FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996 Commission file number 000-19495
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EMBREX, INC.
(Exact name of registrant as specified in its charter)
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NORTH CAROLINA 56-1469825
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1035 SWABIA COURT, DURHAM, NORTH CAROLINA 27703
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (919) 941-5185
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE (AND RIGHTS ATTACHED THERETO)
(Title of class)
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 ___
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of March 21, 1997 (the most recent practicable date), the aggregate
market value of the voting stock held by non-affiliates was $53.6 million.
As of March 21, 1997 (the most recent practicable date), there were
8,095,590 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
Proxy Statement with respect to the Part III
Annual Meeting of Shareholders to be
held on May 15, 1997, to be filed with
the Securities and Exchange Commission
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INDEX
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PAGE
PART I
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ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 10
ITEM 6. SELECTED FINANCIAL DATA 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 35
ITEM 11. EXECUTIVE COMPENSATION 35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 35
SIGNATURES 44
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PART I
ITEM 1. BUSINESS
GENERAL
Embrex, Inc. ("Embrex" or the "Company") is a North Carolina
corporation that develops and markets bioscience and bioengineering-based
products to increase the productivity and profitability of the global poultry
industry. The Company was incorporated in 1985.
Embrex has developed and commercialized a proprietary automated egg
injection and transfer system which can inoculate 20,000 to 50,000 eggs per hour
and eliminate the need for manual post-hatch injection, the current procedure in
virtually all hatcheries in the U.S. that have not converted to the use of
Embrex's system. This proprietary system, called the INOVOJECT(R), is designed
to inject vaccines and other compounds in precisely calibrated volumes into
targeted compartments within the egg. Embrex markets the INOVOJECT(R) system to
commercial poultry producers, charging a fee for each egg injected.
In addition to the INOVOJECT(R) system, Embrex has developed and is
marketing a Viral Neutralizing Factor antibody useful in the development of
certain avian vaccines. Embrex also is developing various other proprietary
pharmaceutical and biological products to improve bird health, reduce bird
production costs and provide other economical benefits to the poultry industry.
These compounds include vaccines, immune enhancers, performance modifiers,
antimicrobials and genetic materials designed to increase poultry productivity
and health while reducing costs. These products are in various stages of
development, and some are being developed in collaboration with major drug
companies, the USDA, and several leading universities in the field of avian
science. These compounds can be delivered through the INOVOJECT(R) system and,
alternatively, some can be administered via post-hatch injection.
EXISTING PRODUCTS
Patented Egg Injection System (INOVOJECT(R))
Embrex has developed and commercialized a proprietary automated egg
injection and transfer system which can inoculate 20,000 to 50,000 eggs per hour
and eliminate the need for manual post-hatch injection, the current procedure in
virtually all hatcheries in the U.S. that have not converted to the use of
Embrex's system. This proprietary system, called INOVOJECT(R), is designed to
inject vaccines and other compounds in precisely calibrated volumes into
targeted compartments within the egg. Embrex markets the INOVOJECT(R) system to
commercial poultry producers, charging a fee for each egg injected.
In 1996, the Company converted a number of hatcheries to the
INOVOJECT(R) egg injection system and continued operations of INOVOJECT(R)
systems in hatcheries converted prior to 1996. As a result, at December 31,
1996, Embrex had over 250 INOVOJECT(R) systems installed in the United States
("U.S.") and Canada, as compared with 235 at year end 1995.
During 1996, the Company also placed a number of INOVOJECT(R) systems
for trial and on contract at locations outside the U.S. and Canada. The
Company's expansion outside the U.S. and Canada has been focused initially on
Europe. At year end, the Company had INOVOJECT(R) systems either installed or on
trial in England, Ireland, France, Spain, the Netherlands, Belgium, Italy,
Israel, Egypt, South Africa, Turkey and Australia. Overall, the placement
of INOVOJECT(R) systems outside the U.S. and Canada is dependent on market
acceptance of various in ovo vaccines and obtaining regulatory approval of
these vaccines in numerous countries.
Certain poultry diseases are more prevalent in some geographic regions
than in others. For example, Marek's disease, for which the INOVOJECT(R) system
is used in the U.S., is not as widespread in Europe as in North America.
Similarly, Gumboro disease (also known as infections bursal disease) is
prevalent both in the United States and in
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Northern Europe and Asia. The Company expects that primary usage of its
INOVOJECT(R) systems will vary by geographic region according to the prevailing
diseases.
Viral Neutralizing Factor ("VNF")
Embrex has developed and commercialized a Viral Neutralizing Factor
("VNF") technology which permits single dose immunization of the avian embryo
effective for the life of the bird. By combining VNF, an antibody, with a
vaccine virus, immunization is provided in a single step, reducing or
eliminating many of the multiple vaccinations carried out in the industry. VNF
can neutralize a virulent vaccine virus without impairing the virus' ability to
stimulate an immune response. By using VNF in this manner, the virulent vaccine
virus can be made into a safe and effective vaccine which can be used at or
before hatching.
The VNF technology is the subject of two issued U.S. patents, a pending
U.S. patent application, and several foreign patents and foreign patent
applications. The U.S. patents are owned by the University of Arkansas and
exclusively licensed to Embrex on a royalty basis for the life of the patents.
Embrex sells VNF and sublicenses the VNF technology to infectious bursal disease
("IBD") vaccine manufacturers for the production of improved IBD vaccines for
both in ovo ("in the egg") and post-hatch use. Embrex also is researching
application of VNF for other avian disease vaccines, including for Newcastle's
disease, although there is no assurance such research will result in product
opportunities.
To date, the Company's research efforts with its VNF compound have been
focused on avian uses. Based on initial experimental data, the Company now
believes that the potential exists for VNF to be used in several non-avian
species. The Company is in the early stages of exploring collaborative
relationships with other companies for the development and licensing of VNF for
non-avian uses. Embrex has not initiated any regulatory approval processes with
respect to non-avian uses of VNF, nor is there any assurance that its efforts in
this area will result in products or collaborative agreements.
Infectious Bursal Disease ("IBD") Vaccines
VNF is especially useful in vaccines against avian IBD, which weakens a
bird's immune system. Birds infected by IBD typically exhibit poor growth or can
succumb to other diseases because of a compromised immune system. This disease
is widespread in the U.S., Northern Europe and Asia. VNF renders a virulent IBD
vaccine both safe and effective, thus allowing its use at or before hatch.
In January 1995, Sanofi Animal Health, Inc. ("Sanofi") received
approval from the United States Department of Agriculture (the "USDA") for an
IBD vaccine containing Embrex's VNF for post-hatch use. Under the terms of a
1991 agreement, Embrex was to sell VNF to Sanofi, which was to manufacture and
market the vaccine. In 1995, Sanofi was acquired by Rhone Merieux SA. In January
1996, Embrex entered into an agreement with Select Laboratories, Inc.
("Select"), a wholly-owned subsidiary of Rhone Merieux SA, under which Embrex
took over the ownership and marketing from Select of the IBD vaccine containing
Embrex's VNF, known as "BURSAPLEX(TM)" (previously known as "BDA-Blen"), and
Select agreed to manufacture BURSAPLEX(TM) for Embrex on a contract basis for at
least two years. Under the agreement, Embrex will market BURSAPLEX(TM) in North
America, South America and Asia, upon receipt of appropriate regulatory
approvals. Additionally, Embrex has agreed to purchase all existing inventories
of raw material, BURSAPLEX(TM), and related materials within thirty months
following the receipt of in ovo approval of the product by the USDA, which
occurred on January 20, 1997. The Company contemplates that all of these
materials will be purchased in the form of finished goods. This purchase
commitment totals approximately $1.6 million, of which $400,000 was paid upon
execution of the agreement and $125,000 was paid following in ovo approval on
January 20, 1997.
In August 1995, the Company entered into an agreement with Cyanamid
Websters ("Webster"), a subsidiary of American Home Products, Inc., for the
joint development of another IBD vaccine containing VNF, which will be marketed
by Webster in Europe, the Middle East, and Africa under the trade name
"Bursamune(TM)."
On January 20, 1997, the Company received U.S. Department of
Agriculture approval for in ovo use of the Company's VNF based vaccine for IBD
in broiler chickens. The approval is specifically for in ovo (as opposed to
post-
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hatch) administration of the vaccine complex via Embrex's patented INOVOJECT(R)
egg injection systems. To date, IBD has been treated post-hatch via manually
delivered vaccines or in drinking water. The Company estimates the worldwide
market for IBD vaccines to be $40 million. Existing vaccines are associated,
however, with certain limitations, and some cannot be used safely or effectively
in ovo.
Embrex intends to seek regulatory approval in selected Latin American
and Asian markets for in ovo use of BURSAPLEX(TM). Embrex is beginning to
initiate this process, but there is no assurance that any such regulatory
approvals will be obtained. Moreover, the placement of INOVOJECT(R) systems
outside the U.S. and Canada is dependent on market acceptance of various in ovo
vaccines.
PRODUCTS UNDER DEVELOPMENT
Embrex is developing individually and in collaboration with others
additional products which address poultry health and performance needs when
administered in ovo. These additional products are in various stages of
development. There can be no assurance that Embrex will successfully develop or
market any of these products. Marketing products developed jointly with others
may require royalty or other payments by Embrex to its co-developers. Embrex has
not initiated the regulatory approval process for any of these potential
products, and there is no assurance regulatory approval will be obtained.
In Ovo Products for Control of Coccidiosis
In 1995, the Company began an initiative aimed at development of a
novel in ovo biological control method for coccidiosis. Coccidiosis is caused by
a protozoan parasite which attacks the gut of the chicken, causing significant
problems with the intake and digestion of feed and, therefore, the physical and
economic performance of the bird. Currently, virtually all broiler chickens, and
most poultry in general, receive anti-coccidiosis compounds called coccidiostats
incorporated into poultry feed. Over the years, coccidia have developed levels
of resistance to these coccidiostats and thus effectiveness has been somewhat
reduced. A limited number of live vaccines have also been developed and are
administered orally soon after hatch. However, due to difficulties in providing
a precise oral dose to each bird, growth depression can occur in broiler flocks.
Therefore, such live vaccines are used primarily in parent stock. Using its
INOVOJECT(R) technology and its knowledge of avian embryology, the Company has
begun this initiative to develop a novel, efficacious and cost-effective means
of preventing coccidiosis in broiler chickens, aimed at overcoming many of the
problems associated with current practices.
Embrex's initial experiments with in ovo delivery of certain early
stage coccidiosis antigens have shown that broilers immunized in ovo with
coccidiosis antigens are better protected against coccidiosis as compared to
broilers immunized post-hatch with the same coccidiosis antigens. There can be
no assurances that any of these development efforts will be successful. Embrex
has not initiated the regulatory approval process with respect to these
development efforts, and does not expect for any coccidiosis product developed
by the Company to reach the market in the near future.
In Ovo Products for Control of Salmonella
Salmonella bacteria are widespread in nature and difficult to control.
With the 1996 adoption of the USDA's Hazard Analysis Critical Control Points
(HACCP) regulations, poultry producers are obliged to implement systems to
minimize contamination of meat by specific salmonella which reside in the
intestinal tract of chickens and are harmless to the bird, but which are capable
of inducing an illness (typically gastrointestinal) in humans. Newly hatched
chicks can be first exposed to salmonella very early in the hatchery
environment. Consequently, the Company believes that the earliest delivery of a
variety of agents, such as competitive exclusive agents or various vaccines,
would be best administered in ovo. Embrex continues to explore, through
collaborative relationships with the USDA and others, various products to reduce
salmonella contamination. There can be no assurance that development of such
products will be successful or that regulatory approval will be available.
Embrex has not initiated the regulatory approval process with respect to such
products.
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Other Products Under Development
In February 1996, the Company signed an agreement with Solvay S.A.
("Solvay") of Belgium to collaborate on the use of vaccines manufactured by
Solvay together with Embrex's proprietary in ovo delivery technology. The
territories specified include Europe, the Middle East, and Africa. Under the
agreement, Embrex and Solvay will work together to introduce and establish the
use of appropriate in ovo vaccines currently being adapted or developed by
Solvay for sale to poultry producers, via Embrex's INOVOJECT(R) system, and to
extend the use of the Embrex equipment throughout the territories concerned.
During 1996, Embrex continued the evaluation process for several
compounds which the Company believes may have the potential to yield
improvements in the areas of feed conversion, muscle mass and leanness within
broiler chickens. These compounds need to be administered in the first several
days of embryonic development in order to have the desired effect. The Company
plans to continue its research efforts in this area in 1997. The effectiveness
of these compounds has not been confirmed, and there is no assurance that these
efforts will yield product opportunities.
Embrex also is researching technology alternatives to enhance or
automate sexing and gender sorting practices for poultry. Early gender
sorting improves processing plant efficiencies by enabling gender-specific
feed rations and improved feed conversion. There is no assurance such research
will result in product opportunities.
Embrex routinely enters into collaborative agreements with various
animal health companies, pharmaceutical companies and research and academic
institutions to evaluate the utility of certain of their compounds or devices
when delivered or applied in ovo. Depending upon the outcome of these tests,
Embrex may or may not proceed with these collaborations for further development.
There is no assurance that these efforts will yield products or further
collaborations.
PATENTS AND PROPRIETARY RIGHTS
Embrex controls (either through direct ownership or exclusive license)
18 issued U.S. patents, 15 pending U.S. patent applications and over 34 issued
foreign patents and 60 pending foreign patent applications. In addition, Embrex
has executed confidentiality agreements with its employees, consultants,
collaborators, subcontractors and directors.
The process utilized by the INOVOJECT(R) system of injecting viral,
bacterial, or fungal vaccines into an avian embryo was patented in the U.S. by
the USDA in 1984. Embrex holds an exclusive license to this patent through its
expiration in June 2002. Embrex has supplemented the USDA patent with five
separately issued U.S. patents (and multiple foreign patents and patent
applications) covering certain design features of the INOVOJECT(R) system.
Embrex owns or licenses method-of-use patents which have been filed for the in
ovo administration of VNF and numerous other molecules. Two U.S. patents for
methods of treating IBD virus infections using VNF, including in ovo use, were
issued in March 1995. These patents and patent applications cover the use of
these compounds to elicit various beneficial responses in poultry and are
independent of the source of the compounds. Through licenses, Embrex has
complemented the method-of-use patents and applications with issued
composition-of-matter patents for VNF-vaccine compositions. These patents cover
the composition of matter used to elicit a beneficial effect, regardless of the
manner in which they are used.
In 1996, six additional U.S. patent applications were made covering
various aspects of in ovo biotechnology.
Embrex has begun a continuing effort to patent delivery methods
focusing on applications of in ovo technology relying upon early intervention
methods and devices. In August 1995, a second patent on early delivery was
issued in the U.S., complementing an earlier patent obtained in August 1994.
In addition, Embrex owns the federally registered trademarks EMBREX(R),
INOVOJECT(R), and OVOVAC(R), and has applied for federal registration of the VNF
logo, BURSAPLEX(TM) and FORTIMUNE(TM) trademarks.
FINANCING
During 1996, Embrex utilized a total of $2.1 million in existing lease
and other collateralized equipment financing, which the Company accounts for as
capital leases, to support the purchase of the Company's INOVOJECT(R) egg
injection systems. The Company, in turn, leases the INOVOJECT(R) systems to its
customers under multi-year contracts.
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At December 31, 1996, an aggregate of $2.0 million remained available for
utilization by Embrex under this financing arrangement.
In September 1996, the Company obtained a $2.0 million secured line of
credit from a bank in the United Kingdom, which will be used to finance the
construction of additional INOVOJECT(R) systems for Europe, the Middle East and
Africa. The Company utilized $0.4 million of this line in 1996, with the balance
of $1.6 million available at year end.
COMPETITION
Embrex continues to monitor the presence of any competitive in ovo
administration system. See Item 3, "Legal Proceedings," below. The primary
competition for the INOVOJECT(R) system is the conventional, manual, post-hatch
administration of biological products. As most of Embrex's potential products
are being designed to be administered through the INOVOJECT(R) system, the
INOVOJECT(R) system must continue to develop market acceptance within the
poultry industry and operate as intended under long-term commercial conditions
in order for these potential products to be marketed successfully.
Competitive success for Embrex will be based primarily on commercial
acceptance of its products, achieving and retaining scientific expertise and
technological superiority, identifying and pursuing scientifically feasible and
commercially viable opportunities, obtaining proprietary protection for its
research achievements, obtaining adequate funding and timely regulatory
approvals, and attracting corporate sponsors or partners in developing, testing,
producing, and marketing products, none of which can be assured. In addition, a
primary competitive factor affecting Embrex is its ability to conduct research
and development. Maintaining financial and human resources, therefore, are
important factors for success. Embrex's ability to compete also is dependent on
its ability to attract and retain key personnel.
PRODUCTION, MARKETING AND DISTRIBUTION
Production
Embrex currently subcontracts the production of substantially all of
its mechanical and biological products and expects to continue to do so for the
foreseeable future. The Company believes that alternative sources of manufacture
and supply generally exist.
INOVOJECT(R) System
Embrex's in-house engineering staff designs the INOVOJECT(R) system,
which incorporates proprietary mechanical, pneumatic and electronic sub-systems
and concepts. Embrex subcontracts with equipment manufacturers to build the
INOVOJECT(R) systems. The Company uses a single contract manufacturer to
fabricate its INOVOJECT(R) systems. While other machine fabricators exist and
have constructed limited numbers of INOVOJECT(R) systems, a change in
fabricators could cause a delay in manufacturing and a possible delay in the
timing of future INOVOJECT(R) installations and revenues from those
installations.
VNF (Viral Neutralizing Factor)
In 1993, Embrex signed multi-year agreements with SPAFAS, Inc., a
subsidiary of Charles River Laboratories, Inc., and Hy-Vac Laboratory Eggs
Company, a division of the German-based Lohmann Group, under which the two
companies will supply the active ingredient in VNF. In connection with these
agreements, Embrex maintains appropriate inventory levels and places orders with
these companies to allow Embrex to satisfy anticipated customer demand for VNF.
The regulatory approval granted by the USDA for BURSAPLEX(TM) in January 1997
specifically covers the vaccine produced with SPAFAS-manufactured VNF. The
Company does not intend to use its remaining inventories of Hy-Vac produced VNF
domestically and, accordingly, wrote off $160,000 as the value of this inventory
in December 1996.
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Marketing and Distribution
Because of the geographical and industrial concentration of the poultry
industry in the U.S., Embrex markets its products and provides ongoing service
directly to the industry. Embrex's marketing is focused principally on the
broiler chicken segment of the poultry industry, but the Company also has
adapted its products for use by and initiated trials and entered into commercial
contracts with a limited number of turkey producers.
In order to encourage proper use of the INOVOJECT(R) system technology
within an appropriate production environment, Embrex leases and licenses
INOVOJECT(R) units to hatcheries. The agreements cover the use of the mechanical
equipment and ongoing field service, maintenance and technical support. The
agreements also include a license with royalty fees for use of Embrex's
proprietary injection process. Products which are delivered in ovo are sold
separately.
Embrex has initiated activities necessary for the commercialization of
its technology in Japan. In 1992, Embrex entered into a distribution agreement
with Ishii Company, Ltd. ("Ishii"), a leading chick producer and the dominant
supplier of hatchery equipment in Japan. Upon veterinary medical device
regulatory approval by the Japanese Ministry of Agriculture, Fisheries and
Forestry, Ishii intends to distribute the INOVOJECT(R) egg injection system to
poultry producers throughout Japan.
The Company also is initiating arrangements for international
distribution of IBD vaccines, subject in each case to the availability of
required regulatory approvals. In August 1995, the Company entered into an
agreement with Cyanamid Websters, a subsidiary of American Home Products, Inc.,
providing Cyanamid Websters the right to develop, manufacture and market an in
ovo IBD vaccine containing VNF in Europe, the Middle East and Africa. In 1996,
the Company entered into agreements with other parties to distribute
BURSAPLEX(TM) in Israel, Chile, Peru and Pakistan. The agreement for Israel also
entitles the distributor to manufacture a VNF-based IBD vaccine. Subject to
these agreements, the Company also will conduct international marketing
directly.
Other significant poultry markets exist in Asia and Latin America.
Embrex has held a number of discussions regarding marketing and distribution in
each of these markets.
The Company's revenues attributable to international operations in
1996, 1995 and 1994 were 10%, 6% and 2% of the Company's consolidated revenues,
respectively. The company's identifiable assets attributable to international
operations in 1996, 1995 and 1994 were 13%, 5% and 4% of the Company's
consolidated assets, respectively.
RESEARCH AND DEVELOPMENT
Research and development expense was $4.3 million in 1994, $3.4 million
in 1995 and $3.7 million in 1996. The decrease in research and development
expense from 1994 to 1995 and the increase from 1995 to 1996 largely reflect
variances in outside contract research, supplies consumption, and INOVOJECT(R)
design and development activity. Research and development is principally Company
sponsored and funded primarily from internal sources.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the U.S. and other countries
is a significant factor in the production and marketing of Embrex's products and
in its on-going research and development activities. Although the use of the
INOVOJECT(R) system is not subject to regulatory approval in the U.S., animal
health products being developed by Embrex must receive approval for marketing
from either the USDA or the Food and Drug Administration (the "FDA") and from
similar agencies in foreign countries where it has begun or contemplates doing
business. These countries may also require approval of the INOVOJECT(R) system.
Regulatory agencies require that products be tested in animals and demonstrate
appropriate levels of safety and efficacy. Generally, with respect to animal
health products, the USDA has regulatory authority over products which are
biological in origin or which stimulate or affect an animal's immune system, and
the FDA has authority over all other products. The time and cost of USDA
approvals are generally less than those for
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FDA approvals. FDA approval generally requires more extensive animal and
toxicology testing than USDA approvals and may take five or more years to
obtain, whereas USDA approvals generally require one to three years to obtain.
Embrex's VNF technology received USDA approval in January 1995 for IBD
applications post hatch and for in ovo use in January 1997. Of Embrex's products
currently under development, only the growth enhancing compounds and certain
gene therapy products (depending on the nature of the genetic material and the
response induced) are known to require FDA approval. Embrex believes all of its
other products under development will be subject only to USDA approval. Embrex's
existing products have received all necessary governmental approvals in the U.S.
Embrex's products also are subject to regulatory approval in other countries.
Management believes that compliance with environmental regulations
currently has no material adverse effect on the Company's capital expenditures,
earnings or competitive position.
EMPLOYEES
At December 31, 1996, Embrex employed 106 persons, 101 of whom were
full-time employees, an increase of 5 percent or 5 persons from the number of
employees at December 31, 1995.
SIGNIFICANT CUSTOMERS
Tyson Foods, Inc. ("Tyson") and Perdue Farms, Inc. ("Perdue") accounted
for 33 and 11 percent of Embrex's consolidated 1996 revenues, respectively.
Based on the number of birds produced in 1996, Tyson and Perdue accounted for
approximately 22 and 8 percent of the broilers grown in the U.S., respectively.
In 1996, Tyson and Perdue were the only customers which represented greater than
10 percent of total revenues.
ITEM 2. PROPERTIES
Embrex leases its corporate headquarters and research and development
facilities, which occupy approximately 23,000 square feet and are located
adjacent to Research Triangle Park, North Carolina. Two-thirds of the space is
devoted to research and development. The lease is for a 10-year term expiring
March 31, 1997, with a 5 year renewal option at prevailing rates. Embrex pays an
annual rent of approximately $266,000. In December 1996, the Company exercised
its 5 year renewal option and renegotiated the annual rent. As a result, the
Company's annual rent, commencing April 1, 1997, decreases to $196,580, with
annual increases of approximately 3% thereafter. The lease will expire on March
31, 2002. Embrex paid rent totaling approximately $240,000 for its use of the
facility during 1996. Embrex is in the process of developing plans for a
new 12,000 square foot testing facility near Embrex's Research
Triangle Park headquarters. Embrex anticipates completing construction
in 1997. Embrex has extended for twelve months, until
May 10, 1998, its one-year lease agreement for
approximately 3,000 square feet of warehouse space in Springdale, Arkansas,
which is used to support the Embrex customer service function in the region. The
Company also leases offices of 650 square feet and warehouse space of 1,060
square feet in Great Dunmow, Essex, England and a 2,000 square foot office in
Dallas, Georgia to support field operations. Embrex also has access to
facilities at certain universities. The use of these facilities is important to
Embrex's ongoing research and development efforts. Embrex has agreements with
North Carolina State University providing access to facilities used for
incubating eggs and growing live birds and for research and testing purposes.
Embrex believes that suitable alternative facilities exist if the above
agreements are not renewed.
ITEM 3. LEGAL PROCEEDINGS
In September 1996, Embrex filed a patent infringement suit in the
United States District Court for the Eastern District of North Carolina against
Service Engineering Corporation, a Maryland corporation, and Edward G. Bounds,
Jr., a Maryland resident and officer of Service Engineering Corporation. The
suit alleged that each of the defendants' development of an in ovo injection
device, designed to compete with Embrex's patented INOVOJECT(R) injection
method, infringes at least one claim of the U.S. patent No. 4,458,630
exclusively licensed to Embrex for the in ovo injection of vaccines into an
avian embryo (the "Sharma Patent"). Further, Embrex claims that the defendants
have violated the terms of a Consent Judgment and Settlement Agreement entered
into with Embrex in November 1995 in which prior litigation was concluded with
Service Engineering and Bounds agreeing not to engage in future activities
violating the Sharma Patent. Embrex sought injunctive relief to prevent
infringement of the Sharma Patent as well as monetary damages. In
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November 1996, Service Engineering Corporation and Edward G. Bounds responded to
Embrex's patent infringement suit by asserting various affirmative defenses and
denying the substantive allegations in Embrex's complaint.
In November 1996, Embrex filed a patent infringement suit in the United
States District Court for the Eastern District of North Carolina against IGI,
Inc., a Delaware corporation. The suited alleged that IGI, through its
activities with Service Engineering Corporation and Edward G. Bounds, Jr., an
officer of Service Engineering Corporation, is engaging in activities that
constitute infringement of the Sharma Patent. Embrex sought injunctive relief to
prevent infringement of the Sharma Patent as well as monetary damages. In
January 1997, IGI, Inc. responded to Embrex's patent infringement suit by
asserting various affirmative defenses and denying the substantive allegations
in Embrex's complaint.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market System
under the symbol EMBX. The quarterly trading ranges of the Company's Common
Stock for the last two fiscal years were as shown in the table below:
<TABLE>
<CAPTION>
------------------------------------- -------------------------------------------------------
Common Stock
Price Per Share
------------------------------------- --------------------------- ---------------------------
Quarter Ended High Low
------------------------------------- --------------------------- ---------------------------
<S> <C> <C>
March 31, 1995 7 4 3/4
June 30, 1995 7 1/2 4 5/8
September 30, 1995 7 5 5/8
December 31, 1995 6 7/8 5 5/8
March 31, 1996 8 1/4 5 1/2
June 30, 1996 7 7/8 6
September 30, 1996 7 3/8 6
December 31, 1996 7 3/4 6
------------------------------------- --------------------------- ---------------------------
</TABLE>
At March 21, 1997 (the most recent practicable date), there were 476
holders of record of the Common Stock. The Company has paid no dividends on any
stock since inception and has no plans to pay dividends on its Common Stock in
the foreseeable future.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF OPERATIONS BY QUARTERS (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------- ------------------------------------------ ----------------------------------------------
1996 1995
--------- ----------- --------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr(1) 3rd Qtr 4th Qtr
- -------------------------------- --------- ----------- --------- ---------- ---------- ---------- ---------- ----------
(Restated)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,595 $5,068 $5,641 $5,328 $2,967 $3,156 $3,537 $4,059
Operating Expenses 1,720 1,876 2,277 2,412 1,729 1,763 1,506 2,447
Net income (loss) 58 193 203 (113) (998) (2,119) (799) (596)
Net income (loss) per share
of Common Stock $ .01 $ .03 $ .03 $ (.01) $ (.17) $ (.34) $ (.12) $ (.09)
Weighted average shares
of Common Stock
outstanding (thousands) 7,038 7,317 7,442 7,405 6,017 6,177 6,518 6,632
- -------------------------------- --------- ----------- --------- ---------- -- ---------- ---------- ---------- ----------
</TABLE>
(1) See Note 11 to the Company's financial statements appearing elsewhere in
this report.
5-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ------------------------------------------------------- ------------ -------------- -------------- ----------- -----------
1996 1995 1994 1993 1992
- ------------------------------------------------------- ------------ -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues $20,632 $13,719 $ 6,897 $ 2,159 $ 699
Research and development expenses 3,673 3,416 4,271 3,763 3,028
Other operating expenses 4,612 4,029 3,561 4,248 3,207
Net income (loss) 341 (4,512) (6,710) (7,307) (5,480)
Net income (loss) per share of Common Stock $ .05 $ (.71) $ (1.12) $ (1.48) $ (1.33)
Weighted average shares of
Common Stock outstanding (thousands) 7,405 6,336 6,005 4,937 4,120
BALANCE SHEET DATA
Working capital $ 7,552 $ 5,934 $ 1,608 $ 9,370 $ 8,529
Total assets 25,554 21,789 13,379 14,997 10,507
Long-term liabilities 5,814 10,966 3,093 1,377 1,281
Accumulated deficit (40,693) (41,034) (36,522) (29,812) (22,505)
Shareholders' equity $13,309 $ 5,909 $ 5,323 $11,996 $ 8,479
- ------------------------------------------------------- ------------ -------------- -------------- ----------- -----------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's financial statements and related notes appearing elsewhere in
this report.
Consolidated net income for 1996 was $341,000 compared to net losses of
$4.5 million in 1995, on a restated basis, and $6.7 million in 1994. The Company
marked its first profitable year in 1996, which is attributable primarily to
continued growth in INOVOJECT(R) revenues. Earnings per share increased from net
losses of $1.12 in 1994 and $.71 in 1995, on a restated basis, to net income of
$.05 in 1996. For the year ended 1996, weighted average shares outstanding were
7.4 million, up from 6.3 and 6.0 million at year-end 1995 and 1994,
respectively. See "Liquidity and Capital Resources."
11
<PAGE>
Revenues
Consolidated revenues in 1996 totaled $20.6 million, representing an
increase of 50% over 1995 revenues ($13.7 million) which was 199% over
1994 revenues ($6.9 million). INOVOJECT(R) revenues totaled $19.3 million
in 1996 compared to $12.8 million in 1995 and $5.9 million in 1994,
representing increases of 50% from 1995 to 1996, and 116% from 1994 to 1995.
The 1996 revenues include INOVOJECT(R) lease fees derived from
multi-year contracts and paid trials in the U.S. and foreign countries, the sale
of INOVOJECT(R) systems to distributors, and the sale of one INOVOJECT(R) system
to a pharmaceutical company for use in the production of human influenza
vaccine. Embrex does not expect sales of INOVOJECT(R) systems for use in the
production of vaccines, if any, to be a significant source of future revenue. At
December 31, 1996, Embrex had over 250 INOVOJECT(R) systems installed and
operating under lease agreements worldwide, up from 235 systems at December 31,
1995, and 117 at December 31, 1994. Additionally, Embrex estimates that as of
December 31, 1996, it was vaccinating approximately 80% of the 7.7 billion
broiler birds grown in the U.S. in 1996, up from 66% in 1995, and 37% in 1994.
Management anticipates further revenue growth in 1997 from existing
INOVOJECT(R) operations in the United States and Canada, new INOVOJECT(R) system
leases in other countries, and sales of BURSAPLEX(TM) product to poultry
producers. However, the rate at which the marketplace will accept the
INOVOJECT(R) technology outside the United States and Canada, the timing of
approvals of third-party vaccines for in ovo use outside the United States and
Canada, possible variability in U.S. hatchery bird production as a result of
recent high grain prices, and possible variability in the demand for U.S.
poultry and poultry products outside the U.S., will impact the pace of revenue
growth, if any, and the sustaining of profitability from the installation and
operational throughputs of INOVOJECT(R) systems.
Sales of the Company's proprietary Viral Neutralizing Factor product
(VNF) for inclusion in Gumboro disease vaccines were the principal source of
product revenues, which generated $1.2 million, $817,000, and $952,000 in 1996,
1995, and 1994, respectively.
Cost of Product Sales and INOVOJECT(R) REVENUES
Cost of revenues as a percentage of revenues decreased from 62% and
80% of total revenues in 1995 and 1994, respectively, to 51% of total revenues
in 1996. The improvement in 1996 is primarily attributable to the fact that
revenues increased at a rate substantially in excess of the rate of change in
the cost of products.
Operating Expenses
Operating expenses totaled $8.3 million in 1996 compared to $7.4
million in 1995, and $7.8 million in 1994.
General and administrative ("G&A") expenses were $3.7 million in 1996,
up 11% from $3.3 million in 1995, and 6% from $3.1 million in 1994. The 1996
increase was largely due to increased legal expenses associated with the
implementation of a shareholder rights plan in March 1996 and amendments to
the Company's Articles of Incorporation approved at the annual meeting of
shareholders in May 1996. The 1995 increase over 1994 was attributable to
legal expenses incurred in connection with various patent infringement
lawsuits filed, and subsequently settled, by the Company during 1995.
See "Legal Proceedings."
Sales and marketing expenses totaled $929,000 in 1996 compared to
$718,000 and $427,000 in 1995 and 1994, respectively. The increases in 1996 and
1995 resulted from stepped-up international activity, principally in Europe, as
well as general increases in the Company's sales and customer service functions
to support market expansion and field support of INOVOJECT(R) systems.
12
<PAGE>
Research and development ("R&D") expenses were $3.7 million in 1996
compared to $3.4 million in 1995 and $4.3 million in 1994. The increase in R&D
expense from 1995 to 1996 largely reflects an increase in outside contract
research, supplies consumption, and INOVOJECT(R) design and development
activity. The decrease in expense from 1994 to 1995 is principally attributable
to reductions in contract research, lower use of consumable supplies, and a
reduction in INOVOJECT(R) design and development activity. The Company continues
to manage its research and development effort to leverage its know-how, patent
position, market presence and expenditures.
Other Income and Expense
Interest income totaled $355,000, $389,000, and $297,000 in years 1996,
1995, and 1994, respectively. The 1996 decrease relative to 1995 resulted
principally from lower interest rates, while the increase in 1995 relative to
1994 was a function of higher cash balances.
Interest expense totaled $1.6 million in 1996 compared to $2.7 million,
on a restated basis in 1995, and $579,000 in 1994. In all years, the amount of
expense is principally attributable to the Company's funding of its growing
installed base of INOVOJECT(R) systems with the use of capital lease financing
and in 1995 the issuance of convertible debentures. Additionally, interest
expense for 1995 has been restated to reflect a one-time charge associated with
recognizing $1,019,000 of interest expense attributable to the difference
between the market price of the Company's Common Stock and the conversion price
of the debentures issued in 1995. See "Liquidity and Capital Resources" and Note
11 to the Company's financial statements. Management expects to place a greater
emphasis and reliance on the use of internally generated funds to finance the
cost of additional INOVOJECT(R) systems in 1997.
