SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999, or
( ) 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 0-17272
__________________
TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1427402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
614 MCKINLEY PLACE N.E. (612) 379-8854
MINNEAPOLIS, MN 55413 (Registrant's telephone number,
(Address of principal (Zip Code) including area code)
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (X) No ( )
At November 8, 1999, 20,169,992 shares of the Company's Common Stock (par
value $.01) were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
9/30/99 6/30/99
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 14,100,680 $ 12,769,468
Short-term investments 18,056,656 16,344,656
Accounts receivable (net) 13,616,147 13,520,409
Inventories 5,066,575 5,715,065
Deferred income taxes 2,172,000 2,101,000
Other current assets 624,472 399,850
------------ ------------
Total current assets 53,636,530 50,850,448
Deferred income taxes 3,413,000 3,137,000
Fixed assets (net) 42,853,198 15,065,234
Intangible assets (net) 43,257,437 45,564,750
Other assets 6,804,413 9,183,087
------------ ------------
TOTAL ASSETS $149,964,578 $123,800,519
============ ============
LIABILITIES & EQUITY
Trade accounts payable $ 3,205,981 $ 2,375,029
Salary and related accruals 1,755,121 2,313,450
Other payables 5,824,231 5,547,702
Income taxes payable 4,872,408 3,226,451
Current portion of long-term debt 778,062 -
------------ ------------
Total current liabilities 16,435,803 13,462,632
Deferred rent - 1,963,500
Royalty payable 10,594,000 11,536,000
Long-term debt 19,561,544 -
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding 20,163,742
and 20,132,655, respectively 201,637 201,327
Additional paid-in capital 35,867,934 34,525,581
Retained earnings 66,794,881 62,058,879
Accumulated foreign currency
translation adjustments 508,779 52,600
------------ ------------
Total stockholders' equity 103,373,231 96,838,387
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $149,964,578 $123,800,519
============ ============
</TABLE>
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------
9/30/99 9/30/98
------------ ------------
<S> <C> <C>
Sales $ 24,621,053 $ 21,335,192
Cost of sales 6,996,770 6,614,877
------------ ------------
Gross margin 17,624,283 14,720,315
Operating expenses (income):
Selling, general and administrative 4,405,198 4,431,095
Research and development 3,190,895 2,752,125
Amortization expense 2,307,313 2,394,662
Interest expense 367,098 -
Interest income (236,460) (212,411)
------------ ------------
10,034,044 9,365,471
------------ ------------
Earnings before income taxes 7,590,239 5,354,844
Income taxes 2,742,000 1,830,000
------------ ------------
Net earnings $ 4,848,239 $ 3,524,844
============ ============
Basic earnings per share $ 0.24 $ 0.18
Diluted earnings per share $ 0.23 $ 0.17
Weighted average common shares
outstanding:
Basic 20,150,702 20,115,898
Diluted 20,823,718 20,543,604
</TABLE>
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------
9/30/99 9/30/98
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 4,848,239 $ 3,524,844
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 3,063,986 2,929,880
Deferred income taxes (312,000) (370,000)
Tax benefit from exercise of options 153,000 135,000
Other 460,781 336,623
Change in current assets and current
liabilities, net of acquisition:
(Increase) decrease in:
Accounts receivable 52,830 (2,903,205)
Inventories 730,588 317,639
Other current assets (128,535) (153,741)
Increase (decrease) in:
Trade account/other payables (16,940) 1,575,186
Salary and related accruals (564,169) (718,813)
Income taxes payable 1,586,084 1,073,792
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,873,864 5,747,205
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition - (24,967,220)
Purchase of short-term investments (3,360,000) (3,020,000)
Proceeds from sale of short-term
investments 1,648,000 7,343,793
Additions to fixed assets (24,353,398) (1,042,242)
Real estate deposit (Note B) (2,000,000) -
Increase in other long term assets (1,450,000) (150,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (29,515,398) (21,835,669)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 219,426 616,400
Mortgage note 20,400,000 -
Payments on long-term debt (60,394) -
Repurchase of common stock - (1,414,508)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 20,559,032 (798,108)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 413,714 139,976
------------ ------------
NET CHANGE IN CASH AND EQUIVALENTS 1,331,212 (16,746,596)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 12,769,468 27,372,345
------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 14,100,680 $ 10,625,749
============ ============
</TABLE>
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. BASIS OF PRESENTATION:
The unaudited Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles and with
instructions to Form 10-Q and Article 10 of Regulation S-X. The
accompanying unaudited Consolidated Financial Statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
presentation of the results for the interim periods presented. All such
adjustments are of a normal recurring nature.
