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 December 31, 1998, 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 February 1, 1999, 20,088,355 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>
12/31/98 6/30/98
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 13,651,175 $ 27,372,345
Short-term investments 12,100,711 15,321,935
Accounts receivable (net) 12,281,320 10,001,937
Inventories 8,614,812 3,810,600
Deferred income taxes 1,825,000 1,583,000
Other current assets 567,302 431,187
------------ ------------
Total current assets 49,040,320 58,521,004
Deferred income taxes 2,347,000 1,798,000
Fixed assets (net) 12,454,899 11,687,300
Intangible assets (net) 50,341,749 293,854
Other assets 446,800 618,723
------------ ------------
TOTAL ASSETS $114,630,768 $ 72,918,881
============ ============
LIABILITIES & EQUITY
Trade accounts payable $ 2,908,066 $ 2,203,130
Salary and related accruals 1,394,560 2,005,428
Other payables 5,848,454 1,039,334
Income taxes payable 2,518,020 2,185,122
------------ ------------
Total current liabilities 12,669,100 7,433,014
Deferred rent 1,809,300 1,655,100
Royalty payable 13,382,000 -
Common stock, par value $.01 per
share; authorized 50,000,000;
issued and outstanding
20,058,509 and 19,049,983,
respectively 200,585 190,500
Additional paid-in capital 31,634,868 13,714,445
Retained earnings 54,483,713 49,446,319
Accumulated foreign currency
translation adjustments 451,202 479,503
------------ ------------
Total stockholders' equity 86,770,368 63,830,767
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $114,630,768 $ 72,918,881
============ ============
</TABLE>
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------------ ------------------------
12/31/98 12/31/97 12/31/98 12/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $21,464,259 $15,472,857 $42,799,451 $31,010,000
Cost of sales 6,228,253 4,885,856 12,843,130 9,431,762
----------- ----------- ----------- -----------
Gross margin 15,236,006 10,587,001 29,956,321 21,578,238
Operating expenses
(income):
Selling, general and
administrative 4,468,183 3,850,195 8,899,278 7,853,599
Research and development 2,941,986 2,515,658 5,694,111 4,981,506
Amortization expense 2,394,662 9,663 4,789,324 52,134
Interest income (230,672) (286,499) (443,083) (530,367)
----------- ----------- ----------- -----------
9,574,159 6,089,017 18,939,630 12,356,872
----------- ----------- ----------- -----------
Earnings before
income taxes 5,661,847 4,497,984 11,016,691 9,221,366
Income taxes 2,075,000 1,370,000 3,905,000 2,831,000
----------- ----------- ----------- -----------
NET EARNINGS $ 3,586,847 $ 3,127,984 $ 7,111,691 $ 6,390,366
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.18 $ 0.17 $ 0.35 $ 0.34
DILUTED EARNINGS PER SHARE $ 0.17 $ 0.16 $ 0.35 $ 0.33
</TABLE>
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
12/31/98 12/31/97
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,111,691 $ 6,390,366
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 5,871,521 1,121,240
Deferred income taxes (795,000) (273,000)
Deferred rent 154,200 356,400
Tax benefit from exercise of options 179,000 44,000
Other 321,923 273,187
Change in current assets and current
liabilities, net of acquisition:
(Increase) decrease in:
Accounts receivable (2,246,896) 322,086
Inventories 902,067 61,271
Other current assets (136,175) (41,986)
Increase (decrease) in:
Trade account/other payables (60,760) 650,478
Salary and related accruals (612,880) (68,409)
Income taxes payable 339,183 91,008
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,027,874 8,926,641
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition (Note B) (24,977,219) -
Purchase of short-term investments (7,277,214) (14,547,334)
Proceeds from sale of short-term investments 10,498,438 8,206,450
Additions to fixed assets (1,525,295) (1,648,881)
Proceeds from sale of fixed assets - 246,728
Increase in other long term assets (150,000) -
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (23,431,290) (7,743,037)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 752,894 367,796
Repurchase of common stock (2,075,683) (280,000)
----------- -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (1,322,789) 87,796
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5,035 30,400
----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS (13,721,170) 1,301,800
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 27,372,345 8,598,367
----------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $13,651,175 $ 9,900,167
=========== ===========
</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 1998. 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, 1998 included in the Company's Annual Report to Shareholders
for Fiscal 1998.
Certain Consolidated Balance Sheet captions appearing in this interim
report are as follows:
<TABLE>
<CAPTION>
12/31/98 6/30/98
----------- -----------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable $12,550,320 $10,270,937
Less reserve for bad debts 269,000 269,000
----------- -----------
NET ACCOUNTS RECEIVABLE $12,281,320 $10,001,937
=========== ===========
INVENTORIES
Raw materials $ 1,992,540 $ 2,125,365
Supplies 181,328 145,539
Finished goods 6,440,944 1,539,696
----------- -----------
TOTAL INVENTORIES $ 8,614,812 $ 3,810,600
=========== ===========
FIXED ASSETS
Laboratory equipment $10,927,794 $ 9,944,951
Office equipment 3,077,207 2,923,110
Leasehold improvements 10,924,938 10,243,142
----------- -----------
24,929,939 23,111,203
Less accumulated depreciation
and amortization 12,475,040 11,423,903
----------- -----------
NET FIXED ASSETS $12,454,899 $11,687,300
=========== ===========
INTANGIBLE ASSETS
Customer lists $18,010,000 $ 1,010,000
Technology licensing agreements 500,000 500,000
Goodwill 39,062,766 1,225,547
----------- -----------
57,572,766 2,735,547
Less accumulated amortization 7,231,017 2,441,693
----------- -----------
NET INTANGIBLE ASSETS $50,341,749 $ 293,854
=========== ===========
</TABLE>
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires disclosures of comprehensive income and its components in the
Company's financial statements. The Company's total comprehensive income
for the quarters ended December, 1998 and 1997 were $3,418,159 and
$3,239,763, respectively. The Company's total comprehensive income for the
six months ended December 31, 1998 and 1997 were $7,083,390 and $6,379,860,
respectively. The Company's comprehensive income consists of net income,
unrealized holding gains and losses on securities and foreign currency
translation adjustments.
On June 30, 1999, the Company will adopt Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which requires the disclosure of financial and
descriptive information about the reportable operating segments of the
Company.
B. ACQUISITION:
On July 1, 1998, the Company, through its Research and Diagnostics Systems,
Inc. subsidiary, acquired the research products business of Genzyme
Corporation. Assets acquired were as follows:
Inventories $ 5,660,000
Equipment 320,000
Customer list 17,000,000
-----------
$22,980,000
===========
The purchase price paid and payable for the acquisition is as follows:
$24.76 million cash, 987,206 shares of Techne common stock valued at $17
million and $18.84 million of royalties (present value of an estimated
$23.7 million payable over five years) on the Company's biotechnology
sales. The excess of the consideration (including acquisition costs) over
the fair market value of the assets acquired has been recorded as goodwill
and is being amortized on a straight-line basis over six years. The
customer list is being amortized on a declining basis over an estimated
economic life of five years.
