<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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: 0-19271
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IDEXX LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 01-0393723
(State of incorporation) (I.R.S. Employer Identification No.)
ONE IDEXX DRIVE, WESTBROOK, MAINE 04092
(Address of principal executive offices) (Zip Code)
(207) 856-0300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of April 30, 1999, 39,156,893 shares of the registrant's Common Stock, $.10
par value, were outstanding.
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IDEXX LABORATORIES, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations
Three Months Ended
March 31, 1999 and March 31, 1998 4
Consolidated Statements of Cash Flows
Three Months Ended
March 31, 1999 and March 31, 1998 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes certain forward-looking statements
about the business of IDEXX Laboratories, Inc. and its subsidiaries (the
"Company") including, without limitation, the belief that the Company's current
cash and short-term investments will be sufficient to fund its on-going
operations for the foreseeable future, and that the Company has meritorious
defenses in certain of its litigation matters. Such forward-looking statements
are subject to risk and uncertainties that could cause the Company's actual
results to vary materially from those indicated in such forward-looking
statements. These risks and uncertainties are discussed in more detail in the
section captioned "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 2 of Part I of this report.
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PART I -- FINANCIAL INFORMATION
Item 1. -- Financial Statements
--------------------
IDEXX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 91,291 $109,063
Short-term investments 33,019 29,290
Accounts receivable, less reserves of $5,632
and $5,368 in 1999 and 1998, respectively 57,955 47,947
Inventories 46,842 55,428
Deferred income taxes 13,693 13,965
Other current assets 6,738 7,653
-------- --------
Total current assets 249,538 263,346
LONG-TERM INVESTMENTS 27,792 17,297
PROPERTY AND EQUIPMENT, AT COST:
Land 1,196 1,197
Buildings and improvements 4,521 4,487
Leasehold improvements 18,061 17,629
Machinery and equipment 31,812 31,917
Office furniture and equipment 27,632 25,423
Construction-in-progress 2,066 1,840
-------- --------
85,288 82,493
Less - Accumulated depreciation and amortization 43,601 41,013
-------- --------
41,687 41,480
OTHER ASSETS, Net 68,604 68,409
-------- --------
$387,621 $390,532
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,026 $ 26,816
Accrued expenses 32,912 32,046
Current portion of long-term debt 5,598 5,190
Deferred revenue 15,093 14,449
-------- --------
Total current liabilities 65,629 78,501
LONG-TERM DEBT, net of current portion 4,202 4,191
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value
Authorized 60,000 shares
Issued and outstanding 39,069 shares in 1999
and 38,831 shares in 1998 3,907 3,883
Additional paid-in capital 279,614 276,296
Retained earnings 38,321 31,041
Accumulated other comprehensive income (loss) (4,052) (3,380)
-------- --------
Total stockholders' equity 317,790 307,840
-------- --------
$387,621 $390,532
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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IDEXX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
------------------------
March 31, March 31,
1999 1998
--------- ---------
Revenue $89,648 $77,793
Cost of revenue 44,774 39,754
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Gross Profit 44,874 38,039
Expenses:
Sales and marketing 15,153 16,107
General and administrative 12,117 12,075
Research and development 7,171 5,267
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Income from operations 10,433 4,590
Interest income, net 1,310 1,576
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Income before provision for
income taxes 11,743 6,166
Provision for income taxes 4,462 2,405
------- -------
Net income $ 7,281 $ 3,761
======= =======
Net income per common share: Basic $ 0.19 $ 0.10
======= =======
Net income per common share: Diluted $ 0.18 $ 0.10
======= =======
See accompanying notes to consolidated financial statements.
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IDEXX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 7,281 $ 3,761
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities, net of acquisitions:
Depreciation and amortization 4,346 4,572
Changes in assets and liabilities:
Accounts receivable (10,008) (4,315)
Inventories 8,187 4,230
Other current assets (679) 4,111
Accounts payable (14,790) 490
Accrued expenses 3,296 (3,595)
Deferred revenue 644 (587)
-------- --------
Net cash provided by (used in) operating activities (1,723) 8,667
-------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (2,418) (1,938)
Decrease (increase) in short-term investments (3,729) 6,780
Increase in long-term investments (10,495) (8,955)
Decrease (increase) in other assets 19 (80)
Acquisitions of business, net of cash acquired (1,257) (986)
-------- --------
Net cash used in investing activities (17,880) (5,179)
-------- --------
Cash Flows from Financing Activities:
Payment of notes payable (144) (1,530)
Proceeds from the exercise of stock options 2,623 396
-------- --------
Net cash provided by (used in) financing activities 2,479 (1,134)
-------- --------
Net effect of Exchange Rate Changes (648) 472
-------- --------
Net increase (decrease) in Cash and Cash Equivalents (17,772) 1,882
Cash and Cash Equivalents, beginning of period 109,063 106,972
-------- --------
Cash and Cash Equivalents, end of period $ 91,291 $108,854
======== ========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ 21 $ 106
======== ========
Income taxes paid during the period $ 704 $ 3,368
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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IDEXX LABORATORIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared by
IDEXX Laboratories, Inc. and subsidiaries (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission and
include, in the opinion of management, all adjustments which the Company
considers necessary for a fair presentation of such information. The
December 31, 1998 Balance Sheet was derived from the audited Consolidated
Balance Sheets contained in the Company's latest stockholders' annual
report. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. These statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto which
are contained in the Company's latest stockholders' annual report. The
results for the interim periods presented are not necessarily indicative of
results to be expected for the full fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain accounting policies described in this and other notes to the
consolidated financial statements.
a. Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All material intercompany transactions and balances have
been eliminated in consolidation.
b. Certain reclassifications have been made in the 1998 consolidated
financial statements to conform with the current year's presentation.
c. The Company accounts for cash equivalents and marketable securities in
accordance with Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities".