A summary of significant accounting policies followed by the Company is
detailed in the Annual Report to Shareholders for Fiscal 1999. The Company
follows these policies in preparation of the interim Financial Statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the
Consolidated Financial Statements be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto for the fiscal year
ended June 30, 1999 included in the Company's Annual Report to Shareholders
for Fiscal 1999.
Certain Consolidated Balance Sheet captions appearing in this interim
report are as follows:
<TABLE>
<CAPTION>
9/30/99 6/30/99
------------ ------------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable $ 13,922,147 $ 13,820,409
Less reserve for bad debts 306,000 300,000
------------ ------------
NET ACCOUNTS RECEIVABLE $ 13,616,147 $ 13,520,409
============ ============
INVENTORIES
Raw materials $ 1,462,339 $ 2,105,150
Supplies 98,468 110,227
Finished goods 3,505,768 3,499,688
------------ ------------
TOTAL INVENTORIES $ 5,066,575 $ 5,715,065
============ ============
FIXED ASSETS
Land $ 871,000 $ -
Buildings and improvements 40,763,496 -
Laboratory equipment 11,681,398 11,308,984
Office equipment 3,328,982 3,294,704
Leasehold improvements 196,234 13,770,763
------------ ------------
56,841,110 28,374,451
Less accumulated depreciation
and amortization 13,987,912 13,309,217
------------ ------------
NET FIXED ASSETS $ 42,853,198 $ 15,065,234
============ ============
INTANGIBLE ASSETS
Customer list $ 18,010,000 $ 18,010,000
Technology licensing agreements 500,000 500,000
Goodwill 39,075,089 39,075,089
------------ ------------
57,585,089 57,585,089
Less accumulated amortization 14,327,652 12,020,339
------------ ------------
NET INTANGIBLE ASSETS $ 43,257,437 $ 45,564,750
============ ============
</TABLE>
B. REAL ESTATE ACQUISITION:
On July 1, 1999, the Company purchased the facilities it occupied in
Minneapolis, Minnesota for approximately $28 million. Cash of $4 million
and 100,000 shares of Common Stock valued at $2.16 million were placed in
escrow during the third quarter of fiscal 1999. The remainder of the
purchase price was financed through cash on hand and a $20.4 million 15-
year mortgage. The interest rate on the mortgage is fixed at 7% for the
first seven years and is thereafter adjusted based on U.S. Treasury rates.
In addition, the Company paid $2 million and issued seven-year warrants to
purchase 60,000 shares of the Company's common stock at $23.77 per share as
a nonrefundable deposit on the option to purchase property adjacent to its
Minneapolis facility. The fair market value of the warrants was $858,000.
C. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------
9/30/99 6/30/99
---------- ----------
<S> <C> <C>
Weighted average common shares
outstanding--basic 20,150,702 20,115,898
Dilutive effect of stock options
and warrants 673,016 427,706
---------- ----------
Average common shares outstanding--
diluted 20,823,718 20,543,604
========== ==========
</TABLE>
D. SEGMENT INFORMATION:
Following is financial information relating to the Company's operating
segments:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
9/30/99 6/30/99
----------- -----------
<S> <C> <C>
External sales
Hematology $ 3,163,688 $ 3,049,779
Biotechnology 15,074,320 13,037,513
R&D Systems Europe 6,383,045 5,247,900
----------- -----------
Total external sales $24,621,053 $21,335,192
=========== ===========
Intersegment sales
Hematology $ - $ -
Biotechnology 3,186,429 2,656,713
R&D Systems Europe 61,270 82,338
----------- -----------
Total intersegment sales $ 3,247,699 $ 2,739,051
=========== ===========
Income before taxes
Hematology $ 929,974 $ 805,754
Biotechnology 6,572,996 4,415,445
R&D Systems Europe 1,046,301 713,585
Corporate and other (959,032) (579,940)
----------- -----------
Total income before taxes $ 7,590,239 $ 5,354,844
=========== ===========
</TABLE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter Ended September 30, 1999
vs. Quarter Ended September 30, 1998
Techne Corporation (Techne) has two operating subsidiaries: Research and
Diagnostic Systems, Inc. (R&D Systems) located in Minneapolis, Minnesota
and R&D Systems Europe Ltd. (R&D Europe) located in Abingdon, England. R&D
Systems has two divisions: Biotechnology and Hematology. The
Biotechnology Division manufactures purified cytokines (proteins),
antibodies and assay kits, which are sold primarily to biomedical
researchers and clinical research laboratories. The Hematology Division
develops and manufactures whole blood hematology controls and calibrators
which are sold to hospital and clinical laboratories to check the
performance of their hematology instruments to assure the accuracy of
hematology test results. R&D Europe sells R&D Systems' biotechnology
products in Europe, both directly and through a sales subsidiary in
Germany. The Company has a foreign sales corporation, Techne Export Inc.
