SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 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 of Incorporation) (IRS Employer Identification No.)
614 McKinley Place N.E., Minneapolis, MN 55413
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (612) 379-8854
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value.
Indicate by check mark whether the Company (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant, based upon the closing sale price on September 14, 1999 as
reported on The Nasdaq Stock Market was approximately $374,212,000. Shares of
Common Stock held by each officer and director and by each person who owns 5%
or more of the outstanding Common Stock have been excluded.
Shares of $.01 par value Common Stock outstanding at September 14, 1999:
20,163,192
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Techne Corporation (the "Company") is a holding company which has two wholly-
owned 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 is a specialty manufacturer
of biological products. Its two major operating segments are hematology
controls, which are used in hospital and clinical laboratories to check the
accuracy of blood analysis instruments, and biotechnology products including
purified proteins (cytokines) and antibodies which are sold exclusively to the
research market, and assay kits which are sold to the research and clinical
diagnostic markets. R&D Europe distributes R&D Systems' biotechnology
products in Europe. R&D Europe has a German sales subsidiary, R&D Systems
GmbH (R&D GmbH). The Company also has a foreign sales corporation, Techne
Export Inc.
R&D Systems was founded and incorporated in 1976 in Minneapolis, Minnesota and
was acquired by the Company in 1985. In 1977 R&D Systems introduced its first
product, a Platelet-Rich-Plasma control. In 1981 R&D Systems was the second
manufacturer in the world to release a Whole Blood Control with Platelets,
thereby establishing itself as one of the leaders in the field of hematology
control products manufacturing. Subsequently, R&D Systems has developed
several types of hematology controls designed to keep pace with the technology
of the newest models of hematology instruments. These products are sold
throughout the United States directly by R&D Systems and in many foreign
countries through distributors.
In 1985 R&D Systems entered the research reagent market with its first
cytokine, TGF-beta. Cytokines are specialized protein molecules that
stimulate or suppress various cell functions in the body. Cytokines are in
demand by biomedical researchers who want to learn more about their diverse
effects. Encouraged by its success in the cytokine market, R&D Systems formed
a biotechnology division in 1986 with the goal of producing and marketing a
wide range of human cytokines through genetic engineering. Recombinant DNA
technology offers several advantages over extraction of these proteins from
natural sources, including lower production cost and potentially unlimited
supply.
On August 19, 1991, R&D Systems purchased Amgen Inc.'s research reagent and
diagnostic assay kit business. With this purchase, R&D Systems obtained
Amgen's Erythropoietin (EPO) kit, the Company's first enzyme-linked
immunosorbent assay kit for a cytokine that had been cleared by the FDA for
clinical diagnostic use. This acquisition established R&D Systems as a leader
in cytokine diagnostic assays.
In July 1993, the Company acquired its European biotechnology distributor,
British Bio-technology Products Ltd. (renamed R&D Systems Europe Ltd.) from
British Bio-technology Group plc. R&D Europe distributes biotechnology
products developed by R&D Systems.
During fiscal 1998 and 1999, the Company made equity investments in the
preferred stock of ChemoCentryx, Inc. (CCX), a new technology and drug
development company. The investment gives Techne a 43% interest in CCX. In
addition to the equity investment and joint research efforts, the Company
obtained research and diagnostic market rights to all products discovered or
developed by CCX.
On July 1, 1998, R&D Systems purchased Genzyme Corporation's research products
business. This acquisition establishes R&D Systems as the world's leading
supplier of research and diagnostic cytokine products.
THE MARKET
The Company, through its two operating subsidiaries, manufactures and sells
products for the clinical diagnostics market (hematology controls and
calibrators) and the biotechnology research and clinical diagnostics market
(cytokines, assays and related products). In fiscal 1999, R&D Systems'
Hematology Division revenues accounted for approximately 14% of consolidated
revenues of $90,900,697. Revenues from R&D Systems' Biotechnology Division
and R&D Europe were 60% and 26% of consolidated revenues, respectively.
Biotechnology Products
R&D Systems is the world's leading supplier of cytokines and cytokine-related
reagents to the biotechnology research community. These valuable proteins
exist in minute amounts in different types of cells and can be extracted from
these cells or made through recombinant DNA technology. In 1985, R&D Systems
introduced its first cytokine and continues to add to this product line. The
first cytokines were extracted from natural sources (human and porcine
platelets and bovine brain). Currently almost all of cytokines are produced
by recombinant DNA technology. R&D Systems also sells antibodies for specific
cytokines, cytokine assay kits, clinical diagnostic kits, kits for cytokine
receptor binding studies, and related research reagents.
The growing interest by researchers in cytokines exists because of the
profound effect a tiny amount of a cytokine can have on the cells and tissues
of the body. Cytokines are intercellular messengers. They act as signals by
interacting with specific receptors on the effected cells. They carry vital
signals to the cell's genetic machinery that can trigger events that can lead
to significant changes in a cell, tissue or organism. For example, cytokines
can signal a cell to differentiate, i.e., to acquire the features necessary
for it to take on a more specialized task. Another example of cytokine action
is the key role they play in stimulating cells surrounding a wound to grow and
divide and to attract migratory cells to the injury site.
R&D Systems' Biotechnology Division was formed in response to a growing need
for highly purified biologically active proteins. R&D Systems believes that
its cytokines are addressing this growing demand for these products within the
scientific research community.
During fiscal 1990, the Biotechnology Division released its first cytokine
assay kits under the tradename Quantikine. These kits are used by researchers
to quantify the level of a specific cytokine in a sample of blood, serum, or
other biological fluid. In fiscal 1996, the Biotechnology Division expanded
its Quantikine line by introducing a line of assay kits for mouse cytokines.
These kits are used extensively by research scientists doing cytokine studies
using animal models, such as those used in pharmaceutical discovery and
development programs.
Current Biotechnology Products
Cytokines and Related Antibodies. Cytokines, extracted from natural
sources or produced using recombinant DNA technology, are manufactured to
the highest purity. Polyclonal antibodies are produced by injecting
purified cytokines into animals (primarily goats and rabbits). The
animals' immune systems recognize the cytokines as foreign and develop
antibodies to these cytokines. The polyclonal antibodies are then
extracted from the animals' blood and purified. Monoclonal antibodies are
produced by injecting purified cytokines into mice. The B cells of a
mouse's immune system are then isolated and fused with mouse cancer cells
that will produce the desired antibody. Purified cytokines and antibodies
are made available both as research reagents and as parts of assay kits
(below).
Assay Kits. This product line includes R&D Systems' human and murine
(mouse and rat) Quantikine kits which allow research scientists to quantify
the amount of a specific cytokine in a sample of blood or tissue. Also
included in this product line are assay kits, developed by R&D Europe, to
quantify adhesion molecules. These kits are used by research scientists to
measure cellular adhesion molecules in serum, plasma, or cell culture
media. Cellular adhesion molecules facilitate the movement of infection
fighting cells out of the blood stream to the site of infections.
Clinical Diagnostic Kits. The EPO kit, acquired from Amgen Inc. in fiscal
1992, was the first diagnostic assay for which R&D Systems had FDA
marketing clearance. R&D Systems also has FDA marketing clearance for its
transferrin receptor (TfR) and Beta2-microglobulin kits.
Flow Cytometry Products. This product line includes R&D Systems'
Fluorokine kits which are used to measure the presence or absence of
receptors for specific cytokines on the surface of cells.
DNA and Related Products. Designer genes and designer probes are synthetic
DNAs used in the study of gene function.
Hematology Controls and Calibrators
Hematology controls and calibrators, manufactured and marketed through the
Hematology Division of R&D Systems, are products made up of the various
cellular components of blood. Proper diagnosis of many illnesses requires a
thorough and accurate analysis of the patient's blood cells, which is usually
done with automatic or semiautomatic hematology instruments. Controls and
calibrators ensure that these instruments are performing accurately and
reliably.
Blood is composed of plasma, the fluid portion of which is mainly water, and
blood cells, which are suspended in the plasma. There are three basic types
of blood cells: red cells, white cells and platelets. About 95 percent of
the blood cells are red cells. Their main job is to transport oxygen from the
lungs throughout the body, which they do by being rich in hemoglobin. White
cells defend the body against foreign invaders. Platelets serve as a "plug"
to stem blood flow at the site of an injury by sticking together and to the
damaged tissue.
The formed elements of blood (red cells, white cells and platelets) differ a
great deal in size and concentration. The white cells are the largest in size
and platelets the smallest. The red cells are the most numerous. The average
adult has from 20 to 30 trillion red cells. For every 500 red cells there are
approximately one white cell and about 20 platelets. As noted above,
hematology controls are used in automatic and semiautomatic cell counting
analyzers to make sure these instruments are counting blood cells accurately.
One of the most frequently performed laboratory tests on a blood sample is
called a complete blood count, or CBC for short. Doctors use this test in
disease screening and diagnosis. More than a billion of these tests are done
every year, the great majority with cell counting instruments. In most
laboratories the CBC consists of the white cell count, the red cell count, the
hemoglobin reading, and the hematocrit reading or the percent of red cells in
a volume of whole blood after it has been centrifuged. Also included in a CBC
test is the differential which numbers and classifies the different types of
white cells.
These and other characteristics or "parameters" of a blood sample can be
measured by automatic or semiautomatic cell counters. Cell counters can read
the parameters of blood either by impedance, in which a cell interrupts an
electrical current and is counted, or by a laser, in which a cell interrupts a
laser beam and is counted. The number of parameters measurable in a blood
control product depends on the type and sophistication of the instrument for
which the control is designed. Ordinarily, a hematology control is used once
to several times a day to make sure the instrument is reading accurately.
Some instruments need to be calibrated periodically. Hematology calibrators
are similar to controls but go through additional processing and testing to
ensure that the calibration values assigned are extremely accurate and can be
used to adjust the instrument.
The Hematology Division of R&D Systems offers a complete line of hematology
controls and calibrators for both impedance and laser type cell counters. R&D
Systems believes its products have improved stability and versatility and a
longer shelf life than most of those of its competitors. The Hematology
Division supplies hematology control products for use as proficiency testing
materials by laboratory certifying authorities of a number of states and
countries. All products are priced competitively and come with an
unconditional money back guarantee. R&D Systems recognizes that developing
technologies for cell counting instruments will require increasingly
sophisticated and high-quality controls and is prepared to meet this
challenge.
Current Retail Hematology Products
Impedance-Type Whole Blood Controls/Calibrators. The Hematology Division
of R&D Systems currently produces controls and calibrators for the
following impedance-type instruments: Abbott Cell-Dyn, ABX, Beckman
Coulter, Danam, Hycel, Roche and TOA Sysmex instruments.
Laser-Type Whole Blood Controls/Calibrators. Currently produced controls
and calibrators for laser-type instruments include products for the
following: Abbott Cell-Dyn 3000, 2500 and 4000 instruments, ABX
instruments, Bayer H series instruments, and the TOA Sysmex NE-8000 and NE-
5500 instruments.
Linearity Control. This product provides a means of assessing the
linearity of hematology analyzers for white blood cells, red blood cells,
hemoglobin and platelets.
Whole Blood Reticulocyte Control. This control is designed for manual and
automated counting of reticulocytes (immature red blood cells).
Whole Blood Flow Cytometry Control. This product is a control for flow
cytometry instruments. These instruments are used to identify and quantify
white blood cells by their surface antigens.
Erythrocyte Sedimentation Rate Control. This product is designed to
monitor erythrocyte sedimentation rate tests.
Multi-Purpose Platelet Reference Control. This product, Platelet-Trol II,
is designed for use by automatic and semi-automatic impedance and laser
instruments and is the successor to Platelet-Rich-Plasma which R&D Systems
introduced in 1977.
PRODUCTS UNDER DEVELOPMENT
R&D Systems is engaged in ongoing research and development in all of its major
product lines: hematology controls and calibrators, biotechnology cytokines,
antibodies, assays and related products. The Company believes that its future
success depends, to a large extent, on the ability to keep pace with changing
technologies and markets. At the same time, the Company continues to examine
its production processes to ensure high quality and maximum economy.
R&D Systems' Biotechnology Division is planning to release new cytokines,
antibodies and cytokine assay kits in the coming year. All of these products
will be for research purposes only and therefore do not require FDA clearance.
R&D Systems' Hematology Division has developed several new control products in
fiscal 1999 and is continuously working on product improvements and
enhancements.
There is no assurance that any of the products in the research and development
phase can be developed, or, if developed, can be successfully introduced into
the marketplace.
Expenditures for research and development activities were $12,004,798,
$10,637,804 and $11,701,822 for fiscal years 1999, 1998 and 1997,
respectively.
BUSINESS RELATIONSHIPS
During fiscal 1998 and 1999, Techne purchased a total of $4 million of
convertible preferred stock of ChemoCentryx, Inc. (CCX), representing
approximately 43% of issued and outstanding voting shares. 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. Techne is obligated to purchase up to an additional $1 million of
convertible preferred stock in fiscal 2000 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 accounted for the 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.
Original Equipment Manufacturers (OEM) agreements represent the largest market
for hematology controls and calibrators made by R&D Systems. In fiscal year
1999, OEM contracts accounted for $5,724,486 or 45% of Hematology Division
revenues and 6% of total consolidated revenues.
GOVERNMENT REGULATION
All manufacturers of hematology controls and calibrators are regulated under
the Federal Food, Drug and Cosmetic Act, as amended. All of R&D Systems'
hematology control products are classified as "In Vitro Diagnostic Products"
by the US Food and Drug Administration. The entire hematology control
manufacturing process, from receipt of raw materials to the monitoring of
control products through their expiration date, is strictly regulated and
documented. FDA inspectors make periodic site inspections of the Hematology
Division's control operations and facilities. Hematology control
manufacturing must comply with Good Manufacturing Practices (GMP) as set forth
in the FDA's regulations governing medical devices. R&D Systems has not
experienced any difficulty in complying with GMP requirements.
Three of R&D Systems' immunoassay kits, EPO, TfR and Beta2-microglobulin, have
FDA clearance to be sold for clinical diagnostic use. R&D Systems must comply
with GMP for the manufacture of these kits. Biotechnology products
manufactured in the United States and sold for use in the research market do
not require FDA clearance.
Some of R&D Systems' research groups use small amounts of radioactive
materials in the form of radioisotopes in their product development
activities. Thus, R&D Systems is subject to regulation by the US Nuclear
Regulatory Commission and has been granted a NRC License due to expire in
April 2000. The license is renewable annually. R&D Systems is also subject
to regulation and inspection by the Department of Health of the State of
Minnesota for its use of radioactive materials. It has been granted a
certificate of registration, which is renewable annually, by the Minnesota
Department of Health. The current certificate expires April 1, 2000. R&D
Systems has had no difficulties in renewing these licenses in prior years and
has no reason to believe they wouldn't be renewed in the future. If, however,
the licenses were not renewed, it would have minimal effect on R&D Systems'
business since there are other technologies the research groups could use to
replace radioisotopes.
AVAILABILITY OF RAW MATERIALS
The primary raw material for the Company's hematology controls is whole blood.
Human blood is purchased from commercial blood banks and porcine and bovine
blood is purchased from nearby meat processing plants. After raw blood is
received, it is separated into its components, processed and stabilized.
Although the cost of human blood has increased owing largely to the
requirement that it be tested for HIV ("AIDS") antibodies and hepatitis, R&D
Systems does not anticipate that the higher cost of these materials will have
a seriously adverse effect on its business. R&D Systems does not perform its
own testing for the AIDS antibodies as the supplier tests all human blood
purchased. R&D Systems' Biotechnology Division develops and manufactures the
majority of its cytokines from synthetic genes developed in-house, thus
significantly reducing its reliance on outside resources. R&D Systems
typically has several outside sources for all critical raw materials necessary
for the manufacture of products.
PATENTS AND TRADEMARKS
R&D Systems owns patent protection for certain hematology controls. R&D
Systems may seek patent protection for new or existing products it
manufactures. No assurance can be given that any such patent protection will
be obtained.
No assurance can be given that R&D Systems' products do not infringe upon
patents or proprietary rights owned or claimed by others, particularly for
genetically engineered products. Although, with the exception of products
subject to current licensing agreements and the legal proceedings discussed in
Item 3 of this 10-K, R&D Systems has not been notified that its products
infringe upon proprietary rights held by others, it has not conducted a patent
infringement study for each of its products.
R&D Systems and R&D Europe have a number of licensing agreements with patent
holders under which they have the non-exclusive right to patented technology
or the non-exclusive right to manufacture and sell certain patented cytokine
and cytokine related products to the research market. For fiscal 1999, total
royalties accrued under these licenses were approximately $1,750,000.
R&D Systems has obtained federal trademark registration for its hematology
control trademark CBC-3D, CBC-7, CBC-8, PLATELET-TROL and StatusFlow and
claims common law rights in the trademarks CBC-CAL PLUS, CBC-CAL KIT, CBC-
TECH, TECH-CAL, CBC-3K, 3K-CAL and CBC-NE. R&D Systems has also obtained the
Quantikine, Fluorokine, QuantiGlo, Parameter, Surfacemark and IVD trademarks.
SEASONALITY OF BUSINESS
Sales of the products manufactured by R&D Systems and R&D Europe are not
seasonal, although R&D Europe historically experiences a slowing of sales
during the summer months.
SIGNIFICANT CUSTOMERS
No single customer accounted for more than 10% of total revenues during fiscal
years 1999, 1998 and 1997.
BACKLOG
There was no significant backlog for the Company's products as of the date of
this report or as of a comparable date for fiscal 1998.
COMPETITION
The market for cytokines and research diagnostic assay kits in the United
States and Europe is being supplied by a number of biotechnology companies,
including BioSource International, Endogen Corp., Sigma Chemical Co., Amersham
Pharmacia and CN Biosciences. R&D Systems believes that it is the leading
worldwide supplier of cytokine related products in the research marketplace.
R&D Systems believes that the expanding line of its products, their recognized
quality and competitive pricing, and the growing demand for these rare and
versatile proteins, antibodies and assay kits, will allow the Company to
remain the leader in the growing biotechnology research and diagnostic market.
Competition is intense in the hematology control business. The first control
products were developed in response to the rapid advances in electronic
instrumentation used in hospital and clinical laboratories for blood cell
counting. Most of the instrument manufacturing companies make controls for
use in their own instruments. With rapid expansion of the instrument market,
however, a need for more versatile controls enabled non-instrument
manufacturers to gain a foothold. Today the market is comprised of
manufacturers of laboratory reagents, chemicals and coagulation products and
independent control manufacturers in addition to instrument manufacturers.
The principal hematology control competitors of R&D Systems' retail products
are Beckman Coulter, Inc., Baxter Healthcare Corp., Streck Laboratories,
Abbott Diagnostics and Hematronix, Inc. R&D Systems believes it is the third
largest supplier of hematology controls in the marketplace behind Beckman
Coulter and Streck Laboratories.
EMPLOYEES
R&D Systems had 352 full-time and 48 part-time employees as of June 30, 1999.
R&D Europe had 50 full-time and 9 part-time employees as of June 30, 1999,
including 10 full-time and 2 part-time at R&D Europe's sales subsidiary in
Germany.
ENVIRONMENT
Compliance with federal, state and local environmental protection laws in the
United States, England and Germany had no material effect on R&D Systems or
R&D Europe in fiscal year 1999.
FOREIGN AND DOMESTIC OPERATIONS
The following table represents certain financial information relating to
foreign and domestic operations (all amounts are in thousands of US dollars):
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
---------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Net Sales to External Customers
Hematology Division:
US $ 10,549 $ 9,933 $ 8,684
Other 2,125 1,851 1,586
Biotechnology Division:
US 43,712 30,113 25,998
Other 11,249 7,601 5,741
R&D Europe:
Other 23,266 17,794 18,915
Gross Margin
R&D Systems (US) 52,791 38,826 31,907
R&D Europe (England) 9,490 7,519 9,176
R&D GmbH (Germany) 1,296 937 746
Net Earnings (Loss)
Parent and R&D Systems (US) 15,230 13,689 10,107
R&D Europe (England) 2,835 2,160 896
R&D GmbH (Germany) 8 6 (121)
ChemoCentryx (US) (1,417) (672) -
Identifiable Assets
Parent and R&D Systems (US) 112,327 64,169 46,760
R&D Europe (England) 10,213 7,831 6,547
R&D GmbH (Germany) 1,261 785 615
</TABLE>
CAUTIONARY STATEMENTS
The Company wishes to caution investors that the following important factors,
among others, in some cases have affected and in the future could affect the
Company's actual results of operations and cause such results to differ
materially from those anticipated in forward-looking statements made in this
document and elsewhere by or on behalf of the Company:
Risk of Technological Obsolescence and Competition
The biotechnology industry is subject to rapid and significant technological
change. While the hematology controls industry historically has been subject
to less rapid change, it too is evolving and is impacted significantly by
changes in the automated testing equipment offered by hardware manufacturers.