Accordingly, the Company's cash equivalent and short-term investments
are classified as held-to-maturity and are recorded at amortized cost
which approximates market value.
Cash Equivalents and Short-term Investments: Cash equivalents are
short-term, highly liquid investments with original maturities of less
than three months. Short-term investments are investment securities
with original maturities of greater than three months but less than one
year and consist of the following (in thousands):
March 31, December 31,
1999 1998
--------- ------------
Municipal bonds $27,102 $21,801
U.S. Treasury bills 3,000 6,000
Commercial paper -- 458
Certificates of deposit 2,917 1,031
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$33,019 $29,290
======= =======
Long-term investments are investment securities with original
maturities of greater than one year and consist of the following (in
thousands):
March 31, December 31,
1999 1998
--------- ------------
Municipal bonds $19,292 $13,297
Government bonds 8,000 --
Certificates of deposit 500 4,000
------- -------
$27,792 $17,297
======= =======
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d. Inventories include material, labor and overhead, and are stated at the
lower of cost (first-in, first-out) or market. The components of
inventories are as follows (in thousands):
March 31, December 31,
1999 1998
--------- -----------
Raw materials $ 7,810 $11,342
Work-in-process 5,058 5,784
Finished goods 33,974 38,302
------- -------
$46,842 $55,428
======= =======
e. The Company reports earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share." Basic
earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during
the quarter. The computation of diluted earnings per common share is
similar to the computation of basic earnings per common share except
that the denominator is increased for the assumed exercise of dilutive
options using the treasury stock method unless the effect is
anti-dilutive and for the addition of shares to be issued in connection
with the acquisition of Blue Ridge Pharmaceuticals, Inc.
The following is a reconciliation of shares outstanding for basic and
diluted earnings per share:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Shares outstanding for basic earnings per share:
Weighted average shares outstanding 38,907 38,253
====== ======
Shares outstanding for diluted earnings per share:
Weighted average shares outstanding 38,907 38,253
Dilutive effect of options issued to employees 1,880 1,092
Shares to be issued for the acquisition of Blue Ridge
Pharmaceuticals, Inc. 115 --
------ ------
40,902 39,345
====== ======
</TABLE>
3. NON-RECURRING OPERATING CHARGE
During 1997 the Company recorded a non-recurring operating charge of $34.5
million. The non-recurring operating charge included a $13.2 million
write-off of in-process research and development associated with the
acquisition of two veterinary practice information management software
providers and $21.3 million of the write-downs and write-offs of certain
assets and accrual of costs related to a significant workforce reduction.
As of March 31, 1999, $2.3 million was included in accrued expenses
relating to the non-recurring operating charge. The balance remaining at
March 31, 1999 primarily represents severance payments due to terminated
employees, unpaid charges related to the consolidation and relocation of
distribution functions in Europe and lease payments on unutilized
facilities.
4. COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income."
Other comprehensive income for the Company consists of foreign currency
translation adjustments resulting from the translation of the financial
statements of the Company's foreign subsidiaries. The Company considers the
foreign currency cumulative translation adjustment to be permanently
invested and therefore has not provided income tax on those amounts.
Accordingly, below is a summary of comprehensive income in accordance with
this statement (in thousands):
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March 31, March 31,
1999 1998
--------- ---------
Net income (loss) $ 7,281 $ 3,761
Other comprehensive income:
Foreign currency translation adjustments (672) (472)
------- -------
Comprehensive income (loss) $ 6,609 $ 3,289
======= =======
5. NOTES PAYABLE
In connection with the acquisition of the business of Consolidated
Veterinary Diagnostics, Inc., the Company issued an unsecured note payable
for $3.0 million, of which $2.0 million and $1.0 million was outstanding at
March 31, 1998 and 1999, respectively. The note bears interest at 8% and is
due in three equal installments in July 1997, 1998 and 1999.
In connection with the Central Veterinary Diagnostic Laboratory
acquisition, the Company issued an unsecured note payable for Australian
Dollars 900,000 (US $587,000) of which Australian Dollars 675,000 (US
$430,700) was outstanding at March 31, 1999. The note bears interest at 6%
and is due in four equal annual installments beginning in December 1998.
In connection with the Blue Ridge Pharmaceuticals, Inc. acquisition (see
Note 7b), the Company issued unsecured notes payable for $7,830,000, which
were outstanding at March 31, 1999. The notes bear interest at 5.5% and are
due in two equal annual installments on October 1, 1999 and 2000.
In connection with the acquisition of a veterinary laboratory business in
Phoenix, Arizona (see Note 7c), the Company issued a non-interest bearing
note payable for $538,935 which was outstanding at March 31, 1999. The note
is due in five monthly installments beginning in April 1999.
6. COMMITMENTS AND CONTINGENCIES
From time to time the Company has received notices alleging that the
Company's products infringe third-party proprietary rights. In particular,
the Company has received notices claiming that certain of the Company's
immunoassay products infringe third-party patents. Except as noted below
with respect to the patent infringement suit filed by Synbiotics
Corporation, the Company is not aware of any pending litigation with
respect to such claims. Patent litigation frequently is complex and
expensive, and the outcome of patent litigation can be difficult to
predict. There can be no assurance that the Company will prevail in any
infringement proceedings that have been or may be commenced against the
Company. A significant portion of the Company's revenue in the three month
period ended March 31, 1999 was attributable to products incorporating
certain immunoassay technologies and products relating to the diagnosis of
canine heartworm infection. If the Company were to be precluded from
selling such products or required to pay damages or make additional royalty
or other payments with respect to such sales, the Company's business and
results of operations could be materially and adversely affected.