The Company has an approximate 49% interest in the issued and outstanding
voting shares of ChemoCentryx, Inc. (CCX), a technology and drug
development company working in the area of chemokines. Chemokines are
cytokines which regulate the trafficking patterns of leukocytes, the
effector cells of the human immune system. In conjunction with the equity
investment and joint research efforts, Techne obtains exclusive worldwide
research and diagnostic marketing rights to chemokine proteins, antibodies
and receptors discovered or developed by CCX or R&D Systems. The Company
accounts for this investment under the equity method of accounting and
recognizes 100% of the losses of CCX due to the limited amount of cash
consideration provided by the holders of the common shares of CCX. The
Company's investment in CCX was $2,535,470 and $1,910,931 at September 30,
1999 and June 30, 1999, respectively.
Net Sales
Net sales for the quarter ended September 30, 1999 were $24,621,053, an
increase of $3,285,861 (15%) from the quarter ended September 30, 1998.
R&D Systems sales increased $2,150,716 (13%) and R&D Europe sales increased
$1,135,145 (22%) for the quarter ended September 30, 1999. The increase in
sales for the quarter was due largely to a $1.7 million increase in protein
and antibody sales and a $.9 million increase in immunoassay kit sales.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the first quarter of fiscal 2000 were 71.6% compared to 69.0%
for the same quarter in fiscal 1999. Biotechnology Division margins
increased from 69.8% to 73.2% for the quarter ended September 30, 1999.
Margins in the first quarter of last year were affected by the higher cost
of inventory acquired from Genzyme Corporation, the majority of which was
sold in fiscal 1999. The increase in Biotechnology Division gross margins
also reflect the benefit from increased sales volume. R&D Europe gross
margins decreased from 46.1% to 44.7% for the quarter as a result of
changes in exchange rates. Hematology Division gross margins also
decreased slightly from 46.0% to 45.6% for the quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $25,897 (1%) from
the first quarter of fiscal 1999. This was mainly the result of decreased
rent expense due to the Company's purchase of its Minneapolis facility.
Research and Development Expenses
Research and development expenses increased $438,770 (16%) for the quarter
ended September 30, 1999. The increase related to products currently under
development, many of which have been or will be released in fiscal 2000.
Products currently under development include both biotechnology and
hematology products.
Net Earnings
Earnings before income taxes increased $2,235,395 from $5,354,844 in the
first quarter of fiscal 1999 to $7,590,239 in the first quarter of fiscal
2000. The increase in earnings before income taxes was due to an increase
in Biotechnology Division earnings of $2,157,551, an increase in R&D Europe
earnings of $332,716 and an increase in Hematology Division earnings of
$124,220 for the quarter ended September 30, 1999. These increases were
offset by increased net losses of CCX of $91,617 and interest expense of
$367,098 for the quarter ended September 30, 1999.
Income taxes for the quarter ended September 30, 1999 were provided at a
rate of approximately 36% of consolidated pretax earnings compared to 34%
for the first quarter of fiscal 1999. The increase in the tax rate is
mainly due to the increased net loss by CCX for which no tax benefit has
been provided and the expiration of the U.S. credit for research and
development expenditures. U.S. federal taxes have been reduced by the
benefit of the foreign sales corporation. Foreign income taxes have been
provided at rates which approximate the tax rates in the United Kingdom and
Germany.