Pro forma financial information for the quarter and six months ended
December 31, 1997, presented as if the acquisition had occurred on July 1,
1997, are as follows (in 000's except earnings per share data):
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------- ----------------
12/31/97 12/31/97
----------- ----------------
<S> <C> <C>
Sales $19,024 $38,082
Net earnings 688 1,785
Basic earnings per share .03 .09
Diluted earnings per share .03 .09
</TABLE>
C. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
---------------------- ----------------------
12/31/98 12/31/97 12/31/98 12/31/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding--basic 20,048,267 18,898,817 20,082,018 18,883,475
Dilutive effect of stock
options and warrants 495,235 726,937 461,470 684,750
---------- ---------- ---------- ----------
Average common shares
outstanding--diluted 20,543,502 19,625,754 20,543,488 19,568,225
========== ========== ========== ==========
</TABLE>
D. SUBSEQUENT EVENT:
On January 22, 1999, the Company entered into agreements to acquire real
estate which its wholly-owned subsidiary, R&D Systems, currently occupies
in Minneapolis, Minnesota. The purchase price of the properties is
approximately $28 million, which will be paid through the issuance of
100,000 shares of Common Stock and cash of approximately $25.8 million. A
substantial portion of the cash requirement will be obtained through
mortgage financing. The closing of the purchase transaction is expected to
be in July, 1999.
In addition to agreements to purchase the currently occupied properties,
the Company has acquired options on property adjacent to its R&D Systems'
facility to provided future expansion space for the Company.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter and Six Months Ended December 31, 1998
vs. Quarter and Six Months Ended December 31, 1997
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.
In November 1997, January 1998 and July 1998, Techne purchased a total of
$3 million of preferred stock of ChemoCentryx, Inc. (CCX), representing
approximately 37% of issued and outstanding voting shares. In addition,
Techne is obligated to purchase up to an additional $2 million of preferred
stock over the next year upon CCX's achievement of certain milestones. After
purchase of the additional preferred shares, Techne will own approximately
49% of the issued and outstanding voting shares (assuming no investment by
other parties). Techne has consolidated CCX into its financial statements
due to the limited amount of cash consideration provided by the holders of
the common shares of CCX. CCX is a new 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.
Net Sales
Net sales for the quarter ended December 31, 1998 were $21,464,259, an
increase of $5,991,402 (39%) from the quarter ended December 31, 1997.
Sales for the six months ended December 31, 1998 increased $11,789,451
(38%) from $31,010,000 to $42,799,451. R&D Systems sales increased
$4,368,189 (40%) and $8,732,439 (38%) for the quarter and six months ended
December 31, 1998, respectively. R&D Europe sales increased $1,623,213
(37%) and $3,057,012 (37%) for the quarter and six months ended December
31, 1998, respectively.
The increase in sales for the quarter and six months was due, in part, to
the acquisition of Genzyme Corporation's research products business on July
1, 1998. Sales of these products were $1,701,770 and $4,164,797 for the
quarter and six months ended December 31, 1998, respectively. In addition,
the increase in consolidated sales for the quarter and six months was due
to increased sales of R&D Systems' cytokines, antibodies and immunoassay
kits to both R&D Systems customers and to former Genzyme customers as they
are converted from Genzyme products to R&D Systems products.
Gross Margins
Gross margins, as a percentage of sales, increased slightly from the prior
year. Margins for the second quarter of fiscal 1999 were 71.0% compared to
68.4% for the same quarter in fiscal 1998. Margins for the six months
ended December 31, 1998 were 70.0% compared to 69.6% for the same period in
fiscal 1998.
R&D Europe gross margins decreased from 48.6% to 46.4% for the quarter and
from 50.6% to 46.6% for the six months ended December 31, 1998 as a result
of the conversion from both manufacturing and sales activities to a sales
only function through the transfer of all manufacturing activities to R&D
Systems during fiscal 1998. Hematology Division gross margins increased
from 42.2% to 47.2% for the quarter and from 45.5% to 46.6% for the six
months ended December 31, 1998 as a result of changes in product mix and
increased volumes. Biotechnology Division gross margins increased from
70.9% to 72.11% for the quarter, but decreased slightly from 72.0% to 71.0%
for the six months ended December 31, 1998. The decrease in Biotechnology
Division gross margins for the six months was a result of lower gross
profit levels on the inventory acquired from Genzyme during the first
quarter of fiscal 1999. In the second quarter, the lower gross profit on
Genzyme products was offset by the increased sales of higher margin R&D
Systems products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $617,988 (16%) from
the second quarter of fiscal 1998 to the second quarter of fiscal 1999.
These expenses also increased $1,045,679 (13%) for the first six months of
fiscal 1999. The majority of the increase for the quarter and six months
was due to additional sales personnel added in the U.S. and Europe as a
result of the Genzyme acquisition.
Research and Development Expenses
Research and development expenses increased $426,328 (17%) and $712,605
(14%) for the quarter and six months ended December 31, 1998. The increase
related to products currently under development, many of which have been or
will be released in fiscal 1999. Products currently under development
include both biotechnology and hematology products.
Amortization Expense
Amortization expense increased $2,384,999 and $4,737,190 for the quarter
and six months ended December 31, 1998 as a result of the customer list and
goodwill associated with the Genzyme acquisition.
Net Earnings
Earnings before income taxes increased $1,163,863 from $4,497,984 in the
second quarter of fiscal 1998 to $5,661,847 in the second quarter of fiscal
1999. Earnings before taxes for the six months increased $1,795,325 from
$9,221,366 to $11,016,691. The increase in earnings before income taxes
was due mainly to an increase in Biotechnology Division earnings of $867,983
and $1,722,086, an increase in R&D Europe earnings of $306,745 and $366,627,
and an increase in Hematology Division earnings of $232,478 and $205,050 for
the quarter and six months ended December 31, 1998. These increases were
reduced by a net loss by CCX in the second quarter and first six months of
fiscal 1999.
Income taxes for the quarter and six months ended December 31, 1998 were
provided at a rate of approximately 37% and 35% of consolidated pretax
earnings compared to 30% and 31% for the prior year. The increase in the
tax rate is due to the net loss by CCX in the second quarter and first six
months of fiscal 1999 for which no tax benefit has been provided. U.S.
federal taxes have been reduced by the credit for research and development
expenditures and 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 December 31, 1998, cash and cash equivalents and short-term investments
were $25,751,886 compared to $42,694,280 at June 30, 1998. The decrease
from June 30, 1998 was due to the cash outlay for the Genzyme acquisition.
The Company believes it can meet its future cash, working capital and
capital addition requirements (excluding real estate to be acquired in July,
1999) 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 $11,027,874 from operating activities in the
first six months of fiscal 1999 compared to $8,926,641 for the first six
months of fiscal 1998. The increase was mainly the result of increased net
earnings adjusted for noncash expenses partially offset by increased accounts
receivable.
Cash Flows From Investing Activities
On July 1, 1998 the Company acquired the research products business of
Genzyme Corporation for $24.76 million cash, $17 million common stock and
royalties on the Company's biotechnology sales for five years. Cash and
cash equivalents at June 30, 1998 and maturities of short-term investments
were used to finance the cash portion of the acquisition.
During the six months ended December 31, 1998 short-term investments
decreased by $3,221,224. During the six months ended December 31, 1997,
the Company increased short-term investments by $6,340,884. 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.
Capital additions were $1,525,295 for the first six months of fiscal 1999,
compared to $1,648,881 for the first six months of fiscal 1998. Included
in the fiscal 1999 and 1998 additions were $683,000 and $721,000 for
leasehold improvements related to remodeling of facilities by R&D Systems.
The remaining additions in fiscal 1999 and 1998 were for laboratory and
computer equipment. Total expenditures for capital additions planned for
the remainder of fiscal 1999 are expected to cost approximately $4.5
million and are expected to be financed through currently available funds
and cash generated from operating activities.
Cash Flows From Financing Activities
Cash of $752,894 and $367,796 was received during the six months ended
December 31, 1998 and 1997, respectively, for the exercise of options for
158,420 and 46,540 shares of common stock. During the first six months of
fiscal 1998, options for 24,506 shares of common stock were exercised by
the surrender of 7,624 shares of the Company's common stock with a fair
market value of $126,194.