On February 24, 1995, CDC Technologies, Inc. ("CDC Technologies") filed
suit against the Company in the U.S. District Court for the District of
Connecticut. In its complaint, CDC Technologies alleges that the Company's
conduct in, and its relationships with its distributors in connection with,
the distribution of the Company's hematology products (i) violate federal
and state antitrust statutes, (ii) violate Connecticut statutes regarding
unfair trade practices, and (iii) constitute a civil conspiracy and
interfere with CDC Technologies' business relations. The relief sought by
CDC Technologies includes treble damages for antitrust violations as well
as compensatory and punitive damages, and an injunction to prevent the
Company from interfering with CDC Technologies' relations with
distributors. The Company has filed an answer denying the allegations in
CDC's complaint. In March 1998, the court granted the Company's motion for
summary judgment in the case, however CDC is appealing that ruling. The
Company is unable to assess the likelihood of an adverse result or estimate
the amount of any damages which the Company may be required to pay. Any
adverse outcome resulting in the payment of damages would adversely affect
the Company's results of operations.
On November 12, 1998, Synbiotics Corporation ("Synbiotics") filed suit
against the Company in the U.S. District Court for the Southern District of
California for infringement of U.S. Patent No. 4,789,631 issued December 6,
1988 (the "`631 Patent"). The `631 Patent, which is owned by Synbiotics,
claims certain assays, methods and compositions for the diagnosis of canine
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heartworm infection. The primary relief sought by Synbiotics is an
injunction against the Company which would prevent the Company from selling
canine heartworm diagnostic products which infringe the `631 Patent, as
well as treble damages for past infringement. This suit was not served on
the Company within the time period specified under applicable court rules
and was dismissed without prejudice in April 1999, however Synbiotics is
not precluded from filing a new suit in the future. While the Company
believes that it has meritorious defenses against claims of infringement of
the `631 Patent, the Company is unable to assess the likelihood of an
adverse result or estimate the amount of any damages the Company may be
required to pay. If the Company is precluded from selling canine heartworm
diagnostic products or required to pay damages or make additional royalty
or other payments with respect to such sales, the Company's business and
results of operations could be materially and adversely affected.
On January 9, 1998, a complaint was filed in the U.S. District Court for
the District of Maine captioned ROBERT A. ROSE, et.al. v. DAVID E. SHAW,
ERWIN F. WORKMAN, JR. and IDEXX LABORATORIES, INC. The plaintiffs purport
to represent a class of purchasers of the common stock of the Company from
July 19, 1996 through March 24, 1997. The complaint claims that the
defendants violated Section 10(b) of the Securities Exchange Act of 1934
and Securities and Exchange Commission Rule 10b-5 promulgated pursuant
thereto, by virtue of false or misleading statements made during the class
period. The complaint also claims that the individual defendants are liable
as "control persons" under Section 20(a) of that Act. In addition, the
complaint claims that the individual defendants sold some of their own
common stock of the Company, during the class period, at times when the
market price for the stock allegedly was inflated. While the Company and
other defendants deny the allegations and will defend this suit vigorously,
the Company is unable to assess the likelihood of an adverse result or
estimate the amount of damages which the Company may be required to pay.
Any adverse outcome resulting in the payment of damages would adversely
affect the Company's results of operations.
On December 18, 1997, SA Scientific, Inc. ("SAS") filed suit against the
Company in the State of Texas District Court seeking unspecified damages
resulting from the Company's alleged breach of a development and supply
agreement between SAS and the Company. The Company has filed an answer to
the complaint denying SAS's allegations and asserting counterclaims against
SAS for breach of contract and conversion of the Company's property. SAS
has filed an amended complaint seeking $1,500,000 in actual damages related
to the Company's alleged breach of contract, $5,000,000 in punitive damages
and further unspecified damages from the Company's alleged negligent
misrepresentation, fraud and conversion of SAS's intellectual property, and
attorneys' fees. The Company believes that it has meritorious defenses to
SAS's claims and is contesting the matter vigorously. However, the Company
is unable to assess the likelihood of an adverse result or estimate the
amount of damages the Company might be required to pay. Any adverse outcome
resulting in payment of damages would adversely affect the Company's
results of operations.
7. ACQUISITIONS
1998 ACQUISITIONS
(a) Agri-West Laboratory
On March 1, 1998, the Company, through its wholly-owned subsidiary, IDEXX
Food Safety Net Services, Inc., acquired certain assets and assumed
certain liabilities of Agri-West Laboratory ("Agri-West") for $250,000
from Agri-West International, Inc. ("AWI"). Agri-West, located in Dallas
and San Antonio, Texas, performs food contaminant testing for food
processors and research institutions. The Company also entered into
employment, consulting and non-competition agreements with the owners of
AWI for up to five years. The Company has accounted for this acquisition
under the purchase method of accounting and has included the results of
operations in its consolidated results of operations since the date of
acquisition.
(b) Blue Ridge Pharmaceuticals, Inc.
On October 1, 1998, the Company acquired all of the capital stock of Blue
Ridge Pharmaceuticals, Inc. ("Blue Ridge") for approximately $39.1 million
in cash, $7.8 million in notes, 115,000 shares of the Company's Common
Stock and warrants to acquire 806,000 shares of Common Stock at $31.59 per
share which expire on December 31, 2003. In addition, the Company agreed to
issue up to 1.24 million shares of its Common Stock based on the
achievement by the Company's pharmaceutical business (including Blue Ridge)
of net sales and operating profit targets through 2004. All former
shareholders received equal value in the form of cash/notes/stock, warrants
and contingent shares on a per share basis. The notes, which bear interest
at 5.5% annually and are
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due in two equal annual installments on October 1, 1999 and 2000, are due
to certain key employees of Blue Ridge, subject to certain contingencies.
The shares of Common Stock are issuable on October 1, 2001 to a key
employee of Blue Ridge, subject to certain contingencies. Blue Ridge is a
development-stage animal health pharmaceutical company located in
Greensboro, North Carolina. The Company will record the issuance of any of
the 1.24 million shares discussed above as additional goodwill when the
shares are issued. The Company has accounted for this acquisition under the
purchase method of accounting and has included the results of operations in
its consolidated results since the date of acquisition.