Effect of Inflation
Management expects cost of product sales and INOVOJECT(R) revenues,
operating expenses and capital equipment costs to change in line with periodic
inflationary changes in price levels. Management also believes that the Company
will be able to offset the effect of price level changes by adjusting
selling/lease prices and effecting operating efficiencies. Consequently,
management does not expect changes in price levels to have any material adverse
affect on its results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's cash and short-term investment
balances totaled $9.9 million compared to $7.3 million and $4.6 million at
December 31, 1995 and 1994, respectively. Working capital increased from $5.9
million in 1995 to $7.6 million in 1996 primarily due to the exercise of
warrants as described below.
During 1996, operating activities generated $4.1 million in cash,
including $626,000 million attributable to a net increase in working capital.
Within investing activities, INOVOJECT(R) and equipment purchases required $4.9
million, while the sale of short-term investments, provided an
offsetting $1.1 million. In addition, financing activities during 1996 generated
a net $3.3 million in cash reflecting $3.9 million from the issuance of equity
and debt securities offset by approximately $700,000 in net payments on
capital lease obligations.
To diversify its sources of external financing, in September 1996 the
Company obtained a $2.0 million line of credit from a bank in the United
Kingdom, which will be used to finance the construction of additional
INOVOJECT(R) systems for Europe, the Middle East and Africa. The line is secured
by compensating cash balances on deposit with the bank in an amount equal to the
funds loaned. The Company will receive interest on the deposited funds, and will
pay interest on the loaned funds at a rate of 1% in excess of the interest it
earns. The terms call for minimum drawdowns of $250,000, with repayment of each
drawdown over four years. The Company utilized $400,000 of this line in 1996.
In November 1996, the holders of warrants to purchase Common Stock,
originally issued to the managing underwriter of the Company's initial public
offering, exercised such warrants for 638,805 shares at an aggregate exercise
13
<PAGE>
price of $3,085,447. Also in November, warrants to purchase approximately 3.5
million shares of Common Stock at exercise prices ranging from $9.02 to $15.52
per share expired. After giving effect to these events, warrants to purchase a
total of 360,775 shares of Common Stock at prices ranging from $6.00 to $9.50,
subject to adjustment, remain outstanding. These outstanding warrants have
expiration dates ranging from July 29, 1998 through June 9, 2001.
The Company had outstanding purchase commitments of approximately $3.5
million as of December 31, 1996 which were principally related to construction
of additional INOVOJECT(R) systems scheduled for delivery at various times
during 1997 as well as the production of BURSAPLEX(TM). See "Subsequent Events."
Based on its current operations, management believes that its available
cash and short-term investments, together with cash flow from operations and
existing equipment financing lines, will be sufficient to meet its foreseeable
cash requirements.
SUBSEQUENT EVENTS
On January 20, 1997, the Company received U.S. Department of
Agriculture (USDA) approval for in ovo use of the Company's viral neutralizing
factor-based vaccine for IBD in broiler chickens. The approval is specifically
for in ovo (as opposed to post-hatch) administration of the vaccine complex via
Embrex's INOVOJECT(R) systems.
Trade-named BURSAPLEX(TM), this new vaccine (previously called
BDA-Blen) is a unique combination of an existing strain of IBD vaccine and
Embrex's patented Viral Neutralizing Factor (VNF) licensed from the University
of Arkansas. VNF has been shown to render a virulent infectious bursal disease
vaccine both safe and effective in broiler chickens, thus allowing its use at or
before hatch. Some of the health benefits of this new VNF/vaccine complex
include single-dose efficacy and effective early vaccination in broilers.
Infectious bursal disease weakens a chicken's immune system, resulting in poor
growth and the potential for contracting other diseases. The disease is
widespread in the United States, Northern Europe and Asia.
FORWARD-LOOKING STATEMENTS
Information set forth in this Annual Report on Form 10-K contains various
"forward looking statements" within the meeting of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which
statements represent the Company's judgment concerning the future and are
subject to risks and uncertainties that could cause the Company's actual
operating results and financial position to differ materially. Such forward
looking statements can be identified by the use of forward looking terminology
such as "may," "will," "expect," "anticipate," "estimate," "believe," or
"continue," or the negative thereof or other variations thereof or comparable
terminology.
The Company cautions that any such forward looking statements are further
qualified by important factors that could cause the Company's actual operating
results to differ materially from those in the forward looking statements,
including without limitation the Company's dependence on certain customers; the
ability of the Company, its manufacturing and marketing partners and others to
obtain regulatory approval for products to be delivered in ovo, which are
dependent on a number of factors, including the results of trials, the
discretion of regulatory officials, and any potential changes in regulations;
the Company's ability to generate future cash flow from operations; continued
demand for the INOVOJECT (R) system; the Risk Factors described in Exhibit 99 to
this report; and other risks detailed from time to time in the Company's
Securities and Exchange Commission filings, including the Company's Forms 10-Q,
10-K, and 8-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders, Embrex, Inc.
We have audited the accompanying consolidated balance sheets of
Embrex, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Embrex, Inc. and subsidiaries at December 31, 1996 and 1995,
the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
(signature of Ernst & Young LLP)
Raleigh, North Carolina
March 19, 1997
14
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31 December 31
1996 1995
-------------- ----------
<S> <C> <C>
(Restated)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................. $ 9,036 $ 5,354
Short-term investments (Note 2) ........................................... 876 1,972
Inventories:
Materials and supplies ................................................ 1,061 1,027
Product ............................................................... 573 600
Accounts receivable - trade ............................................... 2,313 1,787
Other current assets ...................................................... 124 108
-------- --------
TOTAL CURRENT ASSETS .................................................. 13,983 10,848
INOVOJECT(R)SYSTEMS UNDER CONSTRUCTION ........................................ 530 801
INOVOJECT(R)SYSTEMS ........................................................... 18,193 13,846
Less accumulated depreciation ............................................. (8,499) (5,271)
-------- --------
9,694 8,575
EQUIPMENT, FURNITURE AND FIXTURES ............................................. 2,607 2,274
Less accumulated depreciation ............................................. (1,695) (1,441)
-------- --------
912 833
OTHER ASSETS:
Patents and exclusive licenses of patentable technology
(net of accumulaated amortization of $58 in 1996 and $48 in 1995) ....... 125
131
Debt issuance costs (net of accumulated amortization of $209 in 1996
and $125 in 1995) ....................................................... 7 201
Other noncurrent assets ................................................... 303 400
-------- --------
TOTAL ASSETS .................................................................. $ 25,554 $ 21,789
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .......................................................... $ 1,355 $ 1,623
Accrued expenses .......................................................... 1,087 958
Current portion of capital lease obligations .............................. 3,080 2,333
Current portion of long-term debt (Note 4) ................................ 909 0
-------- --------
TOTAL CURRENT LIABILITIES ......................................... 6,431 4,914
CAPITAL LEASE OBLIGATIONS, less current portion (Note 3) ...................... 5,806 7,172
LONG-TERM DEBT, less current portion (Note 4) ................................. 8 3,794
SHAREHOLDERS' EQUITY (Notes 5, 6 and 7)
Common Stock, $.01 par value 1996 and no stated par 1995 Authorized -
30,000,000 shares in 1996 and 15,000,000 in 1995 Issued and outstanding
- 8,043,490 and 6,714,724 shares at
December 31, 1996 and 1995, respectively .......................... 80 46,122
Additional paid-in capital ................................................ 53,742 821
Currency translation adjustments .......................................... 180 0
Accumulated deficit ....................................................... (40,693) (41,034)
-------- --------
TOTAL SHAREHOLDERS' EQUITY ............................................ 13,309 5,909
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................... $ 25,554 $ 21,789
======== ========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Consolidated Statements of Operations
- -------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
(Restated)
REVENUES
INOVOJECT(R)revenue $19,263 $12,806 $ 5,940
Product revenues 1,217 817 952
Other revenue 152 96 5
---------- --------- --------
TOTAL REVENUES 20,632 13,719 6,897
COST OF PRODUCT SALES AND INOVOJECT(R)REVENUES 10,558 8,521 5,493
---------- --------- --------
10,074 5,198 1,404
OPERATING EXPENSES
General and administrative 3,683 3,311 3,134
Sales and marketing 929 718 427
Research and development 3,673 3,416 4,271
-------- ------ -----
TOTAL OPERATING EXPENSES 8,285 7,445 7,832
-------- ------- -----
OPERATING INCOME (LOSS) 1,789 (2,247) (6,428)
OTHER INCOME (EXPENSE)
Interest income 355 389 297
Interest expense (1,608) (2,654) (579)
------- ------- -----
TOTAL OTHER EXPENSE (1,253) (2,265) (282)
------- ------- -----
INCOME (LOSS) BEFORE TAXES $ 536 $(4,512) $(6,710)
INCOME TAXES (Note 9) 195 0 0
---------------------------------------------------
NET INCOME (LOSS) $ 341 $(4,512) $(6,710)
====================================================
Net Income (loss) per share of Common Stock $0.05 $ (.71) $(1.12)
======== ========= =========
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING (in thousands) 7,405 6,336 6,005
======== ========= =========
</TABLE>
See accompanying notes.
16
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(Restated)
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 341 $(4,512) $(6,710)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,433 3,443 2,018
Changes in operating assets and liabilities:
Accounts receivable, inventories and other current assets (747) (1,610) (738)
Accounts payable and accrued expenses 119 (64) 1,172
------- ------ ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,146 (2,743) (4,258)
Investing Activities
Purchases of short-term investments 0 (147) (1,825)
Sales of short-term investments 1,096 0 0
Purchases of INOVOJECT(R) systems, equipment,
furniture and fixtures (4,888) (7,330) (4,434)
Additions to patents and other noncurrent assets 93 111 (354)
------- ------ ------
NET CASH USED IN INVESTING ACTIVITIES (3,699) (7,366) (6,613)
Financing Activities
Issuance of Common Stock 3,438 927 37
Issuance of long-term debt 476 6,403 0
Proceeds from capital lease obligations 2,139 7,101 4,720
Payments on capital lease obligations (2,818) (1,771) (838)
------- ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,235 12,660 3,919
------- ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,682 2,551 (6,952)
Cash and cash equivalents at beginning of period 5,354 2,803 9,755
CASH AND CASH EQUIVALENTS AT END OF PERIOD $9,036 $ 5,354 $ 2,803
======= ======= =======
</TABLE>
Supplemental Disclosure of Cash Flow Information
Total interest paid was $1,593,000, $1,635,000 and $579,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
Total income taxes paid was $170,000, $0 and $0 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Supplemental Schedule of Noncash Financing Activity:
In May 1995, American Cyanamid Company, a subsidiary of American Home Products
Corporation, converted the promissory note issued by Embrex, Inc. to American
Cyanamid in 1991. The $1.2 million note, which would have been due on May 27,
1995, was converted into 320,000 shares of Common Stock.
Also, during the 1995 period, $3.0 million of the debentures issued in May 1995,
along with $34,000 of accrued interest, were converted into 507,678 shares of
Common Stock net of unamortized debt issuance costs totaling $211,000.
During 1996, an additional $3.3 million of the debentures, along with $258,000
of accrued interest, were converted into 612,061 shares of Common Stock net of
unamortized debt issuance costs totaling $111,000.
17
<PAGE>
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Additional Currency
Paid-in Translation Accumulated
(Dollars in thousands) Common Capital Adjustments Deficit Total
Stock
---------------- --------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $41,587 $221 $ 0 $(29,812) $11,996
Stock issued:
Upon exercise of options 1 1
Under employee stock purchase plan 36 36
Net loss (6,710) (6,710)
------- ----- ----- -------- -------
Balance at December 31, 1994 41,624 221 0 (36,522) 5,323
Stock issued:
Upon exercise of options 134 134
Under employee stock purchase plan 80 80
Upon conversion of long-term debt
(net of issuance costs of $232) 3,554 450 4,004
Upon exercise of warrants 730 730
Warrants issued on May 1, 1995 150 150
Net loss (4,512) (4,512)
------- ------ ------ ------- -------
Balance at December 31, 1995 (as restated) 46,122 821 0 (41,034) 5,909
Stock issued:
Upon exercise of options 286 286
Under employee stock purchase plan 68 68
Upon conversion of long-term debt
(net of issuance costs of $111) 2,947 494 3,441
Upon exercise of warrants 3,084 3,084
Establishment of $.01 par value (Note 5) (52,427) 52,427
Currency translation adjustments 180 180
Net income 341 341
------- ------ ------ ------- -------
Balance at December 31, 1996 $ 80 $ 53,742 $ 180 $(40,693) $13,309
======== ======= ======= ======= =======
</TABLE>
18
<PAGE>
1. Significant Accounting Policies
Nature of Business
Embrex, Inc. has developed and commercialized the INOVOJECT(R) system, a
proprietary, automated, in-the-egg injection system which eliminates the need
for manual vaccination of newly hatched broiler chicks. Embrex also develops and
markets patented pharmaceutical and biological products to improve bird health,
reduce bird production costs and provide economic value to the global poultry
industry.
Principles of Consolidation
The consolidated financial statements include the accounts of Embrex, Inc.
and its wholly owned subsidiaries, Embrex Europe Limited and Embrex
Sales, Inc. (the "Company"). All significant intercompany transactions
and accounts have been eliminated. Currently, foreign operations account
for less than 10% of the Company's revenues.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Items recorded as inventory are generally purchased from others and recorded at
the lower of cost or market using the average cost method. Materials and
supplies inventories include spare parts for the INOVOJECT(R) systems as well as
laboratory and general supplies. Product inventories are comprised of biological
compounds, principally the Company's viral neutralizing factor product (VNF).
INOVOJECT(R) Systems
INOVOJECT(R) systems are comprised of egg injection and related equipment
available for lease to customers. The equipment is recorded at the lower of cost
or estimated net realizable value. Depreciation is computed principally by using
accelerated methods over the estimated useful life of the equipment and
commences after construction is complete and the equipment is placed in service.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are recorded at cost. Depreciation is computed
principally by using accelerated methods over the estimated useful lives of the
assets placed in service.
19
<PAGE>
Patents and Exclusive Licenses of Patentable Technology
Costs incurred to acquire exclusive licenses of U.S. patentable technology and
to apply for and obtain U.S. patents on internally developed technology are
capitalized and amortized over the period of the exclusive license agreements or
patents using the straight-line method.
Foreign Currency Translation
All assets and liabilities in the balance sheets of the Company's foreign
subsidiary, Embrex Europe Limited, are translated at year-end exchange rates
except shareholders' equity which is translated at historical rates. Revenues,
costs and expenses are recorded at average rates of exchange during the year.
Translation gains and losses are accumulated as a component of shareholders'
equity. Foreign currency transaction gains and losses are included in
determining net income.
Revenue Recognition
INOVOJECT(R) system fees are recognized based on eggs processed during the
period. Product sales are recognized when the products are shipped. Contract
research revenue is recognized on a straight-line basis over the term of the
contract. Revenue received, but not yet earned, is classified as deferred
revenue.
Research and Development Costs
Research and development costs, including costs incurred to complete contract
research, are charged to operations when incurred and are included in operating
expenses.
Income Taxes
Income tax expense includes U.S. and international income taxes. Certain items
of income and expense are not reported in tax returns and financial statements
in the same year. The tax effects of these differences are reported as deferred
income taxes. Tax credits are accounted for as a reduction of tax expense in the
year in which the credits reduce taxes payable.
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number of
shares of Common Stock outstanding. Common equivalent shares from stock options
and warrants are excluded from the computation during periods of net loss
because their effect is antidilutive. For all periods presented, the difference
between primary and fully diluted net income per share is not significant.
Use of Estimates
20
<PAGE>
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
Principal Customers
Tyson Foods, Inc. ("Tyson") and Perdue Farms Inc. ("Perdue") accounted for 33
percent and 11 percent of consolidated 1996 revenues, respectively. Based on the
number of birds produced in 1996, Tyson and Perdue accounted for approximately
22 and 8 percent of the broilers grown in the U.S., respectively. In 1995, Tyson
and Perdue Farms, Inc. individually accounted for greater than 10 percent of
total revenues.
Sources of Supply
The Company has developed a strategic relationship with a single contract
manufacturer to fabricate its INOVOJECT(R) systems. While other machine
fabricators exist and have constructed limited numbers of INOVOJECT(R) systems,
a change in fabricators could cause a delay in manufacturing and a possible
delay in the timing of future INOVOJECT(R) installations and revenues from those
installations.
The Company has granted Select Laboratories, Inc. ("Select"), a division of
Rhone Merieux, exclusive rights to manufacture bursal disease vaccines
containing Embrex's proprietary VNF product for Embrex to market in the North
American, South American and Asian regions. Embrex has also granted Arthur
Webster Pty. Ltd. ("Webster") exclusive rights to manufacture bursal disease
vaccines containing the Company's VNF product to be marketed in Europe,
the Middle East and Africa. Additionally, the Company has two contract
suppliers of its VNF product. The manufacture of the bursal disease vaccines
being produced by Select and Webster and the Company's VNF product generally
must be performed in licensed facilities and/or under regulatory approved
methods. Although there are other manufacturers who are capable of
manufacturing bursal disease products and producing products such as VNF, a
change of suppliers could adversely effect the Company's future operating
results due to the time it would take a new supplier to obtain regulatory
approval of its production process and/or manufacturing facilities. The
Company seeks to minimize this exposure through multi-year supply agreements
and the maintenance of adequate inventories.
Long-Lived Assets
The Company adopted Financial Accounting Standards Board ("FASB") Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("FASB 121") in the first quarter of 1996. The
adoption for FASB 121 had no material effect on the financial statements in
1996.
21
<PAGE>
Reclassification
Certain 1995 and 1994 amounts in the accompanying financial statements have been
reclassified to conform to the 1996 presentation. These reclassifications had no
effect on previously reported net loss or shareholders' equity.
2. Short-Term Investments
Management determines the appropriate classification of its investments in debt
securities at the time of purchase and reevaluates such determination at each
balance sheet date. Debt securities for which the Company has both the intent
and ability to hold to maturity are classified as held to maturity. These
securities are carried at amortized cost. At December 31, 1996, the Company had
no investments that qualified as trading or available for sale.
At December 31, 1996, the Company's investments in debt securities were
classified as cash and cash equivalents and short-term investments. The Company
maintains cash and cash equivalents and short-term investments principally of
United States treasury securities and commercial paper with a maturity date less
than twelve months with various financial institutions. The Company performs
periodic evaluations of the relative credit standing of those financial
institutions that are considered in the Company's investment strategy which is
designed to limit exposure to any one institution.
The following is a summary of short-term investments by balance sheet
classification at December 31:
1996 1995
======= ============
Short-term Investments:
Commercial Paper $ 251,000 $ 749,000
Repurchase Agreements 625,000 0
U.S. Treasury Obligations 0 1,223,000
--------- ------------
$ 876,000 $1,972,000
========= ============
The Company's short-term investment balances are maintained in accounts at
various financial institutions. In connection with the secured line of
credit, the Company has deposited $417,000 as a compensating cash balance
with the lender.
22
<PAGE>
3. Leases
At December 31, 1996 and 1995, the Company had assets totaling $13.9 million and
$13.1 million, respectively, financed by capital lease agreements which expire
through October 2000. Accumulated depreciation and amortization includes $8.2
million and $5.1 million of amortization related to these assets at December 31,
1996 and 1995, respectively. Amortization of assets financed by capital leases
is included with depreciation expense. As of December 31, 1996, the Company has
used $9.2 million ($2.1 million in 1996 and $7.1 million in 1995) of the $11.2
million capital lease financing closed in 1995 to fund construction of
INOVOJECT(R) systems principally under contract with North American customers in
the United States. At December 31, 1996, the Company had available $2.0 million
of aggregate unutilized capital financing capacity for use in the construction
of INOVOJECT(R) systems.
The Company leases its principal facilities under an operating lease extending
through March 2002. The company has the option to cancel the operating lease
agreement with the payment of a $180,000 penalty. Total rent expense was
$334,000, $426,000, and $307,000 for the years ended December 31, 1996, 1995,
and 1994, respectively.
At December 31, 1996, the Company's minimum future commitments under capital and
operating leases were as follows:
Operating Capital
Leases Leases
1997 $359,000 $4,083,000
1998 279,793 3,234,000
1999 226,807 2,947,000
2000 213,342 615,000
2001 219,618 -0-
Beyond 55,296 -0-
----------- -----------
Total $ 1,353,856 $10,879,000
===========
Less amounts representing interest (1,993,000)
-----------
Present value of future minimum
lease payments $8,886,000
==========
23
<PAGE>
4. Long-Term Debt
On May 1, 1995, the Company closed on a private placement offering of
convertible debentures ("the debentures") resulting in net proceeds to the
Company of $5.4 million (as adjusted for the August 1995 rescission of the
issuance of $225,000 of the debentures). The debentures are payable on May 1,
1997. Through June 13, 1995, the holders of the debentures were entitled to
convert the debentures into Common Stock of the Company at a conversion price
equal to the average market price at the time of issuance. Commencing on June
14, 1995, the holders of the debentures are entitled to convert the debentures
into Common Stock of the Company at a conversion price of the lesser of the
market price at the time of issuance ($5.00 per share) or 85 percent of the
average closing bid price of the Company's Common Stock for the five trading
days ending on the conversion date. The debentures accrue interest, payable at
maturity, at a rate of 8 percent per annum. The accrued interest is convertible
into Common Stock of the Company at the same conversion price as the debenture
principal. The Company has the right to demand conversion of the debentures and
any accrued interest after April 30, 1996. Additionally, at any time, the
Company has the right to redeem the debentures for cash equal to the closing bid
of the Company's Common Stock at the date of redemption multiplied by the
underlying shares into which the debentures would have been convertible. In
conjunction with this offering, the Company incurred issuance costs totaling
$540,000 and recorded $1.0 million of interest expense related to the 15%
discount from market upon conversion (See Note 11). The issuance costs are being
amortized as a component of interest expense over the term of the debentures.
In 1995, $3.0 million of the debentures' principal and related discount was
converted into 517,910 shares of Common Stock, net of unamortized debt issuance
costs totaling $215,000. During 1996, an additional $3.3 million debentures and
related discount, along with $258,000 of accrued interest were converted into
612,061 shares of Common Stock, net of unamortized debt issuance costs totaling
$111,000.
As part of its compensation for the sale of the convertible debentures, the
Company's placement agent received a 6.5 percent commission, which is included
in the $540,000 total issuance costs, and warrants to purchase 96,000 shares of
Common Stock at a price of $6.00 per share. The estimated value of these
warrants, $150,600, has been recorded as additional paid-in capital, while their
cost has been included within the $540,000 total issuance costs discussed above.
On May 29, 1991, the Company issued a four-year convertible term note (the
"note") to American Cyanamid Company, now a subsidiary of American Home Products
Corporation, in exchange for $1.2 million. During May 1995, at the election of
American Cyanamid, the
24
<PAGE>
note was converted into 320,000 shares of Common Stock of the Company.
Contemporaneous with the conversion, the Company paid to American Cyanamid
$160,000 of accrued interest due on the note.
25
<PAGE>
5. Shareholders' Equity
On May 16, 1996, the Company's shareholders approved an increase in the number
of authorized shares of Common Stock from 15,000,000 to 30,000,000 shares and an
increase in the amount of authorized Preferred Stock from 20,000 to 15,000,000
shares. In addition, the Company changed the par value of the Common Stock and
Series A Participating Preferred Stock from no par value to par value stock,
with a par value of $.01 per share.
At December 31, 1996, the Company had reserved a total of 2,006,970 shares of
its Common Stock for future issuance as follows:
For conversion of debentures 96,492
For exercise of warrants to purchase Common Stock 390,775
For exercise of Common Stock options 1,456,373
For possible future issuance to employees and others
under stock option and employee stock purchase plans 63,330
---------
Total reserved 2,006,970
=========
At December 31, 1996, the Company had issued and outstanding warrants to
purchase Common Stock as follows:
Date through
Exercise Price Shares Reserved for Which Warrants
Per Share Exercise of Warrants are Exercisable
$ 8.07 188,197 7/28/98
$ 9.02 31,578 1/28/99
$ 9.50 30,000 12/31/00
$ 9.50 15,000 6/9/01
$ 6.00 96,000 4/30/00
$ 7.28 30,000 10/30/01
-------
390,775
=======
26
<PAGE>
6. Stock Option Plans
The Company's stock option plans provide for option grants designated as either
nonqualified or incentive stock options. The options generally vest over a
four-year period and expire ten years from the date of grant. In general, the
exercise price of stock options is the closing price of the Company's Common
Stock on the date of grant.
Most U.S. employees and certain employees outside the U.S. are eligible to
receive a grant of stock options periodically with the number of shares
generally determined by the employee's salary grade and performance level. In
addition, certain management and professional level employees may receive a
stock option grant upon hire. Non- employee directors of the Company receive
annual grants of stock options in amounts specified in the applicable plan.
Stock option information with respect to all of the Company's stock option plans
follows:
<TABLE>
<CAPTION>
Number Option Price Range Expiration
of Shares per Share Date
<S> <C> <C> <C>
Balance at December 31, 1993, outstanding options 528,588 $ 2.00 to $ 8.75 1998-2003
Granted 194,910 $ 6.125 to $ 7.00 2004
Exercised (431) $ 2.00
Canceled (9,665) $ 2.00 to $ 6.75
---------
Balance at December 31, 1994, outstanding options 713,402 $ 2.00 to $ 8.75 1998-2004
Granted 314,370 $5.875 to $ 6.50 2005
Exercised (59,444) $ 2.00 to $7.875
Canceled (59,207) $ 2.00 to $ 8.75
---------
Balance at December 31, 1995, outstanding options 909,121 $ 2.00 to $8.375 1998-2005
Granted 111,980 $6.125 to $7.625 2006
Exercised (66,873) $2.00 to $7.00
Canceled (87,814) $6.125 to $7.875
---------
Balance at December 31, 1996, outstanding options 866,414 $2.00 to $8.375 1998-2006
=========
</TABLE>
At December 31, 1996, options to purchase 534,188 shares of Common Stock were
exercisable at prices ranging from $2.00 to $8.375 per share.
The Company has elected to follow Accounting Principles Board Option No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
27
<PAGE>
The Company's 1996 Amendment to its 1993 Incentive Stock Option Plan increases
the authorized grant of options to company personnel from 500,000 shares of
common stock up to 1.2 million shares. All options granted have 10 year
terms and vest and become fully exercisable at the end of 4 years of
continued employment.
Proforma information regarding net loss and loss per share is required by SFAS
123, and has been determined as if the Company accounted for its employee stock
options granted subsequent to December 31, 1994 under the fair value method of
SFAS 123. The fair value for these options was estimated at the date of grant
using a Black- Scholes option pricing model with the following weighted average
assumptions for 1996 and 1995:
1996 1995
Risk free interest rate 6.42 6.67
Dividends -- --
Volatility factor .421 .421
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:
December 31
1996 1995
Pro forma net income (loss) $51,513 $(4,574,000)
Pro forma income (loss) per share $ .007 $ (.72)
Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its proforma effect will not be fully reflected until 1997.
Exercise prices for options outstanding as of December 31, 1996
ranged from $5.875 to $8.75.
28
<PAGE>
The weighted average remaining contractual life of those options is 8.21
years. The weighted average exercisable price of outstanding options at December
31, 1996 is $6.30.
29
<PAGE>
7. Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the "Purchase Plan") to provide
its employees with an additional opportunity to share in the ownership of the
Company. Under terms of the Purchase Plan, all regular full-time employees of
the Company may make voluntary payroll contributions thereby enabling them to
purchase Common Stock at a price to be determined by the Compensation Committee
of the Board, but not less than 85 percent of the lower of the fair market value
as of the beginning or end of the twelve-month offering period. Contributions
are limited to 20 percent of an employee's compensation. Up to 100,000 shares of
Common Stock may be issued under the Purchase Plan.
Under the Purchase Plan, during 1996, 1995 and 1994, 11,028, 17,041 and 7,556
shares of Common Stock, respectively, were purchased.
30
<PAGE>
8. 401(k) Retirement Savings Plan
The Company has a 401(k) plan which covers all employees upon employment who are
at least 18 years of age. Employer contributions are voluntary at the discretion
of the Company. There were no Company contributions for the years ended December
31, 1996, 1995, and 1994.
<PAGE>
9. Income Taxes
The components of income tax expense for the year ended December 31, 1996
are as follows:
Current:
Federal $ 45,000
State 30,000
Foreign 120,000
---------
$195,000
=========
The Company's consolidated effective tax rate differed from the statutory
rate as set forth below for the year ended December 31, 1996:
Federal taxes at statutory rate $182,000
State and local income taxes,
net of Federal benefit 30,000
Change in valuation allowance (255,000)
Non-deductible expenses 220,000
Foreign losses for which no
benefit has been recognized 114,000
Utilization of net operating
loss carryforwards (486,000)
Alternative minimum and
foreign withholding taxes 165,000
Other 225,000
--------
$ 195,000
========
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The company has no deferred tax
liabilities. Significant components of the Company's deferred tax assets are as
follows:
At December 31,
1996 1995
Deferred tax assets:
Book over tax depreciation $790,000 $704,000
Net operating loss carry forwards 12,800,000 13,330,000
Research and experimental
tax credit carry forwards 1,725,000 1,661,000
Charitable contributions
carryforward 16,000 11,000
Other 170,000 61,000
----------- ----------
Total deferred tax assets 15,501,000 15,767,000
Valuation allowance for
deferred tax assets (15,501,000) (15,767,000)
------------ ------------
Net deferred tax assets $ 0 $ 0
============ ============
During 1996 and 1995, the valuation allowance (decreased) increased by
($255,000) and $1,112,000, respectively.
At December 31, 1996, the Company had net operating loss carry forwards for
federal income tax purposes of approximately $34 million which are available to
offset future taxable income. These net operating loss carry forwards expire
during the years 2000 through 2010. As a result of the changes in ownership
percentages which occurred with the 1991 Initial Public Offering (IPO), the
future utilization of the net operating loss carry forwards incurred prior to
the 1991 IPO is limited to approximately $2.1 million per year. Any loss
carryforward amounts exceeding the limitation can be carried forward to future
years within the carryforward period. The net operating loss carry forwards
incurred
31
<PAGE>
subsequent to the 1991 IPO are not subject to these change in ownership
limitations.
In addition, the Company has Research and Experimental Tax Credit Carry forwards
totaling approximately $1.6 million which are available to offset future federal
income taxes. These credits expire during the years 2000 through 2012.
32
<PAGE>
10. Commitments
As of December 31, 1996 the Company had outstanding purchase agreements of
approximately $3.5 million for the production of BURSAPLEX(TM), $205,000
for VNF, as well as materials and supplies for the construction and maintenance
of INOVOJECT(R) systems.
33
<PAGE>
11. Restatement
At the annual meeting of the American Institute of Certified Public Accountants
(AICPA) in January 1997 and at the March 1997 staff meeting of the Emerging
Issues Task Force of the Financial Accounting Standards Board (FASB), the
Securities and Exchange Commission staff stated that a charge to income is
appropriate in situations where a registrant has issued debt securities
convertible to Common Stock at the lower of a conversion rate fixed at issuance
or a fixed discount to the Common Stock's market price at the date of
conversion.
In accordance with the SEC's position, the Company has restated its
1995 financial statements to record additional interest expense of
$1.1 million related to the conversion feature at a 15% discount included in
the 1995 debentures (see Note 4). The restatement resulted in an increase
of $1.0 million in the previously reported 1995 net loss and an increase in
1995 net loss per share from $.55 per share to $.71 per share. In addition,
at December 31, 1995, long-term debt was increased by $569,000 and shareholders
equity was decreased by $569,000 to reflect the conversion discount related to
outstanding debentures that had not been converted.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
34
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the executive officers and directors is incorporated by
reference from the Company's Proxy Statement (under the headings "Management"
and "Proposal I: Election of Directors," respectively), with respect to the
Annual Meeting of Shareholders to be held on May 15, 1997, to be filed with the
Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company's Proxy
Statement (under the heading "Executive Compensation"), with respect to the
Annual Meeting of Shareholders to be held on May 15, 1997, to be filed with the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Company's Proxy
Statement (under the heading "Share Ownership of Management and Certain
Beneficial Owners"), with respect to the Annual Meeting of Shareholders to be
held on May 15, 1997, to be filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1). The financial statements listed below are included in Item 8 of
this report. All financial statement schedules normally required under
Regulation S-X are omitted as the required information is inapplicable.
Report of Independent Auditors
Financial Statements
Consolidated Balance Sheets at
December 31, 1995 and 1996
Consolidated Statements of Operations
for each of the three fiscal years ended
December 31, 1994, 1995 and 1996
Consolidated Statements of Cash Flows
for each of the three fiscal years ended
December 31, 1994, 1995 and 1996
Consolidated Statements of Shareholders'
Equity for each of the three fiscal
years ended December 31, 1994, 1995 and 1996
Notes to Consolidated Financial Statements
35
<PAGE>
(a)(2). The financial statements of the Company's Employee Stock
Purchase Plan listed below are filed herewith.
Report of Independent Auditors
Financial Statements
Statements of Net Assets Available for Plan
Benefits at December 31, 1995 and 1996
Statements of Changes in Net Assets Available
for Plan Benefits for the three years ended
December 31, 1996
36
<PAGE>
Notes to Financial Statements
(a)(3). The exhibits listed below are filed as part of this report.
Executive compensation plans and arrangements are listed in Exhibits 10.13
through 10.31.
<PAGE>
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
3.1(1) Restated Articles of Incorporation
3.2(2) Articles of Amendment to Articles of Incorporation effective March 21, 1996
3.3(3) Bylaws of the Company
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2 Specimen of Common Stock Certificate
4.3(4) Notices to holders of outstanding warrants regarding adjustments in warrant terms resulting
from Regulation S private placement
4.4(5) Form of Registration Rights Agreement
4.5(4) Form of Regulation S Securities Subscription Agreement
4.6(4) Form of Embrex 8% Convertible Debenture due May 1, 1997
4.7(4) Warrant to Purchase Common Stock of Embrex issued to Schwartz Investments, Inc.
4.8(6) Rights Agreement dated as of March 21, 1996 between Embrex and Branch Banking and Trust
Company, as Rights Agent
10.1(3) Exchange Agreement dated May 28, 1991, between Embrex and American Cyanamid Company, Advent
First Limited Partnership A, Biotechnology Venture Fund S.A., Biotechnology Investments
Limited, Domain Partners, L.P., Elf Technologies, Inc., Prince Venture Partners III, L.P., 3i
Securities Corporation, and Charles E. Austin
10.2(3) Form of Stock Purchase Warrant exercisable for the purchase of 180,003 shares of Common Stock
10.3(3) License Agreement dated December 11, 1991, between
Embrex and the National Technical Information
Service, a primary operating unit of the United
States Department of Commerce
10.4(3) Collaborative Research Agreement dated January 17, 1989 between Embrex and the University of
Arkansas
10.5(3) License Agreement dated October 1, 1988, between
Embrex and the National Technical Information
Service, a primary operating unit of the United
States Department of Commerce
37
<PAGE>
Exhibits Description
10.6(3) Lease Agreement dated December 9, 1986 between Embrex, as tenant, and Imperial Center
Partnership and Petula Associates, Ltd., as landlord, as amended by First Amendment dated
June 11, 1987, Second Amendment dated December 1, 1988, and Third Amendment dated May 2, 1989
10.7 Fourth Amendment of Lease dated October 1, 1994 between the Company and Glaxo Inc. (as
successor in interest to Imperial Center Partnership and Petula Associates, Ltd.)