Liquidity and Capital Resources
At September 30, 1999, cash and cash equivalents and short-term investments
were $32,157,336 compared to $29,114,124 at June 30, 1999. The Company
believes it can meet its future cash, working capital and capital addition
requirements through currently available funds, cash generated from
operations and maturities of short-term investments. The Company has an
unsecured line of credit of $750,000. The interest rate on the line of
credit is at prime. There were no borrowings on the line in the prior or
current fiscal years.
Cash Flows From Operating Activities
The Company generated cash of $9,873,864 from operating activities in the
first three months of fiscal 2000 compared to $5,747,205 for the first
three months of fiscal 1999. The increase was mainly the result of
increased net earnings and the absence in fiscal 2000 of the large increase
in accounts receivable in fiscal 1999 which resulted from the Genzyme
acquisition.
Cash Flows From Investing Activities
During the three months ended September 30, 1999 short-term investments
increased by $1,712,000. During the three months ended September 30, 1998,
the Company decreased short-term investments by $4,323,793. The Company's
investment policy is to place excess cash in short-term tax-exempt bonds.
The objective of this policy is to obtain the highest possible return with
the lowest risk, while keeping the funds accessible.
Cash spent on fixed assets was $24,353,398 (including $21.9 million for the
building purchase) for the first three months of fiscal 2000, compared to
$1,042,242 for the first three months of fiscal 1999. Included in the
fiscal 2000 and 1999 additions were $1,900,000 and $683,000 for building
improvements related to remodeling of facilities by R&D Systems. The
remaining capital additions in fiscal 2000 and 1999 were for laboratory and
computer equipment. Total expenditures for capital additions and building
improvements planned for the remainder of fiscal 2000 are expected to cost
approximately $6.0 million and are expected to be financed through
currently available funds and cash generated from operating activities.
During the first quarter of fiscal 2000, the Company invested an additional
$1 million in ChemoCentryx, Inc.
Cash Flows From Financing Activities
Cash of $219,426 and $616,400 was received during the three months ended
September 30, 1999 and 1998, respectively, for the exercise of options for
24,770 and 143,100 shares of common stock. During the first three months
of fiscal 2000 options for 10,792 shares of common stock were exercised by
the surrender of 3,475 shares of the Company's common stock with fair
market values of $112,271.
During the first three months of fiscal 1999, the Company purchased and
retired 94,000 shares of Company common stock at a market value of
$1,414,508. The Board of Directors has authorized the Company, subject to
market conditions and share price, to purchase and retire up to $10 million
of its common stock. Through November 8, 1999, 650,600 shares have been
purchased at a market value of $8,754,114.
The Company has never paid cash dividends and has no plans to do so in
fiscal 2000.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 1999, the Company had an investment portfolio of fixed
income securities, excluding those classified as cash and cash equivalents,
of $18,056,656. These securities, like all fixed income instruments, are
subject to interest rate risk and will decline in value if market interest
rates increase. However, the Company has the ability to hold its fixed
income investments until maturity and therefore the Company does not expect
to recognize an adverse impact in income or cash flows.
The Company operates internationally, and thus is subject to potentially
adverse movements in foreign currency rate changes. The Company does not
enter into foreign exchange forward contracts to reduce its exposure to
foreign currency rate changes on intercompany foreign currency denominated
balance sheet positions. Historically, the effect of movements in the
exchange rates has been immaterial to the consolidated operating results of
the Company.
Y2K ISSUES
The Company has taken steps to ensure that it is not adversely affected by
Y2K software failures which may arise in software applications where two-
year digits are used to define the applicable year. The Company has
completed its review of computer hardware and software. Any necessary
upgrades which have not been completed at the current time will be
completed during the fourth quarter of calendar 1999. The Company is
continuing its review of non-computer hardware that contains embedded
processors to ensure that the equipment will function properly or that
contingency plans are in place before the end of calendar 1999.
The Company has also communicated with many of its suppliers and service
providers regarding compliance with Y2K requirements. As a result of such
inquiries, no significant deficiencies have been identified. The Company
will continue to monitor these third parties for Y2K compliance. The
Company also plans to have sufficient quantities of critical raw materials
on hand by December 31 to allow for interruptions of service by its
vendors. For raw materials with a short shelf life (i.e. blood), the
Company deals with the issue of shortages of these components in the normal
course of business and generally has several vendors for each of these raw
materials.