During the first six months of fiscal 1999 and 1998, the Company purchased
and retired 138,600 and 20,000 shares, respectively, of Company common
stock at market values of $2,075,683 and $280,000. 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
February 1, 1999, 575,600 shares have been purchased at a market value of
$6,887,547.
The Company has never paid cash dividends and has no plans to do so in
fiscal 1999.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1998, the Company had an investment portfolio of fixed
income securities, excluding those classified as cash and cash equivalents,
of $12,100,711. 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 would 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 AND EURO CURRENCY ISSUES
The Company must take 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 is
conducting a review of all of its computer systems (information technology
as well as embedded systems) to identify those areas that could be affected
by Year 2000 noncompliance. The Company plans to complete the process of
upgrading those systems which may not be Y2K compliant by mid 1999 and does
not believe the cost of any such upgrades will be material. The Company is
in the process of developing contingency plans should systems fail. 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.
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.
The Company has implemented new accounting and operational software at its
European subsidiary which accommodated the conversion on January 1, 1999 to
a common currency, the "euro," by members of the European Union. The
software is also Y2K compliant.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No change.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
Information relating to the Company's Annual Meeting of Shareholders,
held on October 22, 1998 is contained in the Company's Form 10-Q for
the quarter ended September 30, 1998, which is incorporated herein by
reference.
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 level of success
in converting customers and distributors of Genzyme Corporation's
research product business to the Company and selling the Company's
broader range of products to the former Genzyme customers and
distributors, 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 December
31, 1998.
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: February 12, 1998 Thomas E. Oland
--------------------------------
Thomas E. Oland
President, Chief Executive and
Financial Officer
EXHIBIT INDEX
TO
FORM 10-Q
TECHNE CORPORATION
Exhibit # Description
---------- ------------------
10.1 Purchase Agreement dated January 22, 1999,
between R&D Systems, Inc. and Hillcrest Development,
relating to the purchase of property at 614 and 640
McKinley Place NE and 2201 Kennedy Street in
Minneapolis, Minnesota and First Amendment to the
Purchase Agreement, dated February 5, 1999
27 Financial Data Schedule
PURCHASE AGREEMENT
(614 & 640 McKinley and 2201 Kennedy)
THIS AGREEMENT is entered into this 22 day of January, 1999, by and
between Hillcrest Development, a Minnesota limited partnership (hereafter
referred to as the "Seller"), and R & D Systems, Inc., a Minnesota corporation,
(the "Buyer"), upon the basis of the following facts, understandings and
intentions of Seller and Buyer.
RECITALS:
1. Seller is the fee owner of real property (collectively the "Land")
legally described as Lots 16 and 17, Auditor's Subdivision Number 268,
Hennepin County, Minnesota ("Parcel 1") and Lots 8 and 9, Auditor's
Subdivision Number 268, Hennepin County, Minnesota ("Parcel 2"). Parcel 1 is
currently improved with office buildings (hereafter referred to collectively
as the "Buildings"), together with miscellaneous improvements to the Land
("Miscellaneous Improvements"). The Buildings are commonly known as 614
McKinley, 640 McKinley and 2201 Kennedy, all located in N.E. Minneapolis,
County of Hennepin, Minnesota. Parcel 2 is a blacktopped parking lot located
at the northeast corner of the intersection of Summer Street and Cleveland
Street in N.E. Minneapolis, Minnesota.
2. Buyer is currently leasing Parcel 1 from Seller under a lease
agreement originally dated July 24, 1992, and amended by various letters of
agreement dated April 27, 1993, June 22, 1993, January 17, 1995, February 17,
1995, June 15, 1995, August 18, 1995, September 11, 1995, July 3, 1996,
August 5, 1998 and December 22, 1998, and by the Agreement for the First
Amendment to a Lease dated October 27, 1995, and the Agreement for the
Second Amendment to a Lease dated July 3, 1996 and the Agreement for the
Third Amendment to a Lease dated December 19, 1996 (collectively, the "Lease").
3. The Lease contains a right of first refusal in favor of Buyer to
purchase the premises subject to the Lease ("Right of First Refusal").
4. The parties contemplated that on or before February 5, 1999,
Seller and Buyer will enter into:
(a) An option agreement granting Buyer an option to
purchase 2101 Kennedy, 659 Cleveland Building and certain parking
lots ("2101 Kennedy Option");
(b) An option agreement granting Buyer an option to
purchase 2001 Kennedy and certain parking areas ("Phase II Option").
5. Buyer desires to purchase the Land, the Buildings, the Miscellaneous
Improvements, and all licenses, permits, equipment, fixtures and furnishings
and all other personal property, tangible or intangible, owned by Seller and
currently located on the Land and solely used in the operation and maintenance
of the foregoing (hereafter said licenses, permits, equipment, fixtures and
furnishings and other included personal property shall be referred to in the
aggregate as "Personal Property," and hereafter the Land, the Building, the
Miscellaneous Improvements, and Personal Property is sometimes referred to in
the aggregate as the "Property") in accordance with the terms and conditions
hereinafter set forth.
6. Seller is willing to grant and extend to Buyer such purchase right
as the terms hereafter set forth.
NOW, THEREFORE, in consideration of the agreements hereinafter provided
and other good and valuable consideration, Seller agrees to sell and Buyer
agrees to purchase from Seller the Property, together with and including all
hereditaments, appurtenances, easements and rights of way thereunto belonging
or in any way appertaining and also the right, title and interest (if any) of
Seller in and to the bounding and abutting streets, alleys and highways,
subject to and upon the following terms and conditions:
SECTION I
PURCHASE PRICE
It is hereby agreed that the Purchase Price of the Property shall be
Twenty-Eight Million and 00/100 Dollars ($28,000,000.00) (the "Purchase
Price"), which shall be paid by Buyer to Seller as follows:
(i) 100,000 shares of Techne Corporation common stock ("Stock")
shall be paid into escrow as provided for in Section II below and
shall be valued at $2,160,830.00 which is the value of the Stock
based on the average close of the Stock on the preceding fifteen
(15) trading days prior to the execution of this Purchase
Agreement. In connection with the issuance of the Stock, Seller
will execute an investment letter in the form of Exhibit E hereto
attached and a Registration Rights Agreement with Techne Corporation
in the form of Exhibit F hereto attached.
(ii) $4,000,000 shall be paid into escrow as provided for in Section
II below.
The remainder of the Purchase Price, namely, $21,839,170.00 will be
payable at closing in immediately available funds.
The Purchase Price shall be allocated as follows:
$ to 640 McKinley (including north link building);
$ to 614 McKinley (including south link building);
$ to 2201 Kennedy; and
$ to Parcel 2.
SECTION II
EARNEST MONEY DEPOSIT
Buyer shall deposit no later than February 26, 1999, 12:01 p.m. in escrow
with First American Title Insurance Company (the "Escrow Agent" and sometimes
hereafter "Title") the sum of $4,000,000.00, plus the Stock (with duly
executed stock powers attached) (this sum shall be collectively referred to
as the "Deposit") which shall be retained by the Escrow Agent for the benefit
of Seller and Buyer in accordance with the provisions of this Purchase
Agreement. The parties hereby agree to execute such documentation, if any,
reasonably required by the Escrow Agent in connection with the disbursement of
the Deposit and establishment of said earnest money escrow referenced above.
SECTION III
INVESTMENT AND DISBURSEMENT OF DEPOSIT
The Escrow Agent is hereby directed to invest the Deposit represented by
cash in a segregated U.S. Treasury-backed money market account with U.S.
