, and other payment
obligations have been accrued on the consolidated financial statements of Seller
(including without limitation the Base Balance Sheet) in accordance with
generally accepted accounting principles, and, to the extent due, have been made
on a timely basis, in all material respects; (vii) all contributions or benefit
payments made or required to be made under such plan meet the requirements for
deductibility under the Code; (viii) Seller has expressly reserved the right to
amend, modify or terminate such plan, or any portion of it, at any time without
liability to itself; and (ix) no such plan requires Seller or any Subsidiary to
continue to employ any employee or director.
(d) With respect to each Benefit Plan described on Schedule 2.17(a)
hereto and except as set forth on Schedule 2.17(d) hereto, (i) no such plan is,
or has ever been, subject to Title IV of ERISA; (ii) there is no excess of
actuarial accrued liabilities or "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA), over the fair market value of Plan assets as of the
Closing Date; (iii) there has been no "accumulated funding deficiency," whether
or not waived, and no missed "quarterly contributions," (as these terms are
defined in ERISA); (iv) the funding methods used are acceptable under ERISA; (v)
the actuarial assumptions used are and have been reasonable, both individually
and collectively and calculated as if the participants receive lump sum payments
upon plan termination; (vi) there has been no "reportable event" (as defined in
Section 4043 of ERISA); (vii) there has been no termination or partial
termination; (viii) there has been no filing with the Pension Benefit Guaranty
Corporation ("PBGC") of an intent to terminate such plan, nor has the PBGC
instituted any proceedings to terminate such plan; (ix) no lien has been created
under Section 412(n) of the Code or Section 302(f) of ERISA; (x) neither Seller
nor any
Subsidiary has received a notice of deficiency or liability or a demand for
payment from, incurred any liability to, been assessed a penalty by, or had a
lien perfected or enforced by the PBGC; and (xi) if such plan is a multiemployer
pension plan under which the Seller is obligated to make contributions, there
would be no withdrawal liability under Title IV of ERISA upon the cessation of
contributions to such plan as of the day of the Closing.
(e) With respect to each Benefit Plan described on Schedule 2.17(a)
hereto which provides welfare benefits of the type described in Section 3(1) of
ERISA: except as set forth on Schedule 2.17(e) hereto, (i) no such plan provides
medical or death benefits with respect to current or former employees or
directors of Seller or any Subsidiary, or their dependents, beyond their
termination of employment, other than coverage mandated by Sections 601-608 of
ERISA and 4980B of the Code; (ii) each such plan has been administered in
compliance with Sections 601-609 of ERISA and 4980B of the Code; (iii) no such
plan is or is provided through a "multiple employer welfare arrangement" within
the meaning of Section 3(40) of ERISA; and (iv) no such plan has reserves,
assets, surpluses or prepaid premiums.
(f) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any individual to severance pay pursuant to a
prior agreement with Seller; (ii) accelerate the time of payment or vesting
under any Benefit Plan; or (iii) increase the amount of compensation or benefits
due to any individual. No payment made or contemplated under any Benefit Plan
constitutes an "excess parachute payment" within the meaning of Section 280G of
the Code.
2.18 Environmental Matters.
(a) Except as disclosed in Schedule 2.18 hereto, any and all waste
oil, hazardous waste, hazardous substances, toxic substances or hazardous
materials used or generated by Seller or any Subsidiary have always been and are
being generated, used, stored or treated on or at any of the properties or
facilities owned or leased by Seller or any Subsidiary (for the purposes of this
Section, a "Site") in accordance with federal, state and local laws, regulations
and ordinances. Copies of any and all filings made or documents prepared under
the California Safe Drinking Water & Toxic Enforcement Act of 1986 and under
Title III of the Superfund Amendments and Reauthorization Act of 1986, including
without limitation material safety data sheets and chemical lists, have been
provided to Buyer.
(b) Except as disclosed in Schedule 2.18 hereto, no petroleum, oil,
hazardous waste, hazardous substances, toxic substances or hazardous materials
used or generated by Seller or any Subsidiary have ever been, are being, are
intended to be or are threatened with being spilled, released, discharged,
disposed, placed, leaked, or otherwise caused to become located in the air, soil
or water in, under or upon a Site. Seller has provided Buyer with copies of all
notices filed pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act or comparable state law, including without limitation any
reports, whether oral or written, made to the National Response Center, or other
agencies.
(c) Except as disclosed in Schedule 2.18 hereto, no petroleum, oil,
hazardous
substances or hazardous waste have ever been shipped by or for Seller or any
Subsidiary to other sites or facilities for treatment, storage or disposal, and
neither Seller nor any Subsidiary has received any notice that any sites or
facilities to which any such wastes have been shipped or sent are subject to or
threatened to become subject to any governmental response action or clean up
order. Seller has provided Buyer with copies of all manifests documenting
disposal of hazardous substances relating to operations of Seller and its
Subsidiaries.
(d) Except as disclosed in Schedule 2.18 hereto, all hazardous
materials and toxic substances have been shipped by Seller and its Subsidiaries
in accordance with all applicable federal, state and local laws, regulations and
ordinances, including The Hazardous Materials Transportation Act, the regula
tions of the Department of Transportation, and any corresponding state and local
statute and regulations adopted pursuant to said acts.
(e) All underground tanks and other underground storage facilities
located at any Site are disclosed in Schedule 2.18 hereto and copies of all
notifications made to federal, state or local authorities pursuant to the
Resource Conservation and Recovery Act relating to underground storage tanks
have been provided to Buyer. As of the date hereof, none of such underground
tanks and other underground storage facilities are in violation of any federal,
state or local environmental law, regulation or ordinance.
(f) Except as disclosed in Schedule 2.18 hereto, all wells, water
discharges and other water diversions on any Site are properly registered and/or
permitted under, and copies of such permits have been provided to Buyer, and do
not violate, any applicable federal, state or local law, regulation or
ordinance.
(g) Except as disclosed in Schedule 2.18 hereto, each of Seller and its
Subsidiaries has all necessary and applicable air permits and licenses, and has
properly registered (for air pollution control purposes) all air emitting
devices used in activities conducted by it, as required by applicable federal,
state or local law, regulation or ordinance. Copies of all such permits have
been provided to Buyer.
(h) Except as disclosed on Schedule 2.18 hereto, all asbestos
insulated equipment or areas on any Site are in compli ance with all applicable
federal, state and local laws, current regulations, and ordinances.