To date, the cost of the review and upgrade of the Company's computer
applications is approximately $25,000 and the Company estimates the cost to
complete the process should not exceed $50,000. There can be no assurance,
however, that there will not be a delay in, or increased costs associated
with, upgrading the Company's computer systems, which could have a material
adverse effect on the operations and financial position of the Company. In
addition, there can be no assurances that the Company's customers and
suppliers will not be adversely affected by their own Y2K issues, which may
indirectly adversely affect the Company.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No change
ITEM 2 - CHANGES IN SECURITIES
On July 1, 1999, the Company issued to Hillcrest Development, a Minnesota
Limited Partnership, Warrants to purchase 60,000 shares of Common Stock
in connection with an option to purchase certain real estate. The
Warrants are exercisable from July 1, 2000 through June 30, 2006 at
$23.77 per share. The issuance of such securities was deemed to be
exempt from registration under the Securities Act of 1933 by virtue of
Section 4(2) thereof.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
(a) The Annual Meeting of the Registrant's shareholders was held on
Thursday, October 21, 1999.
(b) A proposal to set the number of directors at seven was adopted by
a vote of 16,745,658 in favor with 48,775 shares against, 26,271
shares abstaining and no shares represented by broker nonvotes.
(c) Proxies for the Annual meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934. There
was no solicitation in opposition to management's nominees as
listed in the proxy statement, and all such nominees were elected,
as follows:
Nominee For Withheld
Thomas E. Oland 16,735,833 84,871
Roger C. Lucas 16,720,433 100,271
Howard V. O'Connell 16,732,533 88,171
G. Arthur Herbert 16,543,605 277,099
Randolph C. Steer 16,733,083 87,621
Lowell E. Sears 16,733,933 86,771
Christopher S. Henney 16,735,783 84,921
ITEM 5 - OTHER INFORMATION
Forward Looking Information and Cautionary Statements: Statements in
this filing, and elsewhere, which look forward in time involve risks and
uncertainties which may affect the actual results of operations. The
following important factors, among others, have affected and, in the
future, could affect the Company's actual results: the introduction and
acceptance of new biotechnology and hematology products, the levels and
particular directions of research into cytokines by the Company's
customers, the impact of the growing number of producers of cytokine
research products and related price competition, the retention of
hematology OEM and proficiency survey business, the Company's expansion
of marketing efforts in Europe, and the costs and results of research and
product development efforts of the Company and of companies in which the
Company has invested or with which it has formed strategic relationships.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index immediately following signature page.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNE CORPORATION
(Company)
Date: November 12, 1999 Thomas E. Oland
--------------------------
Thomas E. Oland
President, Chief Executive and
Financial Officer
EXHIBIT INDEX
TO
FORM 10-Q
TECHNE CORPORATION
Exhibit # Description
-------- ------------------
10.1 Employment Agreement, dated October 1, 1999, with
Timothy M. Heaney
27 Financial Data Schedule
EMPLOYMENT AGREEMENT
DATE: October 1, 1999
PARTIES: Techne Corporation, a
Minnesota Corporation
614 McKinley Place N.E.
Minneapolis, Minnesota 55413
Timothy M. Heaney
4013 Roanoke Circle
Golden Valley, MN 55422
AGREEMENTS:
ARTICLE 1.
TERM OF EMPLOYMENT: DUTIES AND SUPERVISION
1.1) Parties. The parties to this agreement are Timothy M. Heaney
("Employee") and Techne Corporation ("Techne"). As used herein, "Company"
refers to Techne Corporation and its subsidiaries including Research and
Diagnostic Systems, Inc. ("R&D"), unless specifically provided otherwise. All
of the rights and obligations created by this Agreement may be performed by or
enforced by or against the Company or R&D or other appropriate subsidiary.
1.2) Term of Employment. The Company hereby employs Employee as Vice
President and General Counsel of the Company and of R&D for the term beginning
October 1, 1999 and continuing through September 30, 2002 unless employment
terminates earlier as provided in Article 5 hereof.
1.3) Duties and Supervision. During the term of this Agreement,
Employee agrees to devote his full time and best efforts to the business and
affairs of the Company, and to perform such services and duties Employee may
from time to time be assigned by the Company, and specifically its President.