Bancorp in Minneapolis, Minnesota.
The Deposit shall be disbursed by the Escrow Agent as follows:
(a) Except as provided for in (b) below, the Deposit shall
be deemed nonrefundable and shall be delivered to Seller either
upon the termination of this Purchase Agreement or upon the closing
of the sale of the Property as partial payment of the Purchase Price.
(b) The Deposit shall be delivered to Buyer in the event:
(i) this Purchase Agreement cannot be timely closed because
title to the Property is not acceptable or cannot be delivered
as provided and Buyer terminates this Purchase Agreement pursuant
to Section VI; (ii) Buyer terminates this Purchase Agreement
pursuant to Sections IV or XII hereof; (iii) Buyer terminates
this Purchase Agreement pursuant to Section XVI hereof; (iv)
Buyer terminates this Purchase Agreement pursuant to Section
XVII hereof.
(c) Interest in the Deposit shall inure to the benefit of
Seller, in all events.
SECTION IV
BUYER'S CONDITIONS PRECEDENT
Seller agrees that this Purchase Agreement shall be conditioned upon
Buyer satisfying itself, in its sole and absolute judgment, that the
following conditions precedent with respect to the Property are met:
(a) Buyer's inspection and approval of the Land, the
Building, the Miscellaneous Improvements, Personal Property,
the Other Agreements and the properties covered by 2101
Kennedy Option and Phase II Option (as hereinbefore defined)
and all other information required herein to be provided to
Buyer by Seller, all during regular weekday business hours.
Seller agrees to allow Buyer and its agents the right of any
ingress or egress over and through the Property for the purpose
of inspecting the same and making other observations as Buyer
deems reasonably necessary. Buyer agrees to indemnify and hold
Seller harmless from all injury, death or property damage or
claims of any kind whatsoever including mechanic's liens arising
out of or in any way incidental to Buyer's presence on the
Property for the purposes aforesaid. This indemnity shall
survive the termination of this Purchase Agreement, regardless
of which party elects to terminate this Purchase Agreement.
To the extent Seller has not already done so, Seller agrees to
provide to Buyer copies of or allow Buyer access to the
following items within two (2) days from the execution of this
Purchase Agreement:
(i) copies of Plans and Specifications, blueprints,
operating manuals, surveys and licenses, if any, in
Seller's possession, used to operate the Buildings and
the remainder of the Property;
(ii) complete copies of all service and maintenance
contracts currently affecting the Property ("Other
Agreements");
(iii) copies of all permits or authorizations, if
any, in Seller's possession, required to be issued by
any governmental body having jurisdiction in connection
with any state of facts or activity presently existing or
being carried on with respect to the Property;
(iv) copies of all warranties and guaranties, if any,
which are still effective and which pertain to the Property
or any portion thereof ("Warranties");
(v) inventory of the Personal Property owned by the
Seller and located on the Land and used in connection with
the operation of the Property.
(b) Buyer may use the Property for its existing uses
("Current Uses") without being in violation of any zoning
classification, land use classification, environmental
requirement, or any other use classification or building
classification or requirement established by any entity or
authority having legal jurisdiction or authority thereover.
(c) All utilities, including but not limited to
electricity, gas, water (fire and domestic) storm and sanitary
sewer, are available on site, through valid and adequate public
or private easements for Current Uses; provided that in the case
of private easements, they are appurtenant to the Property, or
on the Property's side of abutting streets of size and capacity
sufficient to serve the Current Uses.
(d) Buyer approving, as provided in Section V(A) hereof,
the environmental audits provided to Buyer for the Property or
any additional reports obtained by Buyer.
(e) Buyer obtaining satisfactory mortgage and equity
financing for the Property on terms and conditions satisfactory
to Buyer.
(f) Buyer's approval of the License Agreement, Parking
Easement and Management Agreement as defined in Sections XVIII
and XXV hereof.
This Purchase Agreement shall be deemed terminated and neither party
liable to the other herein unless Buyer affirmatively accepts or waives the
foregoing conditions by paying to the Escrow Agent the Deposit by February 26,
1999 at 12:01 p.m. as required by Section II. Seller acknowledges that
Buyer's election not to purchase the Property may be based upon Buyer's
unwillingness to accept the condition of the properties covered by the 2101
Kennedy Option and the Phase II Option, including but not limited to
environmental. Notwithstanding the foregoing, Buyer may elect to terminate
this Purchase Agreement between February 26, 1999 and the date of closing in
the event (i) environmental testing done between such dates pursuant to
Section V hereof reveal contamination not previously known on February 26,
1999, or (ii) a change in any item referred to in (b) above occurs between
February 26, 1999 and the date of closing so as to prohibit the use of the
Property for Current Uses. Upon any such termination of this Purchase
Agreement by Buyer, the Deposit (other than the interest earned thereon) shall
be returned to Buyer as provided in Section III hereof and all parties hereto
shall be released from all duties and obligations to each other contained
herein.
SECTION V
ENVIRONMENTAL AUDITS AND SURVEY
A. Environmental Audits. Seller has provided to Buyer environmental
reports ("Environmental Reports") for the Property at no cost or expense to
Buyer which are described in Exhibit C hereto attached and that except for the
Exhibit D information, to the best of Seller's knowledge, such material
constitutes all of the environmental reports in Seller's possession or control.
Buyer shall have the right to do additional environmental audits and/or soil
tests subject to the reasonable prior written approval of Seller regardless of
the cost as long as Buyer pays for all of such costs; provided, however, no
such additional testing shall be done beyond February 26, 1999 unless the
testing is based on new information not previously known to Buyer. Buyer
agrees to indemnify and hold Seller harmless from all mechanic's liens
liability and other costs and expenses arising from Buyer's doing such
additional environmental audits and/or soil tests.
B. Survey. Seller has provided Buyer with a survey ("Survey") of the
Property.
C. Copies of Documents. To the extent not already done, Seller shall
promptly deliver to Buyer or make available to Buyer copies of all soil tests,
environmental audits, surveys and other documents relating to the physical
properties of the Property which are within Seller's control and Buyer agrees
to promptly deliver to Seller copies of all of such items which are within
Buyer's control. Buyer will deliver to Seller, at the closing, copies of all
the contents of the "RREEF Box" hereafter defined.
D. RREEF Box Documents. The parties acknowledge that Seller has
provided to Buyer an unopened box ("RREEF Box") allegedly containing due
diligence materials for the Property prepared by RREEF, as hereafter defined.
Attached hereto as Exhibit D is a list of the materials in the RREEF Box
relating to the Environmental Reports of the Property. Seller makes no
representations or warranties as to the accuracy of the contents of the RREEF
Box nor shall any of Seller's representations and warranties regarding the
sale of the Property or the sale of the properties covered by the 2101 Kennedy
Option and/or the Phase II Option be in any manner considered based on such
contents except for the Environmental Reports described in Exhibit D.
SECTION VI
TITLE EVIDENCE
A. Seller, at Seller's expense, will provide Buyer prior to February
15, 1999 with a commitment(s) (the "Commitment") for an Owner's Policy of
Title Insurance for the Property issued by Title. Buyer shall pay at closing
the premium for the actual title insurance policy, if any, to be purchased by
Buyer. The Commitment shall include appurtenant coverage for Buyer's rights
under the Parking Easement as not subordinate to any prior interest, unless
approved by Buyer, waiver of standard exceptions, a zoning and comprehensive
endorsements and a contiguity endorsement as to each of Parcel 1 and Parcel 2
and shall include legible copies of all documents, maps, or plats set
forth therein as affecting the Property and shall be issued through Title in
its capacity as a title insurance company by its local office or by its local
agent (the "Title Company") situated in the county where the Property is
located. The Commitment shall be issued in the name of Buyer, Techne
Corporation and Buyer's lender.