Competitors of the Company in the United States and abroad are numerous and
include, among others, specialized biotechnology firms, medical laboratory
instrument and equipment manufacturers and disposables suppliers, major
pharmaceutical companies, universities and other research institutions. There
can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than any which
have been or are being developed by the Company or that would render the
Company's technologies and products obsolete or noncompetitive. Many of these
competitors have substantially greater resources and product development,
production and marketing capabilities than the Company. With regard to
diagnostic kits, which constitute a relatively minor portion of the Company's
business, many of the Company's competitors have significantly greater
experience than the Company in undertaking preclinical testing and clinical
trials of new or improved diagnostic kits and obtaining Food and Drug
Administration (FDA) and other regulatory approvals of such products.
Patents and Proprietary Rights
The Company's success will depend, in part, on its ability to obtain licenses
and patents, maintain trade secret protection and operate without infringing
the proprietary rights of others. The Company has filed a very limited number
of United States and foreign patent applications for products in which it
believes it has a proprietary interest. The Company has obtained and is
negotiating licenses to produce a number of cytokines and related products
claimed to be owned by others. The Company has not conducted a patent
infringement study for each of its products. It is possible that products of
the Company may unintentionally infringe patents of third parties or that the
Company may have to alter its products or processes, pay licensing fees or
cease certain activities because of patent rights of third parties, thereby
causing additional unexpected costs and delays which may have a material
adverse effect on the Company. The patenting of hematology and biotechnology
processes and products involves complex legal and factual questions and, to
date, there has emerged no consistent policy regarding the breadth of claims
in biotechnology patents. Protracted and costly litigation may be necessary
to enforce rights of the Company and defend against claims of infringement of
rights of others.
Financial Impact of Expansion Strategy
The Company engages in an expansion strategy which includes internal
development of new products, collaboration with manufacturers of automated
instruments which may use the Company's products, investment in joint ventures
and companies developing new products related to the Company's business and
acquisition of companies for new products or additional customer base. Each
of the strategies carries risks that objectives will not be achieved and
future earnings will be adversely affected. During early development stage,
the operating losses of certain companies in which the Company may invest will
be reported as operating losses of the Company, as is currently the case with
ChemoCentryx Inc.
Government Regulation
Ongoing research and development activities, including preclinical and
clinical testing, and the production and marketing of the Company's products
are subject to regulation by numerous governmental authorities in the United
States and other countries. All of the Company's products and manufacturing
processes and facilities require governmental licensing or approval prior to
commercial use. The approval process applicable to clinical diagnostic
products of the type which may be developed by the Company usually takes a
number of years and typically requires substantial expenditures. Delays in
obtaining regulatory approvals would adversely affect the marketing of
products developed by the Company and the Company's ability to receive product
revenues or royalties. There can be no assurance that regulatory approvals
for such products will be obtained without lengthy delays, if at all.
Attraction and Retention of Key Employees
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing is critical to
the Company's success. Although the Company believes it has been and will be
able to attract and retain such personnel, there can be no assurance that the
Company will be successful. In addition, the Company's anticipated growth and
expansion into areas and activities requiring additional expertise, such as
clinical testing, government approvals, production and marketing, will require
the addition of new management personnel and the development of additional
expertise by existing management personnel. The failure to attract and retain
such personnel or to develop such expertise would adversely affect the
Company's business.
ITEM 2. PROPERTIES
Through June 30, 1999, the Company's R&D Systems subsidiary leased space in
three connected buildings located in Minneapolis, Minnesota. Base rent for
fiscal 1999 was $2,290,000. On July 1, 1999, the Company purchased these
buildings for approximately $28 million. The main building, consisting of
approximately 85,000 square feet, is located at 614 McKinley Place N.E., and
houses administrative, marketing and Biotechnology Division manufacturing and
research operations. Hematology Division manufacturing and shipping
operations are located at 640 McKinley Place N.E. and cover approximately
47,000 square feet. The third building is located at 2201 Kennedy Street and
houses administrative and Biotechnology Division manufacturing and research
operations. The Company will fully occupy this 205,000 square foot building
by the end of calendar 1999. The Company also occupies an additional 20,000
square feet in space connecting the three buildings. This area houses a
lunchroom, a library and additional warehouse space. The above space is
believed to be adequate to house the Company's R&D Systems operations for
approximately two years. The Company has entered into two option agreements
for real estate adjacent to the current facility. The options are exercisable
through November 2001 and January 2005 on the two properties, respectively.
R&D Europe sub-leases approximately 12,500 square feet in one building in
Abingdon, England. The sub-lease on the building expires in June 2000 and R&D
Europe has reached an agreement to lease approximately 17,000 square feet in a
building soon to be constructed less than one mile from its current location.
Rental rates for the new facility are expected to be slightly higher than
rates under the current sub-lease. Base rent for the above space was $181,000
in fiscal 1999.
R&D GmbH leases approximately 2,300 square feet as a sales office in
Wiesbaden-Nordenstadt, Germany. Base rent was $36,000 in fiscal 1999.
The Company believes the acquired property, purchase options and leased
property discussed above are adequate to meet its occupancy needs in the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company was sued by Streck Laboratories, Inc. ("Streck") in the United
States District Court for the District of Nebraska in Omaha on November 5,
1997. Streck alleges in its complaint that the Company infringes three
patents Streck has obtained on white blood cell hematology controls, one of
which was issued in November, 1993, and the other two in the fall of 1997.
Streck seeks an unspecified amount of damages, an injunction prohibiting
further infringement, reasonable attorneys' fees, and costs. The Company has
answered the complaint, denied infringement and asserted counterclaims against
Streck seeking to have the patents declared invalid and/or not infringed.
Discovery in the case is presently stayed by the Court and would have to be
renewed before the case could go to trial. It is unlikely the case will go to
trial in fiscal 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the Company's 1999 fiscal year.
EXECUTIVE OFFICERS OF THE COMPANY
(a) The names, ages and positions of each executive officer of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position Officer Since
---- --- -------- -------------
<S> <C> <C> <C>
Thomas E. Oland 58 Chairman of the Board, President,
Treasurer and Director 1985
Dr. Monica Tsang 54 Vice President, Research 1995
Dr. Thomas C.
Detwiler 66 Vice President, Scientific and
Regulatory Affairs 1995
Marcel Veronneau 45 Vice President, Hematology Operations 1995
</TABLE>
The term of office of each executive officer is from one annual meeting of
directors until the next annual meeting of directors or until a successor is
elected. There are no arrangements or understandings among any of the
executive officers and any other person (not an officer or director acting as
such) pursuant to which any of the executive officers was selected as an
officer of the Company.
(b) The business experience of the executive officers during the past five
years is as follows:
Thomas E. Oland has been Chairman of the Board, President and Treasurer of the
Company since December 1985.
Dr. Monica Tsang was elected a Vice President of the Company in March 1995.
Prior thereto, she served as Executive Director of Cell Biology for R&D
Systems' Biotechnology Division and has been an employee of R&D Systems since
1985.
Dr. Thomas Detwiler was elected a Vice President of the Company in March 1995.
Prior thereto, he served as Vice President of Scientific and Clinical Affairs
for R&D Systems' Biotechnology Division and has been an employee of R&D
Systems since 1993.
Marcel Veronneau was elected a Vice President of the Company in March 1995.
Prior thereto, he served as Director of Operations for R&D Systems' Hematology
Division since joining the Company in 1993.
An additional officer, Dr. James A. Weatherbee, who served as Vice President
and Chief Scientific Officer since 1995, is on medical leave. Dr. Weatherbee
and Dr. Tsang are husband and wife.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The NASDAQ Stock Exchange under the symbol
"TECH." The following table sets forth for the periods indicated the range of
the closing price per share for the Company as reported by NASDAQ.
<TABLE>
<CAPTION>
1999 PRICE 1998 PRICE
HIGH LOW HIGH LOW
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1st Quarter $ 18.69 $ 12.25 $ 17.75 $ 13.44
2nd Quarter 21.13 13.00 19.75 15.63
3rd Quarter 28.88 20.50 20.00 16.94
4th Quarter 29.50 23.55 19.88 16.00
</TABLE>
As of September 14, 1999, there were approximately 350 shareholders of record.
As of September 14, 1999, there were over 6,000 beneficial shareholders of the
Company's common stock. TECHNE Corporation has never paid cash dividends on its
common stock. Payment of dividends is within the discretion of TECHNE's Board
of Directors, although the Board of Directors plans to retain earnings for the
foreseeable future for operating the Company's business.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE, EARNINGS AND CASH FLOW
DATA FOR THE YEARS ENDED JUNE 30 1999(1) 1998 1997 1996 1995
- -------------------------------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $ 90,901 $67,291 $60,924 $54,589 $47,716
Gross margin 69.9% 70.3% 68.7% 65.2% 61.3%
Selling, general and
administrative expense 18.6% 22.8% 23.9% 23.7% 23.4%
Research and development
expenses 13.2% 15.8% 19.2% 19.1% 18.0%
Interest expense -- -- 29 2 9
Earnings before income taxes 26,054 22,411 15,988 12,592 9,648
Net earnings 16,656 15,183 10,882 8,638 6,706
Diluted earnings per share 0.81 0.77 0.56 0.44 0.35
Capital expenditures 5,564 2,780 4,243 6,377 1,311
Depreciation and amortization 11,890 2,303 2,322 1,872 1,655
Change in net working capital (12,544) 15,033 6,639 4,573 6,310
Net cash provided by operating
activities 28,422 20,875 12,477 9,760 7,314
Return on sales 18.3% 22.6% 17.9% 15.8% 14.1%
Return on average equity 20.7% 27.1% 25.0% 25.3% 25.6%
-
BALANCE SHEET, COMMON STOCK AND
EMPLOYEE DATA AS OF JUNE 30 1999(1) 1998 1997 1996 1995
- -------------------------------- --------- ------- ------- ------- -------
Cash, cash equivalents and
short-term investments $ 29,114 $41,436 $24,752 $19,250 $15,945
Receivables 13,520 10,002 9,114 8,380 7,386
Inventories 5,715 3,811 4,087 3,653 3,266
Working capital 37,388 49,932 34,899 28,260 23,687
Total assets 123,801 72,785 53,922 44,393 34,062
Long-term debt -- -- -- -- --
Stockholders' equity 96,838 63,831 48,081 38,874 29,520
Average common and common
equivalent shares (in thousands) 20,687 19,608 19,463 19,443 19,044
Book value per share 4.81 3.35 2.55 2.04 1.57
Share price(4):
High 29.50 20.00 15.25 16.50 7.94
Low 12.25 13.44 10.13 6.63 4.38
Price to earnings ratio 31 25 27 33 19
Current ratio 3.78 7.84 8.12 6.62 6.75
Quick ratio 3.17 7.05 6.91 5.49 5.66
Full-time employees 402 356 326 341 315
</TABLE>
(1) The Company acquired the research products business of Genzyme Corporation
on July 1, 1998.
The Company has not declared any cash dividends in the past, and it is not
anticipated that it will declare any dividends in the foreseeable future.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY STRUCTURE
TECHNE (the Company) has two operating subsidiaries: R&D Systems, Inc. (R&D
Systems) and R&D Systems Europe Ltd. (R&D Europe). R&D Systems, located in
Minneapolis, Minnesota, has two operating segments: its Biotechnology Division
and its Hematology Division. The Biotechnology Division develops and
manufactures purified cytokines (proteins), antibodies and assay kits which
are sold to biomedical researchers and clinical research laboratories. The
Hematology Division develops and manufactures whole blood hematology controls
and calibrators which are sold to hospitals and clinical laboratories to check
the performance of hematology instruments to assure the accuracy of hematology
test results. R&D Europe, the Company's third operating segment, located in
Abingdon, England, is the European distributor of R&D Systems' biotechnology
products. R&D Europe has a German sales subsidiary, R&D Systems GmbH. The
Company also has a foreign sales corporation, Techne Export Inc.
RESULTS OF OPERATIONS
Net sales for fiscal 1999 were $90,900,697, an increase of $23,609,259 (35%)
from fiscal 1998. Sales by R&D Systems for the period increased $18,136,520
(37%), while sales by R&D Europe increased $5,472,739 (31%). The increase in
consolidated sales for the fiscal year was due, in part, to the acquisition of
Genzyme Corporation's research products business on July 1, 1998. In addition,
the increase in consolidated sales was due to increased sales of R&D Systems
products to both R&D Systems customers and to former Genzyme customers as they
were converted from Genzyme products to R&D Systems products.
Net sales for fiscal 1998 were $67,291,438, an increase of $6,367,688 (10%)
From fiscal 1997. Sales by R&D Systems for the period increased $7,489,032
(18%), while sales by R&D Europe decreased $1,121,344 (6%). The increase in
consolidated sales for the fiscal year was due largely to increased sales of
proteins and antibodies. The decrease in R&D Europe sales was not unexpected
due to the discontinuance of the molecular biology product line. R&D Europe
sales of continuing product lines increased 22% from fiscal 1997.
Net sales for fiscal 1997 were $60,923,750, an increase of $6,334,696 (12%)
From fiscal 1996. Sales by R&D Europe for the period increased $2,555,914
(16%), while sales by R&D Systems increased $3,778,782 (10%). The majority of
the increase in consolidated sales for the fiscal year was due to an increase
in sales of proteins and antibodies.
Gross, as a percentage of sales, decreased slightly from 70.3% in fiscal 1998
To 69.9% in fiscal 1999. Biotechnology Division gross margins decreased from
72.9% to 70.8% as a result of lower gross profit levels on inventory acquired
from Genzyme and the write-off of obsolete Genzyme packaging and kit components
due to conversion of customers to R&D Systems labeled product. R&D Europe and
Hematology Division gross margins did not change significantly from the prior
year.
Gross margins, as a percentage of sales, increased from 68.7% in fiscal 1997
to 70.3% in fiscal 1998. R&D Europe gross margins decreased from 52.5% to 46.1%
due to changes in product mix and exchange rates. Biotechnology Division gross
margins increased from 71.8% to 72.9% as a result of changes in product mix and
increased production volumes. Hematology Division gross margins increased from
42.9% in fiscal 1997 to 47.2% in fiscal 1998 also as a result of changes in
product mix and increased production volumes.
Gross margins, as a percentage of sales, increased from 65.2% in fiscal 1996
to 68.7% in fiscal 1997. R&D Europe gross margins increased from 51.2% to 52.5%
due to favorable exchange rates. Biotechnology Division gross margins increased
from 69.3% to 71.8% due to lower royalty expense as a result of the conclusion
of royalty payments to Amgen Inc. and lower manufacturing costs due to
increased production volumes. Hematology Division gross margins increased from
40.1% in fiscal 1996 to 42.9% in fiscal 1997 as a result of changes in product
mix.
Selling, general and administrative expenses increased $1,494,457 (10%) in
fiscal 1999. The majority of the increase in consolidated selling, general and
administrative expenses was due to additional sales personnel added in the U.S.
and Europe and additional advertising and promotion activities.
Selling, general and administrative expenses increased $782,425 (5%) in fiscal
1998. The majority of the increase in consolidated selling, general and
administrative expenses was the result of additional occupancy costs at R&D
Systems, plus increased advertising and promotion costs. These increased costs
were partially offset by decreased personnel costs at R&D Europe as a result of
the restructuring of operations undertaken in fiscal 1997.
Selling, general and administrative expenses increased $1,634,862 (13%) in
fiscal 1997. Included in selling, general and administrative expenses for
fiscal 1997 was a restructuring charge of approximately $450,000 related to R&D
Europe. The restructuring involved the withdrawal from the molecular biology
market, the transfer of all major marketing and advertising activities to R&D
Systems and the transfer of immunoassay kit development and manufacturing
activities from R&D Europe to R&D Systems. R&D Europe's sales function was not
affected by the restructuring. The increase in consolidated selling, general
and administrative expenses in fiscal 1997 was also the result of an increase
in Biotechnology Division sales and marketing expenses as a result of
additional staff and increased advertising and promotion activities.
Research and development expenses increased $1,366,994 in fiscal 1999,
decreased $1,064,018 in fiscal 1998 and increased $1,288,558 in fiscal 1997.
The decrease in research and development expenses in fiscal 1998 was the result
of a decrease of $1,235,000 in payments by R&D Europe under the Joint
Biological Research Agreement with British Bio-technology Group, plc, and a
decrease in R&D Europe personnel costs as a result of the restructuring.
Excluding the above, the increase in consolidated research and development
expenses for the past three years was primarily the result of the development
and release of new cytokines, antibodies and assay kits by R&D Systems'
Biotechnology Division and the development and release of several new
Hematology Division control products. Management of the Company believes that
R&D Systems will continue to develop new products.
Earnings before taxes increased from $22,410,961 in fiscal 1998 to $26,054,010
in fiscal 1999, despite $9.54 million in intangible asset amortization in
fiscal 1999 related to the Genzyme acquisition. The increase in earnings was
primarily the result of a $3,073,439 increase in R&D Systems' Biotechnology
Division earnings, a $583,237 increase in R&D Systems' Hematology Division
earnings and a $942,983 increase in R&D Europe earnings, all as a result of
increased sales. These increases were offset by increased net losses of the
Company's equity investment in ChemoCentryx, Inc. of $744,209.
Earnings before taxes increased from $15,987,662 in fiscal 1997 to $22,410,961
in fiscal 1998. This increase in earnings was primarily the result of a
$3,987,242 increase in R&D Systems' Biotechnology Division earnings and a
$997,654 increase in Hematology Division earnings as a result of increased
sales and gross margins. In addition, R&D Europe's earnings before taxes
increased $2,052,874, despite a decrease in sales and gross margin, as a result
of lower expenses due to the restructuring of operations.
Earnings before taxes increased from $12,591,870 in fiscal 1996 to $15,987,662
in fiscal 1997. This increase in earnings was primarily the result of a
$3,165,195 increase in R&D Systems' Biotechnology Division earnings and a
$329,872 increase in R&D Europe earnings. These increases in earnings before
taxes were due to increased sales and gross margins, partially offset by higher
expenses. Hematology Division earnings before taxes were slightly less than
fiscal 1996 as a result of lower sales.
Income taxes for fiscal 1999, 1998 and 1997 were provided at rates of
approximately 36%, 32% and 32%, respectively. The increase in the tax rate in
fiscal 1999 was due to the net loss of the Company's equity investment in
ChemoCentryx for which no tax benefit has been provided and additional U.S.
federal taxes due to lower tax-exempt interest income and loss of the benefit
from graduated income tax rates. U.S. federal and state taxes have been reduced
as a result of tax-exempt interest income, the benefit of the foreign sales
corporation, and the federal and state credit for research and development
expenditures. Foreign income taxes have been provided at rates which
approximate the tax rates in the United Kingdom and Germany.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments at June 30, 1999, were
$29,114,124, a decrease of 30% from the prior year. This decrease was due to
the cash outlay for the Genzyme acquisition. At June 30, 1998, cash,
equivalents and short-term investments were $41,435,542 compared to $24,752,257
at June 30, 1997, an increase of 67%. The Company has an unsecured line of
credit of $750,000 available at June 30, 1999. The interest rate on the line of
credit is at the prime rate of 7.75% at June 30, 1999.
Management of the Company expects to be able to meet its future cash and
working capital requirements for operations and capital additions (excluding
real estate acquired in July 1999) through currently available funds, cash
generated from operations and maturities of short-term investments.
Cash flows from operating activities
The Company generated cash from operations of $28,421,859, $20,875,469 and
$12,476,548 in fiscal 1999, 1998 and 1997, respectively. The majority of cash
generated from operating activities in all three years resulted from an
increase in net earnings after adjustment for noncash expenses, partially
offset by an increase in accounts receivable due to increased sales.
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 equivalents at June
30, 1998 and maturities of short-term investments were used to finance the
cash portion of the acquisition.
During fiscal 1999, the Company entered into agreements to acquire real
estate occupied by R&D Systems in Minneapolis, Minnesota. The purchase price
was approximately $28 million and a deposit of $4 million cash and 100,000
shares of common stock valued at $2.16 million was placed in escrow in fiscal
1999 in anticipation of the July 1, 1999 closing. On July 1, 1999 the Company
acquired the real estate with an additional cash payment of $1.44 million and a
$20.4 million, 15-year mortgage. In addition, on July 1, 1999, the Company paid
$2 million and issued warrants to purchase 60,000 shares of common stock as a
deposit on an option to purchase additional property adjacent to its
Minneapolis facility. The $3.44 million payment on July 1, 1999 was funded from
cash and cash equivalents on hand at June 30, 1999.
Capital additions were $5,564,033, $2,780,194 and $4,243,156 in fiscal 1999,
1998 and 1997, respectively. Included in fiscal 1999, 1998 and 1997 capital
additions are leasehold improvements of $3,538,000, $1,195,000 and $2,935,000
related to R&D Systems' remodeling and expansion. The remaining capital
additions in fiscal 1999, 1998 and 1997 were for laboratory, manufacturing and
computer equipment. Total capital additions for equipment and building
improvements planned for fiscal 2000 are expected to be approximately $8.8
million. All capital additions are expected to be financed through currently
available cash, cash generated from operations and maturities of short-term
investments.
The Company's net investment (withdrawal) in short-term investments in fiscal
1999, 1998 and 1997 was $1,022,721, ($831,955) and $4,326,439, respectively.
The Company's investment policy is to place excess cash in tax-exempt bonds
with the objective of obtaining the highest possible return with the lowest
risk, while keeping funds accessible.