It is intended that immediately following the next annual meeting of
shareholders of Techne, Employee shall be elected a director of Techne by its
Board of Directors.
ARTICLE 2.
COMPENSATION
2.1) Salary. During the balance of the Company's fiscal year 2000,
i.e., October 1, 1999 through June 30, 2000, the Company shall pay to Employee
as base compensation for services to be rendered hereunder compensated at an
annual rate of $175,000, to be paid semi-monthly or in accordance with the
usual payroll practices of the Company. Each subsequent fiscal year during the
term of Employee's employment by the Company, under this Agreement, Employee's
salary shall be reviewed but not reduced by the President and the Compensation
Committee of the Board of Directors of the Company.
2.2) Management Incentive Bonus Plan. During each year of the term
of Employee's employment, Employee shall be eligible to earn a bonus equal to
40%, as herein defined, of his base compensation. The performance standards for
earning such bonus shall be established annually by the President and
Compensation Committee of the Board of Directors of the Company but the
eligibility for a 40% bonus shall not be amended during the term of this
Agreement except with the consent of Employee. At least one-half of such bonus
shall be paid in the form of stock options with an aggregate exercise price
equal to such one-half of the bonus amount. Such options are to be granted on
July 1 immediately after the close of the fiscal year and the exercise price is
to be based on the market price of the Company's Common Stock at the close of
the fiscal year. The other one-half of any bonus earned may be taken, at the
election of the Employee, either in cash or in additional stock options with an
exercise price equal to 170% of such one-half of the bonus amount. Bonuses
shall be based on the Company's fiscal year and shall be pro rated for any year
in which the Employee is employed only part of the fiscal year.
2.3) Other Employee Compensation and Benefits. In addition to the
compensation and benefits provided to Employee in Sections 2.1 and 2.2 hereof,
Employee shall be entitled to participate in other employee compensation and
benefit plans from time to time established by the Company and made available
generally to all employees. Employee shall participate in such compensation
and benefit plans on an appropriate and comparable basis determined by the
Board of Directors by reference to all other employees eligible for
participation. With regard to all insured benefits to be provided to Employee,
benefits shall be subject to due application by Employee, the Company has no
obligation to pay insured benefits directly and such benefits are payable to
Employee only by the insurers in accordance with their policies. Employee
shall not be reimbursed for unused personal days or sick days. In determining
Employee's eligibility for participation in Employee compensation and benefits
plans, Employee shall be given credit for, i.e., considered to have been
employed by the Company for, the period during which he has served as legal
counsel to the Company unless such prior service credit is prohibited by law as
to a particular benefit, in which case he shall be paid the equivalent of the
benefit as additional cash compensation. Tim will be granted 3wks. Vacation
initially & 4 weeks after 5 yrs. of service.
ARTICLE 3.
PAYMENT OF CERTAIN EXPENSES
3.1) Business Expenses. In order to enable Employee to better
perform the services required of him hereunder, the Company shall pay or
reimburse Employee for business expenses in accordance with policies to be
determined from time to time by the Board of Directors. Employee agrees to
submit documentation of such expenses as may be reasonably required by Company.
Eligible business expenses shall include annual attorney registration fees and
reasonable expenses of earning credits to meet continuing legal education
requirements.
ARTICLE 4.
INVENTIONS, PROPRIETARY INFORMATION AND COMPETITION
4.1) Prior Agreement. Neither the execution of this Agreement nor
any provision in it shall be interpreted as rescinding or revoking the Employee
Agreement With Respect To Inventions, Proprietary Information, and Unfair
Competition previously entered into between the Company and Employee as of
October 1, 1999 (the "Prior Agreement"). The Company and Employee hereby agree
that the terms of such Prior Agreement shall apply to all businesses of the
Company, including not only business conducted by the Company but also to
business conducted through Techne or any subsidiary or venture of Techne now
existing or hereafter created. The termination of this Employment Agreement
shall not terminate Employee's obligations under the Prior Agreement.
ARTICLE 5.
TERMINATION
5.1) Events of Termination. Employee's employment shall terminate as
follows:
(A) By mutual written agreement of the parties.
(B) Upon death of Employee.
(C) Employee may terminate his employment at any time upon
written notice provided to the Board of Directors at least 90 days prior to the
effective date of termination.