B. By February 26, 1999, Buyer shall deliver to Seller a written
statement containing any objection Buyer has to the state of title, including
Survey objections and objections to Permitted Encumbrances. Buyer
acknowledges that simultaneously with the closing, Seller will terminate the
Declaration of Easement dated December 21, 1995, filed January 4, 1996, as
Document No. 2665870 with Hennepin County Registrar of Titles office
("Declaration"). If such statement of objection is not delivered by February
26, 1999, title shall be deemed approved by Buyer except for Schedule B,
Section 1 requirements of the commitment ("Requirements") which Seller agrees
to satisfy at closing. If any objection other than the Requirements is not
cured or removed by February 26, 1999, Buyer, at its option, may, prior to
February 26, 1999, either (i) accept title as it is, subject to Seller's
obligations to satisfy the Requirements; or (ii) terminate this Purchase
Agreement. Seller shall have no obligation to cure any of the Permitted
Encumbrances. Upon any such termination all parties shall be released from
all duties or obligations contained herein and the Deposit (other than the
interest earned thereon) shall be returned to Buyer as provided for in
Section III hereof.
SECTION VII
1031 EXCHANGE
At either party's request, the other party agrees to cooperate with the
requesting party in a deferred or simultaneous 1031 like kind exchange(s) of
all or any portion of the Property as long as the other party is not required
to take title to any other property or to incur any further cost, expense,
liability or delay.
SECTION VIII
WAIVER OF RIGHT OF FIRST REFUSAL
If this Purchase Agreement is terminated pursuant to either Section IV
(by failing to pay to Escrow Agent the Deposit by 12:01 p.m. on February 26,
1999), or Section VI hereof, Buyer agrees that such termination shall
constitute a waiver of its Right of First Refusal only with respect to a
sale of the Property to RREEF (as hereafter defined) as hereinafter provided
and that Seller shall be free to sell the Property (along with Seller's
interest in other properties which are the subject of option agreements of
even date herewith between Seller and Buyer relating to 2101 Kennedy and 2001
Kennedy and related parking areas) to RREEF Venture Capital Fund L.P., or a
related or affiliated entity ("RREEF") provided such sale is consummated
prior to October 15, 1999. Buyer agrees, not later than January 29, 1999, to
execute an estoppel certificate in favor of RREEF with respect to the Lease
for use by RREEF and to deliver the original of same to Title on or before
January 29, 1999 to be held by Title in escrow pending RREEF's acquisition of
title to the Property prior to October 15, 1999. Title shall provide a copy
of the same to Seller upon receipt but shall retain the original. If this
Purchase Agreement is not terminated, or, if it is and the RREEF transaction
is not consummated by October 15, 1999, the original certificate shall be
returned to Buyer. This section shall survive the termination of this
Purchase Agreement.
SECTION IX
WARRANTIES
Seller warrants and represents to Buyer that the following statements
are now, will at the closing, and will after closing to the extent hereinafter
provided be true and accurate:
(a) Seller will have marketable and insurable record title
to the Property as of closing, subject only to the Permitted
Encumbrances listed on Exhibit A attached hereto and made a part
hereof. Seller will, simultaneously with the closing, terminate
the Declaration.
(b) To the best of Seller's knowledge, the information
supplied to Buyer pursuant to Section IV(a) hereof is complete and
correct and has been duly supplemented including, but not limited
to, any new Other Agreements.
(c) At closing, Seller shall (i) convey to Buyer by Warranty
Deed the Property and convey by Warranty Bill of Sale the Personal
Property to Buyer free of all encumbrances on the Property or any
portion thereof except for the Permitted Encumbrances and other
matters approved by Buyer pursuant to Section VI or as otherwise
provided herein; and (ii) shall assign to the extent they are
assignable, all of Seller's interest in the "Other Agreements."
(d) Seller has not received any notice nor are they aware
of any pending or threatened action to take by eminent domain or
by deed in lieu thereof all or any portion of the Property.
(e) Seller shall be solely responsible for and shall pay on
the date of closing any deferred tax or assessment, including,
but not limited to, those referred to in Minnesota Statutes
Section 273.11 (the so-called "Green Acres recapture"), catch-up
or adjustment in future taxes due as a result of the Property
having been classified under any designation authorized by law
to obtain a special low ad valorem tax rate or receive either
an abatement or deferment of ad valorem taxes.
(f) Seller is not a "foreign person" as contemplated by
Section 1445 of the Internal Revenue Code, and that at the
closing Seller will deliver to Buyer a certificate so stating,
in a form complying with the Federal tax law.
(g) This Purchase Agreement and the documents, instruments
and agreements to be executed by Seller pursuant to this Purchase
Agreement have been, or will be on or before the date of closing,
duly and validly authorized, executed and delivered by Seller and
the obligations of Seller hereunder and thereunder are or will
be valid and legally binding, and this Purchase Agreement and the
documents, instruments and agreements to be executed and delivered
by Seller pursuant to this Purchase Agreement are or will be upon
such execution and delivery enforceable against Seller in
accordance with their respective terms.
(h) Except as shown by the materials described in Exhibit C
and Exhibit D, except for acts of Buyer as a tenant of the
Property and the use by Buyer of hazardous materials, except for
asbestos used as a building material for the Property and the two
underground propane tanks located at the southwest corner of 2201
Building, to the best of Seller's knowledge, Seller has not
generated, manufactured, buried, spilled, leaked, discharged,
emitted, stored, disposed of, used or released any Hazardous
Substance (as hereafter defined) about the Property, except as
may have occurred as a result of operating the Property and in
any such event such activities were at all times in compliance
with Environmental Laws (as hereinafter defined), and has not
knowingly permitted any other party to do any of the same.
Except for and to the extent of the matters specifically
described in Exhibit C and Exhibit D, except for acts of Buyer
as a tenant of the Property and the use by Buyer of hazardous
materials, except for asbestos used as a building material for
the Property and the two underground propane tanks located at
the southwest corner of 2201 Building, Seller has received no
notice of and has no actual knowledge, without inquiry (a) that
any Hazardous Substance are or have ever been generated,
manufactured, buried, spilled, leaked, discharged, emitted,
stored, disposed of, used or released about the Property,
except as hereinbefore provided, or (b) of any, requests,
notices, investigations, demands, administrative proceedings,
hearings, litigation or other action proposed, threatened or
pending relating to any of the Property and alleging
non-compliance with or liability under any Environmental Law
(as herein defined), or (c) that any above-ground or underground
storage tanks or other containment facilities of any kind
containing any Hazardous Substance are or have ever been located
about the Property, or (d) that Seller's operations on the
Property have been in compliance with all federal, state and
local environmental laws, ordinances, rules and regulations,
relating to the handling, storage and disposal of the Hazardous
Materials. For purposes hereof, Hazardous Substance means
asbestos, urea formaldehyde, polychlorinated biphenyls, nuclear
fuel or materials, radioactive materials, explosives, known
carcinogens, petroleum products and by-products (including crude
oil or any fraction thereof), and any pollutant, contaminant,
chemical, material or substance defined as hazardous or as a
pollutant or a contaminant in, or the use, manufacture,
generation, storage, treatment, transportation, release or
disposal of which is regulated by, any Environmental Law. For
purposes hereof, Environmental Law means any federal, state,
county, municipal, local or other statute, ordinance or regulation
which relates to or deals with the protection of the environmental
and/or human health and safety, including all regulations
promulgated by a regulatory body pursuant to any such statute,
ordinance, or regulation, including, the Comprehensive
Environmental Response and Liability Act of 1980 ("CERCLA"), as
amended, 42 U.S.C. 9601 et. seq., the Resource Conservation and
Recovery Act ("RCRA"), as amended, 42 U.S.C. 6901 et. seq., the
Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et.
seq., the Clean Air Act, as amended, 42 U.S.C. 7401 et. seq., and
Minnesota Statutes Section 115B.01 et seq.