(i) For purposes of this section, "hazardous waste", "hazardous
substances", "hazardous material", "oil", "petroleum", "toxic substances",
"manifest", "material safety data sheets", and "response action" shall have the
meaning set forth in the Resource Conservation and Recovery Act, The
Comprehensive Environmental Response, Compensation and Liability Act, The
Hazardous Materials Transportation Act, The Federal Water Pollu tion Control
Act, The Toxic Substances Control Act, and corres ponding state and local
statutes, and ordinances and any amend ments, or successor legislation to such
Acts, or as currently defined in any federal, state or local regulations adopted
pursuant to such Acts.
2.19 Permits. Each of Seller and its Subsidiaries holds all licenses,
permits and franchises which are required to permit it to conduct their
respective businesses as presently conducted, and all such licenses, permits and
franchises are listed on Schedule 2.19 hereto and are now, and will be after the
Closing, valid and in full force and effect, and Buyer shall have full benefit
of the same.
2.20 Warranty or Other Claims. Except as disclosed on Schedule 2.20, there
are no existing or threatened claim, nor are there any facts upon which a claim
could be based, against Seller or any Subsidiary for services or merchandise
which are defective or fail to meet any service or product warranties. No claim
has been asserted against Seller or any Subsidiary for renegotiation or price
redetermination of any business transaction, and there are no facts upon which
any such claim could be based.
2.21 Litigation. Except for matters described in Schedule 2.21 hereto,
there is no litigation pending or threatened against Seller or any Subsidiary
and there are no outstanding court orders, court decrees, or court stipulations
to which Seller or any of its Subsidiaries is a party or by which any of their
assets are bound, any of which (a) question this Agreement or affect the
transactions contemplated hereby, or (b) materially restrict the present
business, properties, operations, prospects, assets or condition, financial or
otherwise, of Seller or any Subsidiary, or (c) will result in any material
adverse change in the business, properties, operations, prospects, assets or the
condition, financial or otherwise, of Seller or any of its Subsidiaries. Neither
Seller nor any Subsidiary, has any reason to believe that any further action,
suit, proceeding or investigation which (a) questions this Agreement or affects
the transactions contemplated hereby, or (b) materially restricts the present
business, properties, operations, prospects, assets or conditions, financial or
otherwise, of Seller or any Subsidiary, or (c) will result in any material
adverse change in the business, properties, operations, prospects, assets or
condition, financial or otherwise, of Seller or any of its Subsidiaries, which
has not been identified in Schedule 2.21 may be brought against the Seller or
any of its Subsidiaries.
2.22 Borrowings and Guarantees. Except for the loan in the amount of Five
Hundred Thousand Dollars ($500,000) made pursuant to that certain Business Loan
and Security/Subordination Agreement by and among BBI, Seller and Concord Growth
Corporation (the "Loan Agreement") and as otherwise set forth on Schedule 2.22
hereto, there are no agreements and undertakings pursuant to which Seller (a) is
borrowing or is entitled to borrow any money, (b) is lending or has committed
itself to lend any money, or (c) is a guarantor or surety with respect to the
obligations of any person. Complete and accurate copies of all such written
agreements have been delivered to Buyer.
2.23 Financial Service Relations and Powers of Attorney. All of the
arrangements which Seller or any Subsidiary has with any bank depository
institution or other financial services entity, whether or not in Seller's or
the Subsidiary's name, are completely and accurately described on Schedule 2.23
hereto, indicating with respect to each of such arrangements the type of
arrangement maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect thereof.
Except as set forth in Schedule 2.23
or pursuant to the Loan Agreement, neither the Seller nor any Subsidiary has
any outstanding power of attorney.
2.24 Insurance. Schedule 2.24 contains a complete and correct list of all
policies of insurance maintained by Seller or any Subsidiary (including
insurance providing benefits for employees) in effect on the date hereof,
together with complete and correct information with respect to the premiums,
coverages, insurers, expiration dates, and deductibles in respect of such
policies. Except for amounts deductible under policies of insurance described on
such Schedule or with respect to risks assumed as a self-insurer and described
on such Schedule, neither Seller nor any Subsidiary is, or has been at any time,
subject to any liability as a self-insurer of the businesses or assets of Seller
or any Subsidiary that is reasonably likely to have a material adverse effect
upon the businesses, assets, revenues, condition (financial or otherwise) or
prospects of Seller or any Subsidiary. Except as set forth on Schedule 2.24,
there are no claims pending or overtly threatened, under any of said policies,
or disputes with insurers, and all premiums due and payable thereunder have been
paid, and all such policies are in full force and effect in accordance with
their respective terms.
2.25 Minute Books. The minute books of Seller and the minute books of each
Subsidiary accurately record all action taken by their respective shareholders,
boards of directors and committees thereof.
2.26 Finder's Fee. Except as set forth on Schedule 2.26 hereto, neither
the Seller, nor any Subsidiary nor, to Seller's knowledge any Principal
Stockholder, has incurred or become liable for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement.
2.27 Transactions with Interested Persons. No officer, supervisory
employee, director or stockholder of Seller or any Subsidiary, or their
respective spouses or children, (a) owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer or
director of, any customer, competitor or supplier of Seller or any Subsidiary,
or any organization which has a material contract or arrangement with Seller or
any Subsidiary, or (b) has any contract or agreement with the Seller or any
Subsidiary other than as disclosed on Schedule 2.27 hereto, and all such
agreements are, except as noted on such schedule, on arms-length terms.
2.28 Absence of Sensitive Payments. Neither Seller, any of its
Subsidiaries, nor any of their respective directors, officers, agents,
stockholders or employees, either on behalf of Seller or its Subsidiaries:
(a) has made or has agreed to make any contributions, payments or
gifts of funds or property to any governmental official, employee or agent where
either the payment or the purpose of such contribution, payment or gift was or
is illegal under the laws of the United States, any state thereof, or any other
jurisdiction (foreign or domestic);
(b) has established or maintained any unrecorded fund or asset for
any purpose, or has made any false or artificial entries on any of its books or
records for any reason; or
(c) has made or has agreed to make any contribution or expenditure, or
has reimbursed any political gift or contribution or expenditure made by any
other person, to candidates for public office, whether federal, state or local
(foreign or domestic) where such contributions were or would be a violation of
applicable law.