1999 ACQUISITIONS
(c) Phoenix Veterinary Laboratory Business
On March 31, 1999, the Company, through its wholly-owned subsidiary, IDEXX
Veterinary Services, Inc., acquired the veterinary laboratory business of
Sonora Quest Laboratories, LLC ("Sonora"), based in Phoenix, Arizona, for
$1.3 million in cash and a $539,000 promissory note. In connection with the
acquisition, Sonora and its parent companies agreed not to compete in the
veterinary reference laboratory business in Arizona and New Mexico for a
period of five years. The note is non-interest bearing and is due in five
monthly installments beginning in April 1999. The Company has accounted for
this acquisition under the purchase method of accounting and has included
the results of operations in its consolidated results since the acquisition
date.
8. SEGMENT REPORTING
The Company reports segment information in accordance with Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise" ("SFAS 131"). SFAS 131 requires disclosures about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial statements. It also requires
related disclosures about products and services and geographic areas.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision maker, or decision making group, in deciding
how to allocate resources and in assessing performance. The Company's chief
operating decision maker is the chief executive officer.
The Company is organized into business units by market and customer group.
The Company's reportable operating segments include the Veterinary
Solutions Group ("VSG"), the Food and Environmental Division ("FED") and
other. The VSG develops, designs, and distributes products and performs
services for veterinarians. The VSG also manufactures certain biology
based test kits for veterinarians. FED develops, designs, manufactures and
distributes products and performs services to detect disease and
contaminants in food animals, food, water and food processing facilities.
Both the VSG and FED distribute products and services worldwide. Other is
primarily comprised of the Company's Blue Ridge Pharmaceuticals, Inc.
subsidiary, which develops products for therapeutic applications in
companion animals and livestock, corporate research and development, and
interest income.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that
most interest income and expense are not allocated to individual operating
segments.
The following is the segment information for the period ended March 31
(in thousands):
VSG FED Other Total
--- --- ----- -----
1999
Revenue $71,425 $18,033 $ 190 $89,648
Net income (loss) 8,382 275 (883) 7,281
1998
Revenue 61,717 16,076 -- 77,793
Net income (loss) 3,338 (100) 522 3,761
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Item 2.
IDEXX LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
VETERINARY SOLUTIONS GROUP
Revenue for the Veterinary Solutions Group ("VSG") for the first quarter of 1999
increased 16% to $71.4 million from $61.7 million for the first quarter of 1998.
The increase in revenue in 1999 compared to 1998 is primarily attributable to
increased sales of veterinary consumables, practice information management
systems, and veterinary reference laboratory services. These increases were
offset in part by decreased unit sales of veterinary instruments.
International revenue for VSG increased 4% to $14.7 million, or 21% of total VSG
revenue, in the first quarter of 1999, compared to $14.1 million, or 23% of
total VSG revenue, in the same period for 1998. Revenue increased 14% in Europe
and 1% in Canada and South America, while revenue decreased 16% in the Asia-
Pacific region. In Europe, the increase resulted primarily from increased sales
of veterinary consumables and veterinary laboratory services. In the Asia-
Pacific region, the decrease resulted primarily from a decrease in sales of
veterinary test kits and instruments, which was partially offset by an increase
in sales of veterinary consumables.
Gross profit as a percentage of VSG revenue was 49% for both periods. Higher
sales of lower gross margin practice information management systems offset
efficiencies gained in veterinary laboratory operations and declining sales of
lower gross margin veterinary instruments.
FOOD AND ENVIRONMENTAL DIVISION
Revenue for the Food and Environmental Division ("FED") for the first quarter of
1999 increased 12% to $18.0 million from $16.1 million for the first quarter of
1998. The increase in revenue in 1999 compared to 1998 is primarily attributable
to increased sales of water testing products, food laboratory testing services
partially resulting from the acquisition of Agri-West Laboratory in March 1998,
food residue test products and livestock test kits, partially offset by
decreased sales of poultry test kits and dehydrated culture media.
International revenue for FED increased 6% to $7.6 million, or 42% of total FED
revenue, in the first quarter of 1999, compared to $7.2 million, or 45% of total
FED revenue, for the same period in 1998. Revenue increased 5% in Europe, 4% in
Canada and South America, and 11% in the Asia-Pacific region. In Europe, the
increase in revenue was primarily attributable to increased sales of food
residue testing products and poultry and livestock test kits. The increase in
revenue in the Asia-Pacific region is primarily due to increased sales of
livestock test kits and food residue testing products, partially offset by lower
sales of poultry test kits.
Gross profit as a percentage of FED revenue was 54% for the first quarter of
1999 compared to 50% for the same period in 1998. Increased sales of higher
margin water and livestock test kits were partially offset by a decline in the
average unit prices of hygiene instruments and poultry test kits and increased
revenue in lower margin food laboratory services.
OPERATING EXPENSES
Sales and marketing expenses were 17% of revenue for the three month period
ended March 31, 1999 compared to 21% in the first quarter of 1998. The decrease
as a percentage of revenue and the dollar decrease of $1.0 million were
principally attributable to a decrease in salary and related expenses resulting
from workforce reductions, partially offset by the inclusion of sales and
marketing expenses for the pharmaceutical business acquired in the last quarter
of 1998.
Research and development expenses were 8% of revenue for the three month period
ended March 31, 1999 compared to 7% in the first quarter of 1998. The increase
as a percentage of revenue and the dollar increase of $1.9 million is
principally caused by the
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addition of development expenses associated with the acquisition of Blue Ridge
Pharmaceuticals in the last quarter of 1998 and additional resources and related
overhead to support product development.
General and administrative expenses were 14% of revenue for the three month
period ended March 31, 1999 compared to 16% in the first quarter of 1998. The
dollar increase of $42,000 was primarily attributable to additional amortization
of goodwill associated with the acquisition of Blue Ridge Pharmaceuticals in the
last quarter of 1998, partially offset by a reduction in the provision for bad
debts.