(i) To the best of Seller's knowledge, no unrecorded
condition, restriction, obligation or agreement not previously
disclosed to Buyer pursuant to Section IV hereof shall exist which
affect the Property or Buyer's ability to use the Property for the
Current Uses.
(j) To the best of Seller's knowledge, no portion of the
Property is located within an area designated as a "flood plain"
or "flood prone area" under any statute, regulation, or ordinance.
(k) To the best of Seller's knowledge, the Property is free
from any use or occupancy restrictions, except those imposed by
zoning laws and regulations, and no part is dedicated or has been
used as a cemetery or burial ground.
(l) To the best of Seller's knowledge, except for the
anticipated vacation of Summer and Cleveland Streets, no fact or
condition exists which would result in the termination of the
current access to the Property from any presently existing streets
and roads adjoining or situated on the Property or to any
existing sewer or other utility facilities servicing, adjoining or
situated on the Property. To the best of Seller's knowledge, all
utilities needed for Current Uses are available to the Property.
(m) There is no litigation at law or in equity, and no
action, litigation, investigation or proceedings of any kind,
including, but not limited to, administrative or regulatory
authority, pending or threatened against the Property, or the
Seller, or affecting the ability of Seller to consummate the
transaction contemplated herein and Seller knows of no facts
which could give rise to any such action, litigation,
investigation or proceeding with respect to the Property or the
Seller.
(n) To the best of Seller's knowledge, there are no
outstanding citations or notices of violations of any statutes,
ordinances or regulations of any kind, with respect to the
Property and to the best of Seller's knowledge, there are no
structural defects in the Buildings including the roof, but the
foregoing shall not be construed as a warranty for the roof of
the Buildings.
(o) To the best of Seller's knowledge, (i) the Property
is zoned for the Current Uses, (ii) the Property contains no wells,
and (iii) the Property does not contain any septic systems.
(p) To the best of Seller's knowledge, except for Buyer
rights under the Lease and except for a right that may be granted
by Seller to RREEF (or any of its affiliates), to purchase the
Property which right shall be contingent on the termination of
this Purchase Agreement, no other party has any right, title or
interest in and to the Property, including the right to purchase
the Property, except as set forth as a Permitted Encumbrance.
Seller represents and warrants that in the event it enters into
a purchase agreement with RREEF for the sale of the Property
contingent upon the termination of this Purchase Agreement, such
purchase agreement will be entered into only if RREEF executes
a quitclaim deed in favor of Seller as to the Property to be
placed in escrow with Title and to be delivered upon Buyer's
closing its purchase of the Property.
(q) Except as otherwise required by the Lease, Seller shall
cure any violations of law or municipal ordinance, orders or
requirements for which Seller had received a notice of violation
prior to the closing which would affect the Property and which
would be binding upon the Property or Buyer after the closing.
(r) Seller will execute such documents including indemnitees
as are necessary for Title to issue an early start endorsement for
Buyer and Buyer's lender; provided, however, such documents will
not guarantee payment by Buyer to Seller of any contract amounts.
(s) Seller represents and warrants that it will maintain
fire and extended coverage insurance on the respective Buildings
in the amounts as indicated:
Building Amount
614 $ 9,500,000.00
640 $ 5,000,000.00
2201 $20,500,000.00
None of the foregoing warranties shall be construed as a warranty
as to the sufficiency of parking, it being understood that parking
requirements are dependent on the usage of the Property by the Buyer.
Except for the foregoing warranties, Buyer acknowledges that it
is purchasing the Property in its "as is" condition relying solely
on its knowledge of the Property in its capacity as tenant under
the Lease and on its inspection of the quantity and quality of the
Property including the floor, the structural portions of the
Property and the roof. The foregoing representations and
warranties will survive until December 31, 1999 ("Final Action
Date"). The parties agree that all actions commenced by Buyer
against Seller based on such representations and warranties
shall be deemed time barred unless such actions have been commenced
prior to the Final Action Date, or such claims are based on fraud,
it being understood that except for claims based on fraud, Buyer
shall be deemed to have released Seller for any claims based on such
representations and warranties unless an action based thereon is
commenced prior to Final Action Date.
SECTION X
CLOSING
The closing of this transaction shall take place in the office of Title
in Minneapolis, Minnesota on July 1, 1999. Notwithstanding any other
provision hereof to the contrary, Seller shall have the right to terminate
this Purchase Agreement in the event Buyer fails to pay the option money
required under the 2101 Kennedy Option on or before the closing of this
transaction. Possession of the Property shall be deemed to have been given by
Seller to Buyer coincident with the closing. The following procedure shall
govern the closing:
(a) Prior to closing, Seller shall deliver to Buyer and
Title a copy of the proposed general Warranty Deed (the "Deed")
which shall be in recordable form and shall convey good and
marketable record title to the Property (using the legal
descriptions set forth on the Title Commitment and the Survey)
to Buyer, subject only to the Permitted Encumbrances and other
matters approved by Buyer. If the form of the Deed does not
comply with the provisions set forth above, the Seller shall
promptly correct the same upon notice from either Buyer or the
Title Company.
(b) On or before the closing Seller shall deliver to the
Title Company or Buyer the following:
(i) the Deed, properly executed and acknowledged
along with a standard form Seller's Affidavit;
(ii) current real estate tax statements;
(iii) any applicable owner's duplicate certificate(s)
of title to the Property;
(iv) any applicable abstracts of title in Seller's
possession;
(v) a warranty bill of sale properly executed for all
Personal Property;
(vi) properly executed assignments of all Seller's
interest in and to the Other Agreements and which shall
provide that Seller will indemnify and hold Buyer harmless
from all claims under the foregoing which accrued on or
prior to closing and Buyer shall agree to indemnify and
hold Seller harmless from all claims under the foregoing
which accrue after the closing;
(vii) a well certificate as may be required by
applicable law or in the event it is not required, a
certification in the deed that there are no wells on the
Property;
(viii) an assignment of the Warranties and any other
documents required by this Purchase Agreement;
(ix) any other documentation reasonably requested by
the Title Company in order to confirm the authority of the
Seller to consummate this transaction or to permit the Title
Company to issue to Buyer, upon completion of the closing,
its Owner's Title Insurance Policy in an amount equal to the
Purchase Price, subject only to those matters shown on the
Commitment which were approved by Buyer (the "Title Policy");
Provided, however, that the foregoing shall not be construed
to obligate Seller to provide any indemnity except as provided
in Section IX(r), or to pay any sums not otherwise required to
be paid by Seller hereunder;
(x) such funds as may be required by Seller to pay
closing costs or charges properly allocable to Seller;
(xi) Lease Termination Agreement ("LTA Agreement")
terminating the Lease as of the closing date, executed by
Seller;
(xii) Memorandum of Option Agreements as required by
the 2101 Kennedy Option and Phase II Option;
(xiii) License Agreement, Parking Easement and
Management Agreement.