10.8 Fifth Amendment of Lease dated December 13, 1996 between the Company and Glaxo Wellcome Inc.
(as successor in interest to Glaxo Inc.)
10.9(3) Facility Agreement dated March 1, 1991, between Embrex and Mississippi Agriculture and
Forestry Experiment Station, Mississippi State University
10.10(3) Unrestricted Grant Agreement dated April 1, 1988, between Embrex and North Carolina State
University, as amended by Amendment dated September 15, 1989 and Amendment dated April 22,
1991
10.11(3) Unrestricted Grant Agreement dated November 1, 1986, between Embrex and North Carolina State
University, as amended by Amendment dated May 3, 1989, Amendment dated September 15, 1989,
and Amendment dated April 22, 1991
10.12(3) Basic Research Agreement dated October 24, 1989, between Embrex and University of Arkansas,
as amended on October 23, 1990, February 1, 1991 and July 22, 1991
10.13(3) 1988 Incentive Stock Option Plan and form of Incentive Stock Option Agreement
10.14(3) 1989 Nonstatutory Stock Option Plan and form of Nonstatutory Stock Option Agreement
10.15(3) 1991 Nonstatutory Stock Option Plan and form of Nonstatutory Stock Option Agreement
10.16(7) Incentive Stock Option and Nonstatutory Stock Option Plan and forms of Stock Option
Agreements - June 1993
10.17(8) Amendment dated May 16, 1996 to Incentive Stock Option and Nonstatutory Stock Option Plan -
June 1993
10.18 Amended and Restated Employee Stock Purchase Plan
10.19(3) Employment Agreement dated November 15, 1989, between Embrex and Randall L. Marcuson
10.20 Amendment to Employment Agreement dated May 21, 1996 between Embrex and Randall L. Marcuson
10.21 Change In Control Severance Agreement dated May 21, 1996 between Embrex and Randall L.
Marcuson
10.22(3) Employment Agreement dated October 16, 1989, between Embrex and Catherine A. Ricks
38
<PAGE>
Exhibits Description
10.23 Change In Control Severance Agreement dated May 21, 1996 between Embrex and Catherine A. Ricks
10.24(2) General Provisions to Employment Agreement between Embrex and Brian V. Cosgriff dated August
18, 1995
10.25 Charge In Control Severance Agreement dated May 21, 1996 between Embrex and Brian V. Cosgriff
10.26(2) Terms and Conditions of Employment between Embrex Europe Limited and David M. Baines dated
May 12, 1994
10.27 Change In Control Severance Agreement dated June 9, 1996 between Embrex and David M. Baines
10.28 Letter Agreement and General Provisions to Employment Agreement dated August 20, 1996 between
Embrex and Don T. Seaquist and Amendment to Employment Agreement dated September 9, 1996
between Embrex and Don T. Seaquist
10.29 Change In Control Severance Agreement dated September 9, 1996 between Embrex and Don T.
Seaquist
10.30 Letter Agreement and General Provisions to Employment Agreement dated August 26, 1996 between
Embrex and Rick L. Ryan and Amendment to Employment Agreement dated August 26, 1996 between
Embrex and Rick L. Ryan
10.31 Change In Control Severance Agreement dated August 26, 1996 between Embrex and Rick L. Ryan
10.32(3) Shareholders' Agreement dated August 14, 1991 by and among Embrex, Advent Euroventures
Limited Partnership, and Plant Resource Venture Fund II Limited Partnership
10.33(9) INOVOJECT(R)Egg Injection System Lease, Limited License, Supply and Service Agreement dated
May 4, 1993 between Embrex and Tyson Foods, Inc.
10.34(10) Master Lease Agreement dated December 3, 1993 between Embrex and Capital Associates
International, Inc. with a form of equipment schedule and collateral assignment of lease
attached
10.35(10) Master Lease Agreement dated January 28, 1994 between
Embrex and Aberlyn Capital Management Limited
Partnership with a form of lease schedule and
collateral assignment of lease attached
10.36(10) Agreement to Issue Warrant dated January 28, 1994 between Embrex and Aberlyn Capital
Management Limited Partnership
10.37(10) Common Stock Purchase Warrant issued to Aberlyn Capital Management Limited Partnership
10.38(10) Agreement to Issue Warrant dated January 28, 1994 between Embrex and Aberlyn Holding Company,
Inc.
39
<PAGE>
Exhibits Description
10.39(10) Common Stock Purchase Warrant issued to Aberlyn Holding Company, Inc.
10.40(11) Master Equipment Lease Agreement dated as of December 7, 1994 between Financing for Science
International, Inc. and Embrex with a Consent to Assignment of Equipment Lease Agreement,
Security Agreement and Rental Schedule attached
10.41(11) License Agreement dated as of December 7, 1994 between Financing for Science International,
Inc. and Embrex with Sublicense Agreement attached
10.42(11) Common Stock Purchase Warrant dated January 17, 1995 issued to Financing for Science
International, Inc.
10.43(11) Agreement for Sale of Equipment and Rights Under User Agreement dated as of December 7, 1994
between Financing for Science International, Inc. and Embrex
10.44(4) Letter of Agreement for $6.0 million Convertible Regulation S Private Placement by and
between the Company and Swartz Investments, Inc., as placement agent
10.45(2) Limited License and Supply Agreement dated as of July 20, 1995 between Embrex and Webster
10.46 Amendments dated August 1, 1996 and November 11, 1996 to Limited License and Supply Agreement
dated as of July 20, 1995 between Embrex and Webster
10.47(2) Agreement dated as of January 22, 1996 between Embrex and Select
10.48(2) Letter Agreement dated as of January 22, 1996 between Select and Embrex
10.49(2) License dated as of January 22, 1996 granted by Select to Embrex
10.50(2) Commitment letter accepted June 14, 1995 between Embrex and Financing for Science
International, Inc. for $2.0 million capital lease financing facility
10.51(2) Stock Purchase Warrant dated June 9, 1995 issued to Financing for Science International, Inc.
10.52(2) Financing Agreement (Number 10783) dated as of October 30, 1995 between Lease Management
Services, Inc. and Embrex, and Addendum thereto dated October 30, 1995 attached
10.53(2) License Agreement dated October 30, 1995 between Embrex and Lease Management Services, Inc.
10.54(2) Sublicense Agreement dated as of October 30, 1995 between Embrex and Lease Management
Services, Inc.
10.55(2) Movable Hypothec on Equipment and Contracts dated as of October 30, 1995 between Embrex and
Lease Management Services, Inc.
10.56(2) Warrant to Purchase 30,000 Shares of Common Stock dated October 30, 1995 issued to Lease
Management Services, Inc.
40
<PAGE>
Exhibits Description
10.57(2) Intercreditor Agreement dated as of October 31, 1995 among Financing for Science
International, Inc., Lease Management Services, Inc., and Embrex.
10.58 Embrex Europe Limited Loan Agreement dated April 3, 1996
21 Subsidiaries
23 Consent of Ernst & Young LLP to the inclusion of
their report with respect to the financial statements
of the Company in this Form 10-K and the
incorporation by reference of such report into the
Registration Statement on Form S-3 (No. 333-18231),
as filed with the Securities and Exchange Commission
on December 19, 1996, and into the Registration
Statements under the Securities Act of 1933 on Form
S-8 (Registration No. 33-51582 and No. 33-63318), as
filed with the Securities and Exchange Commission
on September 1, 1992 and May 25, 1993, respectively,
and to the incorporation by reference in the
Registration Statement on Form S-8 (Registration
No. 33-63318) pertaining to the Employee Stock
Purchase Plan of their report with respect to the
financial statements of the Embrex, Inc. Employee
Stock Purchase Plan included in this Form 10-K.
24 Powers of Attorney
27 Financial Data Schedule
99 Risk Factors relating to the Company
</TABLE>
----------------------------
(1) Exhibit to the Company's Form 10-K as filed with the
Securities and Exchange Commission for fiscal year ending
December 31, 1991 and incorporated herein by reference
(2) Exhibit to the Company's Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ending
December 31, 1995 and incorporated herein by reference
(3) Exhibit to the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
(Registration No. 33-42482) effective November 7, 1991 and
incorporated herein by reference
(4) Exhibit to the Company's Form 10-Q as filed with the
Securities and Exchange Commission for the three months ended
June 30, 1995 and incorporated herein by reference
(5) Exhibit to the Company's Form 10-Q as filed with the
Securities and Exchange Commission for the three months ended
March 31, 1995 and incorporated herein by reference
(6) Exhibit to the Company's Registration Statement on Form 8-A as
filed with the Securities and Exchange Commission on March 22,
1996 and incorporated herein by reference
(7) Exhibit to the Company's Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ending
December 31, 1992 and incorporated herein by reference
(8) Exhibit to the Company's Form 10-Q as filed with the
Securities and Exchange Commission for the three months ended
June 30, 1996 and incorporated herein by reference
41
<PAGE>
(9) Exhibit to the Company's Form 10-QSB, as amended, as filed
with the Securities Exchange Commission for the three months
ended March 31, 1993 and incorporated herein by reference
(10) Exhibit to the Company's Form 10-KSB, as amended, as filed
with the Securities and Exchange Commission for the fiscal
year ending December 31, 1993 and incorporated herein by
reference
(11) Exhibit to the Company's Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ending
December 31, 1994 and incorporated herein by reference
(b). No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 1996.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
EMBREX, INC.
By: /s/ Randall L. Marcuson
Date: March 27, 1997 Randall L. Marcuson
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
President, Chief Executive Officer, March 27, 1997
/s/ Randall L. Marcuson
Randall L. Marcuson and Director
/s/ Don T. Seaquist
Don T. Seaquist Vice President, Finance March 27, 1997
and Administration (Principal
Financial and Accounting Officer)
* Director March 27, 1997
- ------------------------------------
Charles E. Austin
* Chairman of the March 27, 1997
- ------------------------------------ Board of Directors
Lester M. Crawford, D.V.M. Ph.D.
* Director March 27, 1997
- ------------------------------------
Kenneth N. May, Ph.D.
* Director March 27, 1997
- ------------------------------------
Stephen Hartogensis
* Director March 27, 1997
- ------------------------------------
Arthur M. Pappas
</TABLE>
/s/ Randall L. Marcuson
* By: Randall L. Marcuson, as Attorney-in-Fact
43
<PAGE>
Report of Independent Auditors
The Board of Directors
Embrex, Inc.
We have audited the accompanying statements of net assets available for plan
benefits of Embrex, Inc. Employee Stock Purchase Plan as of December 31, 1996
and 1995, and the related statement of changes in net assets available for plan
benefits for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of Embrex,
Inc. Employee Stock Purchase Plan at December 31, 1996 and 1995, and the changes
in net assets available for plan benefits for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
(signature of Ernst & Young LLP)
Raleigh, North Carolina
March 19, 1997
44
<PAGE>
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
EMBREX, INC. EMPLOYEE STOCK PURCHASE PLAN
At December 31,
1996 1995
Receivable from Company $ 26,077 $ 37,100
-------- --------
Net assets available for Plan benefits $ 26,077 $ 37,100
======== ========
See accompanying notes.
45
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
EMBREX, INC. EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Employee contributions $ 79,487 $ 90,880 $ 71,350
Deductions:
Purchases of Common Stock 59,116 79,739 36,271
Withdrawals 31,394 15,862 10,904
------- ------ -------
90,510 95,601 47,175
------ ------ ------
New (decrease) increase (11,023) (4,721) 24,175
Net assets available for Plan benefits at
beginning of period 37,100 41,821 17,646
------ ------ ------
Net assets available for Plan benefits at $26,077 $37,100 $41,821
end of period ======= ====== =======
Shares of Common Stock purchased 11,028 17,041 7,556
during year ======= ====== =======
</TABLE>
46
<PAGE>
EMBREX, INC. EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements of the Embrex, Inc. Employee Stock
Purchase Plan ("the Plan") have been prepared on the accrual basis.
NOTE 2 - PLAN DESCRIPTION AND SUMMARY OF SIGNIFICANT PLAN PROVISIONS
The Board of Directors of Embrex, Inc. ("the Company") adopted the Plan on
January 28, 1993, and the Plan was approved by shareholders of the Company at
the Annual Meeting of Shareholders on May 20, 1993. The Plan became effective as
of June 1, 1993.
The purpose of this Plan is to provide the Company's employees with an
additional opportunity to share in the ownership of the Company. Under terms of
the Plan, all regular full-time employees of the Company may make voluntary
payroll contributions thereby enabling them to purchase Common Stock at a price
to be determined by the Compensation Committee of the Board, but not less than
85 percent of the lower of the fair market values as of the beginning or end of
the twelve month offering period.
Contributions are limited to 20 percent of an employee's compensation, and the
aggregate number of shares of Common Stock which may be purchased in total by
all Plan participants may not exceed 100,000 shares.
Contributions to the Plan are maintained in a non-interest bearing account until
such time as the participant exercises the option to purchase shares of Common
Stock from his or her available contributions, or withdraws from the account.
All amounts representing net Plan assets are considered general assets of the
Company and may be subject to the claims of creditors.
In addition to contributions, plan activity consists of voluntary purchases of
shares of Common Stock and withdrawals from participation in the Plan.
Participants may purchase whole shares of Common Stock during a Purchase Period
(generally a twelve month period ending each June 30th). A participant may
withdraw from the Plan and cease making contributions at any time.
The Plan is not subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") and is not qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended which relates to qualification of
certain pension, profit-sharing and stock bonus plans.
All costs to administer the Plan are paid by the Company.
<PAGE>
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
3.1(1) Restated Articles of Incorporation
3.2(2) Articles of Amendment to Articles of Incorporation effective March 21, 1996
3.3(3) Bylaws of the Company
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2 Specimen of Common Stock Certificate
4.3(4) Notices to holders of outstanding warrants regarding adjustments in warrant terms resulting
from Regulation S private placement
4.4(5) Form of Registration Rights Agreement
4.5(4) Form of Regulation S Securities Subscription Agreement
4.6(4) Form of Embrex 8% Convertible Debenture due May 1, 1997
4.7(4) Warrant to Purchase Common Stock of Embrex issued to Schwartz Investments, Inc.
4.8(6) Rights Agreement dated as of March 21, 1996 between Embrex and Branch Banking and Trust
Company, as Rights Agent
10.1(3) Exchange Agreement dated May 28, 1991, between Embrex and American Cyanamid Company, Advent
First Limited Partnership A, Biotechnology Venture Fund S.A., Biotechnology Investments
Limited, Domain Partners, L.P., Elf Technologies, Inc., Prince Venture Partners III, L.P., 3i
Securities Corporation, and Charles E. Austin
10.2(3) Form of Stock Purchase Warrant exercisable for the purchase of 180,003 shares of Common Stock
10.3(3) License Agreement dated December 11, 1991, between
Embrex and the National Technical Information
Service, a primary operating unit of the United
States Department of Commerce
10.4(3) Collaborative Research Agreement dated January 17, 1989 between Embrex and the University of
Arkansas
10.5(3) License Agreement dated October 1, 1988, between
Embrex and the National Technical Information
Service, a primary operating unit of the United
States Department of Commerce
47
<PAGE>
Exhibits Description
10.6(3) Lease Agreement dated December 9, 1986 between Embrex, as tenant, and Imperial Center
Partnership and Petula Associates, Ltd., as landlord, as amended by First Amendment dated
June 11, 1987, Second Amendment dated December 1, 1988, and Third Amendment dated May 2, 1989
10.7 Fourth Amendment of Lease dated October 1, 1994 between the Company and Glaxo Inc. (as
successor in interest to Imperial Center Partnership and Petula Associates, Ltd.)
10.8 Fifth Amendment of Lease dated December 13, 1996 between the Company and Glaxo Wellcome Inc.
(as successor in interest to Glaxo Inc.)
10.9(3) Facility Agreement dated March 1, 1991, between Embrex and Mississippi Agriculture and
Forestry Experiment Station, Mississippi State University
10.10(3) Unrestricted Grant Agreement dated April 1, 1988, between Embrex and North Carolina State
University, as amended by Amendment dated September 15, 1989 and Amendment dated April 22,
1991
10.11(3) Unrestricted Grant Agreement dated November 1, 1986, between Embrex and North Carolina State
University, as amended by Amendment dated May 3, 1989, Amendment dated September 15, 1989,
and Amendment dated April 22, 1991
10.12(3) Basic Research Agreement dated October 24, 1989, between Embrex and University of Arkansas,
as amended on October 23, 1990, February 1, 1991 and July 22, 1991
10.13(3) 1988 Incentive Stock Option Plan and form of Incentive Stock Option Agreement
10.14(3) 1989 Nonstatutory Stock Option Plan and form of Nonstatutory Stock Option Agreement
10.15(3) 1991 Nonstatutory Stock Option Plan and form of Nonstatutory Stock Option Agreement
10.16(7) Incentive Stock Option and Nonstatutory Stock Option Plan and forms of Stock Option
Agreements - June 1993
10.17(8) Amendment dated May 16, 1996 to Incentive Stock Option and Nonstatutory Stock Option Plan -
June 1993
10.18 Amended and Restated Employee Stock Purchase Plan
10.19(3) Employment Agreement dated November 15, 1989, between Embrex and Randall L. Marcuson
10.20 Amendment to Employment Agreement dated May 21, 1996 between Embrex and Randall L. Marcuson
10.21 Change In Control Severance Agreement dated May 21, 1996 between Embrex and Randall L.
Marcuson
10.22(3) Employment Agreement dated October 16, 1989, between Embrex and Catherine A. Ricks
48
<PAGE>
Exhibits Description
10.23 Change In Control Severance Agreement dated May 21, 1996 between Embrex and Catherine A. Ricks
10.24(2) General Provisions to Employment Agreement between Embrex and Brian V. Cosgriff dated August
18, 1995
10.25 Charge In Control Severance Agreement dated May 21, 1996 between Embrex and Brian V. Cosgriff
10.26(2) Terms and Conditions of Employment between Embrex Europe Limited and David M. Baines dated
May 12, 1994
10.27 Change In Control Severance Agreement dated June 9, 1996 between Embrex and David M. Baines
10.28 Letter Agreement and General Provisions to Employment Agreement dated August 20, 1996 between
Embrex and Don T. Seaquist and Amendment to Employment Agreement dated September 9, 1996
between Embrex and Don T. Seaquist
10.29 Change In Control Severance Agreement dated September 9, 1996 between Embrex and Don T.
Seaquist
10.30 Letter Agreement and General Provisions to Employment Agreement dated August 26, 1996 between
Embrex and Rick L. Ryan and Amendment to Employment Agreement dated August 26, 1996 between
Embrex and Rick L. Ryan
10.31 Change In Control Severance Agreement dated August 26, 1996 between Embrex and Rick L. Ryan
10.32(3) Shareholders' Agreement dated August 14, 1991 by and among Embrex, Advent Euroventures
Limited Partnership, and Plant Resource Venture Fund II Limited Partnership
10.33(9) INOVOJECT(R)Egg Injection System Lease, Limited License, Supply and Service Agreement dated
May 4, 1993 between Embrex and Tyson Foods, Inc.
10.34(10) Master Lease Agreement dated December 3, 1993 between Embrex and Capital Associates
International, Inc. with a form of equipment schedule and collateral assignment of lease
attached
10.35(10) Master Lease Agreement dated January 28, 1994 between
Embrex and Aberlyn Capital Management Limited
Partnership with a form of lease schedule and
collateral assignment of lease attached
10.36(10) Agreement to Issue Warrant dated January 28, 1994 between Embrex and Aberlyn Capital
Management Limited Partnership
10.37(10) Common Stock Purchase Warrant issued to Aberlyn Capital Management Limited Partnership
10.38(10) Agreement to Issue Warrant dated January 28, 1994 between Embrex and Aberlyn Holding Company,
Inc.
49
<PAGE>
Exhibits Description
10.39(10) Common Stock Purchase Warrant issued to Aberlyn Holding Company, Inc.
10.40(11) Master Equipment Lease Agreement dated as of December 7, 1994 between Financing for Science
International, Inc. and Embrex with a Consent to Assignment of Equipment Lease Agreement,
Security Agreement and Rental Schedule attached
10.41(11) License Agreement dated as of December 7, 1994 between Financing for Science International,
Inc. and Embrex with Sublicense Agreement attached
10.42(11) Common Stock Purchase Warrant dated January 17, 1995 issued to Financing for Science
International, Inc.
10.43(11) Agreement for Sale of Equipment and Rights Under User Agreement dated as of December 7, 1994
between Financing for Science International, Inc. and Embrex
10.44(4) Letter of Agreement for $6.0 million Convertible Regulation S Private Placement by and
between the Company and Swartz Investments, Inc., as placement agent
10.45(2) Limited License and Supply Agreement dated as of July 20, 1995 between Embrex and Webster
10.46 Amendments dated August 1, 1996 and November 11, 1996 to Limited License and Supply Agreement
dated as of July 20, 1995 between Embrex and Webster
10.47(2) Agreement dated as of January 22, 1996 between Embrex and Select
10.48(2) Letter Agreement dated as of January 22, 1996 between Select and Embrex
10.49(2) License dated as of January 22, 1996 granted by Select to Embrex
10.50(2) Commitment letter accepted June 14, 1995 between Embrex and Financing for Science
International, Inc. for $2.0 million capital lease financing facility
10.51(2) Stock Purchase Warrant dated June 9, 1995 issued to Financing for Science International, Inc.
10.52(2) Financing Agreement (Number 10783) dated as of October 30, 1995 between Lease Management
Services, Inc. and Embrex, and Addendum thereto dated October 30, 1995 attached
10.53(2) License Agreement dated October 30, 1995 between Embrex and Lease Management Services, Inc.
10.54(2) Sublicense Agreement dated as of October 30, 1995 between Embrex and Lease Management
Services, Inc.
10.55(2) Movable Hypothec on Equipment and Contracts dated as of October 30, 1995 between Embrex and
Lease Management Services, Inc.
10.56(2) Warrant to Purchase 30,000 Shares of Common Stock dated October 30, 1995 issued to Lease
Management Services, Inc.
50
<PAGE>
Exhibits Description
10.57(2) Intercreditor Agreement dated as of October 31, 1995 among Financing for Science
International, Inc., Lease Management Services, Inc., and Embrex.
10.58 Embrex Europe Limited Loan Agreement dated April 3, 1996
21 Subsidiaries
23 Consent of Ernst & Young LLP to the inclusion of
their report with respect to the financial statements
of the Company in this Form 10-K and the
incorporation by reference of such report into the
Registration Statement on Form S-3 (No. 333-18231),
as filed with the Securities and Exchange Commission
on December 19, 1996, and into the Registration
Statements under the Securities Act of 1933 on Form
S-8 (Registration No. 33-51582 and No. 33-63318), as
filed with the Securities and Exchange Commission on
September 1, 1992 and May 25, 1993, respectively, and
to the incorporation by reference in the Registration
Statement on Form S-8 (Registration No. 33-63318)
pertaining to the Employee Stock Purchase Plan of
their report with respect to the financial statements
of the Embrex, Inc. Employee Stock Purchase Plan
included in this Form 10-K.
24 Powers of Attorney
27 Financial Data Schedule
99 Risk Factors relating to the Company
</TABLE>
----------------------------
(1) Exhibit to the Company's Form 10-K as filed with the
Securities and Exchange Commission for fiscal year ending
December 31, 1991 and incorporated herein by reference
(2) Exhibit to the Company's Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ending
December 31, 1995 and incorporated herein by reference
(3) Exhibit to the Company's Registration Statement on Form S-1 as
filed with the Securities and Exchange Commission
(Registration No. 33-42482) effective November 7, 1991 and
incorporated herein by reference
(4) Exhibit to the Company's Form 10-Q as filed with the
Securities and Exchange Commission for the three months ended
June 30, 1995 and incorporated herein by reference
(5) Exhibit to the Company's Form 10-Q as filed with the
Securities and Exchange Commission for the three months ended
March 31, 1995 and incorporated herein by reference
(6) Exhibit to the Company's Registration Statement on Form 8-A as
filed with the Securities and Exchange Commission on March 22,
1996 and incorporated herein by reference
(7) Exhibit to the Company's Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ending
December 31, 1992 and incorporated herein by reference
(8) Exhibit to the Company's Form 10-Q as filed with the
Securities and Exchange Commission for the three months ended
June 30, 1996 and incorporated herein by reference
51
<PAGE>
(9) Exhibit to the Company's Form 10-QSB, as amended, as filed
with the Securities Exchange Commission for the three months
ended March 31, 1993 and incorporated herein by reference
(10) Exhibit to the Company's Form 10-KSB, as amended, as filed
with the Securities and Exchange Commission for the fiscal
year ending December 31, 1993 and incorporated herein by
reference
(11) Exhibit to the Company's Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ending
December 31, 1994 and incorporated herein by reference
52
<PAGE>
Common Stock Common Stock
Number Embrex Inc. logo Shares
goes here
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF NORTH CAROLINA CERTAIN DEFINITIONS
CUSIP 290817 10 5
This Certifies that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
$0.01 PAR VALUE PER SHARE, OF
Embrex, Inc., transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent.
In Witness Whereof, the Corporation has caused this certificate to be signed
in facsimile by its authorized officers and its facsimile seal to be hereunto
affixed.
CERTIFICATE OF STOCK
Dated:
/s/ Don T. Seaquist /s/ Randall L. Marcuson
Secretary President
Embrex Inc. Corporate Seal goes here
COUNTERSIGNED:
BRANCH BANKING & TRUST COMPANY
TRANSFER AGENT
BY
AUTHORIZED SIGNATURE
<PAGE>
Embrex, Inc.
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in the Rights Agreement between EMBREX, INC. and BRANCH
BANKING AND TRUST COMPANY, dated as of March 21, 1996 (as it may be amended,
modified or supplemented from time to time, the "Rights Agreement"), the terms
of which are hereby incorporated herein by reference and a copy of which is on
file at the principal offices of EMBREX, INC. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The Rights
will expire on the Close of Business on March 21, 2006 unless redeemed prior
thereto. EMBREX, INC. will mail to the holder of this certificate a copy of
the Rights Agreement, as in effect on the date of mailing, without charge
promptly after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or held by,
any person who is, was or becomes an Acquiring Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement), whether
currently held by or on behalf of such person or by any subsequent holder, may
become null and void.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
The record holder of this Certificate may obtain from the Secretary of the
Corporation, upon request and without charge, a full statement of the
designation, relative rights, preferences and limitations of the shares of each
class authorized to be issued and the designation, relative rights, preferences
and limitations of each series of preferred shares authorized to be issued so
far as the same have been fixed and the authority of the Board of Directors to
designate and fix the relative rights, preferences and limitations of other
series.
_______________________________________________________________________________
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-as tenants in common UNIF GIFT MIN ACT-__________ Custodian ________
TEN ENT-as tenants by the entireties (Cust) (Minor)
JT TEN-as joint tenants with under Uniform Gifts to Minors
right of survivorship and Act _________________________
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For Value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________
______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
________________________________________________________________ Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
Dated, ___________________________
X ______________________________________
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATSOEVER.
SIGNATURE GUARANTEED: _______________________________
<PAGE>
FOURTH AMENDMENT OF LEASE
THIS FOURTH AMENDMENT OF LEASE, made this 1st day of October, 1994,
between Glaxo Inc., a North Carolina Corporation hereinafter called "Landlord"
and Embrex, Inc., a North Carolina Corporation, hereinafter called "Tenant",
which terms "Landlord" and "Tenant" shall include, whenever the context admits
or requires, singular or plural, and the heirs, legal and representatives,
successors and assigns of the respective parties.
WITNESSETH:
WHEREAS, by Lease dated December 9, 1986, First Amendment of Lease
dated June 11, 1987, Second Amendment of Lease dated December 1, 1988, and Third
Amendment of Lease dated May 2, 1989, Landlord did lease and demise unto Tenant
certain premises situated at 1035 Swabia Court in Imperial Center Business Park,
County of Durham, State of North Carolina for an initial term of ten (10) years
and subject to the covenants and conditions particularly set forth in said
Lease, and
WHEREAS, the parties desire to amend said Lease as herein below
described,
NOW THEREFORE, in consideration of the sum of one and no/100 Dollars
($1.00) and other good and valuable considerations paid by Landlord to Tenant,
the receipt and sufficiency whereof are hereby acknowledged, the parties hereto
agree, each with the other as follows:
1. Beginning October 1, 1994, Tenant exercises its option to lease
6,567 square feet for as period of thirty (30) months ending March 31, 1997, as
shown on Exhibit "A" attached hereto.
2. The lease rate for the extension period shall be $12.50
per square foot, net of taxes, insurance, CAM, utilities, janitorial etc.
3. Tenant will pay for its pro rata share of water usage within
the demised premises.
4. Landlord has agreed to sell Tenant laboratory furniture and
equipment (see Exhibit "B") in the leased premises over a five year period.
Tenant will pay Landlord an additional $1.00 per square foot per year for the
thirty (30) months lease term (the sales price for the furniture is $25,000
amortized over five (5) years at 9%). At the end of the lease term Tenant will
pay Landlord $12,753, the unamortized portion of the balance on said lab
furniture and equipment.
That except as herein modified, said Lease and First, Second and Third
Amendments of Lease shall remain in full force and effect and the covenants and
agreements contained herein shall bind and inure to the benefit of the parties
hereto, their heirs, personal representatives, successors and assigns and any
number and gender shall include the other number and gender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment of Lease.
SUBLESSOR:
Glaxo Inc.
Five Moore Drive
RTP, NC 27709
By /s/ Manuel C. Silva
Its: Vice President, Engineering Date: 10/5/94
SUBLESSEE:
EMBREX Inc.
P.O. Box 13989
RTP, NC 27709-3989
By: /s/ Randall L. Marcuson
Its: President and CEO Date: 9/23/94
Attest: /s/ James E. Sheldon Date: 9/23/94
-2-
<PAGE>
STATE OF NORTH CAROLINA (Corporate Notary)
COUNTY OF DURHAM
I, Colleen S. Loree, a Notary Public, certify that James E. Sheldon
personally came before me this day and acknowledged that she is Corporate
Secretary of Embrex, Inc., a Corporation, and that by authority duly given and
as the act of the corporation, the foregoing instrument was signed in its name
by its _________ President, sealed with its corporate seal, and attested by
herself as its Corporate Secretary.
WITNESS my hand and notarial seal this 23rd day of September, 1994.
My Commission Expires: April 7, 1996 /s/ Colleen S. Loree
------------- --------------------
Notary Public
STATE OF NORTH CAROLINA (Corporate Notary)
COUNTY OF DURHAM
I, Paulette L. Tabor-Isler, a Notary Public, certify that Manuel C.
Silva personally came before me this day and acknowledged that she is Vice
President of Engineering of Glaxo Inc., a Corporation, and that by authority
duly given and as the act of the corporation, the foregoing instrument was
signed in its name by its Vice President, sealed with its corporate seal, and
attested by him/herself as its _________ Secretary.
WITNESS my hand and notarial seal this 5th day of October, 1994.
My Commission Expires: 3/30/99 /s/ Paulette L. Tabor-Isler
------- ---------------------------
Notary Public
[Notary Seal appears here]
-3-
<PAGE>
EXHIBIT "A"
[architectural drawing appears here]
<PAGE>
(EXHIBIT "B")
RENOVATE THE EXISTING EMBREX SPACE
Change the responsibility for the power from Glaxo Inc. to Embrex
The D.I. water and all gases to this space will be disconnected from Glaxo
space and the wall repaired
Remove all the security system
CORRIDOR CNII 146
Remove door to corridor 146 and repair wall
Remove door to CNII 153 and repair wall Add door to storage room CNII 153
Remove the bulletin board and the form holder
CORRIDOR CNII 143
Remove (2) "J" workstations and chairs
Remove (2) 48" portable base cabinets - 1/2 drawer & 1/2 storage
Remove (1) 48" portable base cabinet - 1/2 drawer & 1/2 storage - with shelf
Remove (2) 24" portable base cabinet - (1) drawer & storage below
Remove copier
Remove (2) cabinets
Remove (1) Digital printer
ELECTRICAL ROOM CNII 144
Remove the section of cable tray that passes through the demising wall and
repair the wall
Leave about 30' of spare data/phone wire in this room and remove any remainder
from this room
The remainder of this room to remain as is - including the UPS system
LAB CNII 151
Remove (3) "J" workstations and chairs
Remove all tools and personal equipment on and in the casework
Remove (1) Labconco Purifier class II safety cabinet - floor mounted -
50" wide
Remove (2) under counter refrigerators - 24" wide
ITEMS TO REMAIN
(1) SterilGard - Baker Hood - floor mounted - 76" wide
(1) Justrite storage cabinets - 43" wide
(3) 24" base cabinet units
(11) 48" wall cabinets with glass doors
(1) 48" base cabinet - 1/2 drawer & 1/2 storage w/tops
(2) 24" base cabinet drawer units
(2) 48" base cabinet sink units
(1) 36" base cabinet - 1/2 drawer & 1/2 storage w/tops
(2) 24" base cabinet - storage units
(4) 48" base cabinet - (2) top drawers & lower storage - w/tops
(2) 48" base cabinets - all drawers
<PAGE>
LAB CNII 137
Remove (2) "J" work stations
Remove all tools and personal equipment on and in the casework
Remove (1) Fisher Safety Flow Laboratory Fume Hood - floor mounted - 75" wide
ITEMS TO REMAIN
(5) 48" wall cabinets with glass doors
(2) 36" wall cabinets with glass doors
(1) 18" wall cabinets with glass doors
(1) 48" base cabinet - 1/2 drawer & 1/2 storage - w/tops
(1) 24" base cabinet - drawer unit - w/top
(1) 18" base cabinet - drawer unit - w/top
(1) 48" base cabinet sink unit - w/top
(1) 24" base cabinet - storage unit - w/top
(2) 48" base cabinet - (2) top drawers & lower storage - w/tops
(1) 48" base cabinets - storage unit - w/top
(2) 48" base cabinet - drawer unit - w/top
CONFERENCE ROOM CNII 145
Remove all equipment including:
(2) easels
(1) projection screen
(1) market board - Panasonic KX - 3520
(1) 24" portable base cabinet
(4) 42"x96" tables
(3) 24"x72" tables
(39) chairs
Items to remain:
(2) white boards w/doors
(1) wall mounted pin boards
RESTROOMS CNII 148 & 149
No change to these rooms
LAB CNII 150
Remove everything in this room except:
(1) portable Clean-Room
(1) wood cabinet with glass doors
<PAGE>
CORRIDOR CNII 134
Remove coffee service
Remove micro-wave
Remove bottle water dispenser
Remove (1) storage cabinet
Remove (1) file cabinet
Base cabinet to remain
<PAGE>
CORRIDOR CNII 158
Remove (1) file cabinet
Everything to be removed from rooms:
CNII 132
CNII 133
CNII 135
CNII 136
CNII 139
CNII 140
CNII 141
CNII 142
CNII 155
CNII 156
CNII 157
<PAGE>
EXHIBIT "B" cont.