2.29 Disclosure of Material Information. Neither this Agreement nor any
schedule or exhibit hereto or certificate issued pursuant hereto contains any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements herein or therein not misleading, relating to the
business or affairs of Seller and its Subsidiaries. There is no fact which
materially adversely affects the business, condition (financial or otherwise) or
prospects of Seller and its Subsidiaries which has not been set forth herein or
in a Schedule hereto.
2.30 SEC Filings.
(a) Seller has filed or caused to be filed all registration statements,
reports or statements, and any amendments thereto, required to be filed by it
pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, and
has heretofore furnished (or shall prior to the Closing Date furnish) to Buyer
copies, as applicable, of:
(i) Seller's Annual Report on Form 10-K for its three most recent
fiscal years;
(ii) Seller's Annual Report to Stockholders for its three most recent
fiscal years;
(iii) Seller's definitive Proxy Statements for all meetings of
stockholders since the beginning of its third preceding fiscal year; and
(iv) Seller's Quarterly Report(s) on Form 10-Q for each quarter since
the end of its most recent fiscal year.
(b) The documents furnished to Buyer pursuant to paragraph (a) were
prepared in accordance with the requirements of the Securities Exchange Act of
1934 and the rules and regula tions thereunder in all material respects and do
not contain any misstatement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances, not misleading.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BBI AND BUYER.
BBI and Buyer hereby represent and warrant to Seller as follows:
3.1 Organization of BBI and Buyer. Each of BBI and Buyer is a corporation
duly
organized, validly existing and in good standing under the laws of Massachusetts
with full corporate power to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is conducted by each of them.
3.2 Authorization of Transaction. All necessary action, corporate or
otherwise, has been taken by BBI and Buyer to authorize the execution, delivery
and performance of this Agreement, and the same is the valid and binding
obligation of BBI and Buyer enforceable in accordance with its terms, subject to
laws of general application affecting creditor's rights generally.
3.3 No Conflict of Transaction With Obligations and Laws.
(a) Neither the execution, delivery or performance of this Agreement,
nor the performance of the transactions contemplated hereby, will: (i)
constitute a breach or violation of BBI or Buyer's Charter or by-laws; (ii)
conflict with or constitute (with or without the passage of time or the giving
of notice) a breach of, or default under any material agreement, instrument or
obligation to which BBI or Buyer is a party or by which either of them or their
respective assets are bound which would materially affect the performance by
Buyer of its obligations under this Agreement; or (iii) result in a violation of
any law, regulation, administrative order or judicial order applicable to BBI or
Buyer.
(b) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby by Buyer do not require the consent, waiver,
approval, authorization, exemp tion of or giving of notice to any governmental
authority.
3.4 SEC Filings.
(a) Buyer has filed or caused to be filed all registration
statements, reports or statements, and any amendments thereto, required to be
filed by it pursuant to Sections 13, 14, or 15(d) of the Securities Exchange Act
of 1934, and has heretofore furnished (or shall prior to the Closing Date
furnish) to Seller copies, as applicable, of:
(i) Buyer's Annual Report on Form 10-K for its most recent fiscal
year;
(ii) Buyer's Annual Report to Stockholders for its most recent fiscal
year;
(iii) Buyer's definitive Proxy Statements for all meetings of
Stockholders since the beginning of its preceding fiscal year; and
(iv) Buyer's Quarterly Report(s) on Form 10-Q for each quarter since
the end of its most recent fiscal year.
3.5 Litigation. There is no litigation pending or, to the knowledge of
Buyer, threatened against Buyer which will have a material adverse effect on its
properties, assets or business or which would prevent or hinder the consummation
of the trans actions contemplated by this Agreement.
3.6 Finder's Fee. Except as set forth on Schedule 3.6 hereto, Buyer has
not incurred or become liable for any broker's commission or finder's fee
relating to or in connection with the transactions contemplated by this
Agreement.
ARTICLE 4. COVENANTS OF SELLER.
Seller hereby covenants and agrees with Buyer as follows:
4.1 Conduct of Business. Between the date of this Agreement and the
Closing, Seller will do, and it will cause each of its Subsidiaries to do, the
following unless Buyer shall otherwise consent in writing:
(a) conduct its business only in the ordinary course and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;
(b) refrain from making any purchase, sale or disposition of any
asset or property other than in the ordinary course of business, from purchasing
any capital asset costing more than $300 and from mortgaging, pledging,
subjecting to a lien or otherwise encumbering any of its properties or assets;
(c) refrain from incurring any contingent liability as a guarantor or
otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obliga tions or liabilities except those that are
usual and normal in the ordinary course of business;
(d) refrain from making any change or incurring any obligation to
make a change in its Charter or by-laws or authorized or issued capital stock,
except as contemplated by this Agreement;
(e) refrain from declaring, setting aside or paying any dividend or
making any other distribution in respect of capital stock, or making any direct
or indirect redemption, purchase or other acquisition of capital stock, of
Seller or any Subsidiary other than a wholly-owned Subsidiary;
(f) refrain from entering into any employment contract or making any
change in the compensation payable or to become payable to any of its officers,
employees or agents;
(g) refrain from prepaying any loans from its stock holders, officers
or directors (if any) or making any change in its borrowing arrangements;
(h) use its best efforts to prevent any change with respect to its
banking arrangements;
(i) use its best efforts to keep intact its business organization, to
keep available its present officers, agents and employees and to preserve the
goodwill of all suppliers, customers and others having business relations with
it;
(j) have in effect and maintain at all times all insurance of the
kind, in the amount and with the insurers set forth in Schedule 2.24 hereto or
equivalent insurance with any substitute insurers approved by Buyer; and
(k) permit Buyer and its authorized representatives to have full
access to all its properties, assets, records, tax returns, contracts and
documents and furnish to Buyer or its authorized representatives such financial
and other information with respect to its business or properties as Buyer may
from time to time reasonably request.
(l) promptly advise Buyer of additions, deletions or other changes
required to be made to the Schedules hereto to make such Schedules accurate and
complete as of the Closing solely as a result of the operation of the business
of Seller in a manner consistent with the covenants of this Agreement, and to
furnish Buyer with such revised Schedules at or prior to the Closing.