Net interest income was $1.3 million for the three month period ended March 31,
1999 compared to $1.6 million for the same period in 1998. The decrease in
interest income over the prior year is due to the use of previously invested
cash in completing the acquisition of Blue Ridge Pharmaceuticals in the last
quarter of 1998.
The Company's effective tax rate was 38% for the three month period ended March
31, 1999 compared to 39% for the same period in 1998. The decrease in the
effective tax rate was principally attributable to newly available federal and
state credits for research and development activities.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash, cash equivalents, and short-term
investments of $124.3 million and $183.9 million of working capital.
The Company believes that current cash and short-term investments and funds
expected to be generated from operations will be sufficient to fund the
Company's operations for the foreseeable future.
FUTURE OPERATING RESULTS
The future operating results of the Company are subject to a number of factors,
including without limitation the following:
The Company's business has grown significantly over the past several years as a
result of both internal growth and acquisitions of products and businesses. The
Company has consummated a number of acquisitions since 1992, including two
acquisitions in 1998 and one acquisition to date in 1999, and plans to make
additional acquisitions. Identifying and pursuing acquisition opportunities,
integrating acquired products and businesses, and managing growth require a
significant amount of management time and skill. There can be no assurance that
the Company will be effective in identifying and effecting attractive
acquisitions, assimilating acquisitions or managing future growth.
The Company has experienced and may experience in the future significant
fluctuations in its quarterly operating results. Factors such as the
introduction and market acceptance of new products and services, the demand for
existing products and services, the mix of products and services sold and the
mix of domestic versus international revenue could contribute to this quarterly
variability. The Company operates with relatively little backlog and has few
long-term customer contracts and substantially all of its product and service
revenue in each quarter results from orders received in that quarter, which
makes the Company's financial performance more susceptible to an unexpected
downturn in business and more unpredictable. In addition, the Company's expense
levels are based in part on expectations of future revenue levels, and a
shortfall in expected revenue could therefore result in a disproportionate
decrease in the Company's net income.
The markets in which the Company competes are subject to rapid and substantial
technological change. The Company encounters, and expects to continue to
encounter, intense competition in the sale of its current and future products
and services. Many of the Company's competitors and potential competitors have
substantially greater capital, manufacturing, marketing, and research and
development resources than the Company.
The Company's future success will depend in part on its ability to continue to
develop new products and services both for its existing markets and for any new
markets the Company may enter in the future. The Company believes that it has
established a leading position in many of the markets for its animal health
diagnostic products and services, and the maintenance and any future growth of
its position in these markets is dependent upon the successful development and
introduction of new products and services. The Company also plans to devote
significant resources to the growth of its veterinary laboratory business,
veterinary practice information management software business, animal health
pharmaceuticals business and its business in the food, hygiene and
environmental markets, as well as to the development of an internet portal for
the provision of animal healthcare information and services. The Company's
operating experience and product and technology base in
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<PAGE> 13
these businesses are more limited than in its animal health diagnostic product
markets. There can be no assurance that the Company will successfully complete
the development and commercialization of products and services for existing and
new businesses.
The Company's success is heavily dependent upon its proprietary technologies.
The Company relies on a combination of patent, trade secret, trademark and
copyright law to protect its proprietary rights. There can be no assurance that
patent applications filed by the Company will result in patents being issued,
that any patents of the Company will afford protection against competitors with
similar technologies, or that the Company's non-disclosure agreements will
provide meaningful protection for the Company's trade secrets and other
proprietary information. Moreover, in the absence of patent protection, the
Company's business may be adversely affected by competitors who independently
develop substantially equivalent technologies. In addition, the Company licenses
certain technologies used in its products from third parties, and the Company
may be required to obtain licenses to additional technologies in order to
continue to sell certain products. There can be no assurance that any technology
licenses which the Company desires or is required to obtain will be available on
commercially reasonable terms.
From time to time the Company receives notices alleging that the Company's
products infringe third party proprietary rights. In particular, the Company has
received notices claiming that certain of the Company's immunoassay products
infringe third-party patents. Except as noted in "Notes to Consolidated
Financial Statements" with respect to the patent infringement suit filed by
Synbiotics Corporation, the Company is not aware of any pending litigation with
respect to such claims. Patent litigation frequently is complex and expensive
and the outcome of patent litigation can be difficult to predict. There can be
no assurance that the Company will prevail in any infringement proceedings that
have been or may be commenced against the Company, and an adverse outcome may
preclude the Company from selling certain products or require the Company to pay
damages or make additional royalty or other payments with respect to such sales.
In addition, from time to time other types of lawsuits are brought against the
Company, wherein an adverse outcome could adversely affect the Company's results
of operations.
Certain components used in the Company's products are currently available from
only one source and others are available from only a limited number of sources.
The Company's inability to develop alternative sources if and as required in the
future, or to obtain sufficient sole or limited source components as required,
could result in cost increases or reductions or delays in product shipments.
Certain technologies licensed by the Company and incorporated into its products
are also available from a single source, and the Company's business may be
adversely affected by the expiration or termination of any such licenses or any
challenges to the technology rights underlying such licenses. In addition, the
Company currently purchases or is contractually required to purchase certain of
the products that it sells from one source. Failure of such sources to supply
product to the Company may have a material adverse effect on the Company's
business.
In the three months ended March 31, 1999, international revenue was $22.3
million, or 25% of total revenue, and the Company expects that its international
business will continue to account for a significant portion of its total
revenue. Foreign regulatory bodies often establish product standards different
from those in the United States, and designing products in compliance with such
foreign standards may be difficult or expensive. Other risks associated with
foreign operations include possible disruptions in transportation of the
Company's products, the differing product and service needs of foreign
customers, difficulties in building and managing foreign operations,
fluctuations in the value of foreign currencies, import/export duties and
quotas, and unexpected regulatory, economic or political changes in foreign
markets.