[blueprint/floor plan appears here]
FIFTH AMENDMENT OF LEASE
THIS FIFTH AMENDMENT OF LEASE, made this 13th day of December, 1996,
between Glaxo Wellcome Inc., successor to Glaxo Inc., a North Carolina
Corporation, successor in interest to Imperial Center Partnership and Petula
Associates, Ltd., hereinafter called "Landlord," and Embrex, Inc., a North
Carolina Corporation, hereinafter called "Tenant," which terms "Landlord" and
"Tenant" shall include, whenever the context admits or requires, singular or
plural, and the heirs, legal representatives, successors and assigns of the
respective parties.
WITNESSETH:
WHEREAS, by Lease Agreement dated December 9, 1986, First Amendment of
Lease dated June 11, 1987, Second Amendment of Lease dated December 1, 1988,
Third Amendment of Lease dated May 2, 1989, and Fourth Amendment of Lease
bearing execution dates of September 23, 1994 for Tenant and October 5, 1994 for
Landlord, hereinafter collectively referred to as the "Lease," Tenant has leased
and demised certain premises situated at 1035 Swabia Court in Imperial Center
Business Park, County of Durham, State of North Carolina, for an initial term of
ten (10) years, subject to the covenants and conditions particularly set forth
in said Lease; and
WHEREAS, at the end of the initial term Tenant has the option to
exercise an extension of the Lease for an additional five (5) year period; and
WHEREAS, the parties desire to amend the Lease to extend the term for
an additional five (5) years, subject to the terms and conditions set forth
below.
NOW THEREFORE, in consideration of the sum of One and No/100 Dollars
($1.00), and other good and valuable consideration, the receipt and sufficiency
whereof are hereby acknowledged, the parties hereto agree, each with the other,
as follows:
1. PARAGRAPH 1. PREMISES is hereby amended to read:
1. PREMISES. That the Landlord, in consideration of
the covenants of the Tenant, does hereby lease and demise unto
said Tenant, and the Tenant does hereby agree to take and
lease from the Landlord for the term hereinafter specified,
the following described premises:
Warehouse and manufacturing and office space
containing approximately 23,209 square feet situated
at 1035 Swabia Court, Morrisville, County of Durham,
State of North Carolina, and more particularly
designated in Exhibit "A" attached hereto and
incorporated herein.
1
<PAGE>
2. EXHIBIT "A" of the Lease is hereby amended by substituting Exhibit "A"
attached hereto and incorporated herein by reference.
3. The first sentence of PARAGRAPH 2. TERM is hereby amended to read:
2. TERM. For the Tenant to have and hold the leased premises
for an initial term of ten (10) years commencing the 1st day
of April, 1987, and ending the 31st day of March, 1997, and
for an additional term of five (5) years commencing on the 1st
day of April, 1997, and ending on the 31st day of March, 2002.
4. Attachment 2-A is hereby amended to add the following rental
information for the additional five (5) year period, which is
referenced as years 11 through 15:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
----------------------- ---------------- ---------------------- ----------------------
Additional
Lease
Period P.S.F. Monthly Annually
- ----------------------- ---------------- ---------------------- ----------------------
- ----------------------- ---------------- ---------------------- ----------------------
Year 11 $8.47 $16,381.69 $196,580.23
- ----------------------- ---------------- ---------------------- ----------------------
- ----------------------- ---------------- ---------------------- ----------------------
Year 12 $8.72 $16,865.21 $202,382.48
- ----------------------- ---------------- ---------------------- ----------------------
- ---------------------- ---------------- ---------------------- ----------------------
Year 13 $8.99 $17,387.41 $208,648.91
- ----------------------- ---------------- ---------------------- ----------------------
- ----------------------- ---------------- ---------------------- ----------------------
Year 14 $9.26 $17,909.61 $214,915.34
- ----------------------- ---------------- ---------------------- ----------------------
- ----------------------- ---------------- ---------------------- ----------------------
Year 15 $9.53 $18,431.81 $221,181.77
- ----------------------- ---------------- ---------------------- ----------------------
</TABLE>
5. PARAGRAPH 15. INSURANCE is amended by deleting the fourth sentence,
which reads:
Tenant's pro rata share of said insurance cost shall be
computed using the ratio of the Leased Premises (13,470 S.F.)
to the total square footage of the building (49,200 S.F.).
and inserting the following sentence in lieu thereof:
Tenant's pro rata share of said insurance cost shall be
29.435%, which is the ratio calculated by dividing the square
footage of the Leased Premises of 23,209 by the total square
footage of the building of 78,848.
<PAGE>
6. PARAGRAPH 18. TAXES is amended by deleting the fifth sentence, which
reads:
Tenant's pro rata share of said ad valorem taxes shall be
computed using the ratio of the Leased Premises (13,470 S.F.)
to the total footage of the building (49,200 S.F.).
and by inserting the following in lieu thereof:
Tenant's pro rata share of said ad valorem taxes shall be
29.435%, which is the ratio calculated by dividing the square
footage of the Leased Premises of 23,209 by the total square
footage of the building of 78,848.
7. PARAGRAPH 30. NOTICES is deleted in its entirety, and the following
provision is inserted in lieu thereof:
30. NOTICES. All notices, required or allowed hereunder, shall
be sent to the parties as provided herein, in writing, and
shall be delivered (i) personally, (ii) by registered or
certified mail, postage prepaid, return receipt requested,
(iii) by nationally recognized overnight courier service, or
(iv) by facsimile where such notice is electronically
confirmed as received and is followed by delivery of a copy of
such notice in a manner described in (i), (ii), or (iii), to
the following addresses of the respective parties:
If to Landlord: Glaxo Wellcome Inc.
Five Moore Drive
Research Triangle Park, North Carolina 27709
ATTN: Director of Real Estate
with a copy to: General Counsel
If to Tenant: Embrex, Inc.
1035 Swabia Court
Durham, North Carolina 27703
All notices shall be deemed communicated upon first delivery
to the address stated above as described in (i) - (iv) above.
A party may change its address listed above by notice to the
other party.
<PAGE>
8. PARAGRAPH 4 of the Fourth Amendment to Lease is amended by deleting
from the first sentence the phrase, "over a five year period," and by
deleting the last sentence, which reads:
At the end of the lease term Tenant will pay Landlord $12,753,
the unamortized portion of the balance on said lab furniture
and equipment.
and inserting the following sentences at the end of PARAGRAPH 4:
In addition to all other rent due hereunder, Tenant shall pay
Landlord each month of years 11 through 15 of the Term, at the
same time it makes its rent payments, an additional sum of
$264.73 and in this manner at the end of year 15 will have
fully paid Landlord for the laboratory furniture and equipment
being purchased. All of Landlord's remedies for nonpayment of
rent shall also apply to the nonpayment of any monthly
installment of the laboratory furniture and equipment purchase
which is due but not made.
9. It is understood and agreed that the First Right of Refusal set forth
in Lease Addendum No. 4 and the Buyout Provision set forth in Lease
Addendum No. 3 are null and void and of no further force or effect.
That except as herein modified, said Lease, as amended, shall remain in
full force and effect and the covenants and agreements contained herein shall
bind and inure to the benefit of the parties hereto, their heirs, personal
representatives, successors and assigns, and any number and gender shall include
the other number and gender.
IN WITNESS WHEREOF, the parties hereto have executed this Fifth
Amendment of Lease.
LANDLORD:
GLAXO WELLCOME INC.
By: /s/ Manuel C. Silva
-------------------
Its Vice President - Corporate Engineering
--------------------------------------
Attest:_______________________________ [Corporate Seal]
______________ Secretary
<PAGE>
TENANT:
EMBREX, INC.
By: /s/ Randall L. Marcuson
Its President and CEO
Attest: Don T. Seaquist [Corporate Seal]
Corporate Secretary
5
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STATE OF ______________________ (Corporate Notary)
COUNTY OF ____________________
I, ______________________, a Notary Public, certify that
_________________________ personally came before this day and acknowledged that
s/he is _________________ Secretary of ____________________________, a
Corporation, and that by authority duly given and as the act of the corporation,
the foregoing instrument was signed in its name by its ______________ President,
sealed with its corporate seal, and attested by him/herself as its
_________________ Secretary.
WITNESS my hand and notarial seal this _____ day of _______________, 19___.
My Commission Expires:____________
______________________________
Notary Public
STATE OF NORTH CAROLINA (Corporate Notary)
COUNTY OF DURHAM
I, Colleen S. Loree, a Notary Public, certify that Don T. Seaquist
personally came before this day and acknowledged that he is Corporate Secretary
of Embrex, Inc., a Corporation, and that by authority duly given and as the act
of the corporation, the foregoing instrument was signed in its name by its
______________ President, sealed with its corporate seal, and attested by
him/herself as its Corporate Secretary.
WITNESS my hand and notarial seal this 13th day of December, 1996.
My Commission Expires: April 15, 2001 /s/ Colleen S. Loree
-------------- --------------------
Notary Public
6
<PAGE>
- --------------------------------------------------------------------------------
[Blueprint/architectural drawing appears here]
- --------------------------------------------------------------------------------
EMBREX, INC.
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I. INTRODUCTION
Section 1.01 Background. On January 28, 1993, the Board of Directors of
Embrex, Inc. (the "Company") adopted the Employee Stock Purchase Plan and the
shareholders of the Company approved such plan at the Annual Meeting of
Shareholders on May 20, 1993. On November 21, 1996, the Board of Directors
amended such plan by adopting this Amended and Restated Employee Stock Purchase
Plan (hereinafter referred to as the "Plan").
Section 1.02 Purpose. The purpose of the Plan is to provide the
employees of the Company and certain related corporations with an opportunity to
share in the ownership of the Company by providing them a convenient means for
regular and systematic purchases of the Company's Common Stock and, thus, to
develop a stronger incentive to work for the continued success of the Company.
Section 1.03 Effective Date. The Plan will become effective on and as
of June 1, 1993.
Section 1.04 Rules of Interpretation. It is intended that the Plan be
an "employee stock purchase plan" as defined in Section 423(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations
promulgated thereunder. Accordingly, the Plan will be interpreted and
administered in a manner consistent therewith. All Participants in the Plan will
have the same rights and privileges consistent with the provisions of the Plan.
Section 1.05 Definitions. For purposes of the Plan, the following
terms will have the meanings set forth below:
(a) "Acceleration Date" means either an Acquisition Date or a
Transaction Date.
(b) "Acquisition Date" means (i) the date of public announcement of the
acquisition of "beneficial ownership" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule
thereto) of more than fifty percent (50%) of the outstanding voting stock of the
Company by any "person" (as defined in Section 13(d) of the Exchange Act) other
than the Company, by means of a tender offer, exchange offer or otherwise; and
(ii) the date five (5) business days after the date of public announcement of
the acquisition of beneficial ownership (as so defined) of more than twenty-five
percent (25%) but not more than fifty percent (50%) of the outstanding voting
stock of the Company by any person (as so defined) other than the Company, by
means of a tender offer, exchange offer or otherwise if, during such five (5)
business day period, the Board or the Committee (as defined in Section 1.05(d)
below) has not, by resolution duly adopted, elected that such acquisition not
give rise to an Acquisition Date. In any such resolution, the Board or Committee
may elect that any continued acquisition or acquisitions by the same person (as
so defined) which would otherwise trigger an Acquisition Date under clause (ii)
above shall also not give rise to an Acquisition Date.
(c) "Affiliate" means any parent or subsidiary corporation of
the Company, as defined in Sections 424(e) and 424(f) of the Code.
<PAGE>
(d) "Committee" means the committee appointed under Section 10.01.
(e) "Company" means Embrex, Inc., a North Carolina corporation, and its
successors by merger or consolidation as contemplated by Article XI herein.
(f) "Current Compensation" means the gross cash compensation (including
wage, salary and overtime earnings) paid by the Company or a Participating
Affiliate to a Participant in accordance with the terms of employment, but
excluding all bonus payments, expense allowances and compensation payable in a
form other than cash.
(g) "Employer" means the Company or a Participating Affiliate, as
the case may be.
(h) "Enrollment Date" means the date on which an eligible
employee becomes a Participant in the Plan.
(i) "Fair Market Value" as of a given date means such value of the
Stock reasonably determined by the Committee but which is not less than (i) the
average of the closing representative bid and asked prices of the Stock as
reported on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") on such date, if the Stock is then quoted on NASDAQ; (ii) the
last sale price of the Stock as reported on the NASDAQ National Market System on
such date, if the Stock is then quoted on the NASDAQ National Market System; or
(iii) the closing price of the Stock on such date on a national securities
exchange.
(j) "Participant" means a Regular Full-Time Employee who is eligible to
participate in the Plan under Section 2.01 and who has elected to participate in
the Plan under Section 2.02.
(k) "Participating Affiliate" means an Affiliate which has been
designated by the Committee in advance of the Purchase Period in question as a
corporation whose eligible Regular Full-Time Employees may participate in the
Plan.
(l) "Plan" means the Embrex, Inc. Amended and Restated Employee Stock
Purchase Plan, the provisions of which are set forth herein.
(m) "Purchase Period" means in the year of a Participant's Enrollment
Date the period beginning on the Enrollment Date and ending on June 30, 1994,
or, if a Participant enrolls after June 30, 1994, ending on the next succeeding
June 30, and thereafter means the one year period beginning on July 1 of each
year and ending on the earlier of June 30 of the next year or any Acceleration
Date; provided, however, that in the event of an Acceleration Date, the Purchase
Period shall end on the Acceleration Date, and any Purchase Period immediately
following a Purchase Period ending on an Acceleration Date shall mean the period
beginning on the first day following such Acceleration Date and ending on the
earlier of the next June 30 or the next Acceleration Date.
(n) "Regular Full-Time Employee" means an employee of the Company or a
Participating Affiliate, including an officer or director who is also an
employee, except that the term does not include an employee whose customary
employment is less than twenty (20) hours per week, an employee whose customary
employment is for not more than five (5) months in any calendar year, or an
2
<PAGE>
employee who has not been employed by the Company or its Participating
Affiliates for more than three (3) months.
(o) "Stock" means the Company's Common Stock, as such stock may be
adjusted for changes in the stock or the Company as contemplated by Article XI
herein.
(p) "Stock Purchase Account" means the account maintained in the books
and records of the Company recording the amount received from each Participant
through payroll deductions made under the Plan.
(q) "Transaction Date" means the date of shareholder approval of (i)
any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Company stock
would be converted into cash, securities or other property, other than a merger
of the Company in which shareholders immediately prior to the merger have the
same proportionate ownership of stock of the surviving corporation immediately
after the merger; (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all, of
the assets of the Company; or (iii) any plan of liquidation or dissolution of
the Company.
ARTICLE II. ELIGIBILITY AND PARTICIPATION
Section 2.01 Eligible Employees. All Regular Full-Time Employees as
defined in Section 1.05(n) shall be eligible to participate in the Plan
beginning on the first day after such person becomes a Regular Full-Time
Employee. Subject to the provisions of Article VI, each such employee will
continue to be eligible to participate in the Plan so long as he or she remains
a Regular Full-Time Employee.
Section 2.02 Election to Participate. An eligible Regular Full-Time
Employee may elect to participate in the Plan by filing with his or her Employer
a form provided by such Employer authorizing regular payroll deductions from
Current Compensation. Participation and payroll deductions shall begin on the
employee's Enrollment Date and shall continue until the employee withdraws from
the Plan or ceases to be eligible to participate in the Plan.
Section 2.03 Commencement of Participation. The initial Enrollment Date
shall be June 1, 1993, for all eligible Regular Full-Time Employees who file an
election to participate on or before June 1, 1993. Thereafter, the Enrollment
Date for employees who file an election within thirty (30) days of the date upon
which they become eligible to participate shall be the first day of the next pay
period following their election, and the Enrollment Date for all others shall be
the first day of the next Purchase Period following their election.
Section 2.04 Limits on Stock Purchase. No employee shall be granted any
right to purchase hereunder if such employee, immediately after a right to
purchase is granted, would own, directly or indirectly, stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of the capital stock of the Company or of all Affiliates. For purposes of this
Plan, the rules of Section 424(d) of the Code shall apply in determining the
stock ownership of an individual, and
3
<PAGE>
stock which the Participant may purchase under outstanding options shall be
treated as stock owned by the Participant.
Section 2.05 Voluntary Participation. Participation in the Plan on the
part of the Participant is voluntary and such participation is not a condition
of employment, nor does participation in the Plan entitle a Participant to be
retained as an employee.
ARTICLE III. PAYROLL DEDUCTIONS AND
STOCK PURCHASE ACCOUNT
Section 3.01 Deduction from Pay. The form described in Section 2.02
will permit a Participant to elect payroll deductions of any whole percentage
from one percent (1%) through twenty percent (20%) of Current Compensation for
each pay period. The Participant may reduce or increase future payroll
deductions (within the foregoing limitations) by filing with such Participant's
Employer a form provided by such Employer for such purpose. The effective date
of any reduction in future payroll deductions will be the first day of the next
succeeding pay period. The effective date of any increase in future payroll
deductions will be the first day of the next succeeding Purchase Period. Also,
the Participant may cease making payroll deductions at any time, as provided in
Section 6.01.
Section 3.02 Credit to Account. Payroll deductions will be credited to
the Participant's Stock Purchase Account on each payday.
Section 3.03 Interest. No interest will be paid upon payroll deductions
or on any amount credited to, or on deposit in, a Participant's Stock Purchase
Account.
Section 3.04 Nature of Account. The Stock Purchase Account is
established solely for accounting purposes, and all amounts credited to the
Stock Purchase Account will remain part of the general assets of the Company or
the Participating Affiliate (as the case may be).
Section 3.05 No Additional Contributions. A Participant may not make
any payment into the Stock Purchase Account other than the payroll deductions
made pursuant to the Plan.
ARTICLE IV. RIGHT TO PURCHASE SHARES
Section 4.01 Number of Shares. Subject to the provisions of Section
5.01 herein, each Participant will have the right to purchase at any time, at
the price specified in Section 4.02, any number of whole shares of Stock that
can be purchased with the entire credit balance in the Participant's Stock
Purchase Account; provided, however, that on no occasion may any one Participant
purchase (a) more than Five Thousand (5,000) shares of Stock under the Plan
during any Purchase Period or (b) more than Twenty-five Thousand Dollars
($25,000) in Fair Market Value (determined at the beginning of each Purchase
Period) of Stock under the Plan and all other employee stock purchase plans (if
any) of the Company and the Affiliates during any calendar year. If the
purchases for all Participants would otherwise cause the aggregate number of
shares of Stock to be sold under the Plan to exceed the number specified in
Section 10.03, however, each Participant shall be allocated a pro rata portion
of the Stock to be sold.
4
<PAGE>
Section 4.02 Purchase Price. The percentage of Fair Market Value to be
used in determining the purchase price during each Purchase Period shall be
established by the Committee at least thirty (30) days prior to the commencement
of each such Purchase Period. In no event shall the purchase price be less than
the lesser of (a) eighty-five percent (85%) of the Fair Market Value of the
Stock on the first business day of the Purchase Period or (b) eighty-five
percent (85%) of the Fair Market Value of the Stock on the date of exercise of
the right to purchase by the Participant, in each case rounded up to the next
higher full cent.
ARTICLE V. EXERCISE OF RIGHT
Section 5.01 Purchase of Stock. A Participant may purchase shares of
Stock at any time by filing written notice with his or her Employer, on a form
provided for this purpose by the Employer, designating the portion of the credit
balance in such Participant's Stock Purchase Account to be used for such
purchase; provided, however, that the number of shares purchasable upon any
exercise of this right shall be no less than ten (10) whole shares and shall be
no greater than the largest number of whole shares of Stock purchasable with
such credit balance (subject to the additional limitations of Section 4.01);
and, provided, further, that each Participant may exercise this right of
purchase on no more than four (4) occasions during any Purchase Period.
Section 5.02 Stock Transfer Restrictions. This Plan is intended to
satisfy the requirements of Section 423 of the Code. A participant will not
obtain the benefits of this provision if such Participant disposes of Stock
acquired pursuant to the Plan within two (2) years from the first day of the
Purchase Period or within one (1) year from the date the Stock is purchased by
the Participant.
Section 5.03 Cash Distributions. Any amount remaining in a
Participant's Stock Purchase Account after the last business day of a Purchase
Period will be paid to the Participant in cash within thirty (30) days after the
end of the Purchase Period.
Section 5.04 Notice of Acceleration Date. The Company shall use its
best efforts to notify each Participant in writing at least ten (10) days prior
to any Acceleration Date that the then current Purchase Period will end on such
Acceleration Date.
ARTICLE VI. WITHDRAWAL FROM PLAN
Section 6.01 Voluntary Withdrawal. A Participant may, at any time,
withdraw from the Plan and cease making payroll deductions by filing with such
Participant's Employer a form provided for this purpose. In such event, the
entire credit balance in the Participant's Stock Purchase Account will be paid
to the Participant in cash within thirty (30) days. A Participant who withdraws
from the Plan will not be eligible to reenter the Plan until the beginning of
the next Purchase Period.
Section 6.02 Death. Participation in the Plan will cease on the date of
the Participant's death, and the entire credit balance in the Stock Purchase
Account will be paid to the Participant's estate in cash within thirty (30)
days. Each Participant, however, may designate one or more beneficiaries who,
upon death, are to receive the amount that otherwise would have been paid to the
Participant's estate
5
<PAGE>
and may change or revoke any such designation from time to time. No such
designation, change or revocation will be effective unless made by the
Participant in writing and filed with the Participant's Employer during the
Participant's lifetime. Unless the Participant has otherwise specified in the
beneficiary designation, the beneficiary or beneficiaries so designated will
become fixed as of death so that, if a beneficiary survives the Participant but
dies before the receipt of the payment due such beneficiary, the payment will be
made to such beneficiary's estate.
Section 6.03 Termination of Employment. Participation in the Plan also
will cease on the date the Participant ceases to be a Regular Full-Time Employee
for any reason other than death. In such event, the entire credit balance in the
Participant's Stock Purchase Account will be paid to the Participant in cash
within thirty (30) days. For purposes of this Section, an unpaid leave of
absence without the prior written approval of the Committee will be deemed a
termination of employment but a paid leave of absence or an unpaid leave of
absence which has been approved by the Committee or is required by law or
regulation will not be deemed a termination of employment as a Regular Full-Time
Employee.
ARTICLE VII. NONTRANSFERABILITY
Section 7.01 Nontransferable Right to Purchase. The right to purchase
Stock hereunder may not be assigned, transferred, pledged or hypothecated
(whether by operation of law or otherwise) other than by will or the laws of
descent and distribution, and must be exercisable during the Participant's
lifetime only by the Participant. The right to purchase Stock hereunder will not
be subject to execution, attachment or similar process. Except as provided
herein, any attempted assignment, transfer, pledge, hypothecation or other
disposition or levy of attachment or similar process upon the right to purchase
will be null and void and without effect.
Section 7.02 Nontransferable Account. The amounts credited to a Stock
Purchase Account may not be assigned, transferred, pledged or hypothecated in
any way, and any attempted assignment, transfer, pledge, hypothecation or other
disposition of such amounts will be null and void and without effect.
ARTICLE VIII. STOCK CERTIFICATES
Section 8.01 Delivery. Within thirty (30) days after a Participant
exercises his or her right to purchase pursuant to Section 5.01, the Company
will cause to be delivered to the Participant a certificate representing the
Stock purchased.
Section 8.02 Securities Laws. The Company shall not be required to
issue or deliver any certificate representing Stock prior to registration under
the Securities Act of 1933, as amended, or registration or qualification under
any state law if such registration is required. The Company will use its best
efforts to accomplish such registration (if and to the extent required) within a
reasonable time following exercise of the right to purchase, and delivery of
certificates may be deferred until registration is accomplished.
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Section 8.03 Completion of Purchase. A Participant will have no
interest in the Stock purchased until a certificate representing the same is
issued.
Section 8.04 Form of Ownership. The certificates representing Stock
issued under the Plan will be registered in the name of the Participant or
jointly in the name of the Participant and another person, as the Participant
may direct on a form provided by the Participant's Employer.
ARTICLE IX. AMENDMENT OF AND
TERMINATION OF PLAN
Section 9.01 Powers of Board. The Board of Directors of the Company may
at any time amend or terminate the Plan, except that no amendment will be made
without prior approval of the shareholders which would (a) authorize an increase
in the number of shares of Stock which may be purchased under the Plan, except
as provided in Section 11.01, (b) permit the issuance of Stock before payment
therefor in full, (c) increase the rate of payroll deductions above twenty
percent (20%) of Current Compensation, or (d) reduce the price per share at
which the Stock may be purchased.
Section 9.02 Automatic Termination. The Plan will terminate
automatically on June 30, 1998, unless extended by the Board of Directors. The
Board of Directors may by resolution extend the Plan for one or more additional
periods of five (5) years each.
ARTICLE X. ADMINISTRATION
Section 10.01 Appointment of Committee. The Board of Directors of the
Company shall appoint a Committee to administer the Plan consisting of three or
more persons (who may, but need not be, directors of the Company or of a
Participating Affiliate). The Board will determine the size of the Committee
from time to time and will have the power to remove and replace the members
thereof.
Section 10.02 Powers of Committee. Subject to the provisions of the
Plan, the Committee will have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan, to establish
deadlines by which the various administrative forms must be received in order to
be effective, and to adopt such other rules and regulations for administering
the Plan as it may deem appropriate. Decisions of the Committee will be final
and binding on all parties who have an interest in the Plan.
Section 10.03 Stock to be Sold. The Stock to be issued and sold under
the Plan shall be authorized but unissued Stock. Except as provided in Section
11.01, the aggregate number of shares of Stock to be sold under the Plan will
not exceed One Hundred Thousand (100,000) shares.
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Section 10.04 Notices. Notices to the Committee should be addressed
as follows:
Embrex, Inc.
P. O. Box 13989
Research Triangle Park, NC 27709-3989
Attention: Employee Stock Purchase Plan Committee
ARTICLE XI. ADJUSTMENT FOR CHANGES
IN STOCK OR COMPANY
Section 11.01 Stock Dividend or Reclassification. If the outstanding
shares of Stock are increased, decreased, changed into or exchanged for a
different number or kind of securities of the Company, or share of a different
par value or without par value, through reorganization, recapitalization,
reclassification, stock dividend, stock split, amendment to the Company's
Articles of Incorporation, reverse stock split or otherwise, an appropriate
adjustment shall be made in the maximum numbers and/or kind of securities to be
sold under this Plan with a corresponding adjustment in the purchase price to be
paid therefor.
Section 11.02 Merger or Consolidation. If the Company is merged into or
consolidated with one or more corporations during the term of the Plan,
appropriate adjustments will be made to give effect thereto on an equitable
basis in terms of issuance of shares of the corporation surviving the merger or
of the consolidated corporation, as the case may be.
ARTICLE XII. APPLICABLE LAW
Rights to purchase Stock granted under this Plan shall be construed and
shall take effect in accordance with the laws of the State of North Carolina.
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AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is made and entered into by
EMBREX, INC., a North Carolina corporation, ("Employer") and Randall L. Marcuson
("Employee"). Employer and Employee may be collectively referred to as "the
parties".
WHEREAS, the parties entered into an Employment Agreement dated January
1, 1990 (the "Agreement");
WHEREAS, Employee continues to be employed by Employer; and WHEREAS,
the parties both desire to amend the prior Employment
Agreement as set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree to amend their
prior Agreement as follows:
The Agreement is hereby amended by deleting Paragraph 12, Termination
and Liquidated Damages and inserting in lieu thereof the following:
12. SEVERANCE. If Employer terminates Employee's employment
under this Agreement without cause, then Employee shall be
entitled to receive from Employer an amount equal to 18 months
of Employee's then current salary, payable in 18 equal monthly
installments, without interest, commencing one month after
termination.
IN WITNESS WHEREOF, the parties have executed this Amendment
to Employment Agreement this the 21st day of May, 1996.
Randall L. Marcuson
Employee
EMBREX, INC.
By:C.E. Austin
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CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement"), is made and
entered into this 21st day of May, 1996 by and between Embrex, Inc. ("Company"),
a North Carolina corporation, and Randall L. Marcuson ("Employee").
WHEREAS, the Board of Directors ("Board") of the Company considers the
maintenance of a vital management group to be essential in protecting and
enhancing the best interests of the Company and its shareholders;
WHEREAS, the Board recognizes that the possibility of a Change in
Control (as hereinafter defined) exists and that the threat of or the occurrence
of a Change in Control can result in significant distractions of its key
management personnel because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is in the best interest of
the Company and its shareholders to ensure the Employee's continued dedication
and efforts on behalf of the Company; and
WHEREAS, in order to induce the Employee to remain in the employ of the
Company, particularly in the event of a threat of or the occurrence of a Change
in Control and to dispel any concerns that the Employee may have about taking an
active part in the defense against an inappropriate attempt to bring about a
Change in Control of the Company, the Company desires to enter into this
Agreement with the Employee to provide the Employee with certain payments and
benefits in the event that his employment with the Company is terminated as a
result of, or in connection with, a Change in Control.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties agree as follows:
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1. Employment. Employee acknowledges that he is employed with the
Company pursuant to an Employment Agreement dated November 15, 1989 and hereby
agrees that to the extent any provision of this Agreement should be contrary to
any provision of the Employment Agreement, the terms of this Agreement shall
control.
2. Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
(A) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is hereinafter defined)
of thirty-three percent (33%) or more of the shares of Common Stock then
outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the
Company, (iii) any employee benefit plan or employee stock plan of the Company
or of any Subsidiary of the Company, (iv) any dividend reinvestment plan of the
Company, or (v) any Person or entity organized, appointed, or established by the
Company for or pursuant to the terms of such plan. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Stock by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to thirty-three percent (33%) or more of the Common Stock
of the Company then outstanding; provided, however, that if a Person shall
become the Beneficial Owner of thirty-three (33%) or more of the Common Stock of
the Company, then outstanding by reason of such an acquisition and shall, after
such acquisition, become the Beneficial Owner of any additional shares of Common
Stock, then such Person shall be deemed to be an "Acquiring Person." In
addition, notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring
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Person," as defined pursuant to the foregoing provisions of this Paragraph (A),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares of Common Stock so that such Person
would no longer be an "Acquiring Person" as defined pursuant to the foregoing
provisions of this Paragraph (A), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.
(B) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(C) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or upon the exercise of conversion
rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
(a) securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange, or (b) at any time prior to the
occurrence of a Triggering Event, securities issuable upon
exercise of the Rights ("Triggering Event" and "Rights" shall
have the respective meanings ascribed to such terms as set
forth in the Rights Agreement between Embrex, Inc. and Branch
Banking & Trust Company as Rights Agent, dated as of March 21,
1996 and as in effect on the date
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<PAGE>
hereof ("Rights Agreement")), or (c) from and after the
occurrence of a Triggering Event, securities issuable upon
exercise of Rights which were acquired by such Person or any
of such Person's Affiliates or Associates prior to the
Distribution Date (as defined in the Rights Agreement) or
pursuant to Section 3(a) or Section 22 of the Rights Agreement
(the "Original Rights") or pursuant to Section 11(i) of the
Rights Agreement in connection with an adjustment made with
respect to any Original Rights;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right to vote or dispose of or has "beneficial ownership" of
(as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act and any successor provision
thereof), including pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
(ii) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or
understanding: (a) arises solely from a revocable proxy given
in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions
of the General Rules and Regulations under the Exchange Act,
and (b) is not also then reportable by such Person on Schedule
13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
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<PAGE>
understanding (whether or not in writing), but excluding
customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities until the expiration of forty days after the date
of such acquisition, for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in
the provision to subparagraph (ii) of this paragraph (C)) or
disposing of any voting securities of the Company.
(D) "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company, while such Person is a member of the Board of
Directors, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, and was a member of the Board of Directors prior to the
date of this Agreement, or (ii) any Person who subsequently becomes a member of
the Board of Directors, while such Person is a member of the Board of Directors,
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, if such Person's nomination for election or election to the Board of
Directors is recommended or approved by a majority of the Continuing Directors.
(E) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company or other entity.
(F) "Subsidiary" shall mean, with reference to any other
Person, any corporation or other entity of which securities or other ownership
interests having ordinary voting power, in the absence of contingencies, to
elect at least a majority of the directors or other persons performing similar
functions is beneficially owned, directly or indirectly, by such Person, or
which is otherwise controlled by such Person.
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<PAGE>
(G) "Termination Date" shall mean the date on which the
Employee's employment with the Company is terminated by the Employee for Good
Reason or by the Company for reasons other than Cause, Disability, or death.
3. Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean the occurrence of any one of the following
events:
(A) Any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan or employee stock plan of the Company or of
any Subsidiary of the Company, any dividend reinvestment plan of the Company, or
any Person or entity organized, appointed, or established by the Company for or
pursuant to the terms of any such plan) alone or together with its Affiliates or
Associates, shall, at any time after the date hereof, become an Acquiring
Person; or
(B) The Continuing Directors cease for any reason to
constitute a majority of the Board of Directors of the Company; or
(C) Directly or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the
Company), and the Company shall not be the continuing or
surviving corporation of such consolidation or merger; or
(ii) any Person (other than Subsidiary of the
Company) shall consolidate with, or merge with or into, the
Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger, and in connection
with such consolidation or merger, all or part of the
outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or
cash or any other property; or
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(iii) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise
transfer) in one transaction or a series of related
transactions, assets or earning power aggregating more than
fifty percent (50%) of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person
or Persons (other than the Company or any Subsidiary of the
Company).
4. Termination Following Change in Control. After the occurrence of a
Change in Control, Employee shall be entitled to receive payments and benefits
pursuant to this Agreement if, within two (2) years after the occurrence of a
Change in Control, his employment with the Company is terminated under any of
the following circumstances:
(A) The Company terminates Employee's employment for reasons
other than "Cause," "Disability," or death. For purposes of this Agreement,
"Cause" shall be defined as:
(i) the willful and continued failure by Employee to
perform substantially his duties with the Company (other than
any such failure resulting from his Disability) for a
significant period of time, after a demand for substantial
performance is delivered to Employee by the Board or a
committee thereof, which specifically identifies the manner in
which the Board believes that Employee has not substantially
performed his duties; or
(ii) the willful engaging by Employee in gross
misconduct materially and demonstrably injurious to the
Company. No act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by
Employee in the absence of good faith and without a reasonable
belief that his action or failure to act was in the best
interest of the Company.
7
<PAGE>
For purposes of this Agreement, "Disability" shall mean a physical or
mental infirmity which impairs the Employee's ability substantially to perform
his employment duties for the Company and which continues for a period of at
least one hundred and eighty (180) consecutive days.