Cash flows from financing activities
The Company received $1,136,633, $919,831 and $582,846 for the exercise of
options for 192,852, 97,541 and 91,000 shares of common stock in fiscal 1999,
1998 and 1997, respectively.
In fiscal 1999, 1998 and 1997, the Company purchased and retired 213,600,
20,000 and 254,600 shares of Company common stock at a market value of
$3,941,950, $280,000 and $3,225,205, respectively. In May 1995, the Company
announced a plan to purchase and retire up to $5 million of its common stock.
In April 1997, this was increased an additional $5 million, subject to market
conditions. Any such purchases will be funded from currently available cash.
The Company has never paid cash dividends and has no plans to do so in fiscal
2000. The Company's earnings will be retained for reinvestment in the
business.
YEAR 2000 AND EURO CURRENCY ISSUES
The Company has taken steps to ensure that it is not adversely affected by Year
2000 (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 company-wide software and any necessary
upgrades to make them Y2K compliant will be completed before the fourth quarter
of calendar 1999. The Company is continuing its review of PC-based software and
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 does not believe the cost of any
necessary upgrades will be material. 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.
FORWARD-LOOKING INFORMATION
Statements in this Annual Report, and elsewhere, that are forward-looking
involve risks and uncertainties which may affect the Company's actual results
of operations. Certain of these risks and uncertainties which have affected
and, in the future, could affect the Company's actual results are discussed
below.
The biotechnology industry is subject to rapid and significant technological
change. While the hematology controls industry historically has been subject to
less rapid change, it too is evolving and is impacted significantly by changes
in the automated testing equipment offered by hardware manufacturers.
Competitors of the Company are numerous and include, among others, specialized
biotechnology firms, medical laboratory instrument and equipment manufacturers
and disposables suppliers, major pharmaceutical companies, universities and
other research institutions. There can be no assurance that the Company's
competitors will not succeed in developing technologies and products that are
more effective than any which have been or are being developed by the Company
or that would render the Company's technologies and products obsolete or
noncompetitive.
The Company's success will depend, in part, on its ability to obtain licenses
and patents, maintain trade secret protection and operate without infringing
the proprietary rights of others. The Company has obtained and is negotiating
licenses to produce a number of cytokines and related products claimed to be
owned by others. Since the Company has not conducted a patent infringement
study for each of its products, it is possible that products of the Company
may unintentionally infringe patents of third parties or that the Company may
have to alter its products or processes, pay licensing fees or cease certain
activities because of patent rights of third parties, thereby causing additional
unexpected costs and delays which may have a material adverse effect on the
Company.
The Company's expansion strategies, which include internal development of new
products, collaborations, investments in joint ventures and companies developing
new products related to the Company's business, and the acquisition of companies
for new products and additional customer base, carry risks that objectives will
not be achieved and future earnings will be adversely affected.
Ongoing research and development activities, including preclinical and clinical
testing, and the production and marketing of the Company's products are subject
to regulation by numerous governmental authorities in the United States and
other countries. The approval process applicable to clinical diagnostic products
of the type that may be developed by the Company usually takes a number of years
and typically requires substantial expenditures. Delays in obtaining approvals
could adversely affect the marketing of new products developed by the Company.
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing are critical
to the Company's success. The Company's anticipated growth and its expected
expansion into areas and activities requiring additional expertise will require
the addition of new personnel and the development of additional expertise by
existing personnel. The failure to attract and retain such personnel could
adversely affect the Company's business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
At the end of fiscal 1999, the Company had an investment portfolio of fixed
income securities, excluding those classified as cash and cash equivalents, of
$16,344,656 (see Note A of Notes to Consolidated Financial Statements). 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
TECHNE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $90,900,697 $67,291,438 $60,923,750
Cost of sales 27,323,211 20,009,641 19,094,827
----------- ----------- -----------
Gross margin 63,577,486 47,281,797 41,828,923
Operating expenses (income):
Selling, general and administrative 16,862,217 15,367,759 14,585,334
Research and development (Note F) 12,004,798 10,637,804 11,701,822
Amortization of intangible assets
(Note A) 9,578,646 71,457 235,508
Interest expense -- -- 29,357
Interest income (922,185) (1,206,184) (710,760)
----------- ----------- -----------
37,523,476 24,870,836 25,841,261
----------- ----------- -----------
Earnings before income taxes 26,054,010 22,410,961 15,987,662
Income taxes (Note H) 9,398,000 7,228,000 5,106,000
----------- ----------- -----------
Net earnings $16,656,010 $15,182,961 $10,881,662
=========== =========== ===========
Basic earnings per share $ 0.83 $ 0.80 $ 0.58
Diluted earnings per share $ 0.81 $ 0.77 $ 0.56
Weighted average common
shares outstanding:
Basic 20,117,367 18,952,968 18,910,608
Diluted 20,686,675 19,607,630 19,462,532
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
TECHNE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,769,468 $ 26,113,607
Short-term available-for-sale
investments (Note A) 16,344,656 15,321,935
Trade accounts receivable, less
allowance for doubtful accounts
of $300,000 and $269,000, respectively 13,520,409 10,001,893
Inventories (Note C) 5,715,065 3,810,600
Deferred income taxes (Note H) 2,101,000 1,583,000
Prepaid expenses 399,850 400,323
------------ ------------
Total current assets 50,850,448 57,231,358
Equipment and leasehold improvements (Note D) 15,065,234 11,515,723
Intangible assets (Note A) 45,564,750 293,854
Deferred income taxes (Note H) 3,137,000 1,798,000
Other long-term assets (Note F) 9,183,087 1,946,293
------------ ------------
$123,800,519 $ 72,785,228
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,375,029 $ 2,074,621
Salaries, wages and related accounts 2,313,450 2,005,428
Other accounts payable and accrued expenses 5,547,702 1,034,190
Income taxes payable 3,226,451 2,185,122
------------ ------------
Total current liabilities 13,462,632 7,299,361
Deferred rent 1,963,500 1,655,100
Royalty payable (Note B) 11,536,000 --
Contingencies and commitments (Note F) -- --
Stockholders' equity (Note G):
Undesignated capital stock, no par;
authorized 5,000,000 shares; none issued
or outstanding -- --
Common stock, par value $.01 a share;
authorized 50,000,000 shares; issued and
outstanding 20,132,655 and 19,049,983
shares, respectively 201,327 190,500
Additional paid-in capital 34,525,581 13,714,445
Retained earnings 62,058,879 49,446,319
Accumulated other comprehensive income 52,600 479,503
------------ ------------
Total stockholders' equity 96,838,387 63,830,767
------------ ------------
$123,800,519 $ 72,785,228
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TECHNE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
ACCUM.
OTHER
ADDITIONAL COMPRE-
COMMON STOCK PAID-IN RETAINED HENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
---------- -------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
June 30, 1996 19,039,056 $190,391 $11,353,362 $27,245,416 $ 84,902 $38,874,071
Comprehensive
income:
Net earnings -- -- -- 10,881,662 -- 10,881,662
Other compre-
hensive in-
come, net of
tax:
Foreign
currency
translation
adjustments -- -- -- -- 345,170 345,170
-----------
Comprehensive
income 11,226,832
Common stock
issued:
Exercise of
options
(Note G) 91,000 910 581,936 -- -- 582,846
Repurchase and
retirement of
common stock (254,600) (2,546) 1,273 (3,223,932) -- (3,225,205)
Tax benefit
from exercise
of stock
options -- -- 151,000 -- -- 151,000
Fair value of
options gran-
ted (Note K) -- -- 471,500 -- -- 471,500
---------- -------- ----------- ----------- -------- -----------
Balances at
June 30, 1997 18,875,456 188,755 12,559,071 34,903,146 430,072 48,081,044
Comprehensive
income:
Net earnings -- -- -- 15,182,961 -- 15,182,961
Other compre-
hensive in-
come, net of
tax:
Foreign
currency
translation
adjustments -- -- -- -- 49,431 49,431
-----------
Comprehensive
Income 15,232,392
Common stock
issued:
Exercise of
options
(Note G) 153,376 1,533 1,278,492 -- -- 1,280,025
Exercise of
warrant
(Note G) 61,775 618 (618) -- -- --
Surrender and
retirement of
stock to
exercise
options
(Note K) (20,624) (206) -- (359,988) -- (360,194)
Repurchase and
retirement of
common stock (20,000) (200) -- (279,800) -- (280,000)
Tax benefit
from exercise
of stock
options -- -- 146,000 -- -- 146,000
Fair value of
options gran-
ted (Note K) -- -- 200,500 -- -- 200,500
Cancelation of
non-vested
options
(Note K) -- -- (469,000) -- -- (469,000)
---------- -------- ----------- ----------- -------- -----------
Balances at
June 30, 1998 19,049,983 190,500 13,714,445 49,446,319 479,503 63,830,767
Comprehensive
income:
Net earnings -- -- -- 16,656,010 -- 16,656,010
Other compre-
hensive in-
come, net of
tax:
Foreign
currency
translation
adjustments -- -- -- -- (426,903) (426,903)
-----------
Comprehensive
Income 16,229,107
Common stock
issued:
Exercise of
options
(Note G) 213,870 2,139 1,238,178 -- -- 1,240,317
Acquisition
(Note B) 987,206 9,872 16,990,128 -- -- 17,000,000
Real estate
deposit
(Note F) 100,000 1,000 2,159,830 -- -- 2,160,830
Surrender and
retirement of
stock to
exercise
options
(Note K) (4,804) (48) -- (103,636) -- (103,684)
Repurchase and
retirement of
common stock (213,600) (2,136) -- (3,939,814) -- (3,941,950)
Tax benefit
from exercise
of stock
options -- -- 423,000 -- -- 423,000
---------- -------- ----------- ----------- -------- -----------
Balances at
June 30, 1999 20,132,655 $201,327 $34,525,581 $62,058,879 $ 52,600 $96,838,387
========== ======== =========== =========== ======== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE K)
TECHNE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 16,656,010 $ 15,182,961 $ 10,881,662
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 11,890,384 2,302,686 2,321,963
Deferred income taxes (1,902,000) (356,000) (662,000)
Tax benefit from exercise
of options 423,000 146,000 151,000
Deferred rent 308,400 712,800 452,100
Other 2,081,435 1,107,762 342,070
Change in current assets and
current liabilities, net of
acquisition:
(Increase) decrease in:
Trade accounts receivable (3,764,422) (1,037,755) (626,936)
Inventories 3,754,942 266,427 (379,051)
Prepaid expenses (14,113) 122,005 233,617
Increase (decrease) in:
Trade and other accounts
payable (2,434,625) 1,032,583 (527,435)
Salaries, wages and related
accounts 314,777 214,554 60,284
Income taxes payable 1,108,071 1,181,446 229,274
------------ ------------ ------------
Total adjustments 11,765,849 5,692,508 1,594,886
------------ ------------ ------------
Net cash provided by operating
activities 28,421,859 20,875,469 12,476,548
Cash flows from investing activities:
Acquisition (Note B) (24,989,542) -- --
Real estate deposit (Note F) (4,000,000) -- --
Additions to equipment and
leasehold improvements (5,564,033) (2,780,194) (4,243,156)
Proceeds from sale of equipment -- 233,862 --
Purchase of short-term available-
for-sale investments (15,025,991) (24,170,831) (15,967,440)
Proceeds from sale of short-term
available-for-sale investments 14,003,270 25,002,786 11,641,001
Increase in other long-term assets (3,060,826) (2,347,123) (250,000)
------------ ------------ ------------
Net cash used in investing
activities (38,637,122) (4,061,500) (8,819,595)
Cash flows from financing activities:
Issuance of common stock 1,136,633 919,831 582,846
Repurchase of common stock (3,941,950) (280,000) (3,225,205)
------------ ------------ ------------
Net cash (used in) provided by
financing activities (2,805,317) 639,831 (2,642,359)
Effect of exchange rate changes
on cash (323,559) 61,440 161,689
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents (13,344,139) 17,515,240 1,176,283
Cash and cash equivalents at
beginning of year 26,113,607 8,598,367 7,422,084
------------ ------------ ------------
Cash and cash equivalents at end
of year $ 12,769,468 $ 26,113,607 $ 8,598,367
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TECHNE CORPORATION AND SUBSIDIARIES
Years Ended June 30, 1999, 1998 and 1997
A. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: Techne Corporation and subsidiaries (the Company) is
engaged domestically in the development and manufacture of biotechnology
products and hematology calibrators and controls through its wholly owned
subsidiary, Research and Diagnostic (R&D) Systems, Inc. Through its wholly
owned English subsidiary, R&D Systems Europe Ltd., the Company distributes
biotechnology products throughout Europe. R&D Systems Europe Ltd. has a sales
subsidiary, R&D Systems GmbH, in Germany. The Company also has a foreign sales
corporation, Techne Export Inc.
ESTIMATES: The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RISKS AND UNCERTAINTIES: There are no concentrations of business transacted with
a particular customer or supplier nor concentrations of revenue from a
particular product or geographic area that would severely impact the Company
in the near term.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS: Assets and liabilities of the
Company's foreign operations are translated at year end rates of exchange and
the foreign statements of earnings are translated at the average rate of
exchange for the year. Gains and losses resulting from translating foreign
currency financial statements are not included in operations but are accumulated
in other comprehensive income. Foreign currency transaction gains and losses are
included in operations.
REVENUE RECOGNITION: The Company recognizes revenues upon shipment of products.
Revenues are reduced to reflect estimated returns.
RESEARCH AND DEVELOPMENT: Research and development expenditures are expensed as
incurred. Development activities generally relate to creating new products,
improving or creating variations of existing products, or modifying existing
products to meet new applications.
EARNINGS PER SHARE: The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share."
The number of shares used to calculate earnings per share are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common
shares outstanding (Basic) 20,117,367 18,952,968 18,910,608
Dilutive stock options and
warrants outstanding 569,308 654,662 551,924
---------- ---------- ----------
Weighted average common
shares outstanding (Diluted) 20,686,675 19,607,630 19,462,532
========== ========== ==========
</TABLE>
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand and
highly liquid investments with original maturities less than three months.
SHORT-TERM INVESTMENTS: Short-term investments consist of tax-exempt bonds with
Original maturities of generally three months to one year.
The Company reports marketable securities at fair market value. Unrealized
gains and losses on available-for-sale securities are excluded from income, but
are included in other comprehensive income. The Company considers all of its
marketable securities available-for-sale. Fair market values are based on
quoted market prices.
Proceeds from sales of available-for-sale securities were $14,003,270,
$25,002,786 and $11,641,001 during fiscal 1999, 1998 and 1997, respectively.
There were no material gross realized gains or losses on these sales. Realized
gains and losses are determined on the specific identification method.
Unrealized gains and losses at June 30, 1999, 1998 and 1997 were not material.
INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
DEPRECIATION AND AMORTIZATION: Equipment is being depreciated using the
straight-line method over an estimated useful life of five years. Leasehold
improvements are being amortized over estimated useful lives of five to fifteen
years.
INTANGIBLES: Intangible assets, related to the acquisition of Genzyme
Corporation's research products business in fiscal 1999 (Note B), Amgen Inc.'s
research reagent and diagnostic kit business in fiscal 1992 and R&D Systems
Europe Ltd. in fiscal 1994 are being amortized on a straight-line basis over
the estimated useful lives and consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
USEFUL LIFE 1999 1998
------------- ----------- ----------
<S> <C> <C> <C>
Customer list 10 years $18,010,000 $1,010,000
Technology licensing agreements 16 years 500,000 500,000
Goodwill 6 years 39,075,089 1,225,547
----------- ----------
57,585,089 2,735,547
Less accumulated amortization 12,020,339 2,441,693
----------- ----------
$45,564,750 $ 293,854
=========== ==========
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS: Management periodically reviews the carrying
value of long-term assets based on the estimated undiscounted future cash flows
expected to result from the use of these assets. Should the sum of the expected
future net cash flows be less than the carrying value, an impairment loss would
be recognized. An impairment loss would be measured by the amount by which the
carrying value of the asset exceeds the fair value of the asset based on
discounted estimated future cash flows. To date, management has determined that
no impairment exists.
INVESTMENTS: The Company has an approximate 43% interest in the issued and
outstanding voting shares of ChemoCentryx, Inc. (CCX), a technology and drug
development company. 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 $1,910,931 and $1,327,570 at June 30,
1999 and 1998, respectively.
STOCK OPTIONS: As permitted by SFAS No. 123, the Company has elected to
continue following the guidance of Accounting Principles Board (APB) Opinion
No. 25 for measurement and recognition of stock-based transactions with
employees. No compensation cost has been recognized for stock options granted
to employees under the plans because the exercise price of all options granted
was at least equal to the fair value of the common stock at the date of grant.
RECENT ACCOUNTING STANDARDS: During the first quarter of fiscal 1999, the
Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires
disclosure of all changes in equity that result from transactions and economic
events other than transactions with owners. Except for net earnings and foreign
currency translation adjustments, the Company does not have any transactions
and other economic events which qualify as comprehensive income as defined
under SFAS No. 130. The Company's adoption of SFAS No. 130 had no effect on the
Company's results of operations, cash flows or financial position.
Effective June 30, 1999, the Company adopted SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
new standards for reporting information about business segments and related
disclosures about products and services, geographic areas and major customers,
if applicable. Under SFAS No. 131, operating segments are determined consistent
with the way management organizes and evaluates financial information
internally for making decisions and assessing performance. The Company's
adoption of SFAS No. 131 had no effect on the Company's results of operations,
cash flows or financial position.
RECLASSIFICATIONS: Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the current year presentation.
These reclassifications had no impact on net earnings or stockholders' equity
as previously reported.
B. ACQUISITION:
On July 1, 1998, the Company, through its Research and Diagnostic Systems, Inc.
subsidiary, acquired the research products business of Genzyme Corporation. The
acquisition was accounted for under the purchase method, and accordingly, the
consolidated financial statements include the results of operations of the
acquired business since the date of acquisition. Assets acquired were as
follows:
Inventories $ 5,660,000
Equipment 320,000
Customer list 17,000,000
-----------
$22,980,000
===========
In consideration for the acquisition, the Company paid $24.76 million cash,
issued to Genzyme Corporation 987,206 shares of common stock valued at $17
million and will pay royalties for 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 of approximately $37.8 million has
been recorded as goodwill and will be amortized on a straight-line basis over
six years. The customer list is being amortized on a declining basis over an
estimated useful life of 10 years.
Pro forma financial information for the year ended June 30, 1998, presented as
if the acquisition had occurred on July 1, 1997, are as follows:
Net sales $81,527,000
Net earnings 5,538,000
Basic earnings per share 0.28
Diluted earnings per share 0.27
C. INVENTORIES:
Inventories consist of:
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
Raw materials $2,105,150 $2,125,365
Finished goods 3,499,688 1,539,696
Supplies 110,227 145,539
---------- ----------
$5,715,065 $3,810,600
========== ==========
</TABLE>
D. EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements consist of:
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
Cost:
Leasehold improvements $13,770,763 $10,243,142
Laboratory equipment 11,308,984 9,769,949
Office and computer equipment 3,294,704 2,923,110
----------- -----------
28,374,451 22,936,201
Less accumulated depreciation
and amortization 13,309,217 11,420,478
----------- -----------
$15,065,234 $11,515,723
=========== ===========
</TABLE>
E. DEBT:
The Company's short-term line of credit facility consists of an unsecured line
of credit of $750,000 at June 30, 1999. The interest rate charged on the line
of credit is at the prime rate of 7.75% at June 30, 1999. There were no
borrowings on the line in the current year.
F. COMMITMENTS AND CONTINGENCIES:
The Company leases buildings, vehicles and various data processing, office and
laboratory equipment under operating leases. These leases provide for renewal
or purchase options during or at the end of the lease periods. At June 30,
1999, aggregate net minimum rental commitments under noncancelable leases
having an initial or remaining term of more than one year are payable as
follows:
YEAR ENDING JUNE 30:
- --------------------
2000 $251,862
2001 27,016
2002 11,339
2003 5,615
2004 4,666
--------
$300,498
========
Total rent expense was approximately $2,587,000, $2,616,000 and $1,893,000 for
the years ended June 30, 1999, 1998 and 1997, respectively.
During fiscal 1999, the Company entered into agreements to acquire real estate
occupied by R&D Systems in Minneapolis, Minnesota. The purchase price was
approximately $28 million. Other long-term assets at June 30, 1999 include $4
million cash and 100,000 shares of the Company's common stock, valued at $2.16
million, which were placed in escrow during fiscal 1999 in anticipation of the
purchase. The closing of the purchase transaction was on July 1, 1999 and $20.4
million of the remaining purchase price was financed through a 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 fiscal 1999, the Company entered into two option agreements for real estate
adjacent to its R&D Systems' facility. The purchase price for the property
under the first option is $7,951,000 and six-year warrants to purchase 60,000
shares of the Company's common stock at $23.77 per share. This purchase option
expires on November 15, 2001. Subsequent to June 30, 1999, the Company paid $2
million cash and issued the warrants as a nonrefundable deposit on the option
purchase price.
The purchase price for the property under the second option is $7 million plus
Capital improvement costs. This option expires on January 1, 2005 and requires
a nonrefundable deposit of $2 million on the earlier of January 15, 2002 or
sixty days after exercise of the first option.