The development, manufacturing, distribution and marketing of certain of the
Company's products and provision of its services, both in the United States and
abroad, are subject to regulation by various domestic and foreign governmental
agencies. Delays in obtaining, or the failure to obtain, any necessary
regulatory approvals could have a material adverse effect on the Company's
future product and service sales and operations. Any acquisitions of new
products, services and technologies may subject the Company to additional areas
of government regulations.
The development, manufacture, distribution and marketing of the Company's
products and provision of its services involve an inherent risk of product
liability claims and associated adverse publicity. Although the Company
currently maintains liability insurance, there can be no assurance that the
coverage limits of the Company's insurance policies will be adequate. Such
insurance is expensive, difficult to obtain and may not be available in the
future on acceptable terms or at all.
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<PAGE> 14
YEAR 2000
Historically, certain computer programs have been written using two digits,
rather than four digits, to define the applicable year. This could lead, in many
cases, to a computer's recognizing a date using "00" as 1900 rather than the
year 2000. This phenomenon could result in major computer system failures or
miscalculations, and is generally referred to as the "Year 2000" problem or
issue. The following discussion first summarizes the Company's efforts to
identify and resolve Year 2000 issues associated with the Company's information
technology ("IT") and non-IT internal systems, the products and services sold by
the Company, and the products and services supplied by outside vendors, and then
addresses total costs, most reasonably likely worst case scenarios, contingency
plans, and the basis for current estimates relating to such efforts.
The Company's worldwide accounting system is Year 2000 ready, and throughout
1999 the Company expects to complete implementation of any needed Year 2000
related modifications to its other IT systems. The Company is also currently
assessing its internal non-IT systems and expects to complete testing and any
needed modifications to these systems prior to 2000. Although the Company does
not believe that it will incur material costs or experience material disruptions
in its business associated with preparing its internal systems for the Year
2000, there can be no assurances that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in the technology used in its internal systems, which are
composed of third party software, third party hardware that contains embedded
software and the Company's own software products.
The Company's Year 2000 effort has included testing products currently or
recently offered by the Company for Year 2000 issues. The Company believes that
all of its current product offerings are Year 2000 Ready with the exception of
its VetTest(R) clinical chemistry analyzer. The Company has determined that some
versions of the VetTest instrument, including the current model, will not
properly display or transmit the date and time a sample is tested for dates
beginning January 1, 2000, unless the date and time is reset each time the
instrument is turned on. The Company believes that the accuracy of test results
provided by the VetTest instrument will not be affected. The Company also
believes it will be able to revise the VetTest software, which is routinely
updated and sent to all VetTest users approximately three times per year, to
enable the instrument to properly display and transmit date and time information
from and after January 1, 2000, with little if any inconvenience to users of the
VetTest instrument. For all other products that were identified as needing
updates to address Year 2000 issues, the Company has prepared updates or has
removed such products from its product offerings. Some of the Company's
customers, including users of older practice information management systems, are
using product versions that the Company will not support for Year 2000 issues;
the Company is encouraging these customers to migrate to current product
versions that are Year 2000 ready. Notwithstanding these efforts, there can be
no guarantee that one or more current Company products do not contain Year 2000
issues that may result in material costs to the Company.
Because a portion of the Company's business involves the sale of software
systems, the Company's risk of being subjected to lawsuits relating to Year 2000
issues with its software products is likely to be greater than that of companies
that do not sell software products. Because computer systems may involve
different hardware, firmware and software components from different
manufacturers, it may be difficult to determine which component in a computer
system may cause a Year 2000 issue. As a result, the Company may be subjected to
Year 2000 related lawsuits independent of whether its products and services are
Year 2000 ready. The outcomes of any such lawsuits and the impact on the Company
cannot be determined at this time.
The Company has queried its important suppliers and vendors to assess their Year
2000 readiness. To date, the Company is not aware of any problems that would
materially impact results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that these suppliers and vendors
will be Year 2000 ready. The inability of those parties to complete their Year
2000 resolution process could materially impact the Company. The Company is
currently querying key resellers of Company products regarding Year 2000
readiness. No assurances can be given regarding the state of readiness of such
resellers.
The Company's total cost relating to Year 2000 related activities has not been
and is not expected to be material to the Company's financial position, results
of operations, or cash flows. The Company believes that necessary modifications
will be made on a timely basis. However, there can be no assurance that there
will not be a delay in, or increased costs associated with, the implementation
of such modifications, or that the Company's suppliers, resellers and customers
will adequately prepare for the Year 2000 issue. It is possible that any such
delays, increased costs, or supplier, reseller or customer failures could have a
material adverse impact on the Company's operations and financial results.
The most reasonable likely worst case Year 2000 scenarios for the Company would
include: (i) the failure of infrastructure services provided by government
agencies and other third parties (e.g., electricity, phone service, water,
transport, material delivery, security systems, etc.), (ii) corruption of data
contained in the Company's internal information systems, and (iii) hardware
failure. The Company is currently developing a contingency plan in the event
certain internal or external systems, or certain of the Company's suppliers,
vendors or resellers, are not Year 2000 ready. However, if the Company does not
become Year 2000 ready in a timely manner, the Year 2000 issue could have a
material adverse impact on the Company's operations by, for example, impacting
the Company's ability to deliver products or services to its customers.
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<PAGE> 15
Current estimates of the costs of the project and the information on which the
Company believes it will complete the year 2000 modifications are based on
certain assumptions regarding future events, including the continued
availability of certain resources, assurances received from third parties, and
other factors. However, there can be no guarantee that these estimates will be
achieved or that this information is accurate, and therefore the actual results
could differ materially from those anticipated. Specific factors might include,
but are not limited to, the availability and cost of personnel trained in this
area, the degree of cooperation and preparedness of third parties, the ability
to locate and correct all relevant computer codes, and other uncertainties.