(c) On or before the closing, Buyer shall deliver to Title
or Seller the following:
(i) the balance of the cash due at closing, less any
amounts for which Buyer is to receive a credit;
(ii) such additional funds as may be required of Buyer
to pay closing costs or charges properly allocable to Buyer;
(iii) LTA Agreement executed by Buyer;
(iv) Memorandum of Option Agreements as required by the
2101 Kennedy Option and Phase II Option;
(v) License Agreement, Parking Easement and Management
Agreement;
(d) After Title has received all of the items to be deposited
with it, and when it is in a position to issue the Title Policy
reflected by the approved Commitment, Title shall:
(i) record the Deed;
(ii) record any other instruments executed by the
parties, or either of them, which are contemplated by this
Purchase Agreement to be placed of record, instructing the
Recorder's Office to return the same to the beneficiary
thereof;
(iii) issue to Buyer its Title Policy and deliver to
Buyer all other documents to be herein delivered by Seller
to the Title Company pursuant to this Purchase Agreement;
(iv) charge Buyer for the recording cost of the Deed
and one-half of the closing fee and escrow fee, and the cost
of any purchased title policy;
(v) charge Seller for one-half of the closing fee and
escrow fee, recording any documents clearing title to the
Property, any abstracting costs, and the cost of the title
insurance commitment for Buyer;
(vi) charge Seller for the full cost of any deed
transfer, revenue or similar tax with respect to the sale of
the Property;
(vii) real estate taxes and installments of special
assessments due and payable in 1999 shall be prorated between
the parties based on a calendar year and the date of closing.
Seller shall pay all real estate taxes and installments
of special assessments due in 1998 and earlier years,
including as provided in Section IX(e) hereof; Buyer shall pay
all real estate taxes and installments of special assessments
due and payable in 2000 and subsequent years;
(viii) all bills for services, labor, materials, capital
improvements or other charges of any kind or nature rendered
to Seller or the Property prior to the closing date shall be
borne by and paid by Seller;
(ix) prepare closing statements for Seller and Buyer,
respectively, indicating deposits, credits and charges
(including allocation of current real property taxes) and
deliver the same, together with a disbursement of funds,
to any appropriate party;
(x) all prorations required under the Lease as a
result of the Lease termination shall be prorated as and
when required by the Lease.
Any supplemental closing instructions given by any party shall also be
followed by the Title Company provided the same do not conflict with any
instructions set forth herein.
SECTION XI
DEFAULT BY BUYER
In the event the transactions contemplated hereby fail to close as a
result of a material default by Buyer of any of the terms of this Purchase
Agreement, and such failure to close continues for a period of five (5) days
after Seller notifies Buyer of such event, Seller may, at its option, elect
as its exclusive remedy one of the following:
(a) To terminate this Purchase Agreement as provided for by
law and retain the Deposit as provided in Section III hereof; or
(b) To enforce specific performance of Buyer's obligations
herein to purchase the Property provided such action is commenced
within one hundred eighty (180) days from such failure to close.
SECTION XII
DEFAULT BY SELLER
If Seller refuses to perform any of its obligations as set forth herein
or is in material breach of any of its representations and warranties herein
provided and such failure to perform or breach continues for a period of five
(5) days after Buyer notifies Seller of such event, Buyer may, at its option,
elect one of the following remedies:
(a) To terminate this Purchase Agreement by notice to
Seller, in which event neither party shall have any further
rights or obligations hereunder except that the Deposit
exclusive of any interest thereon shall be returned to Buyer
as provided in Section III hereof; or
(b) To enforce specific performance of Seller's obligations
hereunder, including specifically the conveyance of the Property
in the condition required hereby provided such action is commenced
within one hundred eighty (180) days from such failure to close.
SECTION XIII
EXPENSE OF ENFORCEMENT
If either party brings an action at law or in equity to enforce or
interpret this Purchase Agreement, the prevailing party in such action shall
be entitled to recover reasonable attorneys' fees and court costs in addition
to any other remedy granted.
SECTION XIV
BROKERS
Seller warrants to Buyer that in connection with this transaction Seller
has not taken any action which would result in any real estate broker's fee
being due or payable to any party. Buyer warrants to Seller that in
connection with this transaction Buyer has not taken any action which would
result in any real estate broker's fee, finder's fee or other fee being due
or payable to any party. Seller and Buyer respectively agree to indemnify,
defend and hold harmless the other from and against any and all other claims,
fees, commissions and suits of any real estate broker or agent with respect
to services claimed to have been rendered for or on behalf of such party in
connection with the execution of this Purchase Agreement or the transaction
set forth herein.
SECTION XV
NOTICE
All notices, demands and requests required or permitted to be given
under this Purchase Agreement must be in writing and shall be deemed to have
been properly given or served either by personal delivery or by the expiration
of two (2) days after depositing the same in the United States mail, addressed
to Seller or to Buyer, as the case may be, prepaid and registered or certified
mail, return receipt requested, at the following addresses:
To Seller: Hillcrest Development
2424 Kennedy Street NE
Minneapolis, Minnesota 55413
Attention: Scott M. Tankenoff
With Copy to: Maun & Simon, PLC
2000 Midwest Plaza Building West
801 Nicollet Mall
Minneapolis, Minnesota 55402
Attention: Charles Bans
To Buyer: R & D Systems, Inc.
614 McKinley Place
Minneapolis, MN 55413
Attention: Tom Oland, CEO
With Copy to: Fredrikson & Byron, P.A.
900 Second Ave. S
Suite 1100
Minneapolis, MN 55402
Attention: Chuck Diessner
Rejection or refusal to accept or the inability to deliver notice hereunder
because of changed address of which no notice was given shall be deemed to
be receipt of the notice, demand or request. Any party shall have the right
from time to time and at any time upon at least ten (10) days' written notice
thereof, to change their respective addresses, and each shall have the right
to specify as its address any other address within the United States of
America.
SECTION XVI
CONDEMNATION
In the event any portion of the Property is condemned or access thereto
shall be taken, or in either case threatened, prior to the closing, and the
taking renders the Property remaining unsuitable for the Buyer's current
and/or anticipated use of the Property and Buyer notifies Seller in writing
that it wishes to terminate this Purchase Agreement within thirty (30)
days after written notice to Buyer of such condemnation action, then this
Purchase Agreement shall terminate, neither party to this Agreement shall have
any further liability to the other parties (except for Buyer's indemnity in
Section IV(a) hereof), and the Deposit (exclusive of any interest earned
thereon) shall be returned to Buyer.
If the Purchase Agreement is not terminated pursuant to the preceding
sentence, the Purchase Price of the Property shall not be affected, it being
agreed that if the award is paid prior to the closing of this transaction,
such amount, insofar as it pertains to the Property, shall be held in escrow
and delivered to Buyer at the time of closing; and if the award has not been
paid prior to the closing of this transaction, then at the closing Seller
shall assign to Buyer all of its right, title and interest with respect to
such award and shall further execute any other instrument requested by Buyer
to assure that such award is paid to Buyer. If Buyer fails to timely close
the transaction and this agreement is terminated by Seller, any escrowed
condemnation proceeds will be paid to Seller.
If Buyer does not terminate this Purchase Agreement, it shall have the
right to contest the condemnation and/or the award resulting therefrom but
such right shall terminate if Seller terminates this Purchase Agreement as a
result of Buyer's default hereunder. If this Purchase Agreement is not
terminated, the parties shall cooperate in defending any such taking and/or
maximizing the amount of the award. Neither party will take any action
relating to the taking, without the other party's written consent prior to
closing.