At June 30, 1999, the Company is obligated to purchase up to an additional $1
million of convertible preferred stock of ChemoCentryx Inc. in fiscal 2000
based upon CCX's achievement of certain milestones. After purchase of the
additional preferred shares, the Company will own approximately 49% of the
issued and outstanding voting shares (assuming no investment by other parties).
In fiscal 1994, the Company entered into a four year Joint Biological Research
Agreement with British Bio-technology Group plc. Under the agreement, R&D
Systems Europe Ltd. received the exclusive right to develop, manufacture,
market and sell biomolecules developed by British Bio-technology Group, plc. or
its subsidiaries and any resulting diagnostic kits in the research reagent and
diagnostic markets. In June 1997, the agreement was extended for an additional
five years for 100,000 British pounds per year. Research and development
expenses include $164,000, $165,000 and $1,400,000 for the years ended June 30,
1999, 1998, and 1997, respectively, under this agreement. Subsequent to June 30,
1999, the Company terminated the agreement effective December 31, 1999.
The Company is routinely involved in legal actions which are incidental to the
business of the Company. Although it is difficult to predict the ultimate
outcome of these cases, management believes that any ultimate liability will
not materially affect the consolidated financial position or operations of the
Company.
G. STOCKHOLDERS EQUITY:
STOCK OPTION PLANS: The Company has stock option plans which provide for the
granting of stock options to employees (the TECHNE Corporation 1997 and 1987
Incentive Stock Option Plans) and to employees, officers, directors and
consultants (the TECHNE Corporation 1998 and 1988 Nonqualified Stock Option
Plans). The plans are administered by the Board of Directors, or a committee
designated by the Board, which determines the persons who are to receive awards
under the plans, the number of shares subject to each award and the term and
exercise price of each option. The maximum term of options granted under all
plans is ten years. The number of shares of common stock authorized to be issued
is 600,000, 1,600,000, 300,000 and 1,000,000 under the TECHNE Corporation 1997
Incentive Stock Option Plan, the TECHNE Corporation 1987 Incentive Stock Option
Plan, the TECHNE Corporation 1998 Nonqualified Stock Option Plan and the TECHNE
Corporation 1988 Nonqualified Stock Option Plan, respectively.
Stock option activity during the three years ended June 30, 1999 consists of
the following:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at June 30, 1996 1,065,250 $ 6.44
Granted 453,552 11.63
Exercised (91,000) 6.40
Canceled (142,000) 6.66
--------- -------
Outstanding at June 30, 1997 1,285,802 8.25
Granted 181,984 16.26
Exercised (153,376) 8.35
Canceled (59,352) 12.91
--------- -------
Outstanding at June 30, 1998 1,255,058 9.42
Granted 116,645 17.11
Exercised (213,870) 5.80
--------- -------
Outstanding at June 30, 1999 1,157,833 $ 10.87
========= =======
Options exercisable at June 30:
1997 724,502 $ 6.89
1998 956,058 9.04
1999 935,833 10.87
</TABLE>
Currently outstanding and exercisable stock options at June 30, 1999 consist of
the following:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED AVG.
CONTRACTUAL WEIGHTED AVG.
EXERCISE PRICES OUTSTANDING LIFE (YRS.) EXERCISE PRICE
- --------------- ----------- ------------- --------------
<S> <C> <C> <C>
$ 5.00- 9.99 577,554 4.50 $ 7.14
10.00-14.99 312,134 6.08 11.76
15.00-19.99 268,145 7.58 17.86
--------- ---- -------
1,157,833 5.67 $ 10.87
========= ==== =======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
------------------------------
WEIGHTED AVG.
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
- ----------------- ----------- --------------
<S> <C> <C>
$ 5.00- 9.99 421,554 $ 6.42
10.00-14.99 290,134 11.73
15.00-19.99 224,145 18.11
------- -------
935,833 $ 10.87
======= =======
</TABLE>
Total compensation cost recognized for the years ended June 30, 1998 and 1997
for stock options granted to consultants was $34,000 and $169,000,
respectively. No compensation cost was recognized for the year ended June 30,
1999. If compensation cost for employee options granted in 1999, 1998 and 1997
under the Company's stock option plans had been determined based on the fair
value at the grant dates, consistent with the methods provided in SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income:
As reported $16,656,010 $15,182,961 $10,881,662
Pro forma 15,071,990 13,464,290 8,764,829
Basic earnings per share:
As reported $ 0.83 $ 0.80 $ 0.58
Pro forma 0.75 0.71 0.46
Diluted earnings per share:
As reported $ 0.81 $ 0.77 $ 0.56
Pro forma 0.73 0.69 0.45
</TABLE>
The fair value of options granted under the Company's stock option plans during
1999, 1998 and 1997 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used: no dividend yield,
expected volatility of between 35% and 70%, risk-free interest rates between
4.6% and 6.8% and expected lives between 7 and 10 years.
WARRANT: In fiscal 1994, the Company issued a warrant to purchase 100,000
shares of the Company's common stock at $6.88 as part of the acquisition of R&D
Systems Europe Ltd. The warrant was exercised in 1998 in a cashless exercise
which resulted in the issuance of 61,775 shares of common stock.
H. INCOME TAXES:
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Earnings before income
taxes consist of:
Domestic $21,801,526 $19,101,460 $14,731,035
Foreign 4,252,484 3,309,501 1,256,627
----------- ----------- -----------
$26,054,010 $22,410,961 $15,987,662
=========== =========== ===========
Taxes on income consist of:
Currently payable:
Federal $ 9,122,000 $ 6,280,000 $ 4,584,000
State 355,000 255,000 65,000
Foreign 1,355,000 903,000 1,020,000
Tax benefit from exercise
of stock options 423,000 146,000 151,000
Net deferred (1,857,000) (356,000) (714,000)
----------- ----------- -----------
$ 9,398,000 $ 7,228,000 $ 5,106,000
=========== =========== ===========
</TABLE>
The following is a reconciliation of the federal tax calculated at the
statutory rate of 35% to the actual income taxes provided:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected federal
income tax expense $ 9,119,000 $ 7,844,000 $ 5,596,000
State income taxes, net of
Federal benefit 377,000 270,000 223,000
Foreign sales corporation (444,000) (317,000) (318,000)
Research and development
credits (334,000) (376,000) (317,000)
Tax-exempt interest (165,000) (288,000) (186,000)
Graduated income tax rate -- (100,000) (113,000)
Other 845,000 195,000 221,000
----------- ----------- -----------
$ 9,398,000 $ 7,228,000 $ 5,106,000
=========== =========== ===========
</TABLE>
Deferred income taxes are provided to record the income tax effect of temporary
differences between the tax basis and financial reporting basis of assets and
liabilities. Temporary differences comprising deferred taxes on the consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1999 1998
---------- ----------
<S> <C> <C>
Inventory $1,032,000 $ 654,000
Inventory costs capitalized 509,000 455,000
Foreign net operating loss carryforward 158,000 167,000
Unrealized profit on intercompany sales 250,000 158,000
Other 152,000 149,000
---------- ----------
Current asset 2,101,000 1,583,000
Excess of book over tax intangible
asset amortization 1,595,000 414,000
Excess of book over tax research expense 621,000 666,000
Deferred rent 687,000 579,000
Other 234,000 139,000
---------- ----------
Noncurrent asset 3,137,000 1,798,000
---------- ----------
$5,238,000 $3,381,000
========== ==========
</TABLE>
At June 30, 1999, approximately $470,000 of non-U.S. tax losses were available
for carryforward indefinitely.
The Company's tax returns are subject to audit by various governmental entities
in the normal course of business. The Company does not believe that such audits
will have a material impact on the Company's financial position or results of
operations.
I. SEGMENT INFORMATION:
The Company has three reportable operating segments based on the nature of
products and geographic location: Hematology Division, Biotechnology Division
and R&D Systems Europe. The Hematology Division develops and manufactures
hematology controls and calibrators for sale world-wide. The Biotechnology
Division develops and manufactures biotechnology research and diagnostic
products for sale world-wide. R&D Systems Europe distributes Biotechnology
Division products throughout Europe. No customer accounted for more than 10% of
the Company's revenues for the years ended June 30, 1999, 1998 and 1997.
The accounting policies of the segments are the same as those described in Note
A. In evaluating segment performance, management focuses on sales and income
before taxes. Sales between segments are made at prices which would approximate
transfers to unaffiliated distributors.
Following is financial information relating to the operating segments:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
External sales
Hematology $12,673,544 $11,784,093 $10,269,624
Biotechnology 54,960,816 37,713,747 31,739,184
R&D Systems Europe 23,266,337 17,793,598 18,914,942
----------- ----------- -----------
Total external sales $90,900,697 $67,291,438 $60,923,750
=========== =========== ===========
Intersegment sales
Hematology $ -- $ -- $ --
Biotechnology 11,578,230 7,788,587 6,740,792
R&D Systems Europe 187,054 557,662 539,410
----------- ----------- -----------
Total intersegment sales $11,765,284 $ 8,346,249 $ 7,280,202
=========== =========== ===========
Income before taxes
Hematology $ 3,706,460 $ 3,123,223 $ 2,125,569
Biotechnology 20,419,385 17,345,946 13,358,704
R&D Systems Europe 4,252,484 3,309,501 1,256,627
Corporate and other (2,324,319) (1,367,709) (753,238)
----------- ----------- -----------
Total income before taxes $26,054,010 $22,410,961 $15,987,662
=========== =========== ===========
Interest income
Hematology $ 289,105 $ 278,601 $ 181,277
Biotechnology 313,373 753,253 497,969
R&D Systems Europe 213,589 125,230 34,233
Corporate and other 106,118 49,100 (2,719)
----------- ----------- -----------
Total interest income $ 922,185 $ 1,206,184 $ 710,760
=========== =========== ===========
Depreciation and amortization
Hematology $ 170,105 $ 206,330 $ 220,571
Biotechnology 11,109,795 1,392,442 1,390,793
R&D Systems Europe 239,277 342,140 406,441
Corporate and other 371,207 361,774 304,158
----------- ----------- -----------
Total depreciation and
amortization $11,890,384 $ 2,302,686 $ 2,321,963
=========== =========== ===========
Capital purchases
Hematology $ 174,844 $ 101,258 $ 445,692
Biotechnology 3,940,127 2,299,798 2,408,721
R&D Systems Europe 287,413 193,070 173,359
Corporate and other 1,161,649 186,068 1,215,384
----------- ----------- -----------
Total capital purchases $ 5,564,033 $ 2,780,194 $ 4,243,156
=========== =========== ===========
</TABLE>
Corporate and other reconciling items include the results of unallocated
corporate expenses and assets, the elimination of profit on intersegment sales
and the operations of the Company's equity investment in ChemoCentryx, Inc.
Following is financial information relating to geographic areas:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
External sales
United States $54,261,592 $40,045,282 $34,682,116
Other areas 36,639,105 27,246,156 26,241,634
----------- ----------- -----------
Total external sales $90,900,697 $67,291,438 $60,923,750
=========== =========== ===========
Long-lived assets
United States $20,923,992 $11,078,177 $10,380,142
Other areas 462,898 437,546 872,599
----------- ----------- -----------
Total long-lived assets $21,386,890 $11,515,723 $11,252,741
=========== =========== ===========
</TABLE>
External sales are attributed to countries based on the location of the
customer/distributor. Long-lived assets are comprised of equipment, leasehold
improvements and deposits on real estate.
J. BENEFIT PLANS:
PROFIT SHARING PLAN: The Company has a Profit Sharing and Savings Plan for
non-union U.S. employees, which conforms to IRS provisions for 401(k) plans.
The Company may make profit sharing contributions at the discretion of the
Board of Directors. Operations have been charged for contributions to the plan
of $651,000, $574,500 and $525,500 for the years ended June 30, 1999, 1998 and
1997, respectively.
STOCK BONUS PLANS: The Company also has Stock Bonus Plans covering non-union
employees. The Company may make contributions to the plans in the form of
common stock, cash or other property at the discretion of the Board of
Directors. Operations have been charged for contributions to the plans of
$684,000, $595,000 and $525,500 for the years ended June 30, 1999, 1998 and
1997, respectively.
PERFORMANCE INCENTIVE PROGRAM: Under certain employment agreements with
executive officers, the Company recorded bonuses of $80,000, $109,000 and
$90,500 for the years ended June 30, 1999, 1998 and 1997, respectively. In
addition, options for 4,145, 5,984 and 7,252 shares of common stock were
granted to the executive officers during fiscal 1999, 1998 and 1997,
respectively.
K. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
The Company paid and received cash for the following items:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income taxes paid $9,763,600 $6,602,926 $5,388,789
Interest paid -- -- 29,357
Interest received 1,019,630 1,431,305 781,886
</TABLE>
Noncash transactions during the years ended June 30, 1999, 1998 and 1997
consisted of:
In 1998 and 1997, stock options with fair values of $200,500 and $471,500 were
granted to consultants for services to be provided to the Company. In 1998, the
Company canceled all non-vested stock options granted to consultants.
In 1999, stock options for 21,018 shares of common stock were exercised by
surrender of 4,804 shares of common stock at fair value of $103,684. In 1998,
stock options for 55,835 shares of common stock were exercised by surrender of
20,624 shares of common stock at fair market value of $360,194.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
TECHNE Corporation
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of TECHNE
Corporation and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TECHNE Corporation and
subsidiaries at June 30, 1999 and 1998 and the results of their operations and
cash flows for each of the three years in the period ended June 30, 1999, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
August 20, 1999
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Other than "Executive Officers of the Company" which is set forth at the end
of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the sections entitled "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's proxy statement for its 1999 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
section entitled "Executive Compensation" in the Company's proxy statement for
its 1999 Annual Meeting of Shareholders which will be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days
after the close of the fiscal year for which this report is filed.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
sections entitled "Principal Shareholders" and "Management Shareholdings" in
the Company's proxy statement for its 1999 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days after the close of the fiscal year for which
this report is filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
A. (1) List of Financial Statements.
The following Consolidated Financial Statements are filed as part
of this Report:
Consolidated Statements of Earnings for the Years Ended
June 30, 1999, 1998 and 1997
Consolidated Balance Sheets as of June 30, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements for the Years
Ended June 30, 1999, 1998 and 1997
Independent Auditors' Report on Consolidated Financial Statements
(2) Financial Statement Schedules.
None.
(3) Exhibits.
See Exhibit Index immediately following signature page.
B. Reports on Form 8-K:
No report on Form 8-K was filed during the quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TECHNE CORPORATION
Date: September 27, 1999 Thomas E. Oland
-------------------------
By: Thomas E. Oland
Its: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Date Signature and Title
- ---- ---------------------
September 27, 1999 Thomas E. Oland
---------------------------------
Thomas E. Oland
President, Treasurer and Director
(principal executive officer and
principal financial and accounting
officer)
September 27, 1999 Roger C. Lucas
---------------------------------
Dr. Roger C. Lucas, Director
September 27, 1999 Howard V. O'Connell
---------------------------------
Howard V. O'Connell, Director
September 27, 1999 G. Arthur Herbert
---------------------------------
G. Arthur Herbert, Director
September 27, 1999 Randolph C. Steer
---------------------------------
Dr. Randolph C. Steer, Director
September 27, 1999 Lowell E. Sears
---------------------------------
Lowell E. Sears, Director
September 27, 1999 Christopher S. Henney
---------------------------------
Dr. Christopher S. Henney, Director
EXHIBIT INDEX
for Form 10-K for the 1999 Fiscal Year
Exhibit
Number Description
- ------- -----------
3.1 Restated Articles of Incorporation of Company, as amended to
date--incorporated by reference to Exhibit 19.1 of the
Company's Form 10-Q for the quarter ended September 30, 1991*
3.2 Restated Bylaws, as amended to date--incorporated by reference
to Exhibit 3.2 of the Company's Form 10, dated October 27,
1988*
10.1 Employee Agreement with Respect to Inventions, Proprietary
Information, and Unfair Competition with Thomas E. Oland
--incorporated by reference to Exhibit 10.2 of the Company's
Form 10, dated October 27, 1988*
10.2** Company's Profit Sharing Plan--incorporated by reference to
Exhibit 10.6 of the Company's Form 10, dated October 27, 1988*
10.3** Company's Stock Bonus Plan--incorporated by reference to
Exhibit 10.7 of the Company's Form 10, dated October 27, 1988*
10.4** 1987 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.14 of the Company's Form 10, dated October 27, 1988*
10.5 Form of Stock Option Agreement for 1987 Incentive Stock
Option Plan--incorporated by reference to Exhibit 10.15 of the
Company's Form 10, dated October 27, 1988*
10.6** 1988 Nonqualified Stock Option Plan--incorporated by reference
to Exhibit 10.16 of the Company's Form 10, dated October 27,
1988*
10.7 Form of Stock Option Agreement for Nonqualified Stock Option
Plan--incorporated by reference to Exhibit 10.17 of the
Company's Form 10, dated October 27, 1988*
10.8 International Distributor Agreement dated October 1, 1991
between Research and Diagnostic Systems, Inc. and Hycel, S.A.
--incorporated by reference to Exhibit 28.2 of the Company's
Form 8-K dated September 30, 1991, as amended by Forms 8
dated November 1, 1991 and November 25, 1991*
10.9 Stock Purchase Agreement dated July 30, 1993 between the
Company and British Bio-technology Group plc--incorporated by
reference to Exhibit 1 of the Company's Form 8-K dated August
11, 1993*
10.10 Joint Biological Research Agreement dated July 30, 1993 between
the Company and British Bio-technology Group plc--incorporated
by reference to Exhibit 2 of the Company's Form 8-K dated
August 11, 1993*
10.11 Non-Enforcement of Patent Rights dated March 15, 1995 by New
England Medical Center Hospitals, Inc., Tufts University,
Massachusetts Institute of Technology and Wellesley College in
favor of R & D Systems, Inc.--incorporated by reference to
Exhibit 10.2 of the Company's Form 10-Q for the Quarter ended
March 31, 1995*
10.12 Non-Enforcement of Patent Rights dated March 21, 1995 by
Cistron Biotechnology, Inc. ("Cistron") in favor of R & D
Systems, Inc.--incorporated by reference to Exhibit 10.3 of the
Company's Form 10-Q for the Quarter ended March 31, 1995*
10.13 License and Supply Agreement dated March 21, 1995 between
Cistron and R & D Systems--incorporated by reference to Exhibit
10.4 of the Company's Form 10-Q for the Quarter ended March
31, 1995*
10.14 Research and Development Agreement dated April 10, 1995
between Cistron and R & D Systems, Inc.--incorporated by
reference to Exhibit 10.4 of the Company's Form 10-Q for the
quarter ended March 31, 1995*
10.15** Employment Agreement, dated March 6, 1996, with James A.
Weatherbee--incorporated by reference to Exhibit 10.24 of the
Company's Form 10-K for the year ended June 30, 1996*
10.16** Employment Agreement, dated March 6, 1996, with Monica
Tsang--incorporated by reference to Exhibit 10.25 of the
Company's Form 10-K for the year ended June 30, 1996*
10.17** Employment Agreement, dated December 28, 1995, with
Thomas Detwiler--incorporated by reference to Exhibit 10.26 of
the Company's Form 10-K for the year ended June 30, 1996*
10.18** 1997 Incentive Stock Option Plan--incorporated by reference to
Exhibit 10.24 of the Company's Form 10-K for the year ended June
30, 1997*
10.19 Form of Stock Option Agreement for 1997 Incentive Stock Option
Plan--incorporated by reference to Exhibit 10.25 of the Company's
Form 10-K for the year ended June 30, 1997*
10.20 Investment Agreement between ChemoCentryx, Inc. and Techne
Corporation dated November 18, 1997--incorporated by reference
to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended
December 31, 1997*
10.21 Purchase and Sale Agreement dated as of June 22, 1998 among Techne
Corporation, Research and Diagnostic Systems, Inc. and Genzyme
Corporation--incorporated by reference to Exhibit 2.1 of the
Company's Form 8-K dated July 1, 1998, as amended by Form 8-K/A
dated September 14, 1998*
10.22** 1998 Nonqualified Stock Option Plan--incorporated by reference to
Exhibit 10.1 of the Company's Form 10-Q for the quarter ended
September 30, 1998*
10.23 Form of Stock Option Agreement for 1998 Nonqualified Stock Option
Plan--incorporated by reference to Exhibit 10.2 of the Company's
Form 10-Q for the quarter ended September 30, 1998*
10.24 Purchase Agreement dated January 22, 1999, between R&D Systems,
Inc. and Hillcrest Development, relating to the purchase of
property as 614 and 640 McKinley Place NE and 2201 Kennedy Street
in Minneapolis, Minnesota and First amendment dated February 5,
1999--incorporated by reference to Exhibit 10.1 of the Company's
Form 10-Q for the quarter ended December 31, 1998*
10.25** Extension, dated March 31, 1999, to Employment Agreement with
Thomas C. Detwiler, Ph.D.--incorporated by reference to Exhibit
10.1 of the Company's Form 10-Q for the quarter ended March 31,
1999*
10.26** Extension, dated March 31, 1999, to Employment Agreement with Monica
Tsang, Ph.D.--incorporated by reference to Exhibit 10.2 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.27** Extension, dated March 31, 1999, to Employment Agreement with Marcel
Veronneau--incorporated by reference to Exhibit 10.3 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.28 Second Amendment, dated February 2, 1999, to Purchase Agreement
dated January 22, 1999 between R&D Systems, Inc. and Hillcrest
Development--incorporated by reference to Exhibit 10.4 of the
Company's Form 10-Q for the quarter ended March 31, 1999*
10.29 Third Amendment, dated April 3, 1999, to Purchase Agreement dated
January 22, 1999 between R&D Systems, Inc. and Hillcrest Development
--incorporated by reference to Exhibit 10.5 of the Company's Form
10-Q for the quarter ended March 31, 1999*
10.30 Phase I Option Agreement, dated February 10, 1999, between R&D
Systems, Inc. and Hillcrest Development and form of Purchase
Agreement relating to the purchase of property at 2101 Kennedy
Street in Minneapolis, Minnesota--incorporated by reference to
Exhibit 10.6 of the Company's Form 10-Q for the quarter ended
March 31, 1999*
10.31 First Amendment, dated April 10, 1999, to Phase I Option Agreement
dated February 10, 1999--incorporated by reference to Exhibit 10.7
of the Company's Form 10-Q for the quarter ended March 31, 1999*
10.32 Phase II Option Agreement, dated February 10, 1999, between R&D
Systems, Inc. and Hillcrest Development and form of Purchase
Agreement relating to the purchase of property at 2001 Kennedy
Street in Minneapolis, Minnesota--incorporated by reference to
Exhibit 10.8 of the Company's Form 10-Q for the quarter ended March
31, 1999*
10.33 Second Amendment, dated June 9, 1999, to Phase I Option Agreement
dated February 10, 1999
10.34 Second Amendment, dated June 10, 1999, to Phase II Option Agreement
dated February 10, 1999
10.35 Warrant to purchase 60,000 shares of Common Stock issued to
Hillcrest Development on July 1, 1999.