4.2 Authorization from Others. Prior to the Closing, Seller will have
obtained, and will cause its Subsidiaries to have obtained, all authorizations,
consents and permits of others required to permit the consummation by Seller and
its Subsidi aries of the transactions contemplated by this Agreement.
4.3 Breach of Representations and Warranties. Promptly upon the occurrence
of, or promptly upon Seller's becoming aware of the impending or threatened
occurrence of, any event which would cause or constitute a breach, or would have
caused or constituted a breach had such event occurred or been known to Seller
prior to the date hereof, of any of the representations and warranties of Seller
contained in or referred to in this Agreement, Seller shall give detailed
written notice thereof to Buyer and shall use its best efforts to prevent or
promptly remedy the same.
4.4 Consummation of Agreement. The Seller shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out. To this end, Seller
will obtain all necessary authorizations or approvals of its stockholders and
Board of Directors, to the sale of assets contemplated by this Agreement and the
dissolution of Seller in accordance with the laws of the state of incorporation
of Seller, which shall include as integral parts thereof:
(a) the transfer to Buyer of the Subject Assets upon the terms and
conditions set forth in this Agreement;
(b) cessation of all business by Seller as Source Scientific, Inc.
from and after the Closing, except in connection with its liquidation; and
(c) authorization to the officers and directors of Seller to
discharge all debts and obligations of Seller (other than those assumed by Buyer
hereunder), and to distribute in liquidation the purchase price received by
Seller as provided herein.
4.5 Compliance with Securities Laws. As soon as practicable after
execution of this Agreement, Seller shall cause its counsel to initiate
preparation of preliminary proxy materials in accordance with the Securities
Exchange Act of 1934, and the rules and regulations thereunder, for a special
meeting of the Company's stockholders at which the stockholders will be asked to
approve the transactions contemplated hereby. Such proxy materials shall be in
form and substance satisfactory to the Buyer and its counsel.
ARTICLE 5. COVENANTS OF BBI AND BUYER.
BBI and Buyer hereby covenant and agree with Selleras follows:
5.1 Authorization from Others. Prior to the Closing Buyer will have
obtained all authorizations, consents and permits of others required to permit
the consummation by BBI and Buyer of the transactions contemplated by this
Agreement.
5.2 Consummation of Agreement. The Buyer shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
or fulfilled under this Agreement, to the end that the transactions contemplated
by this Agreement shall be fully carried out. To this end, BBI will obtain any
approvals of its stockholders or Board of Directors and Buyer will obtain any
approvals of its stockholders or Board of Directors which may be required in
order to consummate the transactions contemplated hereby.
5.3 Disclosure of Adverse Change. Prior to the Closing, Buyer shall advise
Seller of any fact which materially adversely affects the business, condition
(financial or otherwise) or prospects of Buyer and BBI not otherwise previously
publicly disclosed. To this end, Buyer shall have the right, prior to disclosing
such fact to Seller, to require Seller to enter into a confidentiality agreement
relating to non-disclosure of such fact consistent with compliance under the
Securities Exchange Act of 1934.
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BBI AND BUYER.
The obligations of BBI and Buyer to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or before
the Closing Date the actions required by this Article 6 will have been
accomplished.
6.1 Shareholder Authorization. This Agreement and the transactions
contemplated hereby shall have been duly approved by the affirmative vote of
Seller's stockholders, as
required by the laws of the state of incorporation of Seller.
6.2 Dissenting Stockholders. Holders of not more than one-half percent
(.5%) of the shares of the Common Stock of Seller shall have taken steps to
preserve the rights of dissenting stockholders afforded by the laws of the state
of incorporation of Seller, and Seller shall have delivered to Buyer a true and
correct list of the names, addresses and numbers of shares held by each holder
of dissenting shares of Seller and the steps taken by each such holder as
required by the laws of Seller's jurisdiction of incorporation governing
appraisal rights.
6.3 Representations; Warranties; Covenants. Each of the representations
and warranties of Seller contained in Article 2 shall be true and correct as
though made on and as of the Closing Date. Seller shall, on or before the
Closing Date, have performed all of its obligations hereunder which by the terms
hereof are to be performed on or before the Closing Date. Seller shall have
delivered to Buyer a certificate of Seller's President and Chief Financial
Officer dated as of the Closing Date, in form and substance satisfactory to BBI
and Buyer, to the effect that the statements contained in Sections 6.3 and 6.4
are true and that all other conditions to BBI's and Buyer's obligations
hereunder have been satisfied. Seller shall have delivered to Buyer a
certificate of Seller's President and Chief Financial Officer, dated as of the
Closing Date, in form and substance satisfactory to BBI and Buyer, confirming
that the conditions set forth in Sections 6.1 and 6.2 have been fulfilled.
6.4 No Material Adverse Change. There shall have been no material adverse
change in the financial condition, prospects, properties, assets, liabilities,
business or operations of Seller since the date hereof, whether or not in the
ordinary course of business.
6.5 Opinion of Seller's Counsel.
(a) At the Closing, BBI and Buyer shall have received from Susan L.
Preston, Esquire, counsel for Seller, an opinion dated as of the Closing, in
form and substance satisfactory to BBI and Buyer.
(b)At the Closing, BBI and Buyer shall have received from Messrs.
Arter & Hadden, counsel for Seller, an opinion dated as of the Closing, in form
and substance satisfactory to BBI and Buyer.
6.6 Employment Contracts. Each of the individuals listed on Schedule 6.6
hereto shall have accepted employment with Buyer and executed and delivered to
Buyer an employment agreement having substantially the terms and conditions
contained in Exhibit 6.6 attached hereto, and all employment contracts to which
Seller is a party shall have been terminated.
6.7 Non-Competition Contracts. Seller and each of the individuals listed
on Schedule 6.7 hereto shall have executed and delivered to Buyer
non-competition agreements having substantially the terms and conditions of
Exhibit 6.7 attached hereto.
6.8 Approval of Board of Directors. The transactions contemplated by this
Agreement shall have been reviewed and approved by the Board of Directors of
Buyer and BBI and their respective stockholders to the extent necessary.
6.9 Approval of Buyer's Counsel. All actions, proceedings, instruments and
documents required to carry out this Agreement and all related legal matters
contemplated by this Agreement shall have been approved by counsel for Buyer,
provided that the approval of such counsel shall not be unreasonably withheld.