(B) The Employee terminates his employment with the Company
for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the following events or
conditions:
(i) a change in the Employee's status, title,
position or responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgment, represents an adverse change from his status, title,
position or responsibilities in effect immediately prior
thereto; the assignment to Employee of any duties or
responsibilities which in the Employee's reasonable judgment,
are inconsistent with his status, title, position or
responsibilities; or any removal of Employee from or failure
to reappoint or reelect him to any of such positions, status,
or title except in connection with the termination of his
employment for Disability, Cause, or death, or by the Employee
other than for Good Reason;
(ii) a reduction in the Employee's base salary;
(iii) the Company's requiring the Employee to be
based at any place outside a 30 mile radius from Durham,
North Carolina, except for reasonably required travel on the
Company's business which is not greater than such travel
requirements prior to the Change in Control;
(iv) the failure by the Company to continue in effect
any compensation, welfare or benefit plan in which Employee is
participating at the time of a Change in Control without
substituting plans providing Employee with
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<PAGE>
substantially similar or greater benefits, or the taking of
any action by the Company which would adversely affect
Employee's participation in or materially reduce Employee's
benefits under any of such plans or deprive Employee of any
material fringe benefit enjoyed by Employee at the time of the
Change in Control;
(v) any purported termination of Employee's
employment for Cause or Disability without grounds therefore;
(vi) the insolvency or the filing (by any party
including the Company) of a petition for bankruptcy of the
Company;
(vii) any material breach by the Company of any
provision of this Agreement; or
(viii) the failure of the Company to obtain an
agreement, satisfactory to the Employee, from any successor or
assign of the Company to assume and agree to perform this
Agreement.
5. Severance Pay and Benefits. In the event that Employee's
employment with the Company terminates under any of the circumstances described
in Paragraph 4 above, Employee shall be entitled to receive all of the
following:
(A) all accrued compensation and any pro-rata bonuses
Employee may have earned up to the Termination Date;
(B) a severance payment equal to two and nine-tenths (2.9)
times the amount of the Employee's most recent annual compensation, including
the amount of his most recent annual bonus. The severance payment shall be paid
in thirty-four (34) equal monthly installments without interest, commencing one
month after the Termination Date;
9
<PAGE>
(C) a continuation of benefits. The Company shall maintain in
full force and effect, for two (2) years after the Termination Date, all life
insurance, health, accidental death and dismemberment, and disability plans and
other benefit programs in which Employee is entitled to participate immediately
prior to the Termination Date provided that Employee's continued participation
is possible under the general terms and provisions of such plans and programs.
Employee's continued participation in such plans and programs shall be at no
greater cost to Employee than the cost he bore for such participation
immediately prior to the Termination Date. If Employee's participation in any
such plan or program is barred, the Company shall arrange upon comparable terms,
and at no greater cost to Employee than the cost he bore for such plans and
programs prior to the Termination Date, to provide Employee with benefits
substantially similar to, or greater than, those which he is entitled to receive
under any such plan or program; and
(D) a lump sum payment (or otherwise as specified by Employee
to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Employee is entitled
to under the terms of any such plan.
6. No Duty to Mitigate. Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Employee in any subsequent
employment. The severance pay and benefits under this Agreement shall be in lieu
of any other severance pay to which Employee may be entitled from the Company.
7. Stock Options. Upon the occurrence of a Change in Control, all
stock options shall immediately vest and, except as may be required by the
nature of the transaction constituting the Change in Control, the options shall
remain exercisable for the duration of the
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original option term. If plans or agreements to which outstanding options have
been issued do not provide for immediate vesting, the Company shall use its best
efforts to effect amendments permitting the acceleration of vesting so long as
no material adverse accounting treatment results to the Company.
8. Fees and Expenses. The Company agrees that if Employee is entitled
to any severance pay or benefits under this Agreement, and the Company or its
survivor disputes the obligation to pay such severance pay or benefits and the
Employee prevails, in whole or in part, the Company or its survivor shall
promptly pay or reimburse Employee for all expense incurred by Employee in such
dispute, including, but not limited to, attorneys fees and associated expenses.
9. Excise Tax Payments.
(A) In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")), to the Employee or for his benefit paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise in
connection with, or arising out of, his employment with the Company or a change
in ownership or effective control of the Company or of a substantial portion of
its assets (a "Payment" or "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Employee 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 Employee will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Employee's failure to file timely a tax
return or pay taxes shown due on his return, imposed with respect to such taxes
and the Excise
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<PAGE>
Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(B) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by an accounting firm selected by the
Company and reasonably acceptable to the Employee which is designated as one of
the five largest accounting firms in the United States (the "Accounting Firm").
The Accounting Firm shall provide its determination (the "Determination"),
together with detailed supporting calculations and documentation to the Company
and the Employee within ten days of the Termination Date if applicable, or such
other time as requested by the Company or by the Employee (provided the Employee
reasonably believes that any of the Payments may be subject to the Excise Tax)
and if the Accounting Firm determines that no Excise Tax is payable by the
Employee with respect to a Payment or Payments, it shall furnish the Employee
with an opinion reasonably acceptable to the Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments. Within ten days of the
delivery of the Determination to the Employee, the Employee shall have the right
to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as
determined pursuant to this Paragraph 9(B) shall be paid by the Company to the
Employee within five days of the receipt of the Accounting Firm's determination.
The existence of the Dispute shall not in any way affect the Employee's right to
receive the Gross- Up Payment in accordance with the Determination . Upon the
final resolution of a Dispute, the Company shall promptly pay to the Employee
any additional amount required by such resolution. If there is no Dispute, the
Determination shall be binding, final and conclusive upon the Company and the
Employee subject to the application of Paragraph 9(C) below.
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(C) Notwithstanding anything in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment or Payments, the Company shall pay to the applicable
government taxing authorities as Excise Tax withholding, the amount of the
Excise Tax that the Company has actually withheld from the Payment or Payments.
10. Successors and Assigns.
(A) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its successors, and assigns, and the Company shall
require any successor or assign to expressly assume 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 or assignment had taken place.
(B) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Employee, his beneficiaries, or legal
representatives except by will or by the laws of dissent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal personal representative.
11. Notice. Notice as provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person or
mailed by United States Registered Mail, Return Receipt Requested, Postage
Pre-Paid, addressed to the respective addresses last given by each party to the
other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to Smith, Anderson, Blount, Dorsett, Mitchell
& Jernigan, Attn. Gerald F. Roach, Post Office Box 2611, Raleigh, North Carolina
27602-2611, counsel for the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day of the mailing thereof, except that notice of change of address
shall be effective only upon receipt.
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12. Modifications. No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing signed by the Employee and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any conditional provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
of the same at any prior or subsequent time.
13. Entire Agreement. No agreement or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
14. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of North
Carolina.
15. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
EMBREX, INC.
By:/s/ C.E. Austin
ATTEST: Title:
EMPLOYEE:
(Signature of Don T. Seaquist)
/s/ Don T. Seaquist /s/ Randall L. Marcuson
Corporate Secretary Randall L. Marcuson
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CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement"), is made and
entered into this 21st day of May, 1996 by and between Embrex, Inc. ("Company"),
a North Carolina corporation, and Catherine A. Ricks ("Employee").
WHEREAS, the Board of Directors ("Board") of the Company considers the
maintenance of a vital management group to be essential in protecting and
enhancing the best interests of the Company and its shareholders;
WHEREAS, the Board recognizes that the possibility of a Change in
Control (as hereinafter defined) exists and that the threat of or the occurrence
of a Change in Control can result in significant distractions of its key
management personnel because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is in the best interest of
the Company and its shareholders to ensure the Employee's continued dedication
and efforts on behalf of the Company; and
WHEREAS, in order to induce the Employee to remain in the employ of the
Company, particularly in the event of a threat of or the occurrence of a Change
in Control and to dispel any concerns that the Employee may have about taking an
active part in the defense against an inappropriate attempt to bring about a
Change in Control of the Company, the Company desires to enter into this
Agreement with the Employee to provide the Employee with certain payments and
benefits in the event that her employment with the Company is terminated as a
result of, or in connection with, a Change in Control.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties agree as follows:
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1. Employment. Employee acknowledges that she is employed with the
Company pursuant to an Employment Agreement dated October 16, 1989 and hereby
agrees that to the extent any provision of this Agreement should be contrary to
any provision of the Employment Agreement, the terms of this Agreement shall
control.
2. Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
(A) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is hereinafter defined)
of thirty-three percent (33%) or more of the shares of Common Stock then
outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the
Company, (iii) any employee benefit plan or employee stock plan of the Company
or of any Subsidiary of the Company, (iv) any dividend reinvestment plan of the
Company, or (v) any Person or entity organized, appointed, or established by the
Company for or pursuant to the terms of such plan. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Stock by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to thirty-three percent (33%) or more of the Common Stock
of the Company then outstanding; provided, however, that if a Person shall
become the Beneficial Owner of thirty-three (33%) or more of the Common Stock of
the Company, then outstanding by reason of such an acquisition and shall, after
such acquisition, become the Beneficial Owner of any additional shares of Common
Stock, then such Person shall be deemed to be an "Acquiring Person." In
addition, notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring
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Person," as defined pursuant to the foregoing provisions of this Paragraph (A),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares of Common Stock so that such Person
would no longer be an "Acquiring Person" as defined pursuant to the foregoing
provisions of this Paragraph (A), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.
(B) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(C) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or upon the exercise of conversion
rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
(a) securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange, or (b) at any time prior to the
occurrence of a Triggering Event, securities issuable upon
exercise of the Rights ("Triggering Event" and "Rights" shall
have the respective meanings ascribed to such terms as set
forth in the Rights Agreement between Embrex, Inc. and Branch
Banking & Trust Company as Rights Agent, dated as of March 21,
1996 and as in effect on the date
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hereof ("Rights Agreement")), or (c) from and after the
occurrence of a Triggering Event, securities issuable upon
exercise of Rights which were acquired by such Person or any
of such Person's Affiliates or Associates prior to the
Distribution Date (as defined in the Rights Agreement) or
pursuant to Section 3(a) or Section 22 of the Rights Agreement
(the "Original Rights") or pursuant to Section 11(i) of the
Rights Agreement in connection with an adjustment made with
respect to any Original Rights;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right to vote or dispose of or has "beneficial ownership" of
(as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act and any successor provision
thereof), including pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
(ii) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or
understanding: (a) arises solely from a revocable proxy given
in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions
of the General Rules and Regulations under the Exchange Act,
and (b) is not also then reportable by such Person on Schedule
13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
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understanding (whether or not in writing), but excluding
customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities until the expiration of forty days after the date
of such acquisition, for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in
the provision to subparagraph (ii) of this paragraph (C)) or
disposing of any voting securities of the Company.
(D) "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company, while such Person is a member of the Board of
Directors, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, and was a member of the Board of Directors prior to the
date of this Agreement, or (ii) any Person who subsequently becomes a member of
the Board of Directors, while such Person is a member of the Board of Directors,
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, if such Person's nomination for election or election to the Board of
Directors is recommended or approved by a majority of the Continuing Directors.
(E) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company or other entity.
(F) "Subsidiary" shall mean, with reference to any other
Person, any corporation or other entity of which securities or other ownership
interests having ordinary voting power, in the absence of contingencies, to
elect at least a majority of the directors or other persons performing similar
functions is beneficially owned, directly or indirectly, by such Person, or
which is otherwise controlled by such Person.
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<PAGE>
(G) "Termination Date" shall mean the date on which the
Employee's employment with the Company is terminated by the Employee for Good
Reason or by the Company for reasons other than Cause, Disability, or death.
3. Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean the occurrence of any one of the following
events:
(A) Any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan or employee stock plan of the Company or of
any Subsidiary of the Company, any dividend reinvestment plan of the Company, or
any Person or entity organized, appointed, or established by the Company for or
pursuant to the terms of any such plan) alone or together with its Affiliates or
Associates, shall, at any time after the date hereof, become an Acquiring
Person; or
(B) The Continuing Directors cease for any reason to
constitute a majority of the Board of Directors of the Company; or
(C) Directly or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the
Company), and the Company shall not be the continuing or
surviving corporation of such consolidation or merger; or
(ii) any Person (other than Subsidiary of the
Company) shall consolidate with, or merge with or into, the
Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger, and in connection
with such consolidation or merger, all or part of the
outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or
cash or any other property; or
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(iii) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise
transfer) in one transaction or a series of related
transactions, assets or earning power aggregating more than
fifty percent (50%) of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person
or Persons (other than the Company or any Subsidiary of the
Company).
4. Termination Following Change in Control. After the occurrence of a
Change in Control, Employee shall be entitled to receive payments and benefits
pursuant to this Agreement if, within two (2) years after the occurrence of a
Change in Control, her employment with the Company is terminated under any of
the following circumstances:
(A) The Company terminates Employee's employment for reasons
other than "Cause," "Disability," or death. For purposes of this Agreement,
"Cause" shall be defined as:
(i) the willful and continued failure by Employee to
perform substantially her duties with the Company (other than
any such failure resulting from her Disability) for a
significant period of time, after a demand for substantial
performance is delivered to Employee by the Board or a
committee thereof, which specifically identifies the manner in
which the Board believes that Employee has not substantially
performed her duties; or
(ii) the willful engaging by Employee in gross
misconduct materially and demonstrably injurious to the
Company. No act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by
Employee in the absence of good faith and without a reasonable
belief that her action or failure to act was in the best
interest of the Company.
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For purposes of this Agreement, "Disability" shall mean a physical or
mental infirmity which impairs the Employee's ability substantially to perform
her employment duties for the Company and which continues for a period of at
least one hundred and eighty (180) consecutive days.
(B) The Employee terminates her employment with the Company
for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the following events or
conditions:
(i) a change in the Employee's status, title,
position or responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgment, represents an adverse change from her status, title,
position or responsibilities in effect immediately prior
thereto; the assignment to Employee of any duties or
responsibilities which in the Employee's reasonable judgment,
are inconsistent with her status, title, position or
responsibilities; or any removal of Employee from or failure
to reappoint or reelect him to any of such positions, status,
or title except in connection with the termination of her
employment for Disability, Cause, or death, or by the Employee
other than for Good Reason;
(ii) a reduction in the Employee's base salary;
(iii) the Company's requiring the Employee to be based at any
place outside a 30 mile radius from Durham, North Carolina,
except for reasonably required travel on the Company's
business which is not greater than such travel requirements
prior to the Change in Control;
(iv) the failure by the Company to continue in
effect any compensation, welfare or benefit plan in which
Employee is participating at the time of a
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<PAGE>
Change in Control without substituting plans providing
Employee with substantially similar or greater benefits, or
the taking of any action by the Company which would adversely
affect Employee's participation in or materially reduce
Employee's benefits under any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee at
the time of the Change in Control;
(v) any purported termination of Employee's
employment for Cause or Disability without grounds therefore;
(vi) the insolvency or the filing (by any party
including the Company) ofa petition for bankruptcy of the
Company;
(vii) any material breach by the Company of any
provision of this Agreement; or
(viii) the failure of the Company to obtain an
agreement, satisfactory to the Employee, from any successor or
assign of the Company to assume and agree to perform this
Agreement.
5. Severance Pay and Benefits. In the event that Employee's
employment with the Company terminates under any of the circumstances described
in Paragraph 4 above, Employee shall be entitled to receive all of the
following:
(A) all accrued compensation and any pro-rata bonuses
Employee may have earned up to the Termination Date;
(B) a severance payment equal to two and nine-tenths (2.9)
times the amount of the Employee's most recent annual compensation, including
the amount of her most recent annual bonus. The severance payment shall be paid
in thirty-four (34) equal monthly installments without interest, commencing one
month after the Termination Date;
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<PAGE>
(C) a continuation of benefits. The Company shall maintain in
full force and effect, for two (2) years after the Termination Date, all life
insurance, health, accidental death and dismemberment, and disability plans and
other benefit programs in which Employee is entitled to participate immediately
prior to the Termination Date provided that Employee's continued participation
is possible under the general terms and provisions of such plans and programs.
Employee's continued participation in such plans and programs shall be at no
greater cost to Employee than the cost she bore for such participation
immediately prior to the Termination Date. If Employee's participation in any
such plan or program is barred, the Company shall arrange upon comparable terms,
and at no greater cost to Employee than the cost she bore for such plans and
programs prior to the Termination Date, to provide Employee with benefits
substantially similar to, or greater than, those which she is entitled to
receive under any such plan or program; and
(D) a lump sum payment (or otherwise as specified by Employee
to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Employee is entitled
to under the terms of any such plan.
6. No Duty to Mitigate. Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Employee in any subsequent
employment. The severance pay and benefits under this Agreement shall be in lieu
of any other severance pay to which Employee may be entitled from the Company.
7. Stock Options. Upon the occurrence of a Change in Control, all
stock options shall immediately vest and, except as may be required by the
nature of the transaction constituting the Change in Control, the options shall
remain exercisable for the duration of the
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<PAGE>
original option term. If plans or agreements to which outstanding options have
been issued do not provide for immediate vesting, the Company shall use its best
efforts to effect amendments permitting the acceleration of vesting so long as
no material adverse accounting treatment results to the Company.
8. Fees and Expenses. The Company agrees that if Employee is entitled
to any severance pay or benefits under this Agreement, and the Company or its
survivor disputes the obligation to pay such severance pay or benefits and the
Employee prevails, in whole or in part, the Company or its survivor shall
promptly pay or reimburse Employee for all expense incurred by Employee in such
dispute, including, but not limited to, attorneys fees and associated expenses.
9. Excise Tax Payments.
(A) In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")), to the Employee or for her benefit paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise in
connection with, or arising out of, her employment with the Company or a change
in ownership or effective control of the Company or of a substantial portion of
its assets (a "Payment" or "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Employee 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 Employee will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Employee's failure to file timely a tax
return or pay taxes shown due on her return, imposed with respect to such taxes
and the Excise
11
<PAGE>
Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(B) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by an accounting firm selected by the
Company and reasonably acceptable to the Employee which is designated as one of
the five largest accounting firms in the United States (the "Accounting Firm").
The Accounting Firm shall provide its determination (the "Determination"),
together with detailed supporting calculations and documentation to the Company
and the Employee within ten days of the Termination Date if applicable, or such
other time as requested by the Company or by the Employee (provided the Employee
reasonably believes that any of the Payments may be subject to the Excise Tax)
and if the Accounting Firm determines that no Excise Tax is payable by the
Employee with respect to a Payment or Payments, it shall furnish the Employee
with an opinion reasonably acceptable to the Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments. Within ten days of the
delivery of the Determination to the Employee, the Employee shall have the right
to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as
determined pursuant to this Paragraph 9(B) shall be paid by the Company to the
Employee within five days of the receipt of the Accounting Firm's determination.
The existence of the Dispute shall not in any way affect the Employee's right to
receive the Gross-Up Payment in accordance with the Determination . Upon the
final resolution of a Dispute, the Company shall promptly pay to the Employee
any additional amount required by such resolution. If there is no Dispute, the
Determination shall be binding, final and conclusive upon the Company and the
Employee subject to the application of Paragraph 9(C) below.
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<PAGE>
(C) Notwithstanding anything in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment or Payments, the Company shall pay to the applicable
government taxing authorities as Excise Tax withholding, the amount of the
Excise Tax that the Company has actually withheld from the Payment or Payments.
10. Successors and Assigns.
(A) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its successors, and assigns, and the Company shall
require any successor or assign to expressly assume 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 or assignment had taken place.
(B) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Employee, her beneficiaries, or legal
representatives except by will or by the laws of dissent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal personal representative.
11. Notice. Notice as provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person or
mailed by United States Registered Mail, Return Receipt Requested, Postage
Pre-Paid, addressed to the respective addresses last given by each party to the
other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to Smith, Anderson, Blount, Dorsett, Mitchell
& Jernigan, Attn. Gerald F. Roach, Post Office Box 2611, Raleigh, North Carolina
27602-2611, counsel for the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day of the mailing thereof, except that notice of change of address
shall be effective only upon receipt.
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12. Modifications. No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing signed by the Employee and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any conditional provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
of the same at any prior or subsequent time.
13. Entire Agreement. No agreement or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
14. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of North
Carolina.
15. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
EMBREX, INC.
By:/s/ Randall L. Marcuson
ATTEST: Title: President and CEO
EMPLOYEE:
/s/ John Bradley /s/ Catherine A. Ricks
Corporate Secretary Catherine A. Ricks
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CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement"), is made and
entered into this 21st day of May, 1996 by and between Embrex, Inc. ("Company"),
a North Carolina corporation, and Brian V. Cosgriff ("Employee").
WHEREAS, the Board of Directors ("Board") of the Company considers the
maintenance of a vital management group to be essential in protecting and
enhancing the best interests of the Company and its shareholders;
WHEREAS, the Board recognizes that the possibility of a Change in
Control (as hereinafter defined) exists and that the threat of or the occurrence
of a Change in Control can result in significant distractions of its key
management personnel because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is in the best interest of
the Company and its shareholders to ensure the Employee's continued dedication
and efforts on behalf of the Company; and
WHEREAS, in order to induce the Employee to remain in the employ of the
Company, particularly in the event of a threat of or the occurrence of a Change
in Control and to dispel any concerns that the Employee may have about taking an
active part in the defense against an inappropriate attempt to bring about a
Change in Control of the Company, the Company desires to enter into this
Agreement with the Employee to provide the Employee with certain payments and
benefits in the event that his employment with the Company is terminated as a
result of, or in connection with, a Change in Control.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties agree as follows:
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1. Employment. Employee acknowledges that he is employed with the
Company pursuant to an Employment Agreement dated August 18, 1995 and hereby
agrees that to the extent any provision of this Agreement should be contrary to
any provision of the Employment Agreement, the terms of this Agreement shall
control.
2. Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
(A) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is hereinafter defined)
of thirty-three percent (33%) or more of the shares of Common Stock then
outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the
Company, (iii) any employee benefit plan or employee stock plan of the Company
or of any Subsidiary of the Company, (iv) any dividend reinvestment plan of the
Company, or (v) any Person or entity organized, appointed, or established by the
Company for or pursuant to the terms of such plan. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Stock by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to thirty-three percent (33%) or more of the Common Stock
of the Company then outstanding; provided, however, that if a Person shall
become the Beneficial Owner of thirty-three (33%) or more of the Common Stock of
the Company, then outstanding by reason of such an acquisition and shall, after
such acquisition, become the Beneficial Owner of any additional shares of Common
Stock, then such Person shall be deemed to be an "Acquiring Person." In
addition, notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring
2
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Person," as defined pursuant to the foregoing provisions of this Paragraph (A),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares of Common Stock so that such Person
would no longer be an "Acquiring Person" as defined pursuant to the foregoing
provisions of this Paragraph (A), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.
(B) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(C) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or upon the exercise of conversion
rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
(a) securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange, or (b) at any time prior to the
occurrence of a Triggering Event, securities issuable upon
exercise of the Rights ("Triggering Event" and "Rights" shall
have the respective meanings ascribed to such terms as set
forth in the Rights Agreement between Embrex, Inc. and Branch
Banking & Trust Company as Rights Agent, dated as of March 21,
1996 and as in effect on the date
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hereof ("Rights Agreement")), or (c) from and after the
occurrence of a Triggering Event, securities issuable upon
exercise of Rights which were acquired by such Person or any
of such Person's Affiliates or Associates prior to the
Distribution Date (as defined in the Rights Agreement) or
pursuant to Section 3(a) or Section 22 of the Rights Agreement
(the "Original Rights") or pursuant to Section 11(i) of the
Rights Agreement in connection with an adjustment made with
respect to any Original Rights;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right to vote or dispose of or has "beneficial ownership" of
(as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act and any successor provision
thereof), including pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
(ii) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or
understanding: (a) arises solely from a revocable proxy given
in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions
of the General Rules and Regulations under the Exchange Act,
and (b) is not also then reportable by such Person on Schedule
13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
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understanding (whether or not in writing), but excluding
customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities until the expiration of forty days after the date
of such acquisition, for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in
the provision to subparagraph (ii) of this paragraph (C)) or
disposing of any voting securities of the Company.
(D) "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company, while such Person is a member of the Board of
Directors, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, and was a member of the Board of Directors prior to the
date of this Agreement, or (ii) any Person who subsequently becomes a member of
the Board of Directors, while such Person is a member of the Board of Directors,
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, if such Person's nomination for election or election to the Board of
Directors is recommended or approved by a majority of the Continuing Directors.
(E) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company or other entity.
(F) "Subsidiary" shall mean, with reference to any other
Person, any corporation or other entity of which securities or other ownership
interests having ordinary voting power, in the absence of contingencies, to
elect at least a majority of the directors or other persons performing similar
functions is beneficially owned, directly or indirectly, by such Person, or
which is otherwise controlled by such Person.
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(G) "Termination Date" shall mean the date on which the
Employee's employment with the Company is terminated by the Employee for Good
Reason or by the Company for reasons other than Cause, Disability, or death.
3. Change in Control. For purposes of this Agreement, a "Change
in Control" shall mean the occurrence of any one of the following events:
(A) Any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan or employee stock plan of the Company or of
any Subsidiary of the Company, any dividend reinvestment plan of the Company, or
any Person or entity organized, appointed, or established by the Company for or
pursuant to the terms of any such plan) alone or together with its Affiliates or
Associates, shall, at any time after the date hereof, become an Acquiring
Person; or
(B) The Continuing Directors cease for any reason to
constitute a majority of the Board of Directors of the Company; or
(C) Directly or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the
Company), and the Company shall not be the continuing or
surviving corporation of such consolidation or merger; or
(ii) any Person (other than Subsidiary of the
Company) shall consolidate with, or merge with or into, the
Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger, and in connection
with such consolidation or merger, all or part of the
outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or
cash or any other property; or
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<PAGE>
(iii) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise
transfer) in one transaction or a series of related
transactions, assets or earning power aggregating more than
fifty percent (50%) of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person
or Persons (other than the Company or any Subsidiary of the
Company).
4. Termination Following Change in Control. After the occurrence of a
Change in Control, Employee shall be entitled to receive payments and benefits
pursuant to this Agreement if, within two (2) years after the occurrence of a
Change in Control, his employment with the Company is terminated under any of
the following circumstances:
(A) The Company terminates Employee's employment for reasons
other than "Cause," "Disability," or death. For purposes of this Agreement,
"Cause" shall be defined as:
(i) the willful and continued failure by Employee to
perform substantially his duties with the Company (other than
any such failure resulting from his Disability) for a
significant period of time, after a demand for substantial
performance is delivered to Employee by the Board or a
committee thereof, which specifically identifies the manner in
which the Board believes that Employee has not substantially
performed his duties; or
(ii) the willful engaging by Employee in gross
misconduct materially and demonstrably injurious to the
Company. No act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by
Employee in the absence of good faith and without a reasonable
belief that his action or failure to act was in the best
interest of the Company.
7
<PAGE>
For purposes of this Agreement, "Disability" shall mean a physical or
mental infirmity which impairs the Employee's ability substantially to perform
his employment duties for the Company and which continues for a period of at
least one hundred and eighty (180) consecutive days.
(B) The Employee terminates his employment with the Company
for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the following events or
conditions:
(i) a change in the Employee's status, title,
position or responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgment, represents an adverse change from his status, title,
position or responsibilities in effect immediately prior
thereto; the assignment to Employee of any duties or
responsibilities which in the Employee's reasonable judgment,
are inconsistent with his status, title, position or
responsibilities; or any removal of Employee from or failure
to reappoint or reelect him to any of such positions, status,
or title except in connection with the termination of his
employment for Disability, Cause, or death, or by the Employee
other than for Good Reason;
(ii) a reduction in the Employee's base salary;
(iii) the Company's requiring the Employee to be based at any
place outside a 30 mile radius from Durham, North Carolina,
except for reasonably required travel on the Company's
business which is not greater than such travel requirements
prior to the Change in Control;
(iv) the failure by the Company to continue in effect
any compensation, welfare or benefit plan in which Employee is
participating at the time of a Change in Control without
substituting plans providing Employee with
8
<PAGE>
substantially similar or greater benefits, or the taking of
any action by the Company which would adversely affect
Employee's participation in or materially reduce Employee's
benefits under any of such plans or deprive Employee of any
material fringe benefit enjoyed by Employee at the time of the
Change in Control;
(v) any purported termination of Employee's
employment for Cause or Disability without grounds therefore;
(vi) the insolvency or the filing (by any party
including the Company) of a petition for bankruptcy of the
Company;
(vii) any material breach by the Company of any
provision of this Agreement; or
(viii) the failure of the Company to obtain an
agreement, satisfactory to the Employee, from any successor or
assign of the Company to assume and agree to perform this
Agreement.
5. Severance Pay and Benefits. In the event that Employee's
employment with the Company terminates under any of the circumstances described
in Paragraph 4 above, Employee shall be entitled to receive all of the
following:
(A) all accrued compensation and any pro-rata bonuses
Employee may have earned up to the Termination Date;
(B) a severance payment equal to two and nine-tenths (2.9)
times the amount of the Employee's most recent annual compensation, including
the amount of his most recent annual bonus. The severance payment shall be paid
in thirty-four (34) equal monthly installments without interest, commencing one
month after the Termination Date;
9
<PAGE>
(C) a continuation of benefits. The Company shall maintain in
full force and effect, for two (2) years after the Termination Date, all life
insurance, health, accidental death and dismemberment, and disability plans and
other benefit programs in which Employee is entitled to participate immediately
prior to the Termination Date provided that Employee's continued participation
is possible under the general terms and provisions of such plans and programs.
Employee's continued participation in such plans and programs shall be at no
greater cost to Employee than the cost he bore for such participation
immediately prior to the Termination Date. If Employee's participation in any
such plan or program is barred, the Company shall arrange upon comparable terms,
and at no greater cost to Employee than the cost he bore for such plans and
programs prior to the Termination Date, to provide Employee with benefits
substantially similar to, or greater than, those which he is entitled to receive
under any such plan or program; and
(D) a lump sum payment (or otherwise as specified by Employee
to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Employee is entitled
to under the terms of any such plan.
6. No Duty to Mitigate. Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Employee in any subsequent
employment. The severance pay and benefits under this Agreement shall be in lieu
of any other severance pay to which Employee may be entitled from the Company.
7. Stock Options. Upon the occurrence of a Change in Control,
all stock options shall immediately vest and, except as may be required by the
nature of the transaction constituting the Change in Control, the options shall
remain exercisable for the duration of the
10
<PAGE>
original option term. If plans or agreements to which outstanding options have
been issued do not provide for immediate vesting, the Company shall use its best
efforts to effect amendments permitting the acceleration of vesting so long as
no material adverse accounting treatment results to the Company.
8. Fees and Expenses. The Company agrees that if Employee is entitled
to any severance pay or benefits under this Agreement, and the Company or its
survivor disputes the obligation to pay such severance pay or benefits and the
Employee prevails, in whole or in part, the Company or its survivor shall
promptly pay or reimburse Employee for all expense incurred by Employee in such
dispute, including, but not limited to, attorneys fees and associated expenses.
9. Excise Tax Payments.
(A) In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")), to the Employee or for his benefit paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise in
connection with, or arising out of, his employment with the Company or a change
in ownership or effective control of the Company or of a substantial portion of
its assets (a "Payment" or "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Employee 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 Employee will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Employee's failure to file timely a tax
return or pay taxes shown due on his return, imposed with respect to such taxes
and the Excise
11
<PAGE>
Tax), including any Excise Tax imposed upon the Gross-Up Payment, the Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(B) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by an accounting firm selected by the
Company and reasonably acceptable to the Employee which is designated as one of
the five largest accounting firms in the United States (the "Accounting Firm").
The Accounting Firm shall provide its determination (the "Determination"),
together with detailed supporting calculations and documentation to the Company
and the Employee within ten days of the Termination Date if applicable, or such
other time as requested by the Company or by the Employee (provided the Employee
reasonably believes that any of the Payments may be subject to the Excise Tax)
and if the Accounting Firm determines that no Excise Tax is payable by the
Employee with respect to a Payment or Payments, it shall furnish the Employee
with an opinion reasonably acceptable to the Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments. Within ten days of the
delivery of the Determination to the Employee, the Employee shall have the right
to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as
determined pursuant to this Paragraph 9(B) shall be paid by the Company to the
Employee within five days of the receipt of the Accounting Firm's determination.
The existence of the Dispute shall not in any way affect the Employee's right to
receive the Gross-Up Payment in accordance with the Determination . Upon the
final resolution of a Dispute, the Company shall promptly pay to the Employee
any additional amount required by such resolution. If there is no Dispute, the
Determination shall be binding, final and conclusive upon the Company and the
Employee subject to the application of Paragraph 9(C) below.
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<PAGE>
(C) Notwithstanding anything in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment or Payments, the Company shall pay to the applicable
government taxing authorities as Excise Tax withholding, the amount of the
Excise Tax that the Company has actually withheld from the Payment or Payments.
10. Successors and Assigns.
(A) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its successors, and assigns, and the Company shall
require any successor or assign to expressly assume 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 or assignment had taken place.
(B) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Employee, his beneficiaries, or legal
representatives except by will or by the laws of dissent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal personal representative.
11. Notice. Notice as provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person or
mailed by United States Registered Mail, Return Receipt Requested, Postage
Pre-Paid, addressed to the respective addresses last given by each party to the
other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to Smith, Anderson, Blount, Dorsett, Mitchell
& Jernigan, Attn. Gerald F. Roach, Post Office Box 2611, Raleigh, North Carolina
27602-2611, counsel for the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day of the mailing thereof, except that notice of change of address
shall be effective only upon receipt.
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<PAGE>
12. Modifications. No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing signed by the Employee and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any conditional provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
of the same at any prior or subsequent time.
13. Entire Agreement. No agreement or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
14. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of North
Carolina.
15. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
EMBREX, INC.
By:/s/ Randall L. Marcuson
-----------------------
ATTEST: Title: President and CEO
-----------------
EMPLOYEE:
/s/ John Bradley /s/ Brian V. Cosgriff
- -------------------- ------------------------
Corporate Secretary Brian V. Cosgriff
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<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement"), is made and
entered into this 9th day of June, 1996 by and between Embrex, Inc., including
its wholly-owned subsidiary, Embrex Europe Limited (hereinafter Embrex, Inc. and
Embrex Europe Limited are collectively referred to as "Company"), and David M.
Baines ("Employee").
WHEREAS, the Board of Directors ("Board") of the Company considers the
maintenance of a vital management group to be essential in protecting and
enhancing the best interests of the Company and its shareholders;
WHEREAS, the Board recognizes that the possibility of a Change in
Control (as hereinafter defined) exists and that the threat of or the occurrence
of a Change in Control can result in significant distractions of its key
management personnel because of the uncertainties inherent in such a situation;
WHEREAS, Employee is currently a member of the key management of both
Embrex, Inc. and Embrex Europe Limited;
WHEREAS, the Board has determined that it is in the best interest of
the Company and its shareholders to ensure the Employee's continued dedication
and efforts on behalf of the Company; and
WHEREAS, in order to induce the Employee to remain in the employ of the
Company, particularly in the event of a threat of or the occurrence of a Change
in Control and to dispel any concerns that the Employee may have about taking an
active part in the defense against an inappropriate attempt to bring about a
Change in Control of the Company, the Company desires to enter into this
Agreement with the Employee to provide the Employee with certain
<PAGE>
payments and benefits in the event that his employment with the Company is
terminated as a result of, or in connection with, a Change in Control.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the legal sufficiency and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Employment. Employee acknowledges that he is employed by Embrex
Europe Limited pursuant to an Employment Agreement dated April 1, 1994 and
hereby agrees that to the extent any provision of this Agreement should be
contrary to any provision of the Employment Agreement, the terms of this
Agreement shall control.