SECTION XVII
DAMAGE OCCURRING PRIOR TO CLOSING
If, prior to the closing date, all or any part of the Property is
substantially damaged by fire, casualty, the elements or any other cause,
Seller shall immediately give notice to Buyer of such fact and at Buyer's
option (to be exercised with thirty (30) days after Seller's notice), this
Purchase Agreement shall terminate, in which event neither party will have
any further obligations under this Purchase Agreement and the Deposit
(exclusive of any interest earned thereon) shall be returned to Buyer.
If Buyer fails to elect to terminate despite such damage, Seller (whether the
damage is "substantial" or not) to the extent reasonably possible shall
promptly commence to repair such damage or destruction to the Property's
prior condition and to mitigate further damages using the quality of materials
and workmanship existing prior to the date of the casualty. If such damage
shall be completely repaired prior to the closing date, then there shall be
no reduction in the Purchase Price and Seller shall retain the proceeds of all
insurance related to such damage. If such damage shall not be completely
repaired prior to the closing date, at Buyer's election, (i) Seller shall
assign to Buyer all right to receive the proceeds of all insurance related to
such damage, less costs incurred by Seller in mitigating damage or making
repairs that are reimbursable by insurance then in force, and the Purchase
Price shall remain the same, or (ii) the closing shall be postponed pending
complete restoration of the damage by Seller. For purposes of this Section,
the words "substantially damaged" means damage that would cost $7,000,000.00
or more to repair.
SECTION XVIII
LICENSE AGREEMENT AND PARKING EASEMENT
Seller, or its successor, ("Licensor") and Buyer agree to enter into a
written license agreement at closing, under which Seller agrees to license to
Buyer parking spaces (the "Licensed Real Property") in a form to be hereafter
agreed to. At closing, Seller shall grant Buyer a parking easement in a form
to be hereafter agreed to providing for the parking of up to 110 vehicles
over part of the north one-half of the parking area commonly known as the
MT-BN lot.
SECTION XIX
MERGER/BINDING AGREEMENT
All previous negotiations and understandings between Seller and Buyer or
their respective agents and employees with respect to the transactions set
forth herein are merged in this Purchase Agreement which alone fully and
completely express the parties' rights, duties and obligations. This Purchase
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives.
SECTION XX
EFFECTIVE DATE
The Effective Date of this Purchase Agreement shall be the date of the
last party's execution; provided, however, that if the last party does not
execute this Purchase Agreement and deliver a duly executed counterpart of
the same to the first signing party within three (3) days of the first
party's execution date, then the offer or commitment to be bound hereby
by the first executing party shall automatically be revoked and withdrawn,
whereupon neither party shall be bound hereto.
SECTION XXI
GOVERNING LAW
This Purchase Agreement shall be deemed to be a contract made under the
laws of the State of Minnesota and for all purposes shall be governed and
construed in accordance with the laws of said State.
SECTION XXII
ASSIGNMENT
Buyer shall have the right to assign at closing its interest in this
Purchase Agreement to a third party, provided that assignee becomes personally
responsible for Buyer's obligations herein.
SECTION XXIII
CONDITIONS PRECEDENT FOR BOTH SELLER AND BUYER
Notwithstanding any other provision hereof to the contrary, this Purchase
Agreement, including, but not limited to, Section VIII hereof, shall be null
and void and neither party shall hereafter be liable to the other unless
(a) prior to February 5, 1999, both Seller and Buyer have executed the 2101
Kennedy Option and the Phase II Option; (b) prior to January 29, 1999, Buyer
has delivered to Title the tenant estoppel letter required by Section VIII and
Buyer's Board of Directors approves the execution of this Purchase Agreement
and Buyer delivers a written copy of such resolution to Seller; and (c) prior
to February 5, 1999, Buyer and Seller have agreed to the form and substance of
the License Agreement, the Parking Easement and the Management Agreement as
defined in Sections XVIII and XXV.
SECTION XXIV
PREPAID EXPENSES
Buyer and/or its assignee agrees to pay to Seller, following the closing
on a monthly basis, the amounts described in Exhibit B hereto attached
representing certain prepaid expense items previously paid by Seller. The
obligations of Buyer and/or its assignee under this Section XXIV shall
survive the closing.
SECTION XXV
MANAGEMENT CONTRACT
At the closing, Buyer and Seller shall enter into a management contract
in the form to be hereafter agreed to covering (i) the Property, (ii) the
property covered by the 2101 Kennedy Option, effective upon the Buyer and/or
its assignee's acquisition of fee title to the same and (iii) the property
covered by the Phase II Option effective upon the Buyer and/or its assignee's
acquisition of fee title to the same. The initial management annual fee
measured on a calendar year basis shall be $213,250.00 for calendar year 1999
(and shall be prorated for calendar year 1999) and shall increase to
$250,000.00 when Buyer acquires the property subject to the 2101 Kennedy
Option and shall increase by two percent for every year thereafter until the
acquisition of fee title to 2001 Kennedy pursuant to the Phase II Option when
the annual management fee shall increase to $335,000.00 and then increase by
two percent (2%) per year thereafter. The management fee shall include
Seller's marketing expenses for leasing 2101 Kennedy and 2001 Kennedy but
shall not include any broker's fees. Either party may terminate the
management contract upon one hundred eighty (180) days prior written notice
to the other but such termination shall not affect any liabilities which
accrue prior to the effective date of termination.
IN WITNESS WHEREOF, the parties hereto have executed these presents
intending to be bound by the provisions herein contained.
SELLER: BUYER:
Hillcrest Development R & D Systems, Inc.
By: Scott Tankenoff By: Thomas E. Oland
---------------------- ------------------------
Its: General Partner Its: President
ACKNOWLEDGMENT BY TITLE
Title hereby agrees to act as escrow agent pursuant to the foregoing
terms, it being understood that Title shall not be liable to either party if
it acts in good faith in the performance of its duties herein.
First American Title Insurance Company
By: Rodney D. Ives
-----------------------------
Its: Assistant Vice President
FIRST AMENDMENT TO PURCHASE AGREEMENT
THIS FIRST AMENDMENT to Purchase Agreement is dated this 5th day of
February, 1999, by and between Hillcrest Development ("Seller") and R&D
Systems, Inc. ("Buyer").
RECITALS
1. Seller and Buyer entered into a purchase agreement dated January 22,
1999, for the sale and purchase of real property legally described as Lots 8,
9, 16, and 17, Auditor's Subdivision Number 268, Hennepin County, Minnesota
(Purchase Agreement").
2. The parties wish to amend the Purchase Agreement on the terms and
conditions hereafter set forth.
NOW, THEREFORE, in consideration of the foregoing, the parties agree
as follows:
1. Section XXIII is hereby deleted in its entirety and replaced with
the following provision:
CONDITIONS PRECEDENT FOR BOTH SELLER AND BUYER
Notwithstanding any other provision hereof to the
contrary, this Purchase Agreement, including, but not
limited to, Section VIII hereof, shall be null and void and
neither party shall hereafter be liable to the other unless
(a) prior to February 8, 1999, both Seller and Buyer have
executed the 2101 and the Phase II Option; (b) prior to
January 29, 1999, Buyer has delivered to Title the tenant
estoppel letter required by Section VIII and Buyer's Board
of Directors approves the execution of this Purchase
Agreement and Buyer delivers a written copy of such
resolution to Seller; and (c) prior to February 11, 1999,
Buyer and Seller have agreed to the form and substance of
the License Agreement, the Parking Easement and the
Management Agreement as defined in Sections XVIII and XXV.
2. Except as provided for above, all the terms and conditions of
the Purchase Agreement shall remain in full force and effect.
Buyer: R&D Systems, Inc.
By: Thomas E. Oland
-----------------------
Its: President
Seller: Hillcrest Development
By: Scott Tankenoff
------------------------
Its: General Partner
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