6.10 Absence of Certain Litigation. There shall not be any (a) injunction,
restraining order or order of any nature issued by any court of competent
jurisdiction which directs that this Agreement or any material transaction
contemplated hereby shall not be consummated as herein provided, (b) suit,
action or other proceeding by any federal, state, local or foreign government
(or any agency thereof) pending before any court or governmental agency, or
threatened to be filed or initiated, wherein such complainant seeks the
restraint or prohibition of the consummation of any material transaction
contemplated by this Agreement or asserts the illegality thereof, or (c) suit,
action or other proceeding by a private party pending before any court or
governmental agency, or threatened to be filed or initiated, which in the
opinion of counsel for Buyer is likely to result in the restraint or prohibition
of the consummation of any material transaction contemplated hereby or the
obtaining of an amount in payment (or indemnification) of material damages from
or other material relief against any of the parties or against any directors or
officers of BBI or Buyer, in connection with the consummation of any material
transaction contemplated hereby.
6.11 FIRPTA Certificate. At the Closing, the Seller will deliver to Buyer
certificates which satisfy the requirements of the regulations under Section
1445 of the Internal Revenue Code of 1986, as amended.
6.12 Consents and Waivers. Seller shall have obtained any necessary
consents or waivers to assure Buyer of the benefits of all leases, contracts,
commitments and rights, to the extent that the assignment of any lease,
contract, commitment or right requires the consent of parties other than Seller.
6.13 Escrow Agreement. There shall have been executed and delivered to BBI
and Buyer an Escrow Agreement in substantially the form attached hereto as
Exhibit 1.3, pursuant to which $250,000 of the purchase price shall be deposited
in escrow at the Closing to secure payment of any purchase price adjustment or
indemnification payable to BBI and Buyer hereunder by reason of the breach of
any of the representations and warranties of Seller or failure of Seller to
perform any of its obligations hereunder, and said amounts shall have been
deposited with the Escrow Agent pursuant to said Escrow Agreement.
6.14 Convertible Debentures. Holders of the convertible debentures of
Seller in the principal amount of $629,000 shall have converted the principal
amount of such debentures and all accrued interest thereon ($70,898 as of
January 31, 1997) into 13,997,960 shares of Seller's
Common Stock and terminated in writing their stock purchase warrants, in full
satisfaction of Seller's obligations to such debenture holders.
6.15 Opinion of Independent Accountants. Buyer shall have received in form
and substance reasonably satisfactory to it, reports and opinions on such
business, financial and legal matters in connection with the transactions
contemplated by this Agreement as it deems pertinent, including, without
limitation, a satisfactory report from Buyer's independent accountants, Coopers
& Lybrand, regarding Seller's business and financial condition.
6.16 Opinion of Investment Banking Firm. Buyer shall have received in form
and substance reasonably satisfactory to it, an opinion from a recognized
investment banking firm to the effect that the purchase price is fair to Buyer's
stockholders from a financial point of view.
6.17 Due Diligence. The results of Buyer's due diligence investigation of
Seller shall be satisfactory to Buyer, in Buyer's sole discretion. Any
additions, deletions or other changes to be made to the Schedules hereto
pursuant to Section 4.1(1) shall be satisfactory to Buyer, in Buyer's sole
discretion.
6.18 Facility Lease. The lease with respect to Seller's Garden Grove
facility located at 7390 Lincoln Way, Garden Grove, California (the "Garden
Grove Lease") shall have been amended, in form and substance satisfactory to
Buyer, to reduce to approximately 25,000 square feet (one floor) the space
leased by Seller, and to reduce the payment due under the Garden Grove Lease in
proportion to the decrease in the amount of space leased.
6.19 Reduction of Interest Payments. Concord Growth Corporation
("Concord") shall have agreed in writing to a reduction in the minimum interest
payment to $2,500 per month in return for an increase in interest to the prime
rate plus five percent (5%) and a reduction in advancement to seventy percent
(70%), along with payment of the line of credit loan by April 30, 1997, and
Concord shall have further agreed in writing that upon repayment of the
principal amount of Seller's line of credit loan with Concord and all accrued
but unpaid interest thereon, Concord shall waive its right to prepayment
penalties of any kind.
6.20 Consents to Transactions. BBI's lending bank, The First National Bank
of Boston, shall have consented to the transactions contemplated hereby.
6.21 Authorization. Seller shall have obtained and will cause its
Subsidiaries to have obtained all authorities, consents and permits of others
required to permit the consummation by Seller and its Subsidiaries of the
transactions contemplated by this Agreement.
6.22 Bulk Sales Law. Seller shall have complied with the obligations
imposed on vendors under the Bulk Sales Act, or the equivalent, as a result of
the transactions contemplated by this Agreement.
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate this Agreement and the transactions
contemplated hereby are subject to the condition that on or before the Closing
the actions required by this Article 7 will have been accomplished.
7.1 Shareholder Authorization. This Agreement and the transactions
contemplated hereby shall have been duly approved by the affirmative vote of the
stockholders of Seller as required by Seller's state of incorporation.
7.2 Representations; Warranties; Covenants. Each of the representations
and warranties of Buyer contained in Article 3 shall be true and correct as
though made on and as of the Closing; Buyer shall, on or before the Closing,
have performed all of its obligations hereunder which by the terms hereof are to
be performed on or before the Closing; and Buyer shall have delivered to Seller
a certificate of the President and any Vice President of Buyer dated as of the
Closing to such effect.
ARTICLE 8. TERMINATION OF AGREEMENT.
8.1 Termination. At any time prior to the Closing, this Agreement may be
terminated (a) by mutual consent of the parties with the approval of their
respective Board of Directors, notwithstanding prior approval of this Agreement
by the stockholders of any party, (b) by either party if there has been a
material misrepresentation, breach of warranty or breach of covenant by the
other party in its representations, warranties and covenants set forth herein,
(c) by Buyer if the conditions stated in Article 6 have not been satisfied at or
prior to the Closing, or (d) by Seller if the conditions stated in Article 7
have not been satisfied at or prior to the Closing.
8.2 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Article 6 hereof have not
been satisfied, Buyer shall have the right (but not the obligation) to proceed
with the transactions contemplated hereby without waiving its rights hereunder,
and if any of the conditions specified in Article 7 hereof have not been
satisfied, Seller shall have the right (but not the obligation) to proceed with
the transactions contemplated hereby without waiving its rights
hereunder.