2. Definitions. For purposes of this Agreement, the following terms
have the meanings indicated:
(A) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such term is
hereinafter defined) and Associates (as such term is hereinafter defined) of
such Person, shall be the Beneficial Owner (as such term is hereinafter defined)
of thirty-three percent (33%) or more of the shares of Common Stock (as such
term is hereinafter defined) then outstanding, but shall not include (i) the
Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan or
employee stock plan of the Company or of any Subsidiary of the Company, (iv) any
dividend reinvestment plan of the Company, or (v) any Person or entity
organized, appointed, or established by the Company for or pursuant to the terms
of such plan. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of an acquisition of Common Stock by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to thirty-three
percent (33%) or more of the Common Stock then outstanding; provided, however,
that
2
<PAGE>
if a Person shall become the Beneficial Owner of thirty-three percent (33%) or
more of the Common Stock, then outstanding by reason of such an acquisition and
shall, after such acquisition, become the Beneficial Owner of any additional
shares of Common Stock, then such Person shall be deemed to be an "Acquiring
Person." In addition, notwithstanding the foregoing, if the Board of Directors
of the Company determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
Paragraph (A), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of shares of Common Stock so that
such Person would no longer be an "Acquiring Person" as defined pursuant to the
foregoing provisions of this Paragraph (A), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement.
(B) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(C) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right or obligation to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or upon the exercise of conversion
rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own,"
(a) securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's
3
<PAGE>
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange, or (b) at any time prior to
the occurrence of a Triggering Event, securities issuable upon
exercise of the Rights ("Triggering Event" and "Rights" shall
have the respective meanings ascribed to such terms as set
forth in the Rights Agreement between Embrex, Inc. and Branch
Banking & Trust Company as Rights Agent, dated as of March 21,
1996 and as in effect on the date hereof ("Rights
Agreement")), or (c) from and after the occurrence of a
Triggering Event, securities issuable upon exercise of Rights
which were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date (as
defined in the Rights Agreement) or pursuant to Section 3(a)
or Section 22 of the Rights Agreement (the "Original Rights")
or pursuant to Section 11(i) of the Rights Agreement in
connection with an adjustment made with respect to any
Original Rights;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the
right to vote or dispose of or has "beneficial ownership" of
(as determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Exchange Act and any successor provision
thereof), including pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however,
that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph
(ii) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or
understanding: (a) arises solely from a revocable proxy given
in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable provisions
4
<PAGE>
of the General Rules and Regulations under the Exchange Act,
and (b) is not also then reportable by such Person on Schedule
13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's
Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), but excluding
customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities until the expiration of forty days after the date
of such acquisition, for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in
the provision to subparagraph (ii) of this paragraph (C)) or
disposing of any voting securities of the Company.
(D) "Common Stock" shall mean the common stock, $0.01 par
value per share, of Embrex, Inc.
(E) "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company, while such Person is a member of the Board of
Directors, who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, and was a member of the Board of Directors prior to the
date of this Agreement, or (ii) any Person who subsequently becomes a member of
the Board of Directors, while such Person is a member of the Board of Directors,
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, if such Person's nomination for election or election to the Board
of Directors is recommended or approved by a majority of the Continuing
Directors.
5
<PAGE>
(F) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company or other entity.
(G) "Subsidiary" shall mean, with reference to any other
Person, any corporation or other entity of which securities or other ownership
interests having ordinary voting power, in the absence of contingencies, to
elect at least a majority of the directors or other persons performing similar
functions is beneficially owned, directly or indirectly, by such Person, or
which is otherwise controlled by such Person.
(H) "Termination Date" shall mean the date on which the
Employee's employment with the Company is terminated by the Employee for Good
Reason or by the Company for reasons other than Cause, Disability, or death.
3. Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean the occurrence of any one of the following events:
(A) Any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan or employee stock plan of the Company or of
any Subsidiary of the Company, any dividend reinvestment plan of the Company, or
any Person or entity organized, appointed, or established by the Company for or
pursuant to the terms of any such plan) alone or together with its Affiliates or
Associates, shall, at any time after the date hereof, become an Acquiring
Person; or
(B) The Continuing Directors cease for any reason to
constitute a majority of the Board of Directors of the Company; or
(C) Directly or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the
Company), and the Company shall
6
<PAGE>
not be the continuing or surviving corporation of such
consolidation or merger; or
(ii) any Person (other than a Subsidiary of the
Company) shall consolidate with, or merge with or into, the
Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger, and in connection
with such consolidation or merger, all or part of the
outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or
cash or any other property; or
(iii) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise
transfer) in one transaction or a series of related
transactions, assets or earning power aggregating more than
fifty percent (50%) of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person
or Persons (other than the Company or any Subsidiary of the
Company).
4. Termination Following Change in Control. After the occurrence of a
Change in Control, Employee shall be entitled to receive payments and benefits
pursuant to this Agreement if, within two (2) years after the occurrence of a
Change in Control, his employment with the Company is terminated under any of
the following circumstances:
(A) The Company terminates Employee's employment for reasons
other than "Cause," "Disability," or death. For purposes of this Agreement,
"Cause" shall be defined as:
(i) the willful and continued failure by Employee to
perform substantially his duties with the Company (other than
any such failure resulting from his Disability) for a
significant period of time, after a demand for substantial
performance is delivered to Employee by the Board or a
committee thereof,
7
<PAGE>
which specifically identifies the manner in which the Board
believes that Employee has not substantially performed his
duties; or
(ii) the willful engaging by Employee in gross
misconduct materially and demonstrably injurious to the
Company. No act, or failure to act, on Employee's part shall
be considered "willful" unless done, or omitted to be done, by
Employee in the absence of good faith and without a reasonable
belief that his action or failure to act was in the best
interest of the Company.
For purposes of this Agreement, "Disability" shall mean a physical or
mental infirmity which impairs the Employee's ability substantially to perform
his employment duties for the Company and which continues for a period of at
least one hundred and eighty (180) consecutive days.
(B) The Employee terminates his employment with the Company
for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the following events or
conditions:
(i) a change in the Employee's status, title,
position or responsibilities (including reporting
responsibilities) which, in the Employee's reasonable
judgment, represents an adverse change from his status, title,
position or responsibilities in effect immediately prior
thereto; the assignment to Employee of any duties or
responsibilities which in the Employee's reasonable judgment,
are inconsistent with his status, title, position or
responsibilities; or any removal of Employee from or failure
to reappoint or reelect him to any of such positions, status,
or title except in connection with the termination of his
employment for Disability, Cause, or death, or by the Employee
other than for Good Reason;
(ii) a reduction in the Employee's base salary;
8
<PAGE>
(iii) the Company's requiring the Employee to be
based at any place outside a 30 mile radius from Great Dunmow,
Essex, Great Britain, except for reasonably required travel on
the Company's business which is not greater than such travel
requirements prior to the Change in Control;
(iv) the failure by the Company to continue in effect
any compensation, welfare or benefit plan in which Employee is
participating at the time of a Change in Control without
substituting plans providing Employee with substantially
similar or greater benefits, or the taking of any action by
the Company which would adversely affect Employee's
participation in or materially reduce Employee's benefits
under any of such plans or deprive Employee of any material
fringe benefit enjoyed by Employee at the time of the
Change in Control;
(v) any purported termination of Employee's
employment for Cause or Disability without grounds therefore;
(vi) the insolvency or the filing (by any party
including the Company) of a petition for bankruptcy of the
Company;
(vii) any material breach by the Company of any
provision of this Agreement; or
(viii) the failure of the Company to obtain an
agreement, satisfactory to the Employee, from any successor or
assign of the Company to assume and agree to perform this
Agreement.
5. Severance Pay and Benefits. In the event that Employee's
employment with the Company terminates under any of the circumstances described
in Paragraph 4 above, Employee shall be entitled to receive all of the
following:
9
<PAGE>
(A) all accrued compensation and any pro-rata bonuses
Employee may have earned up to the Termination Date;
(B) a severance payment equal to two and nine-tenths (2.9)
times the amount of the Employee's most recent annual compensation, including
the amount of his most recent annual bonus. The severance payment shall be paid
in thirty-four (34) equal monthly installments without interest, commencing one
month after the Termination Date;
(C) a continuation of benefits. The Company shall maintain in
full force and effect, for two (2) years after the Termination Date, all life
insurance, health, accidental death and dismemberment, and disability plans and
other benefit programs in which Employee is entitled to participate immediately
prior to the Termination Date provided that Employee's continued participation
is possible under the general terms and provisions of such plans and programs.
Employee's continued participation in such plans and programs shall be at no
greater cost to Employee than the cost he bore for such participation
immediately prior to the Termination Date. If Employee's participation in any
such plan or program is barred, the Company shall arrange upon comparable terms,
and at no greater cost to Employee than the cost he bore for such plans and
programs prior to the Termination Date, to provide Employee with benefits
substantially similar to, or greater than, those which he is entitled to receive
under any such plan or program; and
(D) a lump sum payment (or otherwise as specified by Employee
to the extent permitted by the applicable plan) of any and all amounts
contributed to a Company pension or retirement plan which Employee is entitled
to under the terms of any such plan.
6. No Duty to Mitigate. Employee shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, and
10
<PAGE>
no such payment shall be offset or reduced by the amount of any compensation or
benefits provided to the Employee in any subsequent employment. The severance
pay and benefits under this Agreement shall be in lieu of any other severance
pay to which Employee may be entitled from the Company.
7. Stock Options. Upon the occurrence of a Change in Control,
all stock options shall immediately vest and, except as may be required by the
nature of the transaction constituting the Change in Control, the options shall
remain exercisable for the duration of the original option term. If plans or
agreements to which outstanding options have been issued do not provide for
immediate vesting, the Company shall use its best efforts to effect amendments
permitting the acceleration of vesting so long as no material adverse accounting
treatment results to the Company.
8. Fees and Expenses. The Company agrees that if Employee is entitled
to any severance pay or benefits under this Agreement, and the Company or its
survivor disputes the obligation to pay such severance pay or benefits and the
Employee prevails, in whole or in part, the Company or its survivor shall
promptly pay or reimburse Employee for all expense incurred by Employee in such
dispute, including, but not limited to, attorneys fees and associated expenses.
9. Excise Tax Payments.
(A) In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")), to the Employee or for his benefit paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise in
connection with, or arising out of, his employment with the Company or a change
in ownership or effective control of the Company or of a substantial portion of
its assets (a "Payment" or "Payments"), would be subject to the excise tax
11
<PAGE>
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Employee 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 Employee will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Employee's failure to file timely a tax
return or pay taxes shown due on his return, imposed with respect to such taxes
and the Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment,
the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(B) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by an accounting firm selected by the
Company and reasonably acceptable to the Employee which is designated as one of
the five largest accounting firms in the United States (the "Accounting Firm").
The Accounting Firm shall provide its determination (the "Determination"),
together with detailed supporting calculations and documentation to the Company
and the Employee within ten days of the Termination Date if applicable, or such
other time as requested by the Company or by the Employee (provided the Employee
reasonably believes that any of the Payments may be subject to the Excise Tax)
and if the Accounting Firm determines that no Excise Tax is payable by the
Employee with respect to a Payment or Payments, it shall furnish the Employee
with an opinion reasonably acceptable to the Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments. Within ten days of the
delivery of the Determination to the Employee, the Employee shall have the right
to dispute the Determination (the "Dispute"). The Gross-Up Payment, if any, as
determined pursuant to this Paragraph 9(B) shall be paid by the Company
12
<PAGE>
to the Employee within five days of the receipt of the Accounting Firm's
determination. The existence of the Dispute shall not in any way affect the
Employee's right to receive the Gross-Up Payment in accordance with the
Determination . Upon the final resolution of a Dispute, the Company shall
promptly pay to the Employee any additional amount required by such resolution.
If there is no Dispute, the Determination shall be binding, final and conclusive
upon the Company and the Employee subject to the application of Paragraph 9(C)
below.
(C) Notwithstanding anything in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment or Payments, the Company shall pay to the applicable
government taxing authorities as Excise Tax withholding, the amount of the
Excise Tax that the Company has actually withheld from the Payment or Payments.
10. Successors and Assigns.
(A) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its successors, and assigns, and the Company shall
require any successor or assign to expressly assume 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 or assignment had taken place.
(B) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Employee, his beneficiaries, or legal
representatives except by will or by the laws of dissent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal personal representative.
11. Notice. Notice as provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person or
mailed by United States Registered Mail, Return Receipt Requested, Postage
Pre-Paid, addressed to the respective
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<PAGE>
addresses last given by each party to the other, provided that all notices to
the Company shall be directed to the attention of the Board with a copy to
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, Attn. Gerald F. Roach,
Post Office Box 2611, Raleigh, North Carolina 27602-2611, counsel for the
Company. All notices and communications shall be deemed to have been received
on the date of delivery thereof or on the third business day of the mailing
thereof, except that notice of change of address shall be effective only upon
receipt.
12. Modifications. No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing signed by the Employee and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any conditional provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
of the same at any prior or subsequent time.
13. Entire Agreement. No agreement or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
14. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of North
Carolina.
15. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
EMBREX, INC.
By:/s/ Randall L. Marcuson
ATTEST: Title: President and CEO
EMPLOYEE:
/s/ John Bradley /s/ David M. Baines
Corporate Secretary David M. Baines
15
<PAGE>
<PAGE>
(Embrex logo appears here)
August 19, 1996
Mr. Don Seaquist
5916 Loch Maree Drive
Plano, Texas 75093
Dear Don:
It is our pleasure to confirm our offer of employment with EMBREX as Vice-
President, Finance & Administration, effective on September 9, 1996, contingent
upon your submitting to and obtaining a negative result from a chemical
screening for drugs and alcohol. Please call Human Resources to schedule your
sample collection. Your starting compensation will be at the rate of $11,250.00
per month.
Upon commencing employment at EMBREX, you will be entitled to receive an
Incentive Stock Option for 31,500 shares of EMBREX Common Stock at an option
price per share at fair market value on date of grant. These options will vest
equally over four years from the date of grant. This stock option is subject to
the approval and grant by the Compensation Committee of the EMBREX Board of
Directors at their next scheduled meeting.
Regular, full-time employees of EMBREX are entitled to participate in all
company-sponsored benefit plans. Each plan has terms and conditions regarding
enrollment, which you must discuss with our Human Resources office on your first
day of employment. A booklet describing our current employee benefits and plan
highlights are enclosed for your information. Please review the medical, dental,
LTD and supplemental life plans and make your decision about which plans you
would desire to participate in. Also enclosed is an information package about
our 401(k) retirement savings plan. You are eligible to enroll on your first day
of employment and will need to make several decisions about your employee and
employer investment options, even if you elect not to participate. Please review
the information, complete the enrollment form and beneficiary designation (even
if you elect not to contribute) and bring to your orientation.
As a relocating employee, and upon presentation of receipts, you will be
entitled to reimbursement for actual and reasonable relocation expenses
including:
(bullet) Two house (or apartment) hunting trips for you (and your family) not
to exceed 7 days.
(bullet) Relocation of household effects; and
(bullet) Temporary living expenses up to 30 days.
As a homeowner, you are entitled to payments associated with the sale/
purchase as follows:
(bullet) Real estate and other fees (except discount points, association
fees, prepaid items (escrow), memberships): and
(bullet) Good faith estimates on closing costs (obtain 2 quotes).
You are also entitled to a direct incidental cash allowance of $2,000.00,
which is fully taxable. You may submit a check request at any time during the
relocation process, to receive this payment. To offset the anticipated loss on
the sale of your home, we will give you a one-time settlement in the amount of
$15,000.
Since the Company's relocation policy is a personal arrangement between you
and the Company, you should not discuss it with or make copies of this agreement
available to anyone outside your immediate family.
- -------------------------------------------------------------------------------
Mail: P.O. Box 13989, Research Triangle Park, NC 27709-3989 Ph:(919) 941-5185
Ship: 1035 Swabia Court, Durham, NC 27703 Fax:(919) 941-5186
Embrex is an Equal Employment Opportunity/Affirmative Action Employer
<PAGE>
Your orientation is tentatively scheduled at 9:00 a.m. on September 9, 1996.
For your orientation, you will need your authorization to work in the U.S.
(driver's license and social security card or passport), the full names, birth
dates, and social security numbers of any dependents, and a clean copy of your
current resume. You should also bring a copy of your current optical
prescription safety glasses.
Enclosed is a standard employment agreement, which describes an employee's
relationship with the Company. This letter and its enclosures constitute our
initial employment offer. After you have read them, you should obtain answers to
any remaining questions you may have. Please sign both copies of this letter,
retain one for your personal files and return one to the Company for our
records.
We look forward to working with you.
Sincerely yours,
/s/ Randall L. Marcuson
President & CEO
Agreed and Accepted:
/s/ Don L. Seaquist 8/20/96
Date
<PAGE>
(embrex logo appears here)
GENERAL PROVISIONS TO
EMPLOYMENT AGREEMENT BETWEEN
EMBREX, INC. AND
DON T. SEAQUIST
PERSONAL AND CONFIDENTIAL
1. EMPLOYMENT
EMBREX hereby employes Employee and Employee accepts such employment and
agrees to perform for EMBREX the duties described herein, faithfully and to the
best of his/her ability.
2. TERM OF EMPLOYMENT
Employee's employment hereunder shall commence on the date noted on the cover
letter and shall continue at the pleasure of the Company. A probationary period
of 180 days shall be observed, so long as Employee is performing at a
satisfactory level. At the conclusion of probationary period, Employee shall be
given a performance evaluation.
3. DUTIES
Employee agrees to devote full time and attention to the business and affairs
of EMBREX, to use his/her best efforts to promote the interests of EMBREX, to
hold such offices in EMBREX to which elected or appointed, and to perform such
tasks, commensurate with the position, as are assigned by your manager or other
designated individuals.
4. COMPENSATION
4.1 EMBREX will pay Employee, for services rendered hereunder, a salary
separately agreed to, payable in equal monthly installments. The Company will
review this base salary on an annual basis and will determine in its sole
discretion whether to provide a merit increase to the base salary.
4.2 The parties hereto agree that Employee shall be entitled to participate in
all retirement, profit-sharing, compensation, insurance or other benefit plans
generally available to EMBREX employees which are presently in effect or which
may be established during the term hereof.
4.3 The terms and conditions of employment (salary, equity and/or other forms
of compensation) are strictly a personal matter between Employee and the Company
and will be shared only with Employee's supervisors having salary administration
responsibility.
5. EXPENSES
Upon commencement of employment, Employee will be reimbursed by EMBREX for all
approved expenses which are reasonably incurred thereafter during the
performance of duties in furtherance of or in connection with the business of
EMBREX or its subsidiaries.
6. FAMILY AND MEDICAL LEAVE
Employee shall be entitled to the benefits provided by the Family and Medical
Leave Act of 1993, as amended (the "Act"), upon completing one year of service
as a regular, full-time employee. During any period in which Employee does not
qualify as an eligible employee or Employee exceeds the period of leave
authorized in the Act, EMBREX may, if it so elects, declare the Employee's
employment terminated on thirty (30) days notice given in accordance with the
provisions hereof.
- -------------------------------------------------------------------------------
Mail: P.O. Box 13989, Research Triangle Park, NC 27709-3989 Ph:(919) 941-5185
Ship: 1035 Swabia Court, Durham, NC 27703 Fax:(919) 941-5186
Embrex is an Equal Employment Opportunity/Affirmative Action Employer
<PAGE>
GENERAL PROVISIONS
PROFESSIONAL AND CONFIDENTIAL
7. EMPLOYEE NOT TO WORK FOR OTHERS
7.1 During the term of this Agreement, Employee agrees not to work for any
other business firm, whether competitive with EMBREX or not, without written
consent of the ranking Administrative officer.
7.2 Upon termination of Employee's employment, until the second anniversary of
the date of such termination, Employee agrees that, regardless of the date or
cause of termination of employment or whether the termination shall be with or
without cause, (s)he will not, directly or indirectly, either as principal,
agent, officer, director, employee, or in any similar capacity, engage in or
perform consulting or any other services for, or have a financial interest in,
or own of record or beneficially five percent (5%) or more of any class of
equity security (or any class of securities convertible to an equity security),
in an entity which competes with any actual or planned product or service of
Embrex or is engaged in a research and/or development program intended to result
in a product or service competitive with an actual or planned product or service
of EMBREX.
8. TECHNIQUES, DISCOVERIES, AND INVENTIONS
8.1 Employee agrees that any and all sales of manufacturing techniques,
inventions, discoveries or improvements in the products or processes or the
merchandising thereof, of EMBREX, which Employee may create, devise, make,
discover, introduce, or invent while employed by EMBREX shall belong to and be
the sole property of EMBREX. Employee agrees promptly and fully to disclose the
same to EMBREX.
8.2 It is recognized between EMBREX and Employee that EMBREX has acquired and
developed, and will continue to develop formulae, techniques, plans, processes,
procedures, devices and materials, and lists of customers and their particular
requirements which may pertain to many and varied products and equipment, which
are secret and confidential in character and are, and will continue to be, of
great and unique value to it, which are now and will continue to be, used in its
business (hereinafter referred to as "secret information"). Much of such secret
information existing on the date hereof is known to Employee, by reason of his/
her position, and future secret information on EMBREX will be disclosed to
Employee, as required for proper performance of duties hereunder and other
duties as (s)he may have to EMBREX.
8.3 Employee agrees that all such secret information heretofore or hereafter
received will be kept and maintained as confidential and in complete secrecy,
and Employee shall not disclose at any time, either orally or in writing, or
otherwise, in any manner, directly or indirectly, any knowledge or information
Employee has acquired or any trade secret relating to EMBREX or its
subsidiaries, with the exception of disclosure of such information; (i) to
employees of EMBREX who have a need to know it to properly carry out their
duties on behalf of EMBREX and (ii) in the ordinary course of EMBREX business to
customers, suppliers, subcontractors and parties similarly situated.
8.4 Employee agrees that, while an employee of EMBREX and for two years
thereafter, at least fifteen days before release of publication of any
scientific paper or contributions to periodicals dealing with or making
reference to a subject of interest to EMBREX, Employee will make available to
EMBREX a copy of what is to be published.
9. DELIVERY OF DATA
Employee agrees to deliver to EMBREX promptly at the termination of employment
or at any other time EMBREX may request, all memoranda, notes, records,
sketches, plans, or other documents which are in Employee's possession or under
his/her control concerning costs, uses, application or purchases of products
made for or by EMBREX (or any subsidiary, affiliate, or licensee of EMBREX) or
product, process, formula, or manufacturing method used, developed, produced, or
investigated by EMBREX (or any subsidiary, affiliate or licensee of EMBREX),
during his/her employment hereunder.
<PAGE>
GENERAL PROVISIONS
PROFESSIONAL AND CONFIDENTIAL
10. INJUNCTIVE RELIEF
Employee agrees that the remedy at law for any breach of the provisions of
paragraphs 7, 8, and/or 9 of this Agreement will be inadequate and that EMBREX
shall be entitled to injunctive relief in addition to any other remedy they
might have as so ordered by a Court.
11, SEVERABILITY
The provisions of paragraphs 7, 8, 9, and 10 are severable, and in the event
any portion or portions thereof are held to be invalid, such invalidity shall
not affect the validity of the remaining portion or portions.
12. SEVERANCE
If Employer terminates Employee's employment under this Agreement without
cause, then Employee shall be entitled to receive from Employer an amount equal
to "Severance Months" months of Employee's then current salary, payable in
"Severance Pay" equal monthly installments, without interest, commencing one
month after termination.
13. NOTICES
All notices, request, demands, and other communication hereunder shall be in
writing and shall be deemed to have been duly given if mailed by certified or
registered mail, return receipt requested, to the respective parties at their
addresses appearing above or their last known addresses.
14. ASSIGNMENT
The Agreement shall not be assignable by either party except pursuant to a
merger, consolidation or other reorganization of EMBREX.
15. SUCCESSORS IN INTEREST
This Agreement shall be binding on the parties hereto, their heirs, executors,
administrators, successors (whether by merger, consolidation, or otherwise), and
assigns. The parties hereby agree for themselves, their heirs, executors
administrators, successors, and assigns, to execute any instruments and to
perform any acts which may be necessary or proper to carry out the purposes of
the Agreement, but the failure to execute such instruments will not affect the
rights of any party hereto or the obligations of any estate, as provided in this
Agreement.
16. LAW OF THE AGREEMENT
This Agreement shall be subject to and governed by the laws of the State of
North Carolina. The provisions of this Agreement are severable, and in the event
any portion or portions hereof are held to be invalid, such invalidity shall not
affect the validity of the remaining portion or portions. If any court or other
competent authority shall hold a portion of this Agreement invalid, unless
modified in a manner described by the court or competent authority, that portion
shall be deemed modified accordingly.
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is made and entered into by Embrex,
Inc., a North Carolina corporation, ("Employer") and Don Seaquist ("Employee").
Employer and Employee may be collectively referred to as "the parties".
WHEREAS, the parties entered into an Employment Agreement dated
8/20/96 (the "Agreement");
WHEREAS, Employee continues to be employed by Employer; and
WHEREAS, the parties both desire to amend the prior Employment Agreement
as set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree to amend
their prior Agreement as follows:
The Agreement is hereby amended by deleting Paragraph 12, Termination
and Liquidated Damages and inserting in lieu thereof the following:
12. Severance. If Employer terminates Employee's employment under this
Agreement without cause, then Employee shall be entitled to receive from
Employer an amount equal to 12 months of Employee's then current salary,
payable in 12 equal monthly installments, without interest, commencing one
month after termination.
IN WITNESS WHEREOF, the parties have executed this Amendment to Employment
Agreement, this the 9th day of September, 1996.
(Sig of Don Sequist)
____________________________
Employee
EMBREX, INC.
By: (signature of Randall L. Marcuson)
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("AGREEMENT"), is made and entered
into this 9th day of September, 1996 by and between Embrex, Inc. ("Company"),
a North Carolina corporation, and Don T. Seaquist ("Employee").
WHEREAS, the Board of Directors ("Board") of the Company considers the
maintenance of a vital management group to be essential in protecting and
enhancing the best interests of the Company and its shareholders;
WHEREAS, the Board recognizes that the possibility of a Change in Control (as
hereinafter defined) exists and that the threat of or the occurrence of a
Change in Control can result in significant distractions of its key management
personnel because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is in the best interest of the
Company and its shareholders to ensure the Employee's continued dedication and
efforts on behalf of the Company; and
WHEREAS, in order to induce the Employee to remain in the employ of the
Company, particularly in the event of a threat of or the occurrence of a Change
in Control and to dispel any concerns that the Employee may have about taking an
active part in the defense against an inappropriate attempt to bring about a
Change in Control of the Company, the Company desires to enter into this
Agreement with the Employee to provide the Employee with certain payments and
benefits in the event that his employment with the Company is terminated as a
result of, or in connection with, a Change in Control.
NOW, THEREFOR, in consideration of the mutual agreements herein set forth, the
legal sufficiency and adequacy of which are hereby acknowledged, the parties
agree as follows:
1. Employment. Employee acknowledges that he is employed with the Company
pursuant to an Employment Agreement dated September 9th, 1996 and hereby agrees
that to the extent any provision of this Agreement should be contrary to any
provision of the Employment Agreement, the terms of this Agreement shall
control.
2. Definitions. For purposes of this Agreement, the following terms have the
<PAGE>
meanings indicated:
(A) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates (as such term is hereinafter
defined) and Associates (as such term is hereinafter defined) of such Person,
shall be the Beneficial Owner (as such term is hereinafter defined) of
thirty-three percent (33%) or more of the shares of Common Stock then
outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the
Company, (iii) any employee benefit plan or employee stock plan of the Company
or of any Subsidiary of the Company, (iv) any dividend reinvestment plan of the
Company, or (v)any Person or entity organized, appointed, or established by the
Company for or pursuant to the terms of such plan. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Stock by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to thirty-five percent (33%) or more of the Common Stock of
the Company then outstanding; provided, however, that if a Person shall become
the Beneficial Owner of thirty-three (33%) or more of the Common Stock of the
Company, then outstanding by reason of such an acquisition and shall, after such
acquisition, become the Beneficial Owner of any additional shares of Common
Stock, then such Person shall be deemed to be an "Acquiring Person." In
addition, notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring Person,", as deemed pursuant to the foregoing provisions of this
Paragraph (A), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of shares of Common Stock to that
such Person would no longer be an "Acquiring Person" as defined pursuant to the
foregoing provisions of this Paragraph (A), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement.
(B) "Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities
2
<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act").
(C) A Person shall be deemed that "Beneficial Owner" of and shall be deemed to
"beneficially own," any securities:
(i) which such Person or any such Person's Affiliates or Associates,
directly or indirectly, has the right or obligation to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding (whether or not in writing) or
upon the exercise of conversion rights, exchange rights, rights, warrants or
options, or otherwise; provided, however, that a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," (a) securities tendered
pursuant to a tender or exchange offer made by such Person or any of such
Person's Affiliates or Associates until such tendered securities are accepted
for purchase or exchange, or (b) at any time prior to the occurrence of a
Triggering Event, securities issuable upon exercise of the Rights ("Triggering
Event" and "Rights" shall have the respective meanings ascribed to such terms
as set forth in the Rights Agreement Agent, dated as of March 21, 1996 and as
in effect on the date hereof ("Right Agreement")), or (c) from and after the
occurrence of a Triggering Event, securities issuable upon exercise of Rights
which were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date (as defined in the Rights Agreement)
or pursuant to Section 3(a) or Section 22 of the Rights Agreement (the
"Original Rights") or pursuant to Section 11(i) of the Rights Agreement in
connection with an adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has the right to vote or dispose of or has "beneficial
ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and
3
<PAGE>
Regulations under the Exchange Act and any successor provision thereof),
including pursuant to any agreement, arrangement or understanding, whether
or not in writing; provided, however, that a Person shall not be deemed
the "Beneficially Owner" of, or to "beneficially own," any security under this
subparagraph (ii) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or understanding; (a)
arises solely from a revocable proxy given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under the
Exchange Act, and (b) is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor report);
or
(iii) which are beneficially owned, directly or indirectly, by any other
Person (or any Affiliate or Associate thereof) with which such Person (or any
of such Person's Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), but excluding customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering or securities until the expiration of forty days after
the date of such acquisition, for the purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as described in the provision to
subparagraph (ii) of this paragraph (C)) or disposing of any voting securities
of the Company.
(D) "Continuing Director" shall mean (i) any member of the Board of Directors
of the Company, while such Person is a member of the Board of Directors, who is
not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or
a representative of an Acquiring Person or of any such Affiliate or Associate,
and was a member of the Board of Directors prior to the date of this Agreement,
or (ii) any Person who subsequently becomes a member of the Board of Directors,
while such Person is a member of the Board of Directors, who is not an
Acquiring Person, or an Affiliate or Associate of an
4
<PAGE>
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, if such Person's nomination for election or election
to the Board of Directors is recommended or approved by a majority of the
Continuing Directors.
(E) "Person" shall mean any individual, firm, corporation, partnership,
limited liability company or other entity.
(F) "Subsidiary" shall mean, with reference to any other Person, any
corporation or other entity of which securities or other ownership interest
having ordinary voting power, in the absence of contingencies, to elect at least
a majority of the directors or other persons performing similar functions is
beneficially owned, directly or indirectly, by such Person, or which is
otherwise controlled by such Person.
(G) "Termination Date" shall mean the date on which the Employee's employment
with the Company is terminated by the Employee for Good Reason or by the
Company for reasons other than Cause, Disability, or death.
3. Change in Control. For purposes of this Agreement, a "Change in Control"
shall mean the occurrence of any one of the following events:
(A) Any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan or employee stock plan of the Company or of any
Subsidiary of the Company, any dividend reinvestment plan of the Company, or any
Person or entity organized, appointed, or established by the Company for or
pursuant to the terms of any such plan) alone or together with its Affiliates
or Associates, shall, at any time after the date hereof, become an Acquiring
Person; or
(B) The Continuing Directors cease for any reason to constitute a majority
of the Board of Directors of the Company; or
(C) Directly or indirectly:
(i) the Company shall consolidate with, or merger with and into, any
other Person (other than a Subsidiary of the Company), and the Company shall
not be the continuing or surviving corporation of such consolidation or
merger;
<PAGE>
or
(ii) any Person (other than Subsidiary of the Company) shall consolidate
with, or merger with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger, and in
connection with such consolidation or merger, all of part of the outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property; or
(iii) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer) in one transaction or a series
of related transactions, assets or earning power aggregating more than fifty
percent (50%) of the assets of earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the
Company or any Subsidiary of the Company).
4. Termination Following Change in Control. After the occurrence of a Change
in Control, Employee shall be entitled to receive payments and benefits pursuant
to this Agreement if, within two (2) years after the occurrence of a Change in
Control, his employment with the Company is terminated under any of the
following circumstances:
(A) The company terminates Employee's employment for reasons other than
"Cause," "Disability," or death. For purposes of this Agreement, "Clause" shall
be defined as:
(i) the willful and continued failure by Employee to perform
substantially his duties with the Company (other than any such failure
resulting from his Disability) for a significant period of time, after a
demand for substantial performance is delivered to Employee by the Board or a
committee thereof, which specifically identifies the manner in which the Board
believes that the Employee has not substantially performed his duties; or
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<PAGE>
(ii) the willful engaging by Employee in gross misconduct materially and
demonstrably injurious to the Company. No act, or failure to act, on
Employee's part shall be considered "willful" unless done, or omitted to be
done, by Employee in the absence of good faith and without a reasonable belief
that his action or failure to act was in the best interest of the Company.
For purposes of this Agreement, "Disability" shall mean a physical or mental
infirmity which impairs the Employee's ability substantially to perform his
employment duties for the Company and which continues for a period of at least
one hundred and eighty (180) consecutive days.