10.36 Combination Mortgage, Security Agreement and Fixture Financing
Statement dated July 1, 1999 between the Company and TCF National
Bank Minnesota (TCF)
10.37 Promissory Note from the Company to TCF dated July 1, 1999 in the
Principal amount of $20,400,000.
11 Calculation of Earnings Per Share
21 Subsidiaries of the Company:
State/Country of
Name Incorporation
---- ----------------
Research and Diagnostic Systems, Inc. Minnesota
Techne Export Inc. Barbados
R&D Systems Europe Ltd. Great Britain
R&D Systems GmbH Germany
23 Independent Auditors' Consent
27 Financial Data Schedule
- -------------
*Incorporated by reference; SEC File No. 0-17272
**Management contract or compensatory plan or arrangement
SECOND AMENDMENT TO PHASE I OPTION AGREEMENT
(2101 Kennedy Option)
THIS SECOND AMENDMENT TO PHASE I OPTION AGREEMENT is dated this 9th day of
June, 1999, by and between Hillcrest Development ("Owner") and R & D Systems,
Inc. ("Buyer").
RECITALS:
1. Owner and Buyer entered into a Phase I Option Agreement dated February
10, 1999 and a First Amendment to Phase I Option Agreement dated April 10, 1999
with respect to property commonly known as 2101 Kennedy and 659 Cleveland
together with surface parking parcels (collectively the "Option Agreement").
2. The parties wish to amend the Option Agreement on the terms and
conditions hereafter set forth.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. The word "Property" as used in the Option Agreement and in the
Purchase Agreement attached as Exhibit B to the Option Agreement is hereby
amended to exclude that part of the Property taken by, or to be taken, and/or
deeded, or to be deeded, to the City of Minneapolis for additional right-of-way
for Kennedy Street as a result of the contemplated realignment of the Kennedy
Street and Arthur Street intersection.
2. Except as provided for above, all the terms and conditions of the
Option Agreement and the Purchase Agreement attached as Exhibit B to the Option
Agreement shall remain in full force and effect.
OWNER: BUYER:
Hillcrest Development R & D Systems, Inc.
By: /s/ Scott M. Tankenoff By:/s/ Thomas E. Oland
------------------------ ----------------------
Its: General Partner Its: President
SECOND AMENDMENT TO PHASE II OPTION AGREEMENT
(2001 Kennedy Option)
THIS SECOND AMENDMENT TO PHASE II OPTION AGREEMENT is dated this 10th day
of June, 1999, by and between Hillcrest Development ("Owner") and R & D Systems,
Inc. ("Buyer").
RECITALS:
1. Owner and Buyer entered into a Phase II Option Agreement dated February
10, 1999 and a First Amendment to Phase II Option Agreement dated April 10,
1999 with respect to property commonly known as 2001 Kennedy together with a
surface parking parcel (collectively the "Option Agreement").
2. The parties wish to amend the Option Agreement on the terms and
conditions hereafter set forth.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Section XX of the Purchase Agreement attached as Exhibit B to the
Option Agreement is hereby amended and completed by adding the following
paragraphs:
Buyer shall reimburse Seller at closing for the following costs and
expenses to be incurred by Seller, but such reimbursement(s) shall be
limited in amounts as if such reimbursable costs and expenses were Capital
Improvement Costs listed on Exhibit D hereto attached and each of the
following items were treated as "capital improvements" as referenced in
said Exhibit D:
(a) costs and expenses paid to the City of Minneapolis and/or its
agents or contractors for the re-radiusing of the intersection of
Broadway Street and Arthur Street including land acquisition costs but,
except as otherwise provided herein, excluding any cost for the
stoplight and its installation ("Stoplight") which is to be installed
at such intersection;
(b) costs and expenses paid to the City of Minneapolis and/or its
agents or contractors for the realignment of the Kennedy Street and
Arthur Street intersection;
(c) costs and expenses paid to the City of Minneapolis and/or its
agents or contractors for the installation of the turn/drive off lane
at the intersection of Arthur Street and Summer Street;
Buyer shall also reimburse Seller at closing for the following costs
and expenses (together with interest from the date of Seller's expenditure
at the lowest AFR rate then in effect) which Seller has paid:
(a) to the City of Minneapolis and/or its agents or contractors for
the cost of the Stoplight and its installation less the aggregate
principal reimbursement payments for the Stoplight and its installation
previously made to Seller, as Landlord, by UCare Minnesota, or its
assignee, as a tenant, of the Property, "pursuant to the parties'
lease";
(b) with respect to and in connection with Seller's acquisition from
MT Properties, Inc. of the parcel of land lying easterly and adjacent
to the property ("MT Property") along with all due diligence expenses
incurred by Seller associated with such acquisition; and
(c) for all street vacation expenses in connection with the vacation
of streets bordering the Property.
2. Section X(c)(ii) of the Purchase Agreement attached as Exhibit B to
the Option Agreement is hereby amended to read as follows:
(ii) Such additional funds as may be required of Buyer to pay closing
cost or charges properly allocable to Buyer including, but not
limited to, reimbursable costs and expenses to Seller pursuant
to Section XX hereof.
3. The word "Property" as used in the Option Agreement and in the
Purchase Agreement attached as Exhibit B to the Option Agreement is hereby
amended to include that part of Kennedy Street that (i) accrues to the
benefit of Owner as a result of the contemplated realignment of the Kennedy
Street and Arthur Street intersection, and (ii) the MT Property, if acquired
by Owner.
4. Except as provided for above, all the terms and conditions of the
Option Agreement and the Purchase Agreement, attached as Exhibit B to the
Option Agreement shall remain in full force and effect.
OWNER: BUYER:
Hillcrest Development R & D Systems, Inc.
By: /s/ Scott M. Tankenoff By:/s/ Thomas E. Oland
---------------------- -------------------
Its: General Partner Its: President
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
WARRANT
TO PURCHASE 60,000 SHARES OF COMMON STOCK
OF
TECHNE CORPORATION
THIS CERTIFIES THAT, for good and valuable consideration, Hillcrest
Development, a Minnesota Limited Partnership, (the "Investor"), or its
registered assigns, is entitled to subscribe for and purchase from Techne
Corporation, a Minnesota corporation (the "Company"), at any time from July 1,
2000 (the date one year from the date of issuance of this Warrant) up to and
including June 30, 2006 (the date seven years from the date of issuance of this
Warrant), 60,000 fully paid and nonassessable shares of the Common Stock of the
Company at $23.77 per share (the "Warrant Exercise Price"), such number of
shares and Warrant Exercise Price being subject to adjustment pursuant to the
anti-dilution provisions set forth in this Warrant. Reference is made to this
Warrant in the Registration Rights Agreement dated January 22, 1999 (the
"Registration Rights Agreement"), by and between the Company and the Investor.
The shares of Common Stock which may be acquired upon exercise of this Warrant
are referred to herein as the "Warrant Shares." As used herein, the term
"Holder" means the Investor, any party who acquires all or a part of this
Warrant as a registered transferee of the Investor, or any record holder or
holders of the Warrant Shares issued upon exercise, whether in whole or in part,
of the Warrant.
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by the Holder
hereof, in whole or in part (but not as to a fractional share of Common Stock),
by written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of this
Warrant and accompanied or preceded by the surrender of this Warrant along with
a check in payment of the Warrant Exercise Price for such shares.
(b) This Warrant is transferable in whole or in part, subject to
applicable federal and state securities laws and regulations. This Warrant may
not be sold, transferred, assigned, hypothecated or divided into two or more
Warrants of smaller denominations, nor may any Warrant shares issued pursuant
to exercise of this Warrant be transferred, except as provided in Section 7
hereof.
2. Exchange and Replacement. Subject to Sections l and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Investor shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender
hereof in connection with any exchange or replacement. The Company shall pay
all expenses, taxes (other than stock transfer taxes), and other charges payable
in connection with the preparation, execution, and delivery of Warrants
pursuant to this Section 2.
3. Issuance of the Warrant Shares.
(a) The Company agrees that the Warrant Shares purchased hereby shall be
and are deemed to be issued to the Holder as of the close of business on the
date on which this Warrant shall have been surrendered and the payment made for
such Warrant Shares as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in the Registration
Rights Agreement dated January 22, 1999 between the Company and Investor. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 30 calendar days
from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such representations, warranties, and agreements as may
be required solely to comply with the exemptions relied upon by the Company,
or the registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant and a sufficient number of
shares of Common Stock to provide for the conversion of the Common Stock
underlying this Warrant.
5. Antidilution Adjustments. The foregoing provisions are, however,
subject to the following:
(a) The Warrant Exercise Price shall be subject to adjustment from
time to time as hereinafter provided. Upon each adjustment of the Warrant
Exercise Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Warrant Exercise Price resulting from such adjustment, the
number of shares obtained by multiplying the Warrant Exercise Price in
effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Exercise Price resulting from
such adjustment.
(b) In case the Company shall at any time subdivide the outstanding
Common Stock into a greater number of shares or declare a dividend payable
in Common Stock, the Warrant Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case
the outstanding Common Stock shall be combined into a smaller number of
shares, the Warrant Exercise Price in effect immediately prior to such
combination shall be proportionately increased.
(c) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets
("Substituted Property") with respect to or in exchange for such Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, the Holder shall have the right to purchase
and receive upon the basis and upon the terms and conditions specified in
this Warrant and in lieu of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such Substituted Property as would have been issued or
delivered to the Holder if it had exercised this Warrant and had received
upon exercise of this Warrant the Common Stock prior to such
reorganization, reclassification, consolidation, merger or sale. The
Company shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (if other than
the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and
mailed to the Holder at the last address of the Holder appearing on the
books of the Company, the obligation to deliver to the Holder such shares
of stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose
of Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to
the Company to prevent further transfers which would be in violation of Section
5 of the Securities Act of 1933, as amended (the "1933 Act") and applicable
state securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this Section
7, the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares, the Company shall promptly give written notice thereof to the Holder,
and the Holder will limit its activities in respect to such as, in the opinion
of both such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Fair Market Value (as herein after
defined) of such fractional share over the proportional part of the Warrant
Exercise Price represented by such fractional share, plus (b) the proportional
part of the Warrant Exercise Price represented by such fractional share.
9. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the Company
to convert this Warrant (the "Conversion Right") at any time after it is
exercisable, but prior to its expiration, into shares of Company Common Stock
as provided for in this Section 9. Upon exercise of the Conversion Right, the
Company shall deliver to the holder (without payment by the holder of any
Warrant Exercise Price) that number of shares of Company's Common Stock equal
to the quotient obtained by dividing (x) the value of the Warrant at the time
the Conversion Right is exercised (determined by subtracting the aggregate
Warrant Exercise Price for the Warrant Shares in effect immediately prior to
the exercise of the Conversion Right from the aggregate Fair Market Value for
the Warrant Shares immediately prior to the exercise of the Conversion Right)
by (y) the Fair Market Value of one share of Company Common Stock immediately
prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering
a written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of Warrant Shares the Holder will purchase
pursuant to such conversion and (ii) a place and date not less than one or more
than 20 business days from the date of the Conversion Notice for the closing
of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of Warrant Shares issuable upon such
conversion, together with cash, in lieu of any fraction of a share, and (iii)
the Company will deliver to the Holder a new Warrant representing the number
of Warrant Shares, if any, with respect to which the Warrant shall not have been
exercised.
(d) Fair Market Value of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(i) if the Company's Common Stock is traded on an exchange or is
quoted on the Nasdaq National Market, then the average closing or
last sale prices, respectively, reported for the ten (10) business days
immediately preceding the Determination Date, or
(ii) if the Company's Common Stock is not traded on an exchange or
on the Nasdaq National Market but is traded on Nasdaq SmallCap Market or
an over-the-counter market, then the average high bid and low asked prices
reported for the ten (10) business days immediately preceding the
Determination Date, or
(iii) if the Company's Common Stock is not traded on an exchange or
on the Nasdaq National Market nor on Nasdaq SmallCap Market or an over-
the-counter market, then the fair market value of the Common Stock
established by the Company's Board of Directors.
IN WITNESS WHEREOF, Techne Corporation has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated July 1,
1999.
TECHNE CORPORATION
By /s/ Thomas E. Oland
----------------------
Thomas E. Oland, President
To: Techne Corporation
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise
of such Warrant, and requests that certificates for such shares (together with
a new Warrant to purchase the number of shares, if any, with respect to which
this Warrant is not exercised) shall be issued in the name of
___________________________________
(Print Name)
Please insert social security
or other identifying number
of registered holder of
certificate (_____________________) Address:
____________________________________
____________________________________
Date: _________, 19__ ____________________________________
(Signature)*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto _____________________________ the right to purchase the securities of
Techne Corporation to which the within Warrant relates and appoints __________
______________________, attorney, to transfer said right on the books of
Techne Corporation, with full power of substitution in the premises.
Dated: _______________ _________________________________
(Signature)
Address:
__________________________________
__________________________________
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 9)
The undersigned hereby irrevocably elects a cashless exercise of the
right of purchase represented by the within Warrant Certificate for, and to
purchase thereunder, ______________ shares of Common Stock, as provided for
in Section 9 therein.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay any cash for any fractional share to:
Name___________________________
(Please print Name)
Address_________________________
________________________________
Social Security No._____________
Signature_______________________
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
COMBINATION MORTGAGE, SECURITY AGREEMENT
AND FIXTURE FINANCING STATEMENT
This Mortgage is made as of this 1st day of July, 1999, by Techne
Corporation, a Minnesota corporation, (herein called the "Mortgagor") for the
benefit of TCF NATIONAL BANK MINNESOTA, a national banking association (herein
called the "Mortgagee").
In consideration of the sum of $20,400,000.00 to the Mortgagor to be paid,
and for the purpose of securing (a) the repayment of the indebtedness evidenced
by the Mortgagor's promissory note (hereinafter called the "Note") of even date
herewith, payable to the order of the Mortgagee in the principal amount of
$20,400,000.00; said principal sum, with interest thereon at the rate therein
provided being finally due and payable on August 1, 2014, and all renewals,
extensions and modifications thereof and any note issued in substitution
therefor; (b) the payment of all other sums with interest thereon as may be
advanced by the Mortgagee in accordance with this Mortgage, an assignment of
rents and leases of even date herewith (hereinafter the "Assignment"), and any
other instruments securing payment of the Note (the indebtedness evidenced by
the Note and all such other sums are hereinafter collectively referred to as the
"Indebtedness"); and (c) the performance of all the covenants and agreements of
the Mortgagor contained in the Assignment, the Note or this Mortgage, the
Mortgagor does hereby mortgage, grant, bargain, sell, assign, transfer and
convey unto the Mortgagee forever all the tracts or parcels of land (hereinafter
called the "Land"), located in Hennepin County, Minnesota, and described in
Exhibit A attached hereto and made a part hereof, together with (i) all of the
buildings, structures and other improvements now standing or at any time
hereafter constructed or placed upon the Land; and (ii) all lighting, heating,
ventilating, air-conditioning, sprinkling and plumbing fixtures, water and power
systems, engines and machinery, boilers, furnaces, oil burners, elevators and
motors, communication systems, dynamos, transformers, electrical equipment and
all other fixtures of every description located in or on, and used, or intended
to be used in connection with the maintenance and operation of the Land or any
building now or hereafter located thereon (excluding, however, fixtures owned by
tenants or Mortgagor's subsidiaries or affiliates occupying space in any
building now or hereafter located on the Land); and (iii) all hereditaments,
easements, appurtenances, riparian rights, rents, issues, profits, condemnation
awards, mineral rights and water rights now or hereafter belonging or in any way
pertaining to the Land or to any building now or hereafter located thereon and
all the estates, rights and interests of the Mortgagor in the Land; (iv) all
building materials, maintenance equipment and all other personal property now or
hereafter located in, or on, or used, or intended to be used in connection with
the maintenance or operation of the Land or any building now or hereafter
located thereon and all replacements and additions thereto (excluding personal
property owned by tenants or Mortgagor's subsidiaries or affiliates occupying
space in any building now or hereafter located on the Land); and (v) all
additions, accessions, increases, parts, fittings, accessories, replacements,
substitutions, betterments, repairs and proceeds to any and all of the foregoing
(all of the foregoing, together with the Land, are hereinafter referred to as
the "Mortgaged Property").
To Have and To Hold the Mortgaged Property unto the Mortgagee forever;
provided, nevertheless, that this Mortgage is upon the express condition that if
the Mortgagor shall pay to the Mortgagee as and when due and payable the
principal of and interest on the Note and all other Indebtedness, and shall also
keep and perform each and every covenant and agreement of the Mortgagor herein
contained, then, this Mortgage and the estate hereby granted shall cease and be
and become void and shall be released of record at the expense of the Mortgagor;
otherwise this Mortgage shall be and remain in full force and effect.
The Mortgagor represents, warrants and covenants to and with the Mortgagee
that it is lawfully seized of the Land in fee simple and has good right and full
power and authority under all applicable provisions of law and under its
Articles of Incorporation to execute this Mortgage and to mortgage the Mortgaged
Property; that the Mortgaged Property is free from all liens, security interests
and encumbrances except as listed in Exhibit B attached hereto; that the
Mortgagor will warrant and defend the title to the Mortgaged Property and the
lien and priority of this Mortgage against all claims and demands of all persons
whomsoever, whether now existing or hereafter arising, not listed in Exhibit B;
and that all buildings and improvements now or hereafter located on the Land
are, or will be located entirely within the boundaries of the Land. The
covenants and warranties of this paragraph shall survive foreclosure of this
Mortgage and shall run with the Land.
The Mortgagor further covenants and agrees as follows:
1. Payment of the Note. The Mortgagor will duly and punctually pay the
principal of and interest on the Note in accordance with the terms of the Note,
and all other Indebtedness, when and as due and payable. The provisions
of the Note are hereby incorporated by reference into this Mortgage as fully
as if set forth at length herein.
2. Fund for Taxes and Assessments.
(a) The Mortgagor shall pay all taxes and special assessments when
due and shall, within fifteen (15) days after such payment, submit to
Mortgagee a receipt or other proof of payment satisfactory to Mortgagee
establishing the Mortgagor's payment in full of said taxes and assessments.
In the event the Mortgagor shall fail to deliver such proof within said
fifteen (15) day period or if the Mortgagor shall fail to cure any Event of
Default within five (5) business days after the Mortgagor's receipt from
Mortgagee of written notice thereof, upon receipt of written demand, the
Mortgagor shall pay to the Mortgagee on the day monthly installments of
interest or principal and interest are payable under the Note, until the
Note is paid in full, a sum equal to one-twelfth of the yearly taxes and
assessments levied against the Mortgaged Property as estimated initially
and from time to time by the Mortgagee, to be applied by the Mortgagee to
pay said taxes and assessments (such amounts being hereafter referred to as
the "Funds"). The Mortgagee shall apply the Funds to pay said taxes and
assessments prior to the date that penalty attaches for nonpayment so long
as the amount of Funds held by the Mortgagee is sufficient at that time to
make such payments. No earnings or interest shall be payable to the
Mortgagor on the Funds. Such Funds shall not be, nor be deemed to be,
trust funds, and the Mortgagee shall have the right to hold the Funds in
any manner the Mortgagee elects and may commingle the Funds with other
moneys held by the Mortgagee.