15
<PAGE> 16
PART II -- OTHER INFORMATION
Item 1. -- Legal Proceedings
-----------------
On February 24, 1995, CDC Technologies, Inc. ("CDC Technologies") filed
suit against the Company in the U.S. District Court for the District of
Connecticut. In its complaint, CDC Technologies alleges that the Company's
conduct in, and its relationships with its distributors in connection with,
the distribution of the Company's hematology products (i) violate federal
and state antitrust statutes, (ii) violate Connecticut statutes regarding
unfair trade practices, and (iii) constitute a civil conspiracy and
interfere with CDC Technologies' business relations. The relief sought by
CDC Technologies includes treble damages for antitrust violations as well
as compensatory and punitive damages, and an injunction to prevent the
Company from interfering with CDC Technologies' relations with
distributors. The Company has filed an answer denying the allegations in
CDC's complaint. In March 1998, the court granted the Company's motion for
summary judgment in the case, however CDC is appealing that ruling. The
Company is unable to assess the likelihood of an adverse result or estimate
the amount of any damages which the Company may be required to pay. Any
adverse outcome resulting in the payment of damages would adversely affect
the Company's results of operations.
On November 12, 1998, Synbiotics Corporation ("Synbiotics") filed suit
against the Company in the U.S. District Court for the Southern District of
California for infringement of U.S. Patent No. 4,789,631 issued December 6,
1988 (the "`631 Patent"). The `631 Patent, which is owned by Synbiotics,
claims certain assays, methods and compositions for the diagnosis of canine
heartworm infection. The primary relief sought by Synbiotics is an
injunction against the Company which would prevent the Company from selling
canine heartworm diagnostic products which infringe the `631 Patent, as
well as treble damages for past infringement. This suit was not served on
the Company within the time period specified under applicable court rules
and was dismissed without prejudice in April 1999, however Synbiotics is
not precluded from filing a new suit in the future. While the Company
believes that it has meritorious defenses against claims of infringement of
the `631 Patent, the Company is unable to assess the likelihood of an
adverse result or estimate the amount of any damages the Company may be
required to pay. If the Company is precluded from selling canine heartworm
diagnostic products or required to pay damages or make additional royalty
or other payments with respect to such sales, the Company's business and
results of operations could be materially and adversely affected.
On January 9, 1998, a complaint was filed in the U.S. District Court for
the District of Maine captioned ROBERT A. ROSE, et. al. v. DAVID E. SHAW,
ERWIN F. WORKMAN, JR. and IDEXX LABORATORIES, INC. The plaintiffs purport
to represent a class of purchasers of the common stock of the Company from
July 19, 1996 through March 24, 1997. The complaint claims that the
defendants violated Section 10(b) of the Securities Exchange Act of 1934
and Securities and Exchange Commission Rule 10b-5 promulgated pursuant
thereto, by virtue of false or misleading statements made during the class
period. The complaint also claims that the individual defendants are liable
as "control persons" under Section 20(a) of that Act. In addition, the
complaint claims that the individual defendants sold some of their own
common stock of the Company, during the class period, at times when the
market price for the stock allegedly was inflated. While the Company and
other defendants deny the allegations and will defend this suit vigorously,
the Company is unable to assess the likelihood of an adverse result or
estimate the amount of damages which the Company may be required to pay.
Any adverse outcome resulting in the payment of damages would adversely
affect the Company's results of operations.
On December 18, 1997, SA Scientific, Inc. ("SAS") filed suit against the
Company in the State of Texas District Court seeking unspecified damages
resulting from the Company's alleged breach of a development and supply
agreement between SAS and the Company. The Company has filed an answer to
the complaint denying SAS's allegations and asserting counterclaims against
SAS for breach of contract and conversion of the Company's property. SAS
has filed an amended complaint seeking $1,500,000 in actual damages related
to the Company's alleged breach of contract, $5,000,000 in punitive damages
and further unspecified damages from the Company's alleged negligent
misrepresentation, fraud and conversion of SAS's intellectual property, and
attorneys' fees. The Company believes that it has meritorious defenses to
SAS's claims and is contesting the matter vigorously. However, the Company
is unable to assess the likelihood of an adverse result or estimate the
amount of damages the Company might be required to pay. Any adverse outcome
resulting in payment of damages would adversely affect the Company's
results of operations.
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Item 6. -- Exhibits and Reports on Form 8-K
(a) Exhibits
10. Employment Agreement dated April 1, 1999
between the Company and Jeffrey J. Langan.
27. Financial Data Schedule for the Quarterly Report on
Form 10-Q for the three-month period ended
March 31, 1999.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fiscal
quarter for which this report is filed.
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<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IDEXX LABORATORIES, INC.
Date: May 17, 1999
/s/ Ralph K. Carlton
-----------------------------------------------
Ralph K. Carlton, Senior Vice President,
Finance and Administration and Chief
Financial Officer (Principal Financial Officer)
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<PAGE> 1
Exhibit 10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of April 1, 1999 by and between IDEXX
Laboratories, Inc., a Delaware corporation (the "Company"), and Jeffrey J.
Langan (the "Executive").
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 120 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
<PAGE> 2
2. Change of Control. For the purpose of this Agreement, a "Change of
-----------------
Control" shall mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which satisfies the
criteria set forth in clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequently to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, of the corporation resulting from such
Business Combination (which as used in this Section 2(c) shall include, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination, or the combined voting power of the then-outstanding voting
securities of such corporation and (iii) at least half of the members of the
board of directors of the corporation resulting from such
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<PAGE> 3
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
-----------------
in its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period"). Except as provided in Section 1(a), nothing in
this Agreement shall, prior to the Effective Date, impose upon the Company any
obligation to retain the Executive as an employee. In addition, nothing in this
Agreement shall restrict the Executive from terminating his employment with the
Company, and no such termination by the Executive shall be deemed a breach of
this Agreement.