(B) The Employee terminates his employment with the Company for "Good
Reason." For purposes of this Agreement, "Good Reason" shall mean the occurrence
after a Change in Control of any of the following events or conditions:
(i) a change in the Employee's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Employee's reasonable judgment, represents an adverse change from his status,
title, position or responsibilities in effect immediately prior thereto; the
assignment to Employee of any duties or responsibilities which in the
Employee's reasonable judgment, are inconsistent with his status, title,
position or responsibilities; or any removal of Employee from or failure to
reappoint or reelect him to any of such positions, status, or title except
in connection with the termination of his employment for Disability, Cause,
or death, or by the Employee other than for Good Reason;
(ii) a reduction in the Employee's base salary;
(iii) the Company's requiring the Employee to be based at any place
outside a 30 mile radius from Durham, North Carolina, except for reasonably
required travel on the Company's business which is not greater than such
travel requirements prior to the Change in Control;
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<PAGE>
(iv) the failure by the Company to continue in effect any compensation,
welfare or benefit plan in which Employee is participating at the time of a
Change in Control without substituting plans providing Employee with
substantially similar or greater benefits, or the taking of any action by the
Company which would adversely affect Employee's participating in or materially
reduce Employee's benefits under any of such plans or deprive Employee or any
materially reduce Employee's benefits under any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee at the time of the
Change in Control;
(v) any purported termination of Employee's employment for Cause or
Disability without grounds therefore;
(vi) the insolvency or the filing (by any party including the Company) of
a petition for bankruptcy of the Company;
(vii) any material breach by the Company of any provision of this
Agreement; or
(viii) the failure of the Company to obtain an agreement, satisfactory to
the Employee, from any successor or assign of the Company to assume and agree
to perform this Agreement.
5. Severance Pay and Benefits. In the event that Employee's employment with
the Company terminates under any of the circumstances described in Paragraph 4
above, Employee shall be entitled to receive all of the following:
(A) all accrued compensation and any pro-rata bonuses Employee may have
earned up to the Termination Date;
(B) a severance payment equal to two and nine-tenths (2.9) times the amount
of the Employee's more recent annual compensation, including the amount of his
most recent annual bonus. The severance payment shall be paid in thirty-four
(34) equal monthly installments without interest, commencing one month after
the Termination Date:
8
<PAGE>
(C) a continuation of benefits. The Company shall maintain in full force and
effect, for two (2) years after the Termination Date, all life insurance,
health, accidental death and dismemberment, and disability plans and other
benefit programs in which Employee is entitled to participate immediately prior
to the Termination Date provided that Employee's continued participation is
possible under the general terms and provisions of such plans and programs.
Employee's continued participation in such plans and programs shall be at no
greater cost to Employee than the cost he bore for such participation
immediately prior to the Termination Date. If Employee's participation in any
such plan or program is barred, the Company shall arrange upon comparable
terms, and at no greater cost to Employee than the cost he bore for such plans
and programs prior to the Termination Date, to provide Employee with benefits
substantially similar to, or greater than, those which he entitled to receive
under any such plan or program; and
(D) a lump sum payment (or otherwise as specified by Employee to the extent
permitted by the applicable plan) of any and all amounts contributed to a
Company pension or retirement plan which Employee is entitled to under the
terms of any such plan.
6. No Duty to Mitigate. Employee shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent
employment. The severance pay and benefits under this Agreement shall be in lieu
of any other severance pay to which Employee may be entitled from the Company.
7. Stock Options. Upon the occurrence of a Change in Control, all stock
options shall immediately vest and, except as may be required by the nature
of the transaction constituting the Change in Control, the options shall remain
exercisable for the duration of the original option term. If plans or agreements
to which outstanding options have been issued do not provide for immediate
vesting, the Company shall use its best efforts to effect amendments permitting
the acceleration of vesting so long as no material adverse accounting
9
<PAGE>
treatment results to the Company.
8. Fees and Expenses. The Company agrees that if Employee is entitled to any
severance pay or benefits under this Agreement, and the Company or its
survivor disputes the obligation to pay such severance pay or benefits and the
Employee prevails, in whole or in part, the Company or its survivor shall
promptly pay or reimburse Employee for all expense incurred by Employee in such
dispute, including, but not limited to, attorneys fees and associated expenses.
9. Excise Tax Payments.
(A) In the event that any payment or benefit (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to
the Employee or for his benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, his employment with this Company or a change in ownership or
effective control of the Company or of a substantial portion of its assets (a
"Payment" or "Payments"), would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Employee 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 Employee will be entitled to receive an additional payment (a "Gross-Up
Payment") in any amount such that after payment by the Employee of all taxes
(including any interest or penalties, other than interest and penalties imposed
by reason of the Employee's failure to file timely a tax return or pay taxes
shown due on his return, imposed with respect to such taxes and the Excise Tax),
including any Excise Tax imposed upon the Gross-Up Payment, the Employee retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(B) An initial determination as to whether a Gross-Up Payment is required
pursuant to this Agreement and the amount of such Gross-Up Payment shall be made
at the Company's expense by an accounting firm selected by the Company and
reasonably
10
<PAGE>
acceptable to the Employee which is designated as one of the five largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation to the Company and the
Employee within ten days of the Termination Date if applicable, or such other
time as requested by the Company or by the Employee (provided the Employee
reasonably believes that any of the Payments may be subject to the Excise Tax)
and if the Accounting Firm determines that no Excise Tax is payable by the
Employee with respect to a Payment or Payments, it shall furnish the Employee
with an opinion reasonably acceptable to the Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments. Within ten days of the
delivery of the Determination to the Employee, the Employee shall have the
right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if
any, as determined pursuant to this Paragraph 9(B) shall be paid by the Company
to the Employee within five days of the receipt of the Accounting Firm's
determination. The existence of the Dispute shall not in any way affect the
Employee's right to receive the Gross-Up Payment in accordance with the
Determination. Upon the final resolution of a Dispute, the Company shall
promptly pay to the Employee any additional amount required by such resolution.
If there is no Dispute, the Determination shall be binding, final and conclusive
upon the Company and the Employee subject to the application of Paragraph 9(C)
below.
(C) Notwithstanding anything in this Agreement to the contrary, in the
event that, according to the Determination, an Excise Tax will be imposed on any
Payment or Payments, the Company shall pay to the applicable government taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment or Payments.
10. Successor and Assigns.
(A) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors, and assigns, and the Company shall require any
successor or
11
<PAGE>
assign to expressly assume 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 or assignment had taken place.
(B) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Employee, his beneficiaries, or legal
representatives except by will or by the laws of dissent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal personal representative.
11. Notice. Notice as provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person or mailed by
United States Registered Mail, Return Receipt Requested. Postage Pre-Paid,
addressed to the respective addressed last given by each party to the other,
provided that all notices to the Company shall be directed to the attention
of the Board with a copy to Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, Attn. Gerald F. Roach, Post Office Box 2611, Raleigh, North Carolina
27602-2611, counsel for the Company. All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day of the mailing thereof, except that notice of change of address
shall be effective only upon receipt.
12. Modifications. No provision of this Agreement may be modified, waived, or
discharged unless such modification, waiver, or discharge is agreed to in
writing signed by the Employee and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with,
any conditional provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions of
the same at any prior or subsequent time.
13. Entire Agreement. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.
14. Governing Law. This Agreement shall be governed by and construed and
12
<PAGE>
enforced in accordance with the laws of the State of North Carolina.
15. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
EMBREX, INC.
By: (Signature of Randall L. Marcuson)
Title: President & CEO
ATTEST
EMPLOYEE: (sig of Don T. Seaquist)
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<PAGE>
(embrex logo appears here)
August 8, 1996
Dr. Rick Ryan
440 Coronado
Ballwin, MO
Dear Rick:
It is our pleasure to formally welcome you to the Embrex family, effective
on August 26, 1996. Your starting compensation will be at the rate of
$10,833.33 per month.
Upon commencing employment at EMBREX, you will be entitled to receive an
Incentive Stock Option for 30,000 shares of EMBREX Common Stock at an option
price per share at fair market value on date of grant. These options will vest
equally over four years from the date of grant. This stock option is subject to
the approval and grant by the Compensation Committee of the EMBREX Board of
Directors at their next scheduled meeting.
Enclosed is an advance orientation package. You may want to peruse the
information and complete the enclosed forms prior to your orientation, which
is scheduled for 9:00 a.m. on August 26, 1996. For your orientation, you will
need your authorization to work in the U.S. (driver's license and social
security card or passport), the full names, birth dates, and social security
numbers of any dependents, and a clean copy of your current resume. You should
also bring a copy of your current optical prescription if you want prescription
safety glasses.
We are offering a 2-year extended relocation package, which includes
reimbursing you or a third party for closing costs associated with the sale of
your home in Missouri and the purchase of a home in the Raleigh area (exclusive
of discount points, prepaids, association dues, memberships and other personal
expenses), transportation of household goods, two 7-day house hunting trips for
you and your family, temporary living expenses not to exceed 30 days and a
travel allowance, not to exceed $15,000 over the 2-year period. The $15,000
allowance will be treated as taxable wages; it and the tax gross-up will be
posted to your W-2. In addition, you are entitled to a fully-taxable $2,000
incidental allowance, which you may use in any way you please.
Please sign both copies of this letter, retain one for your personal files
and return one to the Company for our records.
We are pleased to have you aboard and look forward to working with you.
Sincerely yours,
/s/ Randall L. Marcuson
Randall L. Marcuson
President and CEO
Agreed and accepted:
_______________________________ ____________________
Date
_______________________________________________________________________________
Mail: P.O. Box 13989, Research Triangle Park, NC 27709-3989 Ph:(919) 941-5185
Ship: 1035 Swabia Court, Durham, NC 27703 Fax:(919) 941-5186
Embrex is an Equal Employment Opportunity/Affirmative Action Employer
<PAGE>
(Embrex logo appears here)
GENERAL PROVISIONS
TO
EMPLOYMENT AGREEMENT
BETWEEN
EMBREX, INC.
AND
Rick L. Ryan
PERSONAL AND CONFIDENTIAL
1. EMPLOYMENT
EMBREX hereby employs Employee and Employee accepts such employment and
agrees to perform for EMBREX the duties described herein, faithfully and to
the best of his/her ability.
2. TERM OF EMPLOYMENT
Employee's employment hereunder shall commence on the date noted on the cover
letter and shall continue at the pleasure of the Company. A probationary period
of 180 days shall be observed, so long as Employee is performing at a
satisfactory level. At the conclusion of probationary period, Employee shall be
given a performance evaluation.
3. DUTIES
Employee agrees to devote full time and attention to the business and affairs
of EMBREX, to use his/her best efforts to promote the interest of EMBREX, to
hold such offices in EMBREX to which elected or appointed, and to perform such
tasks, commensurate with the position, as are assigned by the or other
designated individuals.
4. COMPENSATION
4.1 EMBREX will pay Employee, for services rendered hereunder, a salary
separately agreed to, payable in equal monthly installments. The Company will
review this base salary on an annual bases and will determine in its sole
discretion whether to provide a merit increase to the base salary.
4.2 The parties hereto agree that Employee shall be entitled to participate
in all retirement, profit-sharing, compensation, insurance or other benefit
plans generally available EMBREX employees which are presently in affect or
which may be established during the term hereof.
4.3 The terms and conditions of employment (salary, equity and/or other forms
of compensation) are strictly a personal matter between Employee and the
Company and will be shared only with Employee's supervisors having salary
administration responsibility.
5. EXPENSES
Upon commencement of employment, Employee will be reimbursed by EMBREX for
all approved expenses which are reasonably incurred thereafter during the
performance of duties in furtherance of or in connection with the business of
EMBREX or its subsidiaries.
_______________________________________________________________________________
Mail: P.O. Box 13989, Research Triangle Park, NC 27709-3989 Ph:(919) 941-5185
Ship: 1035 Swabia Court, Durham, NC 27703 Fax:(919) 941-5186
Embrex is an Equal Employment Opportunity/Affirmative Action Employer
<PAGE>
GENERAL PROVISIONS
PERSONAL AND CONFIDENTIAL
6. FAMILY AND MEDICAL LEAVE
Employee shall be entitled to the benefits provided by the Family and Medical
Leave Act of 1993, as amended (the "Act"), upon completing one year of service
as a regular, full-time employee. During any period in which Employee does not
qualify as an eligible employee or Employee exceeds the period of leave
authorized in the Act, EMBREX may, if it so elects, declare the Employee's
employment terminated on thirty (30) days notice given in accordance with the
provisions hereof.
7. EMPLOYEE NOT TO WORK FOR OTHERS
7.1 During the term of this Agreement, Employee agrees work for other business
firm, whether competitive with EMBREX or not, without written consent of the
ranking Administrative officer.
7.2 Upon termination of Employee's employment, until the second anniversary
of the date of such termination, Employee agrees that, regardless of the date
or cause of termination of employment or whether the termination shall be with
or without cause, (s)he will not, directly or indirectly, either as principal,
agent, officer, director, employee, or in any similar capacity, engage in or
perform consulting or any other services for, or have a financial interest in,
or own of record or beneficially five percent (5%) or more of any class of
equity security (or any class of securities convertible to an equity security),
in an entity which competes with any actual or planned product or service of
Embrex or is engaged in a research and/or development program intended to
result in a product or service competitive with an equal or planned product
or service of EMBREX.
8. TECHNIQUES, DISCOVERIES, AND INVENTIONS
8.1 Employee agrees that any and all sales of manufacturing techniques,
inventions, discoveries or improvements in the products or processes or the
merchandising thereof, of EMBREX, which Employee may create, devise, make,
discover, introduce, or invent while employed by EMBREX shall belong to and be
the sole property of EMBREX. Employee agrees promptly and fully to disclose
the same to EMBREX.
8.2 It is recognized between EMBREX and Employees that EMBREX has acquired
and developed, and will continue to develop formulas, techniques, plans,
processes, procedures, devices and materials, and lists of customers and their
particular requirements which may pertain to many and varied products and
equipment, which are secret and confidential in character and are, and will
continue to be, of great and unique value to it, which are now and will continue
to be, used in its business (hereinafter referred to as "secret information").
Much of such secret information existing on the date hereof is known to
Employee, by reason of his/her position, and future secret information on
EMBREX will be disclosed to Employee, as required for proper performance of
duties hereunder and other duties as (s)he may have to EMBREX.
8.3 Employee agrees that all such secret information heretofore or hereafter
received will be kept and maintained as confidential and in complete secrecy,
and Employee shall not disclose at any time, either orally or in writing, or
otherwise, in any manner, directly or indirectly, any knowledge or information
Employee has acquired or any trade secret relating to EMBREX or its
subsidiaries, with the exception of disclosure of such information: (i) to
employees of EMBREX who have a need to know it to properly carry out their
duties on behalf of EMBREX and (ii) in the ordinary course of EMBREX business
to customers, suppliers, subcontractors and parties similarly situated.
8.4 Employee agrees that, while an employee of EMBREX and for two years
thereafter, at least fifteen days before release of publication of any
scientific paper or contributions to periodicals dealing
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<PAGE>
GENERAL PROVISIONS
PERSONAL AND CONFIDENTIAL
with or making reference to a subject of interest to EMBREX, Employee will make
available to EMBREX a copy of what is to be published.
9. DELIVERY OF DATA
Employee agrees to deliver to EMBREX promptly at the termination of employment
or at any other time EMBREX may request, all memoranda, notes, records,
sketches, plans, or other documents which are in Employee's possession or under
his/her control concerning costs, uses, application or purchases of products
made for or by EMBREX ( or any subsidiary, affiliate, or licensee of EMBREX)
or any product, process, formula, or manufacturing method uses, developed,
produced, or investigated by EMBREX (or any subsidiary, affiliate or licensee
of EMBREX), during his/her employment hereunder.
10. INJUNCTIVE RELIEF
Employee agrees that the remedy at law for any breach of the provisions of
paragraphs 7, 8, and/or 9 of this Agreement will be inadequate and that EMBREX
shall be entitled to injunctive relief in addition to any other remedy they
might have as so ordered by a Court.
11. SEVERABILITY
The provisions of paragraphs 7, 8, 9, and 10 are severable, and in the event
any portion or portions thereof are held to be invalid, such invalidity shall
not affect the validity of the remaining portion or portions.
12. TERMINATION AND LIQUIDATED DAMAGES
If EMBREX shall terminate the employment of Employee without cause or because
of death, then EMBREX shall be liable to Employee for salary payable pursuant
to 4.1 for one month. No sums shall be due pursuant to any other portion of 4
in the event of termination. The parties agree that this sum is a reasonable
approximation of the actual damages which they presently anticipate would
result from a termination of Employee's employment, and further agree that this
clause is inserted herein not as a penalty but for the sole purpose of avoiding
the difficulty of proof of the actual damages.
13. NOTICES
All notices, requests, demands, and other communication hereunder shall be
in writing and shall be deemed to have been duly given if mailed by certified
or registered mail, return receipt requested, to the respective parties at
their addresses appearing above or their last known addresses.
14. ASSIGNMENT
The Agreement shall not be assignable by either party except pursuant to a
merger, consolidation or other reorganization of EMBREX.
15. SUCCESSORS IN INTEREST
This Agreement shall be binding on the parties hereto, their heirs, executors,
administrators, successors (whether by merger, consolidation, or otherwise),
and assigns. The parties hereby agree for themselves, their heirs, executors,
administrators, successors, and assigns, to execute any instruments and to
perform any acts which may be necessary or proper to carry out the purposes
of the Agreement.
5
<PAGE>
GENERAL PROVISIONS
PERSONAL AND CONFIDENTIAL
but the failure to execute such instruments will not affect the rights of any
party hereto or the obligations of any estate, as provided in this Agreement.
16. LAW OF THE AGREEMENT
This Agreement shall be subject to and governed by the laws of the State of
North Carolina. The provisions of this Agreement are severable, and in the event
any portion or portions hereof are held to be invalid, such invalidity shall
not affect the validity of the remaining portion or portions. If any court or
other competent authority shall hold a portion of this Agreement invalid,
unless modified in a manner described by the court or competent authority,
that portion shall be deemed modified accordingly.
6
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is made and entered into by Embrex,
Inc., a North Carolina corporation, ("Employer") and Rick L. Ryan ("Employee").
Employer and Employee may be collectively referred to as "the parties".
WHEREAS, the parties entered into an Employment Agreement dated 8/26/96
(the "Agreement");
WHEREAS, Employee continues to be employed by Employer; and
WHEREAS, the parties both desire to amend the prior Employment Agreement
as set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree to amend their
prior Agreement as follows:
The Agreement is hereby amended by deleting Paragraph 12, Termination and
Liquidated Damages and inserting in lieu thereof the following:
12. Severance. If Employer terminates Employee's employment under this
Agreement without cause, then Employee shall be entitled to receive from
Employer an amount equal to 12 months of Employee's then current salary,
payable in 12 equal monthly installments, without interest, commencing one
month after termination.
IN WITNESS WHEREOF, the parties have executed this Amendment to Employment
Agreement this the 26th day of August, 1996.
/s/ Rick Ryan
Employee
EMBREX, INC.
By: /s/ Randall L. Marcuson
N:\4327.1\AMENDEMP
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement"), is made and entered
into this 26th day of August, 1996 by and between Embrex, Inc. ("Company"), a
North Carolina corporation, and Rick L. Ryan ("Employee").
WHEREAS, the Board of Directors ("Board") of the Company considers the
maintenance of a vital management group to be essential in protecting and
enhancing the best interests of the Company and its shareholders;
WHEREAS, the Board recognizes that the possibility of a Change in Control
(as hereinafter defined) exists and that the threat of or the occurrence of a
Change in Control can result in significant distractions of its key management
personnel because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is in the best interest of the
Company and its shareholders to ensure the Employee's continued dedication and
efforts on behalf of the Company; and
WHEREAS, in order to induced the Employee to remain in the employ of the
Company, particularly in the event of a threat of or the occurrence of a Change
in Control and to dispel any concerns that the Employee may have about taking
an active part in the defense against an inappropriate attempt to bring about
a Change in Control of the Company, the Company desires to enter into this
Agreement with the Employee with certain payments and benefits in the event
that his employment with the Company is terminated as a result of, or in
connection with, a Change in Control.
NOW THEREFORE, in consideration of the mutual agreements herein set forth,
the legal sufficiency and adequacy of which are whereby acknowledged, the
parties agree as follows:
1. Employment. Employee acknowledges that he is employed with the Company
pursuant to an Employment Agreement dated August 26th, 1996 and hereby agrees
that to the extent any provision of this Agreement should be contrary to any
provision of the Employment Agreement, the terms of this Agreement shall
control.
2. Definitions. For purposes of this Agreement, the following terms have the
<PAGE>
meanings indicated:
(A) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates (as such term is hereinafter
defined) and Associates (as such term is hereinafter defined) of such Person,
shall be the Beneficial owner (as such term is hereinafter defined) of thirty-
three percent (33%) or more of the shares of Common Stock then outstanding, but
shall not include (i) the Company, (ii) any Subsidiary of the Company,
(iii) any employee benefit plan or employee stock plan of the Company or of any
Subsidiary of the Company, (iv) any dividend reinvestment plan of the Company
or, (v) any Person or entity organized, appointed, or established by the
Company for or pursuant to the terms of such plan. Notwithstanding the
foregoing, no Person shall become an "Acquiring Person" as the result of an
acquisition of Common Stock by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to thirty-three percent (33%) or more of the Common Stock
of the Company then outstanding; provide, however, that if a Person shall become
the Beneficial Owner of thirty-three (33%) or more of the Common Stock of the
Company, then outstanding by reason of such an acquisition and shall, after
such acquisition, become the Beneficial Owner of any additional shares of
Common Stock, then such Person shall be deemed to be an "Acquiring Person." In
addition, notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
Paragraph (A), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of shares of Common Stock so that
such Person would no longer be an "Acquiring Person" as defined pursuant to the
foregoing provisions of this Paragraph (A), then such Person shall not be
deemed to be an "Acquiring Person" for any purposes of this Agreement.
(B) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities
2
<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act").
(C) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to
"beneficially own," any securities:
(i) which such Person or any of such Persons's Affiliates or Associates,
directly or indirectly, has the right or obligation to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (whether or not in writing) or upon
the exercise of conversion rights, exchange rights, rights, warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," (a) securities tendered
pursuant to a tender or exchange offer made by such Person or any of such
Person's Affiliates or Associates until such tendered securities are accepted
for purchase or exchange, or (b) at any time prior to the occurrence of a
Triggering Event, securities issuable upon exercise of the Rights ("Triggering
Event" and "Rights" shall have the respective meanings ascribed to such terms
as set forth in the Rights Agreement between Embrex, Inc. and Branch Banking
& Trust Company as Rights Agent, dated as of March 21, 1996 and as in effect on
the date hereof ("Rights Agreement")), or (c) from and after the occurrence of
a Triggering Event, securities issuable upon exercise of Rights which were
acquired by such Person or any of such Person's Affiliates or Associates prior
to the Distribution Date (as defined in the Rights Agreement) or pursuant to
Section 3(a) or Section 22 of the Rights Agreement (the "Original Rights") or
pursuant to Section 11(i) of the Rights Agreement in connection with an
adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has the right to vote or dispose of or has "beneficial
ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and
3
<PAGE>
Regulations under the Exchange Act and any successor provision thereof), in-
cluding pursuant to any agreement, arrangement or understanding, whether or not
in writing; provided, however, that a person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," any security under this subparagraph (ii)
as a result of an agreement, arrangement or understanding to vote such security
if such agreement, arrangement or understanding: (a) arises solely from a
revocable proxy given in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable provisions of the
General Rules and Regulations under the Exchange Act, and (b) is not also then
reportable by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person (or any Affiliate or Associate thereof) with which such Person (or any
of such Person's Affiliates or Associates) has any agreement, arrangement or
understanding (whether or not in writing), but excluding customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering of securities until the expiration of forty days after the
date of such acquisition, for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in the provision to subparagraph (ii)
of this paragraph (C) or disposing of any voting securities of the Company.
D "Continuing Director" shall mean (i) any member of the Board of Directors of
the Company, while such Person is a member of the Board of Directors, who is
not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or
a representative of an Acquiring Person or of any such Affiliate or Associate,
and was a member of the Board of Directors prior to this Agreement, or (ii) any
Person who subsequently becomes a member of the Board of Directors, while such
Person is a member of the Board of Directors, who is not an Acquiring Person,
or an Affiliate or Associate of an
4
<PAGE>
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, if such Person's nomination for election or election
to the Board of directors is recommended or approved by a majority of the
Continuing Directors.
(E) "Person" shall mean any individual, firm, corporation, partnership,
limited liability company or other entity.
(F) "Subsidiary" shall mean, with reference to any other Person, any
corporation or other entity of which securities or other ownership interests
having ordinary voting power, in the absence of contingencies, to elect at
least a majority of the directors or other persons performing similar functions
is beneficially owned, directly or indirectly, by such Person, or which is
otherwise controlled by such Person.
(G) "Termination Date" shall mean the date on which the Employee's employment
with the Company is terminated by the Employee for Good Reason or by the
Company for reasons other than Cause, Disability, or death.
3. Change in Control. For purposes of this Agreement, a "Change in Control"
shall mean the occurrence of any one of the following events:
(A) Any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan or employee stock plan of the Company or of any Subsidiary
of the Company, any dividend reinvestment plan of the Company, or any Person or
entity organized, appointed, or established by the Company for or pursuant to
the terms of any such plan) alone or together with its Affiliates or Associates,
shall, at any time after the date hereof, become an Acquiring Person; or
(B) The Continuing Directors cease for any reason to constitute a majority
of the Board of Directors of the Company; or
(C) Directly or indirectly:
(i) the Company shall consolidate with, or merge with and into, any other
Person (other than a Subsidiary of the Company), and the Company shall not be
the continuing or surviving corporation of such consolidation or merger;
5
or
(ii) any Person (other than Subsidiary of the Company) shall consolidate
with, or merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger, and in
connection with such consolidation or merger, all or part of the outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property; or
(iii) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer) in one transaction or a series of
related transactions, assets or earning power aggregating more than fifty
percent (50%) of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any Person or Persons other than the Company or any
Subsidiary of the Company).
4. Termination Following Change in Control. After the occurrence of a Change
in Control, Employee shall be entitled to receive payments and benefits
pursuant to this Agreement if, within two (2) years after the occurrence of a
Change in Control, his employment with the Company is terminated under any of
the following circumstances:
(A) The Company terminates Employee's employment for reasons other than
"Cause," "Disability," or death. For purposes of this Agreement, "Cause" shall
be defined as:
(i) the willful and continued failure by Employee to perform substantially
his duties with the Company (other than any such failure resulting from his
Disability) for a significant period of time, after a demand for substantial
performance is delivered to Employee by the Board or a committee thereof, which
specifically identifies the manner in which the Board believes that Employee has
not substantially performed his duties; or
6
<PAGE>
(ii) the willful engaging by Employee in gross misconduct materially and
demonstrably injurious to the Company. No act, or failure to act, on Employee's
part shall be considered "willful" unless done, or omitted to be done, by
Employee in the absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
For purposes of this Agreement, "Disability" shall mean a physical or mental
infirmity which impairs the Employee's ability substantially to perform his
employment duties for the Company and which continues for a period of at least
one hundred and eighty (180) consecutive days.
(B) The Employee terminates his employment with the Company for "Good Reason."
For purposes of this Agreement, "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events or conditions:
(i) a change in the Employee's status, title, position or responsibilities
(including reporting responsibilities) which, in the Employee's reasonable
judgment, represents an adverse change from his status, title, position or
responsibilities in effect immediately prior thereto; the assignment to Employee
of any duties or responsibilities which in the Employee's reasonable judgment,
are inconsistent with his status, title, position or responsibilities; or any
removal of Employee from or failure to reappoint or reelect him to any of such
positions, status, or title except in connection with the termination of his
employment for Disability, Cause, or death, or by the Employee other than for
Good Reason;
(ii) a reduction in the Employee's base salary;
(iii) the Company's requiring the Employee to be based at any place outside
a 30 mile radius from Durham, North Carolina, except for reasonably required
travel on the Company's business which is not greater than such travel
requirements prior to the Change in Control;
7
<PAGE>
(iv) the failure by the Company to continue in effect any compensation,
welfare or benefit plan in which Employee is participating at the time of a
Change in Control without substituting plans providing Employee with sub-
stantially similar or greater benefits, or the taking of any action by the
Company which would adversely affect Employee's participation in or materially
reduce Employee's benefits under any of such plans or deprive Employee of any
material fringe benefit enjoyed by Employee at the time of the Change in
Control;
(v) any purported termination of Employee's employment for Cause or
Disability without grounds thereof;
(vi) the insolvency or the filing (by any party including the Company) of a
petition for bankruptcy of the Company;
(vii) any material breach by the Company of any provision of this
Agreement; or
(viii) the failure of the Company to obtain an agreement, satisfactory to
the Employee, from any successor or assign of the Company to assume and agree
to perform this Agreement.
5. Severance Pay and Benefits. In the event that Employee's employment with
the Company terminates under any of the circumstances described in Paragraph 4
above, Employee shall be entitled to receive all of the following:
(A) all accrued compensation and any pro-rata bonuses Employee may have
earned up to the Termination Date;
(B) a severance payment equal to two and nine-tenths (2.9) times the amount
of the Employee's most recent annual compensation, including the amount of his
most recent annual bonus. The severance payment shall be paid in thirty-four
(34) equal monthly installments without interest, commencing one month after
the Termination Date;
8
<PAGE>
(C) a continuation of benefits. The Company shall maintain in full force and
effect, for two (2) years after the Termination Date, all life insurance,
health, accidental death and dismemberment, and disability plans and other
benefit programs in which Employee is entitled to participate immediately
prior to the Termination Date provided that Employee's continued participation
is possible under the general terms and provisions of such plans and programs.
Employee's continued participation in such plans and programs shall be at no
greater cost to Employee than the cost he bore for such participation
immediately prior to the Termination Date. If Employee's participation in any
such plan or program is barred, the Company shall arrange upon comparable terms,
and at no greater cost to Employee than the cost he bore for such plans and
programs prior to the Termination Date, to provide Employee with benefits
substantially similar to, or greater than, those which he is entitled to
receive under any such plan or program; and
(D) a lump sum payment (or otherwise as specified by Employee to the extent
permitted by the applicable plan) of any and all amounts contributed to a
Company pension or retirement plan which Employee is entitled to under the
terms of any such plan.
6. No Duty to Mitigate. Employee shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
The severance pay and benefits under this Agreement shall be in lieu of any
other severance pay to which Employee may be entitled from the Company.
7. Stock Options. Upon the occurrence of a Change in Control, all stock
options shall immediately vest and, except as may be required by the nature
of the transaction constituting the Change in Control, the options shall remain
exercisable for the duration of the original option term. If plans or
agreements to which outstanding options have been issued do not provide for
immediate vesting, the Company shall use its best efforts to effect amendments
permitting the acceleration of vesting so long as no material adverse
accounting
9
<PAGE>
treatment results to the Company.
8. Fees and Expenses. The Company agrees that if Employee is entitled to any
severance pay or benefits under this Agreement, and the Company or its survivor
disputes the obligation to pay such severance pay or benefits and the Employee
prevails, in whole or in part, the Company or its survivor shall promptly pay
or reimburse Employee for all expense incurred by Employee in such dispute,
including, but not limited to, attorneys fees and associated expenses.
9. Excise Tax Payments.
(A) In the event that any payment or benefit (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to
the Employee or for his benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, his employment with the Company or a change in ownership or
effective control of the Company or of a substantial portion of its assets (a
"Payment" or "Payments"), would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Employee 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 Employee will be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Employee of all taxes
(including any interest or penalties, other than the interest and penalties
imposed by reason of the Employee's failure to file timely a tax return or pay
taxes shown due on his return, imposed with respect to such taxes and the
Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment, the
Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(B) An initial determination as to whether a Gross-Up Payment is required
pursuant to this Agreement and the amount of such Gross-Up Payment shall be
made at the Company's expense by an accounting firm selected by the Company
and reasonably
10
<PAGE>
acceptable to the Employee which is designated as one of the five largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation to the Company and the
Employee within ten days of the Termination Date if applicable, or such other
time as requested by the Company or by the Employee (provided the Employee
reasonably believes that any of the Payments may be subject to the Excise Tax)
and if the Accounting Firm determines that no Excise Tax is payable by the
Employee with respect to a Payment or Payments, it shall furnish the Employee
with an opinion reasonably acceptable to the Employee that no Excise Tax will
be imposed with respect to any such Payment of Payments. Within ten days of
the delivery of the Determination to the Employee, the Employee shall have the
right to dispute the Determination (the "Dispute"). The Gross-Up Payment, if
any, as determined pursuant to this Paragraph 9(B) shall be paid by the Company
to the Employee within five days of the receipt of the Accounting Firm's
determination. The existence of the Dispute shall not in any way affect the
Employee's right to receive the Gross-Up Payment in accordance with the
Determination. Upon the final resolution of a Dispute, the Company shall
promptly pay to the Employee any additional amount required by such resolution.
If there is no Dispute, the Determination shall be binding, final and
conclusive upon the Company and the Employee subject to the application of
Paragraph 9(C) below.
(C) Notwithstanding anything in this Agreement to the contrary, in the
event that, according to the Determination, an Excise Tax will be imposed on
any Payment or Payments, the Company shall pay to the applicable government
taxing authorities as Excise Tax withholding, the amount of the Excise Tax that
the Company has actually withheld from the Payment or Payments.
10. Successors and Assigns.
(A) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors, and assigns, and the Company shall require any
successor or
11
<PAGE>
assign to expressly assume 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 or assignment had taken place.
(B) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Employee, his beneficiaries, or legal
representatives except by will or by the laws of dissent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Employee's
legal personal representative.
11. Notice. Notice as provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person or mailed by
United States Registered Mail, Return Receipt Requested, Postage Pre-Paid,
addressed to the respective addresses last given by each party to the other,
provided that all notices to the Company shall be directed to the attention
of the Board with a copy to Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, Attn. Gerald F. Roach, Post Office Box 2611, Raleigh, North
Carolina 27602-2611, counsel for the Company. All notices and communications
shall be deemed to have been received on the date of delivery thereof or on the
third business day of the mailing thereof, except that notice of change of
address shall be effective only upon receipt.
12. Modifications. No provision of this Agreement may be modified, waived, or
discharged unless such modification, waiver, or discharge is agreed to in
writing signed by the Employee and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with any conditional provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
of the same at any prior or subsequent time.
13. Entire Agreement. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.
14. Governing Law. This Agreement shall be governed by and construed and
12
<PAGE>
enforce in accordance with the laws of the State of North Carolina.
15. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceablity of any provision shall not affect the
validity or enforceability of the other provisoins hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
EMBREX, INC.