(b) If the amount of the Funds held by the Mortgagee shall exceed at
any time the amount deemed necessary by the Mortgagee to provide for the
payment of taxes and assessments, such excess shall, at the option of the
Mortgagee, either be promptly repaid to the Mortgagor or be credited to the
Mortgagor on the next monthly installment of Funds due. If at any time the
amount of the Funds held by the Mortgagee shall be less than the amount
deemed necessary by the Mortgagee to pay taxes and assessments as they fall
due, the Mortgagor shall promptly pay to the Mortgagee any amount necessary
to make up the deficiency upon notice from the Mortgagee to the Mortgagor
requesting payment thereof. The Funds are pledged as additional security
for the Indebtedness.
(c) Upon the occurrence of any Event of Default (as defined in
paragraph 19 hereof) the Mortgagee may apply in any order as the Mortgagee
shall determine in its sole discretion, any Funds held by the Mortgagee at
the time of application to pay taxes and assessments which are then or will
thereafter become due or as a credit against the Indebtedness. Upon
payment in full of all Indebtedness, the Mortgagee shall promptly refund to
the Mortgagor any Funds held by the Mortgagee.
3. Reserve Maintenance Account. In the event Mortgagee reasonably
determines that Mortgagor is not properly maintaining the Mortgaged Property as
required by paragraph 12 hereof, after sixty (60) days prior written notice of
Mortgagor's failure to maintain the Mortgaged Property and Mortgagor's failure
to correct the deficiencies within said sixty (60) day period, Mortgagee may
require the Mortgagor to pay, together with all other payments required by the
Note and this Mortgage, in monthly installments, an amount estimated by
Mortgagee to be sufficient to enable the Mortgagor to maintain the Mortgaged
Property as required by paragraph 12 to a reserve account (the "Reserve
Maintenance Account"). The original amount of the monthly payment to the
Reserve Maintenance Account shall be determined by Mortgagee based on a
reasonable basis. Said sum may be reasonably adjusted annually on the
anniversary of the date hereof, up or down, by Mortgagee. Interest at
Mortgagee's regular passbook savings rate shall be payable to Mortgagor on such
funds.
4. Application of Payments. All payments received by the Mortgagee from
the Mortgagor under the Note, the Assignment or this Mortgage shall be applied
by the Mortgagee in the following order of priority: (i) amounts payable to the
Mortgagee by the Mortgagor under paragraph 2 hereof; (ii) interest payable on
advances made pursuant to paragraph 14 hereof; (iii) principal of advances made
pursuant to paragraph 14 hereof; (iv) interest payable on the Note; (v)
principal of the Note; and (vi) any other sums secured by this Mortgage, in such
order of application as the Mortgagee may determine.
5. Payment of Taxes, Assessments and Other Charges. Subject to payments
in the manner provided under paragraph 2 hereof and to paragraph 10 relating to
contests, the Mortgagor shall pay before a penalty might attach for nonpayment
thereof, all taxes and assessments and all other charges whatsoever levied upon
or assessed or placed against the Mortgaged Property, except that assessments
may be paid in installments so long as no fine or penalty is added to any
installment for the nonpayment thereof. The Mortgagor shall likewise pay any
and all governmental levies or assessments such as maintenance charges, owner
association dues or charges or fees, levies or charges resulting from covenants,
conditions and restrictions affecting the Mortgaged Property, which are assessed
or imposed upon the Mortgaged Property or any part thereof or become due and
payable, and which create, may create or appear to create a lien upon the
Mortgaged Property, or any part thereof. The Mortgagor shall likewise pay all
taxes, assessments and other charges, levied upon or assessed, placed or made
against, or measured by, this Mortgage, or the recordation hereof, or the
Indebtedness secured hereby. In the event of any legislative action or judicial
decision after the date of this Mortgage, imposing upon the Mortgagee the
obligation to pay any such taxes, assessments or other charges, or deducting the
amount secured by this Mortgage from the value of the Mortgaged Property for the
purpose of taxation, or changing in any way the laws now in force for the
taxation of mortgages, deeds of trust or debts secured thereby, or the manner of
the operation of any such taxes so as to affect the interests of the Mortgagee,
then, and in such event, the Mortgagor shall bear and pay the full amount of
such taxes, assessments or other charges. Notwithstanding the foregoing
provisions of this paragraph 5, if for any reason payment by the Mortgagor of
any such taxes, assessments or other charges would be unlawful, or if the
payment thereof would render the indebtedness evidenced by the Note usurious,
the Mortgagee may declare the whole sum secured by this Mortgage, with interest
thereon, to be immediately due and payable. The Mortgagor shall promptly
furnish to the Mortgagee all notices received by the Mortgagor of amounts due
under this paragraph and in the event the Mortgagor shall make payment directly,
the Mortgagor shall promptly furnish to the Mortgagee receipts evidencing such
payments.
6. Payment of Utility Charges. Subject to paragraph 10 relating to
contests, the Mortgagor shall pay all charges (exclusive of charges which are
the obligations of tenants to pay) made by utility companies, whether public or
private, for electricity, gas, heat, water, or sewer, furnished or used in
connection with the Mortgaged Property or any part thereof, and will, upon
written request of the Mortgagee, furnish proper receipts evidencing such
payment.
7. Liens. Subject to paragraph 10 hereof relating to contests, the
Mortgagor shall not create, incur or suffer to exist any lien, encumbrance or
charge on the Mortgaged Property or any part thereof which might or could be
held to be equal or prior to the lien of this Mortgage, other than the liens set
forth in Exhibit B hereto. The Mortgagor shall pay, when due, the claims of all
persons supplying labor or materials to or in connection with the Mortgaged
Property.
8. Compliance with Laws. Subject to paragraph 10 relating to contests,
the Mortgagor shall comply with all present and future statutes, laws, rules,
orders, regulations and ordinances affecting the Mortgaged Property, any part
thereof or the use thereof.
9. Hazardous Substances.
(a) Definitions. As used in this Mortgage, the following terms shall
have the following meanings:
(i) "Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., the Hazardous Materials Transportation Act, 49
U.S.C. Section 1802 et seq., the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq., the Federal Water Pollution Control Act,
33 U.S.C. Section 1251 et seq., the Clean Water Act, 33 U.S.C.
Section 1321 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et
seq., the Minnesota Environmental Response and Liability Act, Minn.
Stat. Chap. 115B, the Minnesota Petroleum Tank Release Cleanup Act,
Minn. Stat. Chap. 115C, and any other federal, state, county,
municipal, local or other statute, law, ordinance or regulation which
may relate to or deal with human health or the environment, all as
may be from time to time amended.
(ii) "Hazardous Substances" means asbestos, ureaformaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or material,
chemical waste, radioactive material, explosives, known carcinogens,
petroleum products and by-products and other dangerous, toxic or
hazardous pollutants, contaminants, chemicals, materials or
substances listed or identified in, or regulated by, any
Environmental Law.
(b) Representations and Warranties. Except as disclosed in the
Environmental Reports described on the attached Exhibit C (the
"Environmental Reports") heretofore delivered to Mortgagee, the Mortgagor
represents and warrants to the Mortgagee that:
(i) To the best of Mortgagor's knowledge based on the
Environmental Reports, there are not present in, on or under the
Mortgaged Property any Hazardous Substances, except as described in
the Environmental Reports.
(ii) To the best of the Mortgagor's knowledge based on the
Environmental Reports, the Mortgaged Property is not presently being
used and has not in the past been used for the handling, storage,
transportation, manufacture, release or disposal of any Hazardous
Substances, except as disclosed in the Environmental Reports and
for reasonable quantities used by Mortgagor and its subsidiaries
in the ordinary course of their business (the "Permitted
Substances").
(iii) To the best of the Mortgagor's knowledge based on the
Environmental Reports, there are no present and have not been
any past claims, investigations, administrative proceedings,
litigation, regulatory hearings or requests or demands for remedial
or response actions or for compensation, which may be proposed,
threatened or pending with respect to the Mortgaged Property,
alleging noncompliance with or violation of any Environmental Law,
seeking relief under any Environmental Law or relating to any
required environmental permits, licenses or authorizations, except as
disclosed in the Environmental Reports.
(iv) To the best of Mortgagor's knowledge based on the
Environmental Reports, all reports and notices required by any
Environmental Law have been duly made with respect to the Mortgaged
Property except with respect to those conditions identified in the
reports prepared by Summit Enviro Solutions entitled `Subsurface
Environmental Assessment' dated June 3, 1994, with respect to 2101
Summer Street and entitled `Phase II Environmental Site Assessment'
dated June 25, 1999, with respect to 2201 Kennedy, and all permits,
licenses and authorizations required by any Environmental Law have
been obtained and are in full force and effect with respect to the
Mortgaged Property.
(v) To the best of Mortgagor's knowledge based on the
Environmental Reports, there is not now present nor has there ever
been present, in, on or under the Mortgaged Property any above-ground
or underground storage tanks used for the storage of petroleum,
petroleum by-products or any other Hazardous Substances, except as
disclosed in the Environmental Reports and for the existing liquid
nitrogen above-ground storage tanks used by Mortgagor.
(vi) To the best of Mortgagor's knowledge based on the
Environmental Reports, the Mortgaged Property is not and never has
been listed on the United States Environmental Protection Agency's
National Priorities List of Hazardous Waste Sites or on any other
list, schedule, log, inventory or record of hazardous waste sites
maintained by any federal, state, or local agency, except as
disclosed in the Environmental Reports.
(vii) The Mortgagor has disclosed and delivered to the
Mortgagee all environmental reports and investigations which the
Mortgagor has obtained or ordered with respect to the Mortgaged
Property.
(c) Prohibited Uses. The Mortgagor shall not use, or permit the use
of, the Mortgaged Property for the handling, storage, transportation,
manufacture, release or disposal of any Hazardous Substances, except for
the Permitted Substances. In addition, the Mortgagor shall not install or
maintain, or permit the installation or maintenance of, any above-ground
or underground storage tanks for the storage of petroleum, petroleum
by-products or other Hazardous Substances in, about or under the Mortgaged
Property unless (i) the Mortgagor has obtained the prior written consent of
the Mortgagee for such installation and maintenance and (ii) the Mortgagor
installs and maintains such above-ground or underground storage tanks in
compliance with all applicable Environmental Laws. Notwithstanding the
foregoing, the Mortgagor, it subsidiaries or any tenant of the Mortgagor
may use or store Permitted Substances or immaterial amounts of commonly
known and used materials which may be deemed Hazardous Substances
hereunder, provided that any such use or storage (A) does not constitute a
separate remunerative activity of the Mortgagor or any tenant, (B) is
incidental to the Mortgagor's, its subsidiaries or such tenant's primary
use of the Mortgaged Property and does not constitute a primary use
thereof, and (C) complies at all times with all applicable Environmental
Laws.
(d) Environmental Reports. Upon the occurrence of an Event of
Default hereunder or if Mortgagee, in its sole discretion, believes that
any Hazardous Substance is present on or is being handled, stored,
transported, manufactured, released or disposed of in, on or under the
Mortgaged Property (except for Permitted Substances or those Hazardous
Substances which have been disclosed to Mortgagee in the Environmental
Reports or in writing prior to the date hereof), Mortgagee or its
authorized agent may enter upon the Mortgaged Property for the purpose of
performing inspections, taking soil borings, or conducting any other tests
or procedures, and obtain such further environmental reports as Mortgagee
deems necessary or appropriate from a reputable environmental consultant of
Mortgagee's choice, all at Mortgagor's expense. If any such environmental
report indicates any presence, handling, storage, transportation,
manufacture, release or disposal of Hazardous Substances in, on or under
the Mortgaged Property (except for Permitted Substances or those Hazardous
Substances which have been disclosed to Mortgagee in the Environmental
Reports or in writing prior to the date hereof), Mortgagee may require
Mortgagor, at Mortgagor's expense, to remedy any such presence, handling,
storage, transportation, manufacturing, release or disposal to the
reasonable satisfaction of Mortgagee.
(e) Legal Proceedings and Remedial Actions. The Mortgagor shall
immediately notify the Mortgagee in writing of any claim, investigation,
administrative proceeding, litigation, regulatory hearing or request or
demand for remedial or response action or for compensation which may be
proposed, threatened or pending, alleging the presence, handling, storage,
transportation, manufacture, release or disposal of Hazardous Substances
in, on or under the Mortgaged Property. The Mortgagee shall have the
right, but not the obligation, to join and participate in any such
investigation, administrative proceeding, litigation, regulatory hearing or
other action and to have its attorneys fees and expenses in connection
therewith paid by the Mortgagor. Without the Mortgagee's prior written
consent, the Mortgagor shall not take any remedial or response action or
enter into any settlement or other compromise with respect to any claim,
investigation, administrative proceeding, litigation, regulatory hearing or
request or demand for remedial or response action or for compensation
which, in the Mortgagee's reasonable judgment, may impair the value of the
Mortgagee's security under this Mortgage.
10. Permitted Contests. The Mortgagor shall not be required to (i) pay
any tax, assessment or other charge referred to in paragraph 5 hereof, (ii) pay
any charge referred to in paragraph 6 hereof, (iii) discharge or remove any
lien, encumbrance or charge referred to in paragraph 7 hereof, or (iv) comply
with any statute, law, rule, regulation or ordinance referred to in paragraph 8
hereof, so long as the Mortgagor shall (a) contest, in good faith, the
existence, amount or the validity thereof, the amount of damages caused thereby
or the extent of its liability therefor, by appropriate proceedings which shall
operate during the pendency thereof to prevent (A) the collection of, or other
realization upon the tax, assessment, charge or lien, encumbrance or charge so
contested, (B) the sale, forfeiture or loss of the Mortgaged Property or any
part thereof, and (C) any interference with the use or occupancy of the
Mortgaged Property or any part thereof, and (b) shall give such security to the
Mortgagee as may be demanded by the Mortgagee to ensure compliance with the
foregoing provisions of this paragraph 10. The Mortgagor shall give prompt
written notice to the Mortgagee of the commencement of any contest referred to
in this paragraph 10.
11. Insurance.
(a) Risks to be Insured. The Mortgagor, at its sole cost and
expense, will maintain insurance of the following character:
(i) Insurance on the buildings and other improvements now
existing or hereafter erected on the Land and on the fixtures and
personal property included in the Mortgaged Property against loss by
fire, and other hazards covered by the so-called "all-risk" form of
policy without a co-insurance clause in an amount equal to the actual
replacement cost thereof (exclusive of foundations and excavations)
without deduction for physical depreciation, which insurance shall in
no event be less than the unpaid principal balance of the Note at any
given time. While any building or other improvement is in the course
of being constructed or rebuilt on the Land, the Mortgagor shall
provide the aforesaid hazard insurance in builder's risk completed
value form including coverage available on the so-called "all-risk"
non-reporting form of policy for an amount equal to 100% of the
insurable replacement value of such building or other improvement.
(ii) If the Mortgaged Property includes steam boilers or
other equipment for the generation or transmission of steam,
insurance against loss or damage by explosion, rupture or bursting of
steam boilers, pipes, turbines, engines and other pressure vessels
and equipment, in an amount satisfactory to the Mortgagee, without a
co-insurance clause.
(iii) If the Land or any part thereof is located in a
designated official flood-hazardous area, flood insurance insuring
the buildings and improvements now existing or hereafter erected on
the Land in an amount equal to the lesser of the principal balance of
the Note or the maximum limit of coverage made available with respect
to such buildings and improvements under the Federal Flood Disaster
Protection Act of 1973, as amended, and the regulations issued
thereunder.
(iv) Comprehensive general liability insurance protecting
against claims arising from any accident or occurrence in or upon the
Mortgaged Property in an amount acceptable to the Mortgagee.
(v) While any building or improvement is in the course of
being constructed, renovated or rebuilt on the Land, such workers'
compensation insurance as is required by statute.
(vi) Insurance against interruption of business in respect of
the Mortgaged Property in an amount sufficient to pay one (1) year's
debt service on the Note, including principal and interest thereof
and tax and assessment payments described in paragraph 2.
(b) Policy Provisions. All insurance policies and renewals thereof
maintained by the Mortgagor pursuant to subparagraphs 11(a)(i) through
(a)(iii) and (a)(vi) above shall be written by an insurance carrier
satisfactory to the Mortgagee, contain a standard mortgagee clause in favor
of and in form acceptable to the Mortgagee, contain an agreement of the
insurer that it will not cancel or modify the policy except after thirty
(30) days prior written notice to the Mortgagee, and be reasonably
satisfactory to the Mortgagee in all other respects. The insurance
maintained pursuant to subparagraphs 11(a)(iv) and (a)(v) shall also be
written by an insurance carrier acceptable to the Mortgagee and shall name
the Mortgagee as an additional insured.
(c) Delivery of Policy. The Mortgagor will deliver to the Mortgagee
copies of policies satisfactory to the Mortgagee evidencing the insurance
which is required under subparagraphs 11(a)(i) through (a)(iii) and
(a)(vi), certificates evidencing the insurance which is required under
subparagraphs 11(a)(iv) and (a)(v), and the Mortgagor shall promptly
furnish to the Mortgagee copies of all renewal notices and all receipts of
paid premiums received by it. At least thirty (30) days prior to the
expiration date of a required policy, the Mortgagor shall deliver to the
Mortgagee a copy of a renewal policy in form satisfactory to the Mortgagee.
If the Mortgagor has a blanket insurance policy in force providing coverage
for several properties of the Mortgagor, including the Mortgaged Property,
the Mortgagee will accept a certificate of such insurance together with a
copy of such blanket insurance policy; provided the certificate sets forth
the amounts of insurance and coverage, and such amounts are at least equal
to the amounts required hereinabove, the original policy of insurance is
written by a carrier or carriers acceptable to the Mortgagee, insures
against the risks set forth hereinabove, cannot be amended, modified or
cancelled without thirty (30) days' prior written notice to any mortgagee
of the Mortgagor, is in an amount not less than the unpaid principal
balance secured by this Mortgage or such lesser amount as required by
paragraph 11(a)(iii), and has a full replacement cost endorsement meeting
the requirements of paragraph 11(a)(i).
(d) Assignment of Policy. If the Mortgaged Property is sold at a
foreclosure sale or if the Mortgagee shall acquire title to the Mortgaged
Property, the Mortgagee shall have all of the right, title and interest of
the Mortgagor in and to any insurance policies required under subparagraphs
11(a)(i) through (a)(iii) and (a)(vi) hereof and the unearned premiums
thereon and in and to the proceeds resulting from any damage to the
Mortgaged Property prior to such sale or acquisition.
(e) Notice of Damage or Destruction: Adjusting Loss. If the
Mortgaged Property or any part thereof shall be damaged or destroyed by
fire or other casualty, the Mortgagor will promptly give written notice
thereof to the insurance carrier and the Mortgagee, and will not adjust any
damage or loss in excess of $200,000.00 unless the Mortgagee shall have
joined in such adjustment; but if there has been no adjustment of any such
damage or loss within four months from the date of occurrence thereof and
if an Event of Default shall exist at the end of such four-month period or
at any time thereafter, the Mortgagee may alone, make proof of loss, adjust
and compromise any claim under the policies and appear in and prosecute any
action arising from such policies. In connection therewith, the Mortgagor
does hereby irrevocably authorize, empower and appoint the Mortgagee as
attorney-in-fact for the Mortgagor (which appointment is coupled with an
interest) to do any and all of the foregoing in the name and on behalf of
the Mortgagor.
(f) Application of Insurance Proceeds. All sums paid under any
insurance policy required in subparagraphs 11(a)(i) through (a)(iii) and
(a)(vi), shall be paid to the Mortgagee. Mortgagee agrees to allow the use
of sums paid under the insurance policy required under subparagraph (a)
above for repair and reconstruction of the Mortgaged Property provided (i)
there exists no default or other event which with the passing of time or
the giving of notice or both would constitute a default under the Note or
this Mortgage, (ii) insurance proceeds and additional funds deposited by
the Mortgagor with Mortgagee prior to the commencement of any repair or
reconstruction are adequate to complete repair and reconstruction of the
Mortgaged Property pursuant to plans and specifications reasonably approved
by Mortgagee, (iii) disbursement procedures acceptable to Mortgagee are in
place, which procedures shall include provisions for the deposit of
construction shortfalls, collection of lien waivers, issuance of title
policies by a title insurance company, payment of Mortgagee's fees and
expenses in disbursing, and coordination of work, and Mortgagor shall have
reimbursed Mortgagee for all of its reasonable out-of-pocket expenses in
connection with such reconstruction and disbursement, including, without
limitation, title insurance fees, inspection fees, attorney's fees, and
architect's fees, and (iv) Mortgagee shall have received such consents and
assurances from municipal authorities as required by the municipal
authorities and tenants in the Mortgaged Property as Mortgagee may
reasonably request, including, without limitation, assurances from the
tenants that they will continue as tenants in the Mortgaged Property upon
completion of the repair or reconstruction work. If the above conditions
are not satisfied as to application of insurance proceeds, and in any event
as to condemnation awards, Mortgagee shall apply the same (after first
deducting therefrom Mortgagor's and Mortgagee's reasonable expenses
incurred in collecting the same, including but not limited to reasonable
attorneys' fees) to the reduction of the outstanding principal balance of
the Note or to payment of the restoration, repair, replacement or
rebuilding of the property that is damaged or destroyed in such manner as
Mortgagee may determine. Any application of insurance proceeds or eminent
domain proceeds shall not extend or postpone the due dates of the monthly
installments payable under the Note or change the amount of such
installments nor shall there be an imposition of any prepayment premium as
a result of said application.