ARTICLE 9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
9.1 Survival of Warranties. All representations, warranties, agreements,
covenants and obligations herein or in any schedule, certificate or financial
statement delivered by either party to the other party incident to the
transactions contemplated hereby are material, shall be deemed to have been
relied upon by the other party and shall survive through and until March 31,
1998, regardless of any investigation and shall not merge in the performance of
any obligation by either party hereto.
9.2 Collection of Assets. Subsequent to the Closing, Buyer shall have the
right and authority to collect all receivables and other items transferred and
assigned to it by Seller
hereunder and to endorse with the name of Seller any checks received on account
of such receivables or other items, and Seller agrees that it will promptly
transfer or deliver to Buyer from time to time after Closing, any cash or other
property that Seller may receive with respect to any claims, contracts,
licenses, leases, commitments, sales orders, purchase orders, receivables of any
character or any other items required to be transferred by it to Buyer pursuant
to the provisions hereof.
9.3 Payment of Debts. Seller shall as promptly as possible after the
Closing pay all debts and obligations not to be assumed by Buyer hereunder.
ARTICLE 10. INDEMNIFICATION.
10.1 Definitions. For purposes of this Article 10:
"Losses" means all losses, damages (including, without limitation,
punitive and consequential damages), liabilities, payments and obligations, and
all expenses related thereto. Losses shall include any reasonable legal fees and
costs incurred by any of the Indemnified Persons subsequent to the Closing in
defense of or in connection with any alleged or asserted liability, payment or
obligation, whether or not any liability or payment, obligation or judgment is
ultimately imposed against the Indemnified Persons and whether or not the
Indemnified Persons are made or become parties to any such action.
"Buyer's Indemnified Persons" means BBI and the Buyer, and their
respective directors, officers, employees, stockholders and agents. "Indemnified
Person" means any person entitled to be indemnified under this Article 10.
"Indemnifying Person" means any person obligated to indemnify another
person under this Article 10.
"Seller's Indemnified Persons" means the Seller.
"Third Party Action" means any written assertion of a claim, or the
commencement of any action, suit, or proceeding, by a third party as to which
any person believes it may be an Indemnified Person hereunder
10.2 Indemnification by Seller.
(a) Subject to the limitations in paragraph (b) below, Seller agrees
to defend, indemnify and hold harmless Buyer's Indemnified Persons from and
against all Losses directly or indirectly incurred by or sought to be imposed
upon any of them:
(i) resulting from, relating to or arising out of any breach of any of
the representations or warranties made by Seller in or pursuant to this
Agreement or any schedule
hereto or in any agreement, document or instrument executed and delivered
pursuant hereto or in connection with the Closing;
(ii) resulting from or arising out of any breach of any covenant or
agreement made by Seller in or pursuant to this Agreement;
(iii) in respect of any liability or obligation of Seller or any
Subsidiary not included in the Assumed Liabilities;
(iv) resulting from or arising out of any liability, payment or
obligation arising out of any litigation or similar matter required to be
described on Schedule 2.21, except to the extent of reserves with respect
thereto on the Base Balance Sheet;
(v) resulting from or arising out of any liability, payment or
obligation in respect of any taxes for all periods, or portions thereof, ending
on or before the Closing Date, owing by Seller or any Subsidiary of any kind or
description (including interest and penalties with respect thereto);
(vi) resulting from or arising out of any governmental or third party
claims for damages or clean-up costs under any environmental law arising out of
the operations of the Seller or any Subsidiary on or before the Closing Date,
except to the extent of reserves with respect thereto on the Base Balance Sheet.
(b) The right to indemnification under paragraph 10.2(a) is subject to
the following limitations: Seller shall have no liability under paragraph
10.2(a) unless one or more of the Buyer's Indemnified Persons gives written
notice to Seller asserting a claim for Losses, including reasonably detailed
facts and circumstances pertaining thereto, before the earlier of the running of
any applicable statute of limitations or March 31, 1998.
10.3 Indemnification by Buyer.
(a) From and after the Closing Date, Buyer shall indemnify and hold
harmless Seller's Indemnified Persons from any and all Losses directly or
indirectly incurred by or sought to be imposed upon them:
(i) resulting from or arising out of any breach of any of the
representations or warranties made by Buyer, in or pursuant to this Agreement or
in any agreement, document or instrument executed and delivered pursuant hereto
or in connection with the Closing; and
(ii) resulting from or arising out of any breach of any covenant or
agreement made by Buyer in or pursuant to this Agreement.
10.4 Defense of Third Party Actions.
(a) Promptly after receipt of notice of any Third Party Action, any
person who believes he, she or it may be an Indemnified Person will give notice
to the potential Indemnifying Person of such action. The omission to give such
notice to the Indemnifying Person will not relieve the Indemnifying Person of
any liability hereunder, except to the extent, but only to the extent, it was
prejudiced thereby, nor will it relieve it of any liability which it may have
other than under this Article 10.
(b) Upon receipt of a notice of a Third Party Action, the
Indemnifying Person shall have the right, at its option and at its own expense,
to participate in and be present at the defense of such Third Party Action, but
not to control the defense, negotiation or settlement thereof, which control
shall remain with the Indemnified Person, unless the Indemnifying Person makes
the election provided in paragraph (c) below.
(c) By written notice within 45 days after receipt of a notice of a
Third Party Action, an Indemnifying Person may elect to assume control of the
defense, negotiation and settlement thereof, with counsel reasonably
satisfactory to the Indemnified Person; provided, however, that the Indemnifying
Person agrees (i) to promptly indemnify the Indemnified Person for its expenses
to date, and (ii) to hold the Indemnified Person harmless from and against any
and all Losses caused by or arising out of any settlement of the Third Party
Action approved by the Indemnifying Person or any judgment in connection with
that Third Party Action. The Indemnifying Persons shall not in the defense of
the Third Party Action enter into any settlement which does not include as a
term thereof the giving by the third party claimant of an unconditional release
of the Indemnified Person, or consent to entry of any judgment except with the
consent of the Indemnified Person.
(d) Upon assumption of control of the defense of a Third Party Action
under paragraph (c) above, the Indemnifying Person will not be liable to the
Indemnified Person hereunder for any legal or other expenses subsequently
incurred in connection with the defense of the Third Party Action, other than
reasonable expenses of investigation.