(D) The Company may terminate Employee's employment as
follows:
(i) In the event of the merger, sale of the business, or
change in control of the Company, provided that the salary and bonus
continuation provisions of Article 6.1 of this Agreement are met.
(ii) By written notice to Employee, the Company may terminate
Employee's employment immediately with cause. For purposes of this
Agreement, "cause" shall mean material dishonesty or gross
misconduct on the part of Employee in the performance of Employee's
duties hereunder, serious breach of Company policies or failure on
the part of Employee to perform material duties assigned to Employee
by the Company's President or Board of Directors.
(iii) Upon the occurrence of physical or mental disability of
Employee to such an extent that Employee is unable to carry on
essential functions of Employee's position, with or without
reasonable accommodation, and such inability continues for a period
of three months.
5.2) Records and Files. In the event of termination of employment of
Employee hereunder, possession of each corporate file and record shall be
retained by the Company, and Employee or his heirs, assigns and legal
representatives shall have no right whatsoever in any such material,
information or property.
ARTICLE 6.
TERMINATION BENEFITS
6.1) Termination Benefits. In the event Employee's employment by the
Company is terminated, voluntarily or involuntarily by the Company, an acquirer
or Employee, in connection with a merger, sale or "change in control" of the
Company or Techne, Employee shall be paid at the time of such termination an
amount equal to eighteen months compensation, including salary, benefits and
bonus based on the assumption that all performance criteria would have been met
had employment continued. For purposes of this Section 6.1, "change in
control" means the acquisition in one or more transactions by a single party,
or any number of parties acting in concert, of a majority of the outstanding
shares of voting stock of the Company or substantially all of the assets of the
Company.
ARTICLE 7.
MODIFICATIONS
7.1) Modifications. Except as provided in Section 4.1 above, this
Agreement supersedes all prior agreements and understandings between the parties
relating to the employment of Employee by the Company and it may not be changed
or terminated orally. No modification, termination, or attempted waiver of any
of the provisions of this Agreement shall be valid unless in writing signed by
the party against whom the same is sought to be enforced.
ARTICLE 8.
GOVERNING LAW AND SEVERABILITY
8.1) Governing Law. The validity, enforceability, construction and
interpretation of this Agreement shall be governed by the laws of the State of
Minnesota.
8.2) Severability. If any term of this Agreement is deemed
unenforceable, void, voidable, or illegal, such unenforceable, void, voidable
or illegal term shall be deemed severable from all other terms of this Agreement
which shall continue in full force and effect and the Company and Employee
expressly acknowledge that a court of competent jurisdiction may, at Company's
request, modify and thereafter enforce any of the terms, conditions, and
covenants contained in this Agreement.
ARTICLE 9.
BINDING EFFECT
9.1) Binding Effect. The breach by the Company of any other
agreement or instrument between the Company and Employee shall not excuse or
waive Employee's performance under, or compliance with, this Agreement. This
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns, and Employee, his heirs, assigns, and legal
representatives. The rights of Employee hereunder are personal and may not be
assigned or transferred except as may be agreed to in writing by the Company.
ARTICLE 10.
ARBITRATION
10.1) Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement of any
such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall be a retired state or federal judge or an
attorney who has practiced securities or business litigation for at least 10
years. If the parties cannot agree on an arbitrator within 20 days, any party
may request that the chief judge of the District Court for Hennepin County,
Minnesota, select an arbitrator. Arbitration will be conducted pursuant to the
provisions of this Agreement, and the commercial arbitration rules of the
American Arbitration Association, unless such rules are inconsistent with the
provisions of this Agreement, but without submission of the dispute to such
Association. Limited civil discovery shall be permitted for the production of
documents and taking of depositions. Unresolved discovery disputes may be
brought to the attention of the arbitrator who may dispose of such dispute. The
arbitrator shall have the authority to award any remedy or relief that a court
of this state could order or grant; provided, however, that punitive or
exemplary damages shall not be awarded. The arbitrator may award to the
prevailing party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable attorneys' fees. Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
it to be dated as of the day and year first above written.
TECHNE CORPORATION
By: /S/ Thomas E. Oland
-------------------------
Its President
"Company"
/S/ Timothy M. Heaney
------------------------
Timothy M. Heaney
"Employee"
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