(g) Reimbursement of the Mortgagee's Expenses. The Mortgagor shall
promptly reimburse the Mortgagee upon demand for all of the Mortgagee's
expenses incurred in connection with the collection of the insurance
proceeds, including but not limited to reasonable attorneys fees, and all
such expenses, together with interest from the date of disbursement at the
rate stated in the Note (unless collection of interest from the Mortgagor
at such rate would be contrary to applicable law, in which event such
amounts shall bear interest at the highest rate which may be collected from
the Mortgagor under applicable law) shall be additional amounts secured by
this Mortgage.
12. Preservation and Maintenance of the Mortgaged Property. The
Mortgagor (i) shall keep the buildings and other improvements now or hereafter
erected on the Land in safe and good repair and condition, ordinary depreciation
excepted; (ii) shall, upon damage to or destruction of the Mortgaged Property or
any part thereof by fire or other casualty, restore, repair, replace or rebuild
the Mortgaged Property that is damaged or destroyed to the condition it was in
immediately prior to such damage or destruction, whether or not any insurance
proceeds are available or sufficient for such purpose, unless the Mortgagee
shall have elected to apply such proceeds to reduction of the Indebtedness;
(iii) shall constantly maintain the parking and landscaped areas of the
Mortgaged Property; (iv) shall not commit waste or permit impairment or
deterioration of the Mortgaged Property; (v) shall not remove from the Land any
of the fixtures and personal property included in the Mortgaged Property unless
the same is immediately replaced with property of at least equal value and
utility, and this Mortgage becomes a valid first lien on such property.
13. Inspection. The Mortgagee, or its agents, shall have the right at
all reasonable times, to enter upon the Mortgaged Property for the purposes of
inspecting the Mortgaged Property or any part thereof. The Mortgagee shall,
however, have no duty to make such inspection.
14. Protection of the Mortgagee's Security. Subject to the rights of the
Mortgagor under paragraph 10 hereof, if the Mortgagor fails to perform any of
the covenants and agreements contained in this Mortgage or if any action or
proceeding is commenced which affects the Mortgaged Property or the interest of
the Mortgagee therein, or the title thereto, then the Mortgagee, at Mortgagee's
option, may after ten (10) days written notice to Mortgagor perform such
covenants and agreements, defend against and/or investigate such action or
proceeding, and take such other action as the Mortgagee deems necessary to
protect the Mortgagee's interest. The Mortgagee shall be the sole judge of the
legality, validity and priority of any claim, lien, encumbrance, tax,
assessment, charge and premium paid by it and of the amount necessary to be paid
in satisfaction thereof. The Mortgagee is hereby given the irrevocable power of
attorney (which power is coupled with an interest and is irrevocable) to enter
upon the Mortgaged Property as the Mortgagor's agent in the Mortgagor's name to
perform any and all covenants and agreements to be performed by the Mortgagor as
herein provided. Any amounts or expenses disbursed or incurred by the Mortgagee
pursuant to this paragraph 14, with interest thereon, shall become additional
Indebtedness of the Mortgagor secured by this Mortgage. Unless the Mortgagor
and the Mortgagee agree in writing to other terms of repayment, such amounts
shall be immediately due and payable, and shall bear interest from the date of
disbursement at the interest rate stated in the Note, unless collection from the
Mortgagor of interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from the Mortgagor under applicable law. The Mortgagee shall, at its
option, be subrogated to the lien of any mortgage or other lien discharged in
whole or in part by the Indebtedness or by the Mortgagee under the provisions
hereof, and any such subrogation rights shall be additional and cumulative
security for this Mortgage. Nothing contained in this paragraph 14 shall
require the Mortgagee to incur any expense or do any act hereunder, and the
Mortgagee shall not be liable to the Mortgagor for any damages or claims arising
out of action taken by the Mortgagee pursuant to this paragraph 14.
15. Condemnation.
(a) The Mortgagor hereby irrevocably assigns to the Mortgagee any
award or payment which becomes payable by reason of any taking of the
Mortgaged Property, or any part thereof, whether directly or indirectly or
temporarily or permanently, in or by condemnation or other eminent domain
proceedings (hereinafter called "Taking"). Forthwith upon receipt by the
Mortgagor of notice of the institution of any proceeding or negotiations
for a Taking, the Mortgagor shall give notice thereof to the Mortgagee.
The Mortgagee may appear in any such proceedings and participate in any
such negotiations and may be represented by counsel. The Mortgagor,
notwithstanding that the Mortgagee may not be a party to any such
proceeding, will promptly give to the Mortgagee copies of all notices,
pleadings, judgments, determinations and other papers received by the
Mortgagor therein. The Mortgagor will not enter into any agreement
permitting or consenting to the taking of the Mortgaged Property, or any
part thereof, or providing for the conveyance thereof in lieu of
condemnation, with anyone authorized to acquire the same in condemnation or
by eminent domain unless the Mortgagee shall first have consented thereto
in writing. All Taking awards shall be adjusted jointly by the Mortgagor
and the Mortgagee. All awards payable as a result of a Taking shall be
paid to the Mortgagee, which may, at its option, apply them, after first
deducting the Mortgagor's and Mortgagee's expenses incurred in the
collection thereof, to the payment of the Indebtedness, whether or not due
and in such order of application as the Mortgagee may determine, or to the
repair or restoration of the Mortgaged Property, in the manner as provided
in paragraph 11(f) relating to the application of insurance proceeds or in
such manner as the Mortgagee may determine. Any application of Taking
awards to principal of the Note shall not extend or postpone the due dates
of the monthly installments payable under the Note or change the amount of
such installments nor shall there be an imposition of any prepayment
premium as a result of said application.
(b) If the Taking involves a taking of any building or other
improvement now or hereafter located on the Land, the Mortgagor shall
proceed, with reasonable diligence, to demolish and remove any ruins and
complete repair or restoration of the Mortgaged Property as nearly as
possible to its respective size, type and character immediately prior to
the Taking, whether or not the condemnation awards are available or
adequate to complete such repair or restoration unless the Mortgagee has
applied the entire condemnation award to payment of the Indebtedness. The
Mortgagor shall promptly reimburse the Mortgagee upon demand for all of the
Mortgagee's expenses (including reasonable attorney's fees) incurred in the
collection of awards and their disbursement in accordance with this
paragraph, and all such expenses, together with interest from the date of
disbursement at the rate stated in the Note (unless collection of interest
from the Mortgagor at such rate would be contrary to applicable law, in
which event such amounts shall bear interest at the highest rate which may
be collected from the Mortgagor under applicable law) shall be additional
amounts secured by this Mortgage.
16. Financial Statements and Other Information; Books and Records. The
Mortgagor will prepare or cause to be prepared at its expense and deliver to the
Mortgagee (in such number as may reasonably be requested):
(a) As soon as practicable after the end of each relevant calendar
year, and in no event later than one hundred twenty (120) days thereafter,
an audited financial statement of Mortgagor as of the end of such calendar
year consisting of the balance sheet of the Mortgagor and the related
statements of income and changes in financial position of the Mortgagor for
the calendar year then ended, setting forth in comparative form the figures
for the previous calendar year, all in reasonable detail and prepared by a
certified public accountant selected by the Mortgagor.
(b) As soon as practicable after the end of each quarter, and in no
event later than forty five (45) days thereafter, a quarterly review
statement of Borrower.
(c) Promptly after the completion thereof, any internally prepared
written plans and written audits of the Mortgagor's ability to become Year
2000 Compliant, and any subsequent revisions or updates thereof.
(d) Immediately upon becoming aware of the existence of any
condition or event which constitutes, or which after notice or lapse of
time or both would constitute, an Event of Default, written notice
specifying the nature and period of existence thereof and what action the
Mortgagor has taken, is taking or proposes to take with respect thereto.
The Mortgagor shall keep and maintain at all times at the Mortgagor's address
stated below or at such other place as the Mortgagee may approve in writing,
complete and accurate books of accounts and records in sufficient detail to
reflect correctly the results of the operation of the Mortgaged Property and
copies of all written contracts, leases and other instruments which affect the
Mortgaged Property. Such books, records, contracts, leases and other
instruments shall be subject to examination and inspection by the Mortgagee or
its representative during ordinary business hours.
17. No Secondary Financing, Due on Sale or Transfer.
(a) The Mortgagor shall not create or permit to be created or to
remain any subordinate lien on the Mortgaged Property or any part thereof
to secure any indebtedness for borrowed money, without obtaining the prior
written consent of the Mortgagee.
(b) The Mortgagor shall not sell all or substantially all of it's
assets, or permit a sale of the controlling interest of the Mortgagor, or a
statutory merger whereby Mortgagor ceases to exist (each, a "Disposition")
without first obtaining Mortgagee's prior written consent. Controlling
interest shall mean the ownership of an absolute majority of the voting
stock of the Mortgagor by a single person or entity or combination
thereof or a leveraged buy-out. Notwithstanding the foregoing prohibition
of a Disposition, Mortgagor may, in connection with a Disposition, enter
into such an arrangement with the acquiring or surviving business entity
("Successor") which has either a credit rating from Moody's and Standard &
Poors equal to or superior to that of the Mortgagor or, absent a rating of
Mortgagor by either rating agency, a rating of the Successor by the rating
agencies of at least investment grade as determined by the rating agencies
at the time of the Disposition; provided the Successor assumes the
obligations of the Mortgagor in connection with said Disposition. In the
event the Successor's rating is not investment grade, the Successor's
parent must have such an investment rating of investment grade and shall be
required to guaranty full payment of the Indebtedness for its full term.
18. Security Interest. This Mortgage shall constitute a security
agreement with respect to (and the Mortgagor hereby grants the Mortgagee a
security interest in) all personal property and fixtures included in the
Mortgaged Property as more specifically described in paragraphs (ii), (iv) and
(v) of the granting clause above. The Mortgagor will from time to time, at the
request of the Mortgagee, execute any and all financing statements covering such
personal property and fixtures (in a form satisfactory to the Mortgagee) which
the Mortgagee may reasonably consider necessary or appropriate to perfect its
security interest.
19. Events of Default. Each of the following occurrences shall
constitute an event of default hereunder (herein called an "Event of Default"):
(a) The Mortgagor shall fail to duly and punctually pay any
installment of interest or principal and interest payable under the Note.
(b) The Mortgagor shall default in the performance of or breach its
agreement contained in subparagraph 17(a) hereof.
(c) The Mortgagor shall fail to duly and punctually pay when and as
due any payment for taxes and assessments required by paragraph 2 to be
paid or shall fail to provide the insurance coverage required by paragraph
11(a).
(d) The Mortgagor shall fail duly to perform or observe any of the
covenants or agreements contained in this Mortgage (other than a covenant
or agreement or default, which is elsewhere in this paragraph 19
specifically dealt with) and such failure shall continue unremedied for
thirty (30) calendar days or have adopted an action plan acceptable to
Mortgagee for the cure of any such default if the default cannot be
remedied within said thirty (30) calendar day period. Notwithstanding the
foregoing, Mortgagor shall have ninety (90) calendar days within which to
either remedy a default with respect to a covenant or agreement pertaining
to environmental issues or have adopted an action plan reasonably
acceptable to Mortgagee for the cure of any such default if the default
cannot be remedied within said ninety (90) calendar day period.
(e) The Mortgagor shall make an assignment for the benefit of its
creditors, or the Mortgagor shall generally not be paying its debts as they
become due, or a petition shall be filed by or against the Mortgagor under
the United States Bankruptcy Code which has not been discharged within
sixty (60) days of its filing, or the Mortgagor shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of a
material part of its properties or of the Mortgaged Property or shall not,
within sixty (60) days after the appointment (without its consent or
acquiescence) of a trustee, receiver or liquidator of any material part of
its properties or of the Mortgaged Property, have such appointment vacated.
(f) A judgment, writ or warrant of attachment or execution, or
similar process shall be entered and become a lien on, issued or levied
against, the Mortgaged Property or any part thereof and shall not be
released, vacated or fully bonded within thirty (30) days after its entry,
issue or levy.
(g) The Mortgaged Property, or any part thereof, shall be sold,
conveyed, transferred, encumbered or full possessory rights therein
transferred, or the controlling interest in the Mortgagor shall be sold,
conveyed, transferred or encumbered, whether voluntarily, involuntarily or
by operation of law contrary to the provisions of subparagraph 17(b); this
provision shall apply to each and every sale, transfer, conveyance or
encumbrance regardless of whether or not the Mortgagee has consented or
waived its rights, whether by action or omission, in connection with any
previous sale, transfer, conveyance or encumbrance.
(h) The Mortgagor shall breach any warranty or covenant contained in
the Assignment, and such breach shall be continuing beyond the applicable
grace period.
(i) The Mortgagee shall in good faith reasonably believe that the
Year 2000 problem is likely to result in a material adverse change in
Mortgagor's condition (financial or otherwise), operations, properties or
prospects, or in Mortgagor's ability to repay its obligations to the
Mortgagee in the manner agreed.
20. Acceleration: Foreclosure. Upon the occurrence of any Event of
Default, the Mortgagee may, at its option, exercise one or more of the following
rights and remedies (and any other rights and remedies available to it):
(a) The Mortgagee may, by written notice to the Mortgagor, declare
immediately due and payable all unmatured Indebtedness secured by this
Mortgage, and the same shall thereupon be immediately due and payable,
without further notice or demand.
(b) The Mortgagee shall have and may exercise with respect to all
personal property and fixtures which are part of the Mortgaged Property,
all the rights and remedies accorded upon default to a secured party under
the Uniform Commercial Code, as in effect in the State of Minnesota. If
notice to the Mortgagor of intended disposition of such property is
required by law in a particular instance, such notice shall be deemed
commercially reasonable if given to the Mortgagor (in the manner specified
in paragraph 24) at least ten (10) calendar days prior to the date of
intended disposition. The Mortgagor shall pay on demand all costs and
expenses incurred by the Mortgagee in exercising such rights and remedies,
including without limitation, reasonable attorneys fees and legal expenses.
(c) The Mortgagee may (and is hereby authorized and empowered to)
foreclose this Mortgage by action or advertisement, pursuant to the
statutes of the State of Minnesota in such case made and provided, power
being expressly granted to sell the Mortgaged Property at public auction
and convey the same to the purchaser in fee simple and, out of the proceeds
arising from such sale, to pay all Indebtedness secured hereby with
interest, and all legal costs and charges of such foreclosure and the
maximum attorneys fees permitted by law, which costs, charges and fees the
Mortgagor agrees to pay.
21. Estoppel Certificate. The Mortgagor agrees at any time and from time
to time, upon not less than fifteen (15) days prior notice by the Mortgagee, to
execute, acknowledge and deliver, without charge, to the Mortgagee or to any
person designated by the Mortgagee, a statement in writing certifying that this
Mortgage is unmodified (or if there have been modifications, identifying the
same by the date thereof and specifying the nature thereof), the principal
amount then secured hereby and the unpaid balance of the Note, that the
Mortgagor has not received any notice of default or notice of acceleration or
foreclosure of this Mortgage (or if the Mortgagor has received such a notice,
that it has been revoked, if such be the case), that to the knowledge of the
Mortgagor no Event of Default exists hereunder (or if any such Event of Default
does exist, specifying the same and stating that the same has been cured, if
such be the case), that the Mortgagor to its knowledge has no claims or offsets
against the Mortgagee (or if the Mortgagor has any such claims, specifying the
same), and the dates to which the interest and the other sums and charges
payable by the Mortgagor pursuant to the Note have been paid.
22. Forbearance Not a Waiver; Rights and Remedies - Cumulative. No delay
by the Mortgagee in exercising any right or remedy provided herein or otherwise
afforded by law or equity shall be deemed a waiver of or preclude the exercise
of such right or remedy, and no waiver by the Mortgagee of any particular
provision of this Mortgage shall be deemed effective unless in writing signed by
the Mortgagee. All such rights and remedies provided for herein or which the
Mortgagee or the holder of the Note may have otherwise, at law or in equity,
shall be distinct, separate and cumulative and may be exercised concurrently,
independently or successively in any order whatsoever, and as often as the
occasion therefor arises. The Mortgagee's taking action pursuant to paragraph
14 or receiving proceeds, awards or damages pursuant to paragraphs 11 or 15
shall not impair any right or remedy available to the Mortgagee under paragraph
20 hereof. Acceleration of maturity of the Note, once claimed hereunder by the
Mortgagee, may, at the option of the Mortgagee, be rescinded by written
acknowledgment to that effect by the Mortgagee, but the tender and acceptance of
partial payments alone shall not in any way affect or rescind such acceleration
of maturity of the Note, provided that any such acceleration shall be subject to
the Mortgagor's right of reinstatement as provided in Minnesota Statutes Section
580.30.
23. Successors and Assigns Bound; Number; Gender; Agents; Captions;
Amendments. The covenants and agreements herein contained shall bind, and the
rights hereunder shall inure to, the respective heirs, legal representatives,
successors and assigns of the Mortgagee and the Mortgagor; provided, however,
that this paragraph 23 shall not limit the effect of paragraph 19(g). Wherever
used, the singular number shall include the plural, and the plural the singular,
and the use of any gender shall apply to all genders. The captions and headings
of the paragraphs of this Mortgage are for convenience only and are not to be
used to interpret or define the provisions hereof. No amendment of this
Mortgage shall be effective unless in a writing executed by the Mortgagor and
the Mortgagee.
24. Notice. Any notice from the Mortgagee to the Mortgagor under this
Mortgage shall be deemed to have been given by the Mortgagee and received by the
Mortgagor when mailed by certified mail by the Mortgagee to the Mortgagor at the
following address:
Techne Corporation
614 McKinley Place NE
Minneapolis, Minnesota 55413-2610
or at such other address as the Mortgagor may designate in writing to the
Mortgagee.
Any notice from the Mortgagor to the Mortgagee under this Mortgage shall be
deemed to have been given by the Mortgagor and received by the Mortgagee when
mailed by certified mail by the Mortgagor to the Mortgagee at the following
address:
TCF National Bank Minnesota
801 Marquette Avenue
Minneapolis, Minnesota 55402
Attention: Commercial Real Estate
or at such other address as the Mortgagee may designate in writing to the
Mortgagor.
25. Governing Law; Severability. This Mortgage shall be governed by the
substantive laws of the State of Minnesota. In the event that any provision or
clause of this Mortgage conflicts with applicable law, such conflict shall not
affect other provisions of this Mortgage which can be given effect without the
conflicting provisions and to this end the provisions of this Mortgage are
declared to be severable.
26. Counterparts. This Mortgage may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
27. Production of Documents. The Mortgagor shall, while this Mortgage is
in full force and effect, furnish the Mortgagee with such documents, instruments
and papers as the Mortgagee may request from time to time in order for the
Mortgagee to effectuate a sale or a participation in the loan evidenced by the
Note and this Mortgage.
28. Waiver of Marshalling. The Mortgagor, any party who consents to this
Mortgage and any party who now or hereafter acquires a lien on the Mortgaged
Property and who has actual or constructive notice of this Mortgage hereby
waives any and all right to require the marshalling of assets in connection with
the exercise of any of the remedies permitted by applicable law or provided
herein.
29. Fixture Filing. From the date of its recording, this Mortgage shall
be effective as a financing statement filed as a fixture filing with respect to
all goods constituting part of the Mortgaged Property (as more particularly
described in item (ii) of the granting clause of this Mortgage) which are or are
to become fixtures related to the real estate described herein. For this
purpose, the following information is set forth:
(a) Name and Address of Debtor:
Techne Corporation
614 McKinley Place NE
Minneapolis, Minnesota 55413-2610
(b) Name and Address of Secured Party:
TCF National Bank Minnesota
801 Marquette Avenue
Minneapolis, Minnesota 55402
ATTN: Commercial Lending
(c) This document covers goods which are or are to become fixtures.
(d) The name of the record owner of the Land is the Debtor described
above.
(e) The tax identification number of the Debtor is 41-1427402.
30. Further Assurances. At any time and from time to time until payment
in full of the Indebtedness, the Mortgagor will, at the request of the
Mortgagee, promptly execute and deliver to the Mortgagee such additional
instruments as may be reasonably required further to evidence the lien of this
Mortgage and further to protect the security interest of the Mortgagee with
respect to the Mortgaged Property, including, without limitation, additional
security agreements, financing statements and continuation statements. Any
expenses incurred by the Mortgagee in connection with the preparation and
recordation of any such instruments, including, but not limited to reasonable
attorneys fees, shall become additional Indebtedness of the Mortgagor secured by
this Mortgage. Unless the Mortgagor and the Mortgagee agree in writing to other
terms of repayment, such amounts shall be immediately due and payable, and shall
bear interest from the date of disbursement at the interest rate stated in the
Note, unless collecting from the Mortgagor of interest at such rate would be
contrary to applicable law, in which event such amounts shall bear interest at
the highest rate which may be collected from the Mortgagor under applicable law.