(e) If the Indemnifying Person does not elect to control the defense
of a Third Party Action under paragraph (c), the Indemnifying Person shall
promptly reimburse the Indemnified Person for expenses incurred by the
Indemnified Person in connection with defense of such Third Party Action, as and
when the same shall be incurred by the Indemnified Person.
(f) Any person who has not assumed control of the defense of any Third
Party Action shall have the duty to cooperate with the party which assumed such
defense.
10.5 Miscellaneous. Buyer's Indemnified Persons shall be entitled to
indemnification under Section 10.2(a) and Seller's Indemnified Persons shall be
entitled to indemnification under Section 10.3(a), regardless of whether the
matter giving rise to the applicable liability, payment, obligation or expense
may have been previously disclosed to any such person and limited only in
accordance with Section 10.4(a) notice requirements.
10.6 Payment of Indemnification. Claims for indemnification under this
Article 10
other than pursuant to Section 10.3 shall be paid pursuant to the terms of the
Escrow Agreement with respect to amounts held thereunder and otherwise by the
Seller, and any claims for indemnification under this Article 10 shall be paid
or otherwise satisfied by Indemnifying Persons within 30 days after notice
thereof is given by the Indemnified Person if the Indemnifying Person does not
dispute the claim, or within five (5) days of resolution of any disputed claim.
ARTICLE 11. MISCELLANEOUS.
11.1 Fees and Expenses. Except as set forth below, each of the parties
will bear its own expenses in connection with the negotiation and the
consummation of the transactions contemplated by this Agreement, and no expenses
of Seller relating in any way to the purchase and sale of the Subject Assets
hereunder shall be charged to or paid by Buyer or included in any account of
Seller as of the Closing.
Seller shall pay to Buyer upon demand a fee equal to all Expenses (as
defined below) (the "Termination Fee"), payable by certified check or by federal
funds wire transfer, if (i) the requisite approval of the transactions
contemplated hereby by Seller's stockholders is not obtained at Seller's Special
Meeting of Stockholders, (ii) the Special Meeting of Stockholders does not occur
prior to April 30, 1997 or if it does occur, Seller's stockholders do not
approve the transactions by the requisite vote, (iii) the conditions specified
in Articles 6 and 7 hereof are not satisfied (other than regulatory approvals
and breach by Buyer), (iv) Seller materially breaches the letter agreement dated
February 4, 1997 between Buyer and Seller (the "Letter Agreement"), or (v) this
Agreement is terminated by Seller for any reason other than as a result of a
willful and material breach of this Agreement by Buyer; provided, however, that
the Termination Fee shall be Buyer's Expenses plus $250,000 if Seller (or any
affiliate) enters into an acquisition with a person other than Buyer, within one
year of the date of the Letter Agreement.
For purposes of this Article 8, "Expenses" means all fees and expenses
incurred or paid by or on behalf of Buyer or any of its affiliates in connection
with the consummation of any of the transactions contemplated hereby, by the
Letter Agreement, by the Business Loan and Security/Subordination Agreement, or
the transactions contemplated hereby or thereby, including all fees and expenses
of counsel, investment banking firms, accountants, experts and consultants to
Buyer or any of its affiliates and a reasonable allocation of corporate
overhead. In the event that this Agreement is so terminated, each party will
return all papers, documents, financial statements and other data furnished to
it by or with respect to each other party to such other party (including any
copies thereof made by the first party).
11.2 Notices. Any notice or other communication in connection with this
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission) addressed as provided below and if either
(a) actually delivered electronically or physically at said address, or (b) in
the case of a letter, three business days shall have elapsed after the same
shall have been deposited in the United States mail, postage prepaid and
registered or certified, return receipt requested:
If to the Seller, to:
Source Scientific, Inc.
7390 Lincoln Way
Garden Grove, CA 92841
Attention: Richard A. Sullivan, President
with a copy to:
Weiss, Jensen, Ellis & Howard
520 Pike Street, Suite 2600
Seattle, WA 98101
Attention: Susan L. Preston
If to BBI or Buyer, to:
Boston Biomedica, Inc.
375 West Street
West Bridgewater, MA 02379
Attention: Richard T. Schumacher, President
with a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attention: Steven R. London, Esquire and John G. Nossiff, Jr., Esquire
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
11.4 Publicity and Disclosures. No press releases or any public
disclosure, either written or oral, of the transactions contemplated by this
Agreement shall be made without the prior knowledge and written consent of BBI
and Seller. Seller and BBI acknowledge, however, that, as public companies,
Seller and BBI may be legally obligated to make certain public announcements
from time to time regarding their respective businesses, including one or more
announcements regarding the transactions contemplated by this Agreement.
Accordingly, BBI and Seller agree that, notwithstanding any other provision of
this Section 11.4, BBI and Seller
shall be free to make such public announcements regarding the transactions
contemplated by this Agreement at such time as Buyer, or BBI or Seller
reasonably believes such announcements are required in order to comply with
applicable federal and state securities laws, provided that each provides the
other with a copy of such announcement at least 24 hours prior to its release.
11.5 Non-Solicitation. Seller shall not, and shall use its best efforts to
cause its affiliates, as that term is interpreted under the Securities Act of
1933, as amended, and each of its officers, directors, employees,
representatives, and agents not to, directly or indirectly (a) encourage,
solicit, initiate, engage or participate in discussions or negotiations with any
person or entity (other than Buyer) concerning any merger, consolidation, sale
of material assets, tender offer, recapitalization, accumulation of any equity
interest in Seller, proxy solicitation or other business combination involving
Seller or any Subsidiary or (b) provide any nonpublic information concerning the
business, properties or assets of Seller or any subsidiary to any person or
entity (other than Buyer) other than in connection with the sale of products in
the ordinary course of business.
11.6 Confidentiality. The parties agree that they will keep confidential
and not disclose or divulge any confidential, proprietary or secret information
which they may obtain from the other in connection with the transactions
contemplated herein, or pursuant to inspection rights granted hereunder unless
such information is or hereafter becomes public information.
11.7 Entire Agreement. This Agreement (including all exhibits or schedules
appended to this Agreement and all documents delivered pursuant to or referred
to in this Agreement, all of which are hereby incorporated herein by reference)
constitutes the entire agreement between the parties, and all promises,
representations, understandings, warranties and agreements with reference to the
subject matter hereof and inducements to the making of this Agreement relied
upon by any party hereto, have been expressed herein or in the documents
incorporated herein by reference.