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
3
<PAGE> 4
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive
-----------
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be entitled to receive such annual bonus as may be determined by
the Board of Directors, but in no event less than the annual bonus paid or
payable in respect of the full fiscal year immediately preceding the Effective
Date.
(iii) Incentive Plans. During the Employment Period, the
---------------
Executive shall be entitled to participate in all incentive plans, practices,
policies and programs applicable generally to other peer Executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit, Savings and Retirement Plans. During
---------------------------------------------
the Employment Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive all benefits
under welfare benefit, savings and retirement plans, practices, policies and
programs provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, employee life,
group life, split-dollar life, accidental death and travel accident insurance
plans and programs) to the extent applicable generally to other peer executives
of the Company, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
4
<PAGE> 5
(v) Expenses. During the Employment Period, the Executive
--------
shall be entitled to receive reimbursement for all reasonable expenses incurred
by the Executive in accordance with the policies, practices and procedures of
the Company in effect immediately prior to the Effective Date.
(vi) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the plans, policies,
programs and practices of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(c) Options. Upon the occurrence of a Change of Control, all
-------
outstanding options to purchase shares of Common Stock held by the Executive
shall become immediately exercisable in full.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall
-------------------
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. Subject to Section 5(d), the Company may terminate the
-----
Executive's employment during the Employment Period for Cause. For purposes of
this Agreement, "Cause" shall mean:
(i) the willful failure of the Executive to perform
substantially the Executive's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness), which
failure is not cured within 30 days after a written demand for substantial
performance is delivered to the Executive by the Board which specifically
identifies the manner in which the Board believes that the Executive has not
substantially performed the Executive's duties, or
5
<PAGE> 6
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company.
(c) Good Reason. The Executive's employment may be terminated by
-----------
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
Anything in this Agreement to the contrary notwithstanding, a termination
by the Executive for any reason or no reason during the 30-day period
immediately following the first twelve (12) months after the Effective Date
shall be deemed to be a termination for Good Reason for all purposes of this
Agreement.
(d) Notice of Termination.
---------------------
(i) Any termination by the Company for Cause, or by the
Executive for Good Reason, shall be effected by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstances in enforcing the
Executive's or the Company's rights hereunder.
(ii) Any Notice of Termination for Cause must be given
within sixty (60) days of the Board learning of the event(s) or circumstance(s)
which the Board believes constitute(s) Cause. Prior to any Notice of Termination
for Cause being given (and prior to any termination for Cause being effective),
the Executive shall be entitled to a hearing before the Board at which he may,
at his election, be represented by counsel and at which he shall have a
reasonable opportunity to be heard. Such hearing shall be held on not less than
fifteen days prior written notice to the Executive stating the Board's intention
to terminate the Executive for Cause and stating in detail the particular
event(s) or circumstance(s) which the Board believes constitute(s) Cause for
termination.
6
<PAGE> 7
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, subject, in the case of
termination by the Company, for Cause, to the Company's compliance with Section
5(d)(ii); (ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the date on which
the Company notifies the Executive of such termination; and (iii) if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company Upon Termination.
-------------------------------------------
(a) Good Reason: Other Than for Cause, Death or Disability. If,
------------------------------------------------------
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of (I) the highest annual cash bonus paid to the
Executive in the last three fiscal years prior to the Effective Date and
(II) the annual bonus paid or payable, including any bonus or portion
thereof which has been earned but deferred (and annualized for any fiscal
year consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period, if any (such
higher amount being referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of which
is 365 and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus.
(ii) for 36 months after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would have
been provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement (excluding any savings
and/or retirement plans) if the Executive's employment had not been terminated
or, if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes
7
<PAGE> 8
reemployed with another employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until 36
months after the Date of Termination and to have retired on the last day of such
period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
-----
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's
---------------------------------
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid or not yet provided. If the Executive voluntarily terminates employment
during the Employment Period, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
7. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance
8
<PAGE> 9
with such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments provided
---------------
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive (under
this Agreement or otherwise) or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal, accounting and other fees and expenses
(including, without limitation, of expert witnesses) which the Executive may
reasonably incur (i) as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) in connection with the negotiation and preparation of
this Agreement and (iii) in connection with the Executive's performance of his
obligations under Section 9(c).
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9)(a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
9
<PAGE> 10
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company and available to the Executive relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
10
<PAGE> 11
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10
11
<PAGE> 12
constitute a basis for deferring or withholding any amounts or benefits
otherwise payable or to be provided to the Executive under this Agreement.
11. Successors.
----------
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid.
12. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
-------------------
Jeffrey J. Langan, President and CEO
IDEXX Laboratories, Inc.
One Idexx Drive
Westbrook, ME 04092
If to the Company:
-----------------
IDEXX Laboratories, Inc.
One Idexx Drive
Westbrook, ME 04092
Attention: Chairman of Compensation Committee
12
<PAGE> 13
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c) of this Agreement, shall not be deemed to be a waiver
of such provision or right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company, by written notice to the other, at any time prior to
the Effective Date, in which case the Executive shall have no further rights or
obligations under this Agreement. From and after the Effective Date this
Agreement shall supersede any other agreement between the parties with respect
to the subject matter hereof.
(g) Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators in Portland, Maine, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court of competent jurisdiction.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Jeffrey J. Langan
----------------------------
Jeffrey J. Langan
IDEXX Laboratories, Inc.
By:
/s/ Richard B. Thorp
----------------------------
Its: General Counsel and Secretary
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE IDEXX
LABORATORIES, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
????? FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874716
<NAME> IDEXX LABORATORIES, INC.
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<S> <C>
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<PERIOD-START> JAN-01-1999
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<SECURITIES> 33,019
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<INVENTORY> 46,842
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<PP&E> 85,288
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0
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