By: /s/ Randall L. Marcuson
ATTEST: Title: /s/ President & CEO
EMPLOYEE:
/s/ James A. Harper /s/ Rick Ryan Corporate
Assistant Secretary
13
(Logo of Embrex Inc. here)
November 11, 1996
VIA FAX - 111-61-2-899-2151
Mr. Graeme Cox
Managing Director
Cyanamid Websters PTY Limited
P.O. Box 234
Baulkham Hills, NSW 2153
Australia
RE: Limited License and Supply Agreement
Dear Graeme:
As has been discussed, Embrex and Cyanamid Websters wish to add Australia to
the Territory under our July 20, 1995 Limited License and Supply Agreement (the
"Agreement"). Subject to Cyanamid Webster's Agreement in the manner described
below, Embrex hereby agrees to amend the Agreement as follows:
1. Section 2.02 of the Agreement shall be amended to add a reference to
Australia. Section 2.02 shall now read as follows (reflecting not only this
change, but also our prior amendment to remove Israel from the Territory);
2.02 Purchaser's license under Section 2.01 shall be exclusive from the
date of this Agreement until July 20, 1998, unless otherwise
provided in this Agreement, and thereinafter shall be nonexclusive
for the life of any applicable BDA patents, if any, and shall extend
to the following countries (the "Territory"):
Europe: all countries on the continent
Middle East: Bahrain, Jordan, Kuwait, Lebanon, Omar, Qutar, Saudi
Arabia, Syria, United Arab Emirates
Africa: all countries on the continent
Australia
- -------------------------------------------------------------------------------
Mail: P.O. Box 13989, Research Triangle Park, NC 27709-3989 Ph:(919) 941-5185
Ship: 1035 Swabia Court, Durham, NC 27703 Fax:(919) 941-5186
Embrex is an Equal Employment Opportunity/Affirmative Action Employer
<PAGE>
Mr. Graeme Cox
November 11, 1996
Page 2
2. Except as specifically amended as provided above, the Agreement shall
remain unchanged and in full force and effect.
Please indicate Cyanamid Webster's agreement to the amendment set forth
above by signing a copy of this letter and returning the signed copy to me
by fax at (910) 941-5186. Afterwards, please send me a copy of the letter
bearing your original signature for our files.
Sincerely,
(Signature of Randall L. Marcuson)
Randall L. Marcuson
President and CEO
Agreed to and accepted by:
Cyanamid Websters Pty Limited
By: (Signature of Graeme Cox)
Graeme Cox
Managing Director
<PAGE>
(Logo of Embrex Inc. here)
August 1, 1996
VIA FAX - 011-61-2-899-2151
Mr. Graeme Cox
Managing Director
Cyanamid Webster, a Subsidiary of Arthur Webster PTY, Ltd.
P.O. Box 234
Baulkham Hills, NSW 2153
Australia
RE: Limited License and Supply Agreement
Dear Graeme:
As has been discussed between David Baines and Paul Grujic, Embrex and
Cyanamid Websters wish to agree on certain changes to our July 20, 1995 Limited
License and Supply Agreement (the "Agreement"). Subject to Cyanamid Webster's
Agreement in the manner described below, Embrex hereby agrees to amend the
Agreement as follows:
1. Section 2.02 of the Agreement shall be amended to delete the reference
to Israel under the heading "Middle East."
2. The first sentence of Section 6.02(b) of the Agreement shall be deleted
in its entirety and replaced with the following:
As part of its responsibilities, Purchaser undertakes to initiate field
testing or to make application for an Animal Test Certificate or
equivalent, where necessary, on or before the following dates: United
Kingdom - June 30, 1996; France, Italy, Spain, Netherlands - September
30, 1996; South Africa - June 30, 1996; and Germany - December 31, 1996.
3. Except as specifically amended as provided above, the Agreement shall
remain unchanged and in full force and effect.
- -------------------------------------------------------------------------------
Mail: P.O. Box 13989, Research Triangle Park, NC 27709-3989 Ph:(919) 941-5185
Ship: 1035 Swabia Court, Durham, NC 27703 Fax:(919) 941-5186
Embrex is an Equal Employment Opportunity/Affirmative Action Employer
<PAGE>
Mr. Graeme Cox
Page 2
August 1, 1996
Please indicate Cyanamid Webster's agreement to the amendment set forth
above by signing a copy of this letter and returning the signed copy to me
by fax at (910) 941-5186. Afterwards, please send me a copy of the letter
bearing your original signature for our files.
Sincerely,
(Signature of Randall L. Marcuson)
Randall L. Marcuson
President and CEO
Agreed to and accepted by:
Cyanamid Websters, a Subsidiary of
Arthur Webster PTY, Ltd.
(Signature of Graeme Cox)
Graeme Cox, Managing Director
<PAGE>
LOAN AGREEMENT (Corporate)
We are pleased to advise you that Barclays Bank PLC ("the Bank") has agreed to
provide a medium term eurocurrency loan facility ("the Facility") upon and
subject to the terms and conditions set out below and overleaf and the
attached Special Conditions, if any, to:
NAME EMBREX EUROPE LIMITED ADDRESS 11 The Chestnuts
_____________________ Stortford Road, Great Dunmow,
_____________________ Essex CM6 1AA ("The Borrower")
Full names of company as registered
_______________________________________________________________________________
THE LOAN AND DRAWDOWN
Currency: US Dollars (the "Currency")
Amount: $2,000,000.00
The aggregate principal amount advanced (including any capitalised interest) and
for the time being outstanding in the Currency, or (if converted under condition
11 overleaf) in sterling, is referred to as the "Loan."
The Facility may be drawn, following completion of the acceptance formalities
and any security formalities in each case as set out herein, "in minimum amounts
and multiples of $250,000 by 31 12 1996 after which date the Bank's commitment
to provide any undrawn amount will lapse. *See also Special Conditions.
_______________________________________________________________________________
PURPOSE OF LOAN
To finance the purchase and installation of Inovoject egg injection systems to
be placed with customers of Embrex under lease/licence agreement.
_______________________________________________________________________________
REPAYMENT
See attached Special Conditions
_______________________________________________________________________________
PREPAYMENT
The Loan in full or in minimum amounts and multiples of $50,000 together with
accrued interest to the date of prepayment. A prepayment fee at the rate of Nil%
is payable at the time and on the amount prepaid.
_______________________________________________________________________________
FEES
See attached Special Conditions.
_______________________________________________________________________________
INTEREST
Rate: 1% p.a.
over the rate at which deposits in the relevant currency are offered to the Bank
in London Inter-Bank Market two Business Days prior to the first day of an
Interest Period for value on such date for a similar amount and Interest Period
("LIBOR")
See also attached Special Conditions.
_______________________________________________________________________________
SECURITY/GUARANTEE(S)
The Loan is to be secured/guaranteed by:
See attached Special Conditions.
and any other security which is now held or hereafter may be held by the Bank,
all of which is to secure all money and liabilities which shall from time to
time be due, owing or incurred, whether actual or contingent, to the Bank by
the Borrower.
_______________________________________________________________________________
UNDERTAKINGS
The undertaking set out under condition 9 overleaf will apply as follows:
*9(a) with the reference to Subsidiaries applying to
*ALL Subsidiaries.
_______________________________________________________________________________
SPECIAL CONDITIONS
*The enclosed Special Conditions sheet(s) form(s) part of this Agreement.
_______________________________________________________________________________
THIS OFFER WILL LAPSE IF NOT ACCEPTED WITHIN ONE MONTH OF THE DATE SHOWN BELOW
_______________________________________________________________________________
SIGNATURES
for BARCLAYS BANK PLC This offer is accepted by the Borrower
3rd April 1996 /s/ [Signature illegible] Manager By: /s/ Randall L. Marcuson
[for Embrex Europe Limited]
Date ________________________
_______________________________________________________________________________
The Borrower should return the top copy together with a CERTIFIED true copy of a
Board Resolution and attached duplicate Special Conditions (white), if any,
and retain the bottom copy of the offer letter and the copy, if any, of the
Special Conditions (pink). Blue copies to be retained by branch.
<PAGE>
SPECIAL CONDITIONS
1 Drawdown
Individual tranches of the loan will be drawn by the borrower in sums of not
less than $250,000 US. Such drawings may be authorised in writing by a
Director of EMBREX EUROPE LTD provided that this authorisation is given in
accordance with the terms of the Company's account operation mandate
current at that time.
In addition, it is a requirement of the Bank that prior to each individual
drawdown, the borrower provides the Bank with its written confirmation of
the installation of the machinery to which that particular tranche of
funding relates, and also details of the specific contract terms.
2 Repayment
Each individual tranche of funds, once drawn, is to be repaid over four
years with equal quarterly repayments of principal being made.
Interest on each tranche is payable on the quarterly roll-over dates by
debit to the borrower's US Dollar Call Account.
3 Fees
The borrower will pay an arrangement fee equivalent to 0.5% of the amount
borrowed. The fee will be payable in stages as the individual tranches of
the loan are drawn down.
These arrangement fees will be debited to the borrower's US Dollar Call
Account.
4 Interest
Interest will be payable by the borrower at 1% above Barclays three month
US Dollar Deposit rate applicable at the time of drawdown and subsequent
roll-over dates. This is dependent upon the Borrower maintaining credit
balances with Barclays in London in line with security requirements as
detailed below, and depositing the funds on fixed three monthly deposits
maturing in conjunction with the borrowing so secured. Interest on such
deposits will be payable at Barclays three month US Dollar Deposit rate
applicable at the time the deposit is placed.
<PAGE>
5 Security
The loan will be secured by:
a) US Dollar cash deposits in the name of Barclays Bank re EMBREX EUROPE
LIMITED provided at the time of, or prior to, drawings of the loan being
made, in such amounts as to ensure that all borrowings under this
agreement are 102% covered to allow for interest accrued but not yet
paid. These deposits will be placed for a term of three months,
mirroring the associated borrowing. Any surplus cash deposits made in
advance of drawings will be initially placed to a US Dollar Call
Deposit Account in the name of Barclays Bank PLC re EMBREX EUROPE
LIMITED.
b) Deed of charge over the cash balances referred to above on the Bank's
standard form to be executed by the Borrower and registered at
Companies House.
c) The Bank requires confirmation from EMBREX INC. that the Deed of Charge
and the Bank's security interest shall not be affected in any manner
by any bankruptcy, insolvency, moratorium, assignment for benefit of
creditors, appointment of a receiver, or any other law or event
affecting EMBREX INC, the parent company. Otherwise, the provisions of
the facility, including without limitation, the Special Conditions and
the Deed of Charge, shall not apply to Embrex Inc.
We accept the above special terms and conditions which are acknowledged to form
part of the Currency Loan Agreement between EMBREX EUROPE LTD and BARCLAYS BANK
PLC.
For and on behalf of
EMBREX EUROPE LTD
<PAGE>
PART 2
Details of Charged Account(s)
Barclays Bank PLC re Embrex Europe Limited U S Dollar Call Deposit Account.
PART 3
Details of Charged Deposit Contract(s)
All existing and future U S Dollar fixed term deposits placed in the name of
Barclays Bank PLC re Embrex Europe Limited.
SIGNED and DELIVERED as a deed by the above named
_________________________________________________
in the presence of
SIGNATURE OF WITNESS ____________________________ ___________________________
NAME OF WITNESS _________________________________
ADDRESS _________________________________________
OCCUPATION ______________________________________
SIGNED and DELIVERED as a deed by the above named
_________________________________________________
in the presence of
SIGNATURE OF WITNESS ____________________________ __________________________
NAME OF WITNESS _________________________________
ADDRESS _________________________________________
OCCUPATION ______________________________________
THE COMMON SEAL of * Embrex Europe Limited
was hereunto affixed in pursuance of a Resolution
of its Board of Directors in the presence of
_________________________________________________
________________________________________ DIRECTOR
/S/ [Signature illegible] SECRETARY
COMPANY'S REGISTERED NUMBER 2867658
EXECUTED AND DELIVERED as a Deed by *Embrex Europe Limited
_______________________ Director /s/ [Signature illegible] Secretary/Director
COMPANY'S REGISTERED NUMBER 2867658
* Insert company's name as registered.
<PAGE>
DEED OF CHARGE OVER CREDIT BALANCES
BY A CHARGOR FOR OWN LIABILITIES
(If executed by a company this Deed of Charge requires registration at Companies
House within 21 days after its creation).
TO BARCLAYS BANK PLC
1. In consideration of your giving or continuing to give time, credit and/or
banking facilities and accommodation to me/us, being the party or parties
named in Schedule 1 hereto, I/we with full title guarantee hereby charge by
way of first fixed charge all sums of money specified in Schedule 2 hereto
(the "Deposit(s)" which expression includes all or any part of the money
payable pursuant to such deposit(s) and the debt(s) represented thereby),
together with all interest from time to time accruing thereon, as security
for the payment of all money and the discharge of all liabilities now or at
any time hereafter due, owing or incurred to you by me/us (and, if more than
one, by us jointly or jointly and severally) on any account or accounts
or in respect of any obligation howsoever incurred to you by me/us
in whatsoever manner and whether actually or contingently and whether alone
or together with another or others and whether as principal or
surety and in whatsoever name or style, together with interest,
discount, commission and all other charges, costs and expenses for
which I/we may be or become liable to you ("the Secured Sums").
2. I/we hereby assign to you for the purposes of and to give effect to this
security my/our right to require you to repay to me/us the Deposit(s) and to
pay interest thereon to me/us.
3. I/we agree that during the currency of this security and notwithstanding any
term (express or implied) pursuant to which any of the Deposit(s) is or may
be deposited with you or paid to you or held by you, such Deposit(s) shall
only be repayable upon written request or demand and I/we shall not be
entitled to make any request or demand upon you for repayment of such
Deposit(s) or for payment of interest thereon, unless you shall first have
agreed to release this security insofar as it concerns such Deposit(s). Any
repayment(s) permitted by you shall not be deemed to be a release of this
security over any other money or interest then or at any time thereafter
forming part of the Deposit(s) or interest accrued thereon. It is hereby
expressly agreed that the terms of this security shall override the terms
applicable to the Deposit(s).
4. (a) You may at any time hereafter enforce this security, without notice to
me/us and without any further or other consent from me/us, by applying
or transferring as you think fit all or part of any money or interest
subject to this security at any time or times (whether on or before or
after the expiry of any fixed or minimum period for which such money
may have been deposited) in or towards satisfaction of all or such part
of the Secured Sums not paid when due.
(b) You are hereby irrevocably empowered and authorised as my/our attorney in
my/our name and at my/our expense to execute such documents and give
such instructions as may be required to give effect hereto, including
(without limitation) instructions for the withdrawal of any sums which
you may have placed upon my/our behalf with any third party and for the
use of any money or interest subject to this security to purchase any
currency or currencies required to effect such application.
(c) You shall not be liable for any loss sustained by me/us in consequence
of the exercise of your rights hereunder, including (without limitation)
any loss of interest caused by the determination before maturity of any
Deposit(s) or by the fluctuation in any exchange rate at which currency
may be bought or sold by you.
5. This security shall be a continuing security notwithstanding any intermediate
payments or settlement of accounts or other matters whatsoever and shall be
in addition to and shall not prejudice or be prejudiced by any rights of set-
off, combination, lien or other rights exercisable by you as bankers against
me/us or by any securities, guarantees, indemnities and/or negotiable
instruments now or hereafter held by you.
6. I/we shall not assign, transfer, charge or otherwise alienate, deal with or
encumber any or all of the money or interest subject to this security or
my/our right, title or interest therein, or agree so to do.
7. For the avoidance of doubt, I/we agree that this security is to operate by
way of security only in favour of you and that no release of any
indebtedness existing now or in the future from you to me/us is intended
or effected by this security.
<PAGE>
8. If the persons executing this security are in partnership together and if any
change shall at any time occur in the composition of the partnership, then,
unless you decide to close the then current account or accounts of the
partnership and to open a new account or accounts for the continuing
partners, this security shall be a continuing security for all liabilities
incurred to you (after as well as before such change) by the persons for the
time being constituting such partnership.
9. Deleted.
10. Where this security is signed by or on behalf of two or more persons, the
obligations and liabilities of such persons under it shall be joint and
several. In this security the singular shall include the plural and vice
versa.
IN WITNESS whereof these presents were executed as a deed this
day of 19 .
SCHEDULE 1
(the Chargor(s))
FULL NAME(S) ADDRESS(ES) (REGISTERED OFFICE IF A COMPANY)
EMBREX EUROPE LIMITED SUITE 11, THE CHESTNUTS
STORTFORD ROAD
GREAT DUNMOW
ESSEX CM6 1DA
SCHEDULE 2
PART 1
Definition of the Deposit(s)
* In this security the expression "Deposit(s)" means all sums of money in
any currency:
(a) deposited or paid by me/us now or at any time hereafter to the credit of
the account(s) with you specified in Part 2 of this Schedule 2 and/or
(where the context permits) any additional and/or substitute account(s)
hereafter opened with you for the deposit or holding of all or part of
the money or interest subject to this security; and
(b) deposited or paid by me/us with or to you or held by you on my/our behalf
pursuant to the deposit contract(s), short particulars of which are given
in Part 3 of this Schedule 2; and
(c) deposited or paid by me/us with or to you or held by you on my/our behalf
(whether in an account or otherwise) now or at any time during the currency
of this security, unless you agree in writing before such deposit or
payment is made that it shall not be subject to this security (provided that
this paragraph shall not extend to any money in any current account); and
(d) representing the renewal or replacement of or for any sums deposited or
paid or held as set out in the foregoing paragraphs;
and, in each case, whether such money has been deposited or paid (if the
undersigned are more than one) on behalf of all of us or any of us jointly with
another or others of us and whether any such account is opened in the name of
all or any of us or in your name or otherwise.
* (Delete any of the foregoing paragraphs if it is inapplicable and initial
against this alteration).
<PAGE>
EXHIBIT 21
EXBREX, INC.
SUBSIDIARIES
Jurisdiction of
Name Organization
Embrex Europe Limited United Kingdom
Embrex Sales, Inc. North Carolina
<PAGE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in the Annual Report (Form 10-K) of Embrex, Inc. of
our report dated March 19, 1997 with respect to the consolidated financial
statements of Embrex, Inc. and subsidiaries and of our report dated March 19,
1997 with respect to the Financial Statements of Embrex, Inc. Employee Stock
Purchase Plan.
We also consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-18231) of our report dated March 19, 1997
with respect to the consolidated financial statements of Embrex, Inc. and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-51582 and 33-63318) pertaining to the Embrex, Inc. 1988
Incentive Stock Option Plan, 1989 Nonstatutory Stock Option Plan, 1991
Nonstatutory Stock Option Plan, 1993 Incentive and Nonstatutory Stock
Option Plan and Employee Stock Purchase Plan of our report dated March
19, 1997, with respect to the consolidated financial statements of
Embrex, Inc. and subsidiaries and of our report dated March 19,
1997 with respect to the financial statements of Embrex, Inc. Employee
Stock Purchase Plan included in the Annual Report (Form 10-K) for
the year ended December 31, 1996.
Ernst & Young LLP
(signature of Ernst & Young LLP)
Raleigh, North Carolina
March 31, 1997
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of EMBREX, INC., a North
Carolina corporation ("the Company"), do hereby constitute and appoint Randall
L. Marcuson and Don T. Seaquist or either of them, our true and lawful
attorneys-in-fact and agents to execute and deliver an Annual Report on Form
10-K pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, as
amended ("the Act"), with respect to the year ended December 31, 1996, to be
filed with the Securities and Exchange Commission, and to do any and all acts
and things and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys-in-fact and agents, or either
of them, may deem necessary or advisable to enable the Company to comply with
the Act and any rules, regulations, and requirements of the Securities and
Exchange Commission in connection with such Report, including without limitation
the power and authority to sign for us or any of us in our names and in the
capacities indicated below any and all amendments to such Report; and we do
hereby ratify and confirm all that the said attorneys-in-fact and agents, or
either of them, shall do or cause to be done by virtue of this power of
attorney.
IN WITNESS THEREOF, the undersigned have signed this instrument in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
______________________________ President, Chief Executive _________________
Randall L. Marcuson Officer, and Director
/s/ C.E. Austin Director March 20, 1997
- --------------- --------------
Charles E. Austin
/s/ Lester M. Crawford Director March 20, 1997
- ---------------------- --------------
Lester M. Crawford
/s/ Stephen Hartogensis Director March 20, 1997
- ----------------------- --------------
Stephen Hartogensis
/s/ Kenneth N. May Director March 20, 1997
- ------------------ --------------
Kenneth N. May
/s/ Arthur M. Pappas Director March 20, 1997
- -------------------- --------------
Arthur M. Pappas
______________________________ Vice President, Finance _________________
Don T. Seaquist and Administration, and
Chief Financial Officer
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,036
<SECURITIES> 876
<RECEIVABLES> 2,313
<ALLOWANCES> 0
<INVENTORY> 1,758
<CURRENT-ASSETS> 13,983
<PP&E> 21,765
<DEPRECIATION> 10,194
<TOTAL-ASSETS> 25,554
<CURRENT-LIABILITIES> 6,431
<BONDS> 5,814
0
0
<COMMON> 80
<OTHER-SE> 13,229
<TOTAL-LIABILITY-AND-EQUITY> 25,554
<SALES> 20,632
<TOTAL-REVENUES> 20,632
<CGS> 10,558
<TOTAL-COSTS> 10,558
<OTHER-EXPENSES> 8,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,253
<INCOME-PRETAX> 536
<INCOME-TAX> 195
<INCOME-CONTINUING> 341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 341
<EPS-PRIMARY> $0.05
<EPS-DILUTED> $0.05
</TABLE>
RISK FACTORS
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's revenues are highly dependent on expenditures by the
poultry producing industry. The Company's operations could be materially and
adversely affected by a general economic decline in this industry. The Company
has in the past derived, and may in the future derive, a significant portion of
its revenues from a relatively limited number of customers. In 1996, two
customers (Tyson Foods, Inc. and Perdue Farms, Inc.) accounted for approximately
33% and 11%, respectively, of the Company's consolidated revenues. The Company
also has experienced such concentration in the current year and is likely to do
so in future years. The loss of any such customer could materially adversely
affect the Company's revenues.
POSSIBLE NEED FOR ADDITIONAL FINANCING
From its inception in May 1985 through December 31, 1996, Embrex had
cumulative operating losses (accumulated deficit) of $40.7 million. Until the
first quarter of 1996, Embrex had incurred operating losses since its inception.
Although the Company has been profitable in 1996, there can be no assurance that
Embrex will continue to operate profitably.
The ability of Embrex to attain revenues sufficient to meet its cash
requirements for operations is dependent upon continued market acceptance of the
INOVOJECT(R) system on lease terms acceptable to Embrex and on the successful
development and commercialization of additional products. The extent of the
Company's future revenues, if any, derived from INOVOJECT(R) fees is subject to
many variables such as whether additional agreements for INOVOJECT(R) systems
are reached, the timing of any agreements, whether existing or new installation
schedules are met, and the extent to which customers use the INOVOJECT(R)
system.
Until the Company realizes revenues sufficient to satisfy its cash
requirements, it will depend on its current cash and short-term investment
balances and on access to external financing to meet its equipment, working
capital and operating requirements. Although the Company anticipates that its
existing funds, as well as revenues from operations and existing equipment
financing lines, will be sufficient to sustain its existing operations for the
foreseeable future, there are no assurances that such funds will be sufficient.
If additional funds become necessary to sustain existing operations, the Company
will be required to seek additional financing, and there can be no assurance
that such financing will be obtainable or that, if available, such financing
will be on terms favorable or acceptable to the Company. The Company may need
additional financing in order to sustain its anticipated growth, in the event it
does not generate revenues sufficient to satisfy its cash requirements for
future growth. Obtaining additional financing for such purposes may be difficult
or impossible, or financing may only be available on terms unfavorable or
unacceptable to the Company.
EFFECT OF ECONOMIC FACTORS ON REVENUES
The Company's revenues may be impacted by economic factors that are
beyond the Company's control, such as fluctuations in the price of poultry feed
and export demand for U.S. poultry products. A principal component of the
Company's revenues is fees charged to customers for the number of eggs injected
with the INOVOJECT(R) system. Rising poultry feed prices increase the production
costs of commercial poultry producers and may cause them to reduce production
which, in turn, could adversely impact the Company's revenues. Reduced demand
for U.S. poultry products in markets outside the United States also could impact
the Company's revenues adversely.
1
<PAGE>
NO ASSURANCE OF MARKET ACCEPTANCE OR DEVELOPMENT OF NEW PRODUCTS
Embrex's principal existing product, the INOVOJECT(R) system, has only
been in full commercial use since 1993. The market acceptance of new
technologies, including those of the Company, is subject to a number of factors,
including the ability of the technology to meet the potential customers' needs
more effectively than competitive products or technologies and any concerns
which may be associated with the use of new technology, such as reliability and
maintenance.
In addition to the presently marketed INOVOJECT(R) system, Embrex, both
itself and together with collaborators, is developing vaccines for control of
viral and parasitic diseases and products for health and performance
modification which are in various stages of development. These products are
subject to the risks inherent in the development of products based on innovative
technologies and are subject to various regulatory approval requirements.
Embrex has developed and commercialized a new technology using its
proprietary viral neutralizing factor ("VNF") which permits a single dose
immunization of an egg embryo for the life of the bird. The Company markets a
vaccine known as BURSAPLEX(TM) (formerly known as BDA-Blen) which uses Embrex's
VNF. The vaccine has been approved by the United States Department of
Agriculture ("USDA") for in ovo and post-hatch use. However, BURSAPLEX(TM) has
not yet been accepted in the market and there is no assurance that the product
will be successfully marketed even if it is shown to be effective.
The development and commercialization of additional new products will
require substantial testing and development and regulatory approval.
GOVERNMENT REGULATION AND NEED FOR REGULATORY APPROVAL
Although the use of the INOVOJECT(R) system is not subject to
regulatory approval in the U.S., the research and development activities of
Embrex as well as the investigation, manufacture and sale of poultry health and
performance enhancement products are subject to regulation either by the USDA or
the United States Food and Drug Administration ("FDA") and state and foreign
agencies. Foreign agencies may also require approval of the INOVOJECT(R) system.
The process of obtaining governmental approval is costly and at the USDA
generally takes from one to three years and at the FDA five or more years. There
can be no assurance that any future product that Embrex may develop will be
approved by the USDA, the FDA or any other regulatory agency. Delays in
obtaining regulatory approval may adversely affect the marketing of any products
developed by Embrex and the ability of Embrex to receive product revenues and
royalties. There can be no assurance that regulatory approvals for Embrex's
future products will be obtained without lengthy delays, if at all.
Moreover, Embrex is, or may become, subject to various federal, state
and local laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices and the use and disposal of
hazardous substances used in conjunction with Embrex's research work. In
addition, Embrex cannot predict the extent of governmental regulations which
might have an adverse effect on the production and marketing of Embrex's
products.
Embrex has entered into and intends to continue to enter into licensing
or joint development agreements pursuant to which costs associated with the
regulatory approval process for some products are and will be borne by the
licensees or joint developers. To the extent that Embrex is unable to generate
sufficient funds from operations or enter into licensing or joint development
agreements to develop products, it may not have the financial resources to
complete the regulatory approval process with respect to all or any of the
products currently under development. Products developed by Embrex may not be
marketed commercially in any jurisdiction in which required approvals have not
been obtained.
2
<PAGE>
PATENTS AND PROPRIETARY RIGHTS
Certain of Embrex's products and certain of the processes by which
Embrex is able to produce its products are proprietary. Embrex has ownership
rights to some of the technologies employed in these processes, and some are
owned by others and exclusively licensed to Embrex. Embrex believes that patent
protection of materials or processes it develops and any products that may
result from Embrex's and licensors' research and development efforts are
important to the possible commercialization of Embrex's products. The patent
position of companies such as Embrex generally is highly uncertain and involves
complex legal and factual questions. To date no consistent policy has emerged
regarding the breadth of claims allowed in biotechnology patents. Accordingly,
there can be no assurance that patent applications relating to Embrex's products
or technology will result in patents being issued or that, if issued, the
patents will afford protection against competitors with similar technology.
Moreover, some patent licenses held by Embrex may be terminated upon the
occurrence of certain events or become non-exclusive after a specified period.
In addition, companies that obtain patents claiming products or processes that
are necessary for or useful to the development of Embrex's products could bring
legal actions against Embrex claiming infringement. Embrex is currently not the
subject of any patent infringement claim. There can be no assurance that Embrex
will have the financial resources necessary to enforce any patent rights it may
hold. Also, Embrex may be required to obtain licenses from others to develop,
manufacture or market its products. There can be no assurance that Embrex will
be able to obtain such licenses on commercially reasonable terms or that the
patents underlying the licenses will be valid and enforceable.
Embrex also relies upon unpatented, proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information or techniques or properly gain access to
Embrex's proprietary technology, or disclose such technology, or that Embrex can
meaningfully protect its rights in such unpatented proprietary technology.
Embrex attempts and will continue to attempt to protect its proprietary
materials and processes by relying on trade secret laws and non-disclosure and
confidentiality agreements with its employees and certain other persons who have
access to its proprietary materials or processes or who have licensing or
research arrangements with Embrex. Despite these protections, no assurance can
be given that others will not independently develop or obtain access to such
materials or processes or that Embrex's competitive position will not be
adversely affected thereby.
In September 1996, Embrex filed an action for patent infringement and
breach of contract against Service Engineering Corp. and a related party. The
infringement action relates to a patent exclusively licensed to Embrex for the
in ovo injection of vaccines into an avian embryo; the breach of contract action
is based on a previous infringement action by Embrex against these parties which
was settled. The defendants have filed counterclaims against Embrex seeking
invalidity of the patent and alleging, among other things, that Embrex violated
federal law by misrepresenting the defendants' commercial activities and sought
to maintain prices for in ovo vaccinations at an artificially high level. The
outcome of this litigation is uncertain and there is no assurance that Embrex
will prevail on the merits or successfully defend the validity of its patent.
In November 1996, Embrex filed an action for patent infringement
against IGI, Inc. and the same related party, relating to the same patent. The
defendants have asserted various affirmative defenses and denied the substantive
allegations in Embrex's complaint. The outcome of this litigation is uncertain
and there is no assurance that Embrex will prevail on the merits or successfully
defend the validity of its patent.
DEPENDENCE ON KEY PERSONNEL
Embrex's ability to develop marketable products and maintain a
competitive research and technological position will depend on its ability to
continue to attract and retain experienced and highly educated scientific and
management personnel and advisors. Competition for qualified employees among
biotechnology companies is
3
<PAGE>
intense and the loss of key scientific or management personnel would adversely
affect Embrex. Embrex has obtained insurance in the amount of $1,000,000 on the
life of Randall L. Marcuson, its President and Chief Executive Officer, of
which Embrex is the sole beneficiary. There can be no assurance that Embrex
will be able to continue to attract and retain qualified staff.
SUPPORT AND MAINTENANCE REQUIREMENTS
The Company is required to supply, support, and maintain large numbers
of INOVOJECT(R) systems at its customers' hatcheries on a timely basis at a
reasonable cost to the Company. There can be no assurance that the Company will
be able to continue to provide such services on a cost-effective basis.
TECHNOLOGY AND COMPETITION
The areas of technology in which Embrex is involved are subject to
rapid and significant technological change. Competitors include independent
companies that specialize in biotechnology as well as major chemical and
pharmaceutical companies, universities, and public and private research
organizations, many of which are well established and have substantially greater
marketing, financial, technological and other resources than Embrex. There can
be no assurance that competitors will not succeed in developing technologies and
products that are more effective than any which have been or are being developed
by Embrex or which would render Embrex's technology and products obsolete or
non-competitive.
DEPENDENCE ON OTHERS
Embrex plans to continue to conduct its operations with third party
collaborators, licensors or licensees. While Embrex believes its present and
future collaborators, licensors and licensees will have an economic motivation
to succeed in performing their obligations under its agreements with them, the
amount and timing of funds and other resources to be devoted under such
agreements will be controlled by such other parties and are subject to financial
or other difficulties that may befall such other parties. Thus, no assurance can
be given that Embrex will generate any revenues from such agreements.
Embrex does not have large scale facilities for the production of
Embrex's INOVOJECT(R) system and biological products and does not plan to
develop such facilities in the foreseeable future. Embrex therefore will rely
principally upon relationships with contract manufacturers. There can be no
assurance that manufacture and supply agreements will be maintained on terms and
at costs acceptable to Embrex.
The Company has developed a strategic relationship with a single
contract manufacturer to fabricate its INOVOJECT(R) systems. While other machine
fabricators exist and have contracted limited numbers of INOVOJECT(R) systems, a
change in fabricators could cause a delay in manufacturing and a possible delay
in the timing of future INOVOJECT(R) installations and revenues from those
installations.
The Company has granted Select Laboratories, Inc. ("Select"), a
wholly-owned subsidiary of Rhone Merieux SA, exclusive rights to manufacture
bursal disease vaccines containing Embrex's proprietary VNF product for Embrex
to market in North America, South America and Asia. Embrex has also granted
Cyanamid Websters, a subsidiary of American Home Products, Inc., exclusive
rights to manufacture bursal disease vaccines containing the Company's VNF
product to be marketed in Europe, the Middle East and Africa. Additionally, the
Company has two contract suppliers of its VNF product, although only one of
these suppliers was included in the USDA's approval for in ovo use of
BURSAPLEX(TM). The manufacture of the bursal disease vaccines being produced by
Select and Webster and the Company's VNF product generally must be performed in
licensed facilities and/or under approved regulatory methods. Although there are
other manufacturers who are capable of manufacturing bursal disease products and
producing products such as VNF, a change of suppliers could adversely affect the
4
<PAGE>
Company's future operating results due to the time it would take a new supplier
to obtain regulatory approval of its production process and/or manufacturing
facilities.
ISSUANCE OF PREFERRED STOCK; SHAREHOLDER RIGHTS PLAN; ANTI-TAKEOVER EFFECTS
The Board of Directors has the authority to issue up to 15,000,000
shares of Preferred Stock, no par value per share, in one or more series and to
determine the designations, preferences and relative participating, optional or
other special rights and qualifications, limitations or restrictions thereof, of
the shares constituting any series of Preferred Stock, without any further vote
or action by the shareholders. The issuance of Preferred Stock by the Board of
Directors could affect the rights of the holders of Common Stock. For example,
such issuance could result in a class of securities outstanding that would have
preferences with respect to voting rights and dividends and in liquidation over
the Common Stock, and could (upon conversion or otherwise) enjoy all of the
rights appurtenant to Common Stock.
The authority of the Board of Directors to issue Preferred Stock could
potentially be used to discourage attempts by others to obtain control of the
Company through merger, tender offer, proxy contest or otherwise by making such
attempts more difficult to achieve or more costly. The Board of Directors may
issue the Preferred Stock without shareholder approval and with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock and the Board of Directors has no present intention to issue any
Preferred Stock.
In March 1996, Embrex adopted a shareholder rights plan which could
have the effect of discouraging a takeover of the Company. The rights plan, if
triggered, would make it more difficult to acquire the Company by, among other
things, allowing existing shareholders to acquire additional shares at a
substantial discount, thus substantially inhibiting an acquiror's ability to
obtain control of the Company.
INTERNATIONAL SALES AND MARKETING
The company intends to continue its efforts to expand its markets
outside of North America. Sales outside of North America accounted for
approximately 10%, 6% and 2% of revenues in fiscal 1996, 1995 and 1994,
respectively. The volume and consistency of such sales is subject to economic
and political conditions in the markets in which Embrex does business, which are
beyond the Company's control. In addition, there is no assurance that
INOVOJECT(R) will be successfully marketed outside of North America since market
acceptance is often dependent on the need for drugs to be administered and on
regulatory approval of in ovo administration.
5
<PAGE>