11.8 Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision hereof.
11.9 Assignability. This Agreement may not be assigned otherwise than by
operation of law (a) by BBI or Buyer without the prior written consent of
Seller, or (b) by Seller without the prior written consent of Buyer. However,
any or all rights of BBI and Buyer to receive performance (but not the
obligations of Buyer to Seller hereunder) and rights to assert claims against
Seller hereunder, may be assigned by Buyer to (i) any direct or indirect
subsidiary, parent or other affiliate of Buyer, or (ii) any person or entity
extending credit to BBI or Buyer to finance the purchase price. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns.
11.10 Amendment. This Agreement may be amended only by a written agreement
executed by BBI, Buyer and Seller.
11.11 Attorney-in-Fact. The Seller hereby irrevocably appoints and
designates Richard
T. Schumacher or his successor unanimously appointed in written notice by the
Seller to the Buyer (the "Agent") as its agent and attorney-in-fact to accept
service of process immediately following the Closing.
11.12 Governing Law; Venue.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts (other than the choice of law
principles thereof), except that any representations and warranties with respect
to real and tangible property shall be governed by and construed in accordance
with the laws of the jurisdiction where such property is situated if other than
in the Commonwealth of Massachusetts.
(b) Any claim, action, suit or other proceeding initiated by any of
the Sellers' Indemnified Persons against Buyer, or by any of the Buyer's
Indemnified Persons against any Seller, under or in connection with this
Agreement may be asserted, brought, prosecuted and maintained in any Federal or
state court in the Commonwealth of Massachusetts, as the party bringing such
action, suit or proceeding shall elect, having jurisdiction over the subject
matter thereof, and Seller and Buyer hereby waive any and all rights to object
to the laying of venue in any such court, the assertion of personal jurisdiction
over such persons by any such court and to any right to claim that any such
court may be an inconvenient forum. Seller and Buyer hereby submit themselves to
the jurisdiction of each such court and agree that service of process on them in
any such action, suit or proceeding may be effected by the means by which
notices are to be given to it under this Agreement.
11.13 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed in original but all of which
together shall constitute one and the same instrument.
11.14 Effect of Table of Contents and Headings. Any table of contents,
title of an article or section heading herein contained is for convenience of
reference only and shall not affect the meaning of construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in multiple counterparts as of the date set forth above by their duly
authorized representatives.
BOSTON BIOMEDICA, INC.
BY: ____________________________
Richard T. Schumacher, President
BBI-SOURCE SCIENTIFIC, INC.
BY: ____________________________
Name:
Title:
SOURCE SCIENTIFIC, INC.
BY: ____________________________
Richard A. Sullivan, President
ASSETS FOR CASH PURCHASE AGREEMENT
List of Schedules and Exhibits
Schedule 1.1 Assets
Schedule 1.2(a) - Liabilities Assumed
Schedule 2.1 - Qualification of Seller
Schedule 2.2 - Options, Warrants and Convertible
Securities
Schedule 2.3 - Subsidiaries
Schedule 2.7 - Financial Statements of the Seller
Schedule 2.8 - Undisclosed Liabilities
Schedule 2.9 - Changes Since Base Balance Sheet Date
Schedule 2.10 Payment and Taxes
Schedule 2.11 - Property, Leases and Equipment
Schedule 2.13 Inventories
Schedule 2.14 - Intellectual Property Rights
Schedule 2.15 - Contracts and Commitments
Schedule 2.16 - Labor and Employee Relations
Schedule 2.17(a) - ERISA; Compensation and Benefit Plans
Schedule 2.17(c) ERISA; Compensation and Benefit Plans
Schedule 2.17(d) ERISA; Compensation and Benefit Plans
Schedule 2.17(e) ERISA; Compensation and Benefit Plans
Schedule 2.18 - Environmental Matters
Schedule 2.19 - Permits
Schedule 2.20 Claims
Schedule 2.21 - Litigation
Schedule 2.22 - Borrowings and Guarantees
Schedule 2.23 - Banking and Financial Arrangements
Schedule 2.24 - Insurance
Schedule 2.26 Finder's Fees
Schedule 2.27 Transactions with Interested Persons
Schedule 6.6 - Parties to Employment Contracts
Schedule 6 7 Parties to Non-Competition Contracts
Exhibit 1.3: Escrow Agreement
Exhibit 1.6: Assumption of Liabilities
Exhibit 1.7: Bill of Sale
Exhibit 6.6: Employment Contract
Exhibit 6.7: Non-Competition Contract
EXHIBIT 11.1
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF INCOME PER SHARE
WEIGHTED AVERAGE SHARES
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Average Common Stock Outstanding 2,551,946 2,569,641 2,915,522
Net effect of dilutive Common Stock
Equivalents-based on treasury stock
method using average market price - 548,541 424,714
Issuance of "Cheap Stock" 35,191 33,295
--------- --------- ---------
2,587,137 3,151,477 3,340,236
========= ========= =========
Net Income $ 96,528 $ 102,990 $ 481,220
Add: net reduction of interest on debt,
less 40% taxes - 27,258 -
Adjusted net income for earnings per --------- --------- ---------
share calculation $ 96,528 $ 130,248 $ 481,220
========= ========= =========
Income (loss) per share 0.04 0.04 0.04
========= ========= =========
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Name Jurisdiction of Organization
- ---- ----------------------------
<S> <C>
BBI Clinical Laboratories, Inc. Massachusetts
BTRL Contracts and Services, Inc. (d/b/a/ Biotech Research Massachusetts
Laboratories)
BBI-Source Scientific, Inc. Massachusetts
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,082,642
<SECURITIES> 0
<RECEIVABLES> 3,768,052
<ALLOWANCES> 352,058
<INVENTORY> 4,180,334
<CURRENT-ASSETS> 16,202,120
<PP&E> 4,669,352
<DEPRECIATION> 1,970,194
<TOTAL-ASSETS> 19,798,314
<CURRENT-LIABILITIES> 3,366,204
<BONDS> 40,948
0
0
<COMMON> 15,302,438
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,798,314
<SALES> 8,469,890
<TOTAL-REVENUES> 15,509,296
<CGS> 4,252,068
<TOTAL-COSTS> 14,494,336
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,969
<INCOME-PRETAX> 801,991
<INCOME-TAX> 320,771
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 481,220
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