31. Fees. From the date hereof, for expenses incurred from the date
hereof, the Mortgagor shall pay on demand all appraisal fees, survey fees,
recording fees, license and permit fees, title insurance and other insurance
premiums incurred by the Mortgagee in connection with the Note, this Mortgage,
the Assignment and the transactions contemplated hereby, and all other costs and
expenses incurred by the Mortgagee in connection with the negotiation,
preparation, execution, recording, administration or enforcement of the Note,
this Mortgage, the Assignment and the other instruments and documents to be
delivered hereunder and thereunder, including the reasonable fees of counsel for
the Mortgagee with respect thereto. All such costs, expenses and fees shall
become additional Indebtedness of the Mortgagor secured by this Mortgage.
Unless the Mortgagor and the Mortgagee agree in writing to other terms of
repayment, such amounts shall be due and payable immediately upon their
disbursement by the Mortgagee, and shall bear interest from the time of such
disbursement at the lesser of the annual rate stated in the Note or the highest
rate which may be collected from the Mortgagor under applicable law.
32. Year 2000. For purposes hereof, "Year 2000 Compliant" means with
regard to any person or entity, that all software, embedded microchips, and
other processing capabilities utilized by, and material to, the business
operations or financial condition of such person or entity are able to interpret
and manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenario including, but not limited to, the date
"September 9, 1999" and any dates on or after January 1, 2000. The Mortgagor
hereby represents and warrants to the Mortgagee and agrees that: (a) the
Mortgagor has made due inquiry to determine whether the computer applications
and hardware of the Mortgagor and the Mortgagor's key material suppliers and
customers will be Year 2000 Compliant in all material respects by September 1,
1999; (b) the Mortgagor has a program in place to become Year 2000 Compliant in
all material respect by September 1, 1999, and the Mortgagor will devote
adequate resources toward, diligently pursue, and take all actions necessary to
complete such program and become Year 2000 Compliant by September 1, 1999; (c)
to the best of the Mortgagor's knowledge, all of the Mortgagor's key material
suppliers and customers will be Year 2000 Compliant in all material respect by
September 1, 1999; (d) the Mortgagor will deliver to the Mortgagee such
information regarding the plans and progress of the Mortgagor and to the extent
available from Mortgagor's key material suppliers and customers toward becoming
Year 2000 Compliant as the Mortgagee may reasonably request from time to time,
including, but not limited to, any assessment by a third party of the
Mortgagor's efforts to become Year 2000 Compliant; and (e) at the Mortgagee's
request from time to time, the Mortgagor will order, obtain and deliver to the
Mortgagee a copy of audits of the Mortgagor's plans and progress to become Year
2000 Compliant by September 1, 1999, and the Mortgagor shall permit the
Mortgagee and the Mortgagee's representatives to conduct audits of the
Mortgagor's operations for such purpose.
33. Depository Relationship. Mortgagor or a subsidiary of Mortgagor
shall establish and maintain throughout the life of this Mortgage a combined
depository relationship with Mortgagee consisting of an operating demand deposit
account(s) with average collected balances of at least $100,000.00 and a
Corporate Prime Yield Money Marketing Account maintaining a minimum balance of
$500,000.00. The Indebtedness shall become due and payable if Mortgagor or a
subsidiary of Mortgagor terminates its depository relationship with Mortgagee as
described herein.
34. WAIVER OF JURY TRIAL. THE MORTGAGOR ACKNOWLEDGES THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED AND THAT THE
TIME AND EXPENSE REQUIRED FOR TRIAL BY A JURY MAY EXCEED THE TIME AND EXPENSE
REQUIRED FOR TRIAL WITHOUT A JURY. THE MORTGAGOR, AFTER CONSULTING (OR HAVING
HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF MORTGAGOR'S CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF MORTGAGEE AND MORTAGOR, WAIVES
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS MORTGAGE, ANY RELATED
AGREEMENTS, OR THE OBLIGATIONS. THE MORTGAGOR HAS READ ALL OF THIS MORTGAGE AND
UNDERSTANDS ALL OF THE PROVISIONS OF THIS MORTGAGE. THE MORTGAGOR ALSO AGREES
THAT COMPLIANCE BY THE MORTGAGEE WITH THE EXPRESS PROVISIONS OF THIS MORTGAGE
SHALL CONSTITUTE GOOD FAITH AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.
35. Future Advances.
(a) To the extent that this Mortgage secures future advances, the
amount of such advances is not currently known. The acceptance of this
Mortgage by the Mortgagee, however, constitutes an acknowledgement that the
Mortgagee is aware of the provisions of Minnesota Statutes Section 287.05,
subd. 5, and intends to comply with the requirements contained therein.
(b) The maximum principal amount of indebtedness secured by this
Mortgage at any one time, excluding advances made by the Mortgagee in
protection of the Mortgaged Property or the lien of this Mortgage, shall be
$20,400,000.00.
(c) The representations contained in this section are made solely for
the benefit of county recording authorities in determining the mortgage
registry tax payable as a prerequisite to the recording of this Mortgage.
The Mortgagor acknowledges that such representations do not constitute or
imply an agreement by the Mortgagee to make any future advances to the
Mortgagor.
IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be duly
executed as of the day and year first-above written.
Techne Corporation
By /s/ Thomas E. Oland
------------------------
Its President
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 1st day of July,
1999, by Thomas E. Oland, the President of Techne Corporation, a Minnesota
corporation, on behalf of said corporation.
/s/ Dana A. Joyce
-----------------------
Notary Public
This instrument was drafted by:
BEST & FLANAGAN (RJC)
Limited Liability Partnership
4000 U.S. Bank Place
601 Second Avenue South
Minneapolis, MN 55402-4331
EXHIBIT A
TO
COMBINATION MORTGAGE, SECURITY AGREEMENT
AND FIXTURE FINANCING STATEMENT
MORTGAGOR: Techne Corporation
MORTGAGEE: TCF National Bank Minnesota
The Land described in the referenced instrument is located in Hennepin
County, Minnesota, and is described as follows:
Lots 8, 9, 16 and 17, Auditor's Subdivision Number 268, Hennepin County,
Minnesota, together with a temporary non-exclusive parking easement on the real
property described in Exhibit A-1 attached hereto.
EXHIBIT B
TO
COMBINATION MORTGAGE, SECURITY AGREEMENT
AND FIXTURE FINANCING STATEMENT
MORTGAGOR: Techne Corporation
MORTGAGEE: TCF National Bank Minnesota
The Mortgaged Property is subject to the following encumbrances and no
others:
1. Easement Agreement dated December 30, 1975, filed December 30, 1975,
as Document No. 1163522 (as to Parcel 1).
2. Easement Agreement dated May 18, 1976, filed June 11, 1976, as
Document No. 1178824 (as to Parcel 1).
3. Restriction contained in Warranty Deed dated July 1, 1999, filed
____________, 1999, as Document No. ____________.
4. Terms and conditions of Declaration of Easement Agreement dated July
1, 1999, filed ____________, as Document No. ____________.
EXHIBIT C
Environmental Reports
The Environmental Reports shall include:
1. Those letters and reports relating to the property known as 2201 Kennedy
Street, 614 McKinley Place, 640 McKinley Place and 2101 Summer Street
described in the following letters which are attached hereto and
incorporated hereby:
Letter dated December 11, 1998 to Thomas E. Oland, President of R & D
Systems, Inc. from Scott Tankenoff, Managing Partner at Hillcrest
Development.
Letter dated December 16, 1998 to Chuck Diessner at Fredrikson &
Byron, P. A. from Scott Tankenoff, Managing Partner at Hillcrest
Development.
Letter dated January 7, 1998 to Chuck Diessner at Fredrikson & Byron,
P. A. from Scott Tankenoff, Managing Partner at Hillcrest
Development.
Letter dated December 28, 1998 to Scott Tankenoff Managing Partner at
Hillcrest Development from Daniel Prezembel, National Director of
Engineering & Construction at RREEF - Engineering Group regarding due
diligence environmental reports prepared by Summit Envirosolutions.
Letter dated December 24, 1998 to Scott Tankenoff Managing Partner at
Hillcrest Development from Daniel Prezembel, National Director of
Engineering & Construction at RREEF - Engineering Group regarding due
diligence elevator equipment inventory reports prepared by Elevator
Advisory Group, Inc.
2. Letter dated April 16, 1990 to Gary Tankenoff at Hillcrest Development from
Jane C. Boerboom, Senior Pollution Control Specialist at the Minnesota
Pollution Control Agency regarding tank removal.
3. Letter dated September 17, 1990 to Gary Tankenoff at Hillcrest Development
from Jane C. Boerboom, Senior Pollution Control Specialist at the Minnesota
Pollution Control Agency regarding tank removal and spill.
4. Letter dated July 13, 1994 to Craig Lyle Limited Partnership from Jean
Hanson, Project Manager and John Kaehler, Hydrogeologist at the Minnesota
Pollution Control Agency regarding file closure.
5. Letter dated February 22, 1999 to Barbara White at Fredrikson & Byron from
Scott Tracy at Summit Envirosolutions regarding due diligence information.
6. Facsimile transmittal dated February 25, 1999 to Barbara White at
Fredrikson & Byron from Scott C. Tracy at Summit Envirosolutions regarding
PCB wipe samples.
7. Facsimile transmittal dated February 26, 1999 to Barbara White at
Fredrikson & Byron from Scott C. Tracy at Summit Envirosolutions regarding
tank removal.
8. Phase II Environmental Site Assessment, R & D Systems Site, 2201 Kennedy
Street Northeast prepared by Summit Envirosolutions, Inc., dated June 25,
1999.
PROMISSORY NOTE
$20,400,000.00 Minneapolis, Minnesota
July 1, 1999
For Value Received, Techne Corporation, a Minnesota corporation
("Borrower"), promises to pay to the order of TCF NATIONAL BANK MINNESOTA, a
national banking association ("Lender"), at its main office at 801 Marquette
Avenue in Minneapolis, Minnesota, or at such other place as the holder hereof
may from time to time in writing designate, in lawful money of the United States
of America, the principal sum of Twenty Two Million and no /100's Dollars
($22,000,000.00), together with interest (computed on the basis of the actual
number of days elapsed and a 360-day year) on the principal balance of this Note
outstanding from time to time ("Principal Balance") from: (i) the date hereof
("Loan Closing Date") until August 1, 2006 at an annual rate which shall at all
times be equal to seven percent (7.0%); (ii) from August 1, 2006 until August 1,
2011 at an annual rate equal to one and nine tenths percent (1.9%) over the
Five Year Treasury Rate (defined below) established as of the fifth (5th) day
immediately preceding August 1, 2006 ("First Adjustment Date"); and (iii) from
August 1, 2011 until the loan is fully paid on August 1, 2014 ("Maturity Date"),
at an annual rate equal to one and nine tenths percent (1.9%) over the Three
Year Treasury Rate (defined below) established as of the fifth (5th) day
immediately preceding August 1, 2011 ("Second Adjustment Date"). In addition, in
the event of a default hereunder or under the Mortgage, and the continuance of
such default for a period of thirty (30) days after written notice thereof from
Lender to Borrower sent to the address set forth in the Mortgage, together with
Lender's notice of its intent to increase the interest rate hereunder, the
interest rate hereunder, may be, at Lender's option, increased to a rate equal
to three percent (3.0%) over the interest rate that would otherwise be in effect
had there been no default ("Default Rate"). Such increased rate shall be
automatically effective on the thirtieth (30th) day after Lender gives such
notice of default pursuant to paragraph 24 of the Mortgage, or at such later
time as may be set forth in the notice, and the increased rate will remain in
effect until the default is cured to Lender's satisfaction. The foregoing
provisions shall not be deemed to excuse a late payment, or be deemed a waiver
of any other rights of the holder hereof, including the right to declare the
Principal Balance and interest thereon immediately due and payable.
As used herein, "Five Year Treasury Rate" means the published weekly
average yield on United States Treasury Notes adjusted to a constant maturity of
five (5) years, for the most recent week available on the date of determination,
as published and made available by the Federal Reserve Board pursuant to its
Federal Reserve Statistical Release (H.15(519)); provided, however, that in the
event such weekly average yield is no longer available, the Five Year Treasury
Rate shall be a substantially comparable rate selected by the Lender in its
discretion.
As used herein, "Three Year Treasury Rate" means the published weekly
average yield on United States Treasury Notes adjusted to a constant maturity of
three (3) years, for the most recent week available on the date of
determination, as published and made available by the Federal Reserve Board
pursuant to its Federal Reserve Statistical Release (H.15(519)); provided,
however, that in the event such weekly average yield is no longer available, the
Three Year Treasury Rate shall be a substantially comparable rate selected by
the Lender in its discretion.
From and after the date hereof, accrued interest on the principal of the
loan shall be paid on August 1, 1999 and thereafter principal and accrued
interest on the principal in the amount of One Hundred Eighty Three Thousand
Three Hundred Sixty One and no /100's Dollars ($183,361.00) shall be paid on the
first (1st) day of each month until August 1, 2006 and thereafter on the first
(1st) day of each month commencing on September 1, 2006, principal and interest
shall be paid in substantially equal installments sufficient in amount to
substantially amortize the unpaid Principal Balance of the loan at the interest
rate in effect as of the First Adjustment Date and the Second Adjustment Date,
over an assumed term ending on the Maturity Date. The remaining Principal
Balance and all accrued interest thereon shall be paid in full on the Maturity
Date. Additionally, the monthly installments may, at the Lender's option, be
adjusted effective as of the first (1st) payment date after the effective date
of any increase in the interest rate due to the implementation of the Default
Rate and only during the period the Default Rate applies, in each case to the
level necessary to substantially amortize the then remaining Principal Balance
based on the Default Rate and the fifteen (15) year amortization period.
Notwithstanding anything to the contrary herein, the monthly installments must
at all times be sufficient to pay all interest accruing during such month.
All payments and prepayments hereunder, whether in whole or in part, shall
be applied first to the payment of other charges due and owing under this Note
or the Mortgage, second to accrued interest hereunder, and then to the Principal
Balance, except that if any advance made by the holder hereof under the terms of
any instrument securing this Note is not repaid, any monies received, at the
option of the holder, may first be applied to repay such advances, plus interest
thereon, and the balance, if any, shall be applied as above. All applications
of any prepayment to the Principal Balance hereof shall be applied to
installments to be paid in the inverse order of their maturity. No prepayment
shall suspend any required payments of either principal or interest or reduce
the amount of any scheduled payment.
The payment of this Note is secured by a Combination Mortgage, Security
Agreement and Fixture Financing Statement of even date herewith ("Mortgage") and
an assignment of rents and leases of even date herewith ("Assignment"), each
covering real estate and personal property located in Hennepin County,
Minnesota.
Borrower may prepay the Principal Balance in whole or in part at any time
upon no less than three (3) business days' prior written notice to Lender;
provided, however, there shall be paid therewith, as consideration for the
privilege of making such prepayment, a premium constituting one percent (1.0%)
of the amount being prepaid; provided, further however, from the Loan Closing
Date until the First Adjustment Date the prepayment premium shall be in an
amount equal to the greater of (i) one percent (1.0%) of the amount of such
prepayment, or (ii) the amount of any loss or expense which Lender may have
sustained or incurred (including, without limitation, any net loss or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by Lender to fund or maintain the loan) or which Lender may be deemed
to have sustained or incurred, as reasonably determined by Lender as a result of
such prepayment; provided further, however, there shall be no prepayment fee
payable in the event Borrower refinances the loan with Lender at an interest
rate of not less than seven percent (7.0%), or as otherwise provided in the
Mortgage in the event insurance proceeds or condemnation proceeds are applied to
repay the Principal Balance. Any partial prepayment of the Principal Balance
shall be applied against the installments of principal and interest in inverse
order of their maturities and shall not reduce the amount of or postpone the due
date of any installment of principal and interest unless Lender otherwise agrees
in writing.
If any installment of interest or principal and interest is paid more than
ten (10) days after the stated due date for such installment, a late payment fee
shall be due and payable in the amount of four percent (4.0%) of the installment
so paid. The foregoing late charge shall be applied individually to each
overdue payment and once imposed will not be adjusted pro rata on a daily basis.
If any payment of interest or principal and interest is not made when due
in accordance with the terms and conditions of this Note, or an Event of Default
shall occur under the Mortgage or any other instrument securing this Note and
shall be continuing, then the holder hereof may, at its option, by notice in
writing to the Borrower as provided in paragraph 24 of the Mortgage, declare
immediately due and payable the entire Principal Balance hereof and all interest
accrued thereon and the same shall thereupon be immediately due and payable
without further notice or demand.
This Note shall also become automatically due and payable without notice or
demand if a petition is filed by or against the Borrower under the United States
Bankruptcy Code.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys fees and legal expenses in the event this Note is not paid
when due.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other remedy under
this Note. A waiver on any one occasion shall not be construed as a waiver of
any such right or remedy on a future occasion.
All makers, endorsers, sureties, guarantors and other accommodation parties
hereby waive presentment for payment, protest and notice of nonpayment and
consent, without affecting their liability hereunder, to any and all extensions,
renewals, substitutions and alterations of any of the terms of this Note and to
the release of or failure by the Lender to exercise any rights against any party
liable for or any property securing payment thereof.
This Note shall be governed by and construed in accordance with the laws of
the State of Minnesota. The Borrower hereby consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related in any way to this Note or any
security or guaranty for this Note, waives any argument that venue in such
forums is not convenient, and agrees that any litigation initiated by it against
the Lender or any other holder of this Note relating in any way to this Note or
any security or guaranty for this Note shall be venued in either the District
Court of Hennepin County, Minnesota, or the United States District Court,
District of Minnesota, Fourth Division. Interest on any amount under this Note
shall continue to accrue, at the option of the holder of this Note, until such
holder receives final payment of such amount in collected funds in form and
substance acceptable to such holder.
THE BORROWER ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED AND THAT THE TIME AND EXPENSE
REQUIRED FOR TRIAL BY A JURY MAY EXCEED THE TIME AND EXPENSE REQUIRED FOR TRIAL
WITHOUT A JURY. THE BORROWER, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY
TO CONSULT) WITH COUNSEL OF BORROWER'S CHOICE, KNOWINGLY AND VOLUNTARILY, AND
FOR THE MUTUAL BENEFIT OF LENDER AND BORROWER, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE, ANY RELATED AGREEMENTS, OR THE OBLIGATIONS. THE
BORROWER HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS
NOTE. THE BORROWER ALSO AGREES THAT COMPLIANCE BY THE LENDER WITH THE EXPRESS
PROVISIONS OF THIS NOTE SHALL CONSTITUTE GOOD FAITH AND SHALL BE CONSIDERED
REASONABLE FOR ALL PURPOSES.
Techne Corporation
By /s/ Thomas E. Oland
----------------------
Its President
TECHNE CORPORATION
CALCULATION OF BASIC EARNINGS PER SHARE
Year ended June 30,
-------------------
1999 1998 1997
----------- ----------- -----------
Net earnings $16,656,010 $15,182,961 $10,881,662
=========== =========== ===========
Weighted average number
of common shares 20,117,367 18,952,968 18,910,608
=========== =========== ===========
Net earnings per share $ 0.83 $ 0.80 $ 0.58
=========== =========== ===========
CALCULATION OF DILUTED EARNINGS PER SHARE
Year ended June 30,
-------------------
1999 1998 1997
----------- ----------- -----------
Net earnings $16,656,010 $15,182,961 $10,881,662
=========== =========== ===========
Weighted average number
of common shares 20,117,367 18,952,968 18,910,608
Dilutive effect of stock
options and warrants 569,308 654,662 551,924
----------- ----------- -----------
Average common and dilutive
shares outstanding 20,686,675 19,607,630 19,462,532
=========== =========== ===========
Net earnings
per share $ 0.81 $ 0.77 $ 0.56
=========== =========== ===========
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-42992, 33-49160, 33-86728, 33-86732, 333-14211 and 333-37263 of Techne
Corporation on Form S-8, of our report dated August 20, 1999, included in
this Annual Report on Form 10-K of Techne Corporation for the year ended June
30, 1999.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
September 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,769,468
<SECURITIES> 16,344,656
<RECEIVABLES> 13,820,409
<ALLOWANCES> 300,000
<INVENTORY> 5,715,065
<CURRENT-ASSETS> 50,850,448
<PP&E> 28,374,451
<DEPRECIATION> 13,309,217
<TOTAL-ASSETS> 123,800,519
<CURRENT-LIABILITIES> 13,462,632
<BONDS> 0
0
0
<COMMON> 201,327
<OTHER-SE> 96,637,060
<TOTAL-LIABILITY-AND-EQUITY> 123,800,519
<SALES> 90,900,697
<TOTAL-REVENUES> 90,900,697
<CGS> 27,323,211
<TOTAL-COSTS> 27,323,211
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,054,010
<INCOME-TAX> 9,398,000
<INCOME-CONTINUING> 16,656,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,656,010
<EPS-BASIC> .83
<EPS-DILUTED> .81
</TABLE>
