<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1996
REGISTRATION STATEMENT 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------
ENSYS ENVIRONMENTAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2890 56-1581761
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation) Classification Code Number) Identification
Number)
</TABLE>
4222 EMPEROR BOULEVARD, DURHAM, NORTH CAROLINA 27703
(919) 941-5509
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
GROVER C. WRENN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ENSYS ENVIRONMENTAL PRODUCTS, INC.
4222 EMPEROR BOULEVARD
DURHAM, NORTH CAROLINA 27703
(919) 941-5509
(Name, address including zip code, and telephone number, including area code, of
agent for service)
------------------------------
COPIES TO:
WILLIAM B. MARIANES, ESQ. WILLIAM A. SCARI, JR., ESQ.
Daniel T. Falstad, Esq. Michael P. Gallagher, Esq.
Troutman Sanders LLP Pepper, Hamilton & Scheetz
600 Peachtree Street, N.E. 1235 Westlakes Drive
Suite 5200 Suite 400
Atlanta, Georgia 30308-2216 Berwyn, Pennsylvania 19312
(404) 885-3000 (610) 640-7800
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF SECURITIES TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES
EFFECTIVE AND THE SATISFACTION OR WAIVER (WHERE PERMISSIBLE) OF THE OTHER
CONDITIONS TO THE MERGER DESCRIBED HEREIN.
------------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, Check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE
<S> <C> <C> <C>
Common Stock, $.01 per value.................... 6,715,721 (2) (2)
Series A Convertible Preferred Stock, $.01 par
value......................................... 2,164,362 (2) (2)
Options to purchase Common Stock................ 389,782 (4) (4)
Warrants to purchase Common Stock............... 599,643 (4) (4)
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE(3)
<S> <C>
Common Stock, $.01 per value.................... $9.18(2)
Series A Convertible Preferred Stock, $.01 par
value......................................... $644.21(2)
Options to purchase Common Stock................ $0.51(4)
Warrants to purchase Common Stock............... $0.78(4)
</TABLE>
(1) This Registration Statement relates to securities issuable to holders of
Common Stock ("SDI Common Stock"), holders of Series A Convertible Preferred
Stock ("SDI Preferred Stock"), holders of Options ("SDI Options") and
holders of Warrants ("SDI Warrants"), in each case of Strategic Diagnostics
Inc. ("SDI") in the proposed merger (the "Merger") of SDI with and into
EnSys Environmental Products, Inc. ("EnSys"). The amount of EnSys Common
Stock to be registered has been determined on the basis of the conversion
ratio in the Merger (0.7392048 shares of EnSys Common Stock for each share
of SDI Common Stock) and the maximum aggregate number of shares of SDI
Common Stock (9,085,061) to be converted in the Merger into shares of EnSys
Common Stock, assuming that all currently outstanding SDI Options and SDI
Warrants are exercised by their holders prior to the effective time of the
Merger (the "Maximum Number of SDI Common Shares"). The amount of EnSys
Series A Convertible Preferred Stock ("EnSys Preferred Stock") to be
registered has been determined on the basis of the conversion ratio in the
Merger (0.7392048 shares of EnSys Preferred Stock) and the maximum aggregate
number of shares of SDI Preferred Stock (2,927,960) to be converted in the
Merger into shares of EnSys Preferred Stock (the "Maximum Number of SDI
Preferred Shares"). The number of EnSys Options ("EnSys Options") and EnSys
Warrants ("EnSys Warrants") to be registered has been determined on the
basis of the conversion ratio in the Merger (each SDI Option and SDI Warrant
to purchase one share of SDI Common Stock will be converted into an EnSys
Option or an EnSys Warrant, respectively, to purchase 0.7818026 shares of
EnSys Common Stock) and the number of outstanding SDI Options (498,568) and
SDI Warrants (767,000), respectively.
(2) The registration fee was calculated pursuant to Rule 457(f)(2) as the sum of
(i) one thirty-third of one percent of one-third of $.01 (the par value of
SDI Common Stock) multiplied by the Maximum Number of SDI Common Shares and
(ii) one thirty-third of one percent of one-third of $6,377,693.00 (the
maximum aggregate liquidation preference for the SDI Preferred Stock).
(3) Pursuant to Rule 457(b) $431.21 of the registration fee was paid on October
15, 1996 in connection with the filing by the registrant of preliminary
joint proxy statement/prospectus material.
(4) For the purposes of calculating the registration fee, one-third of the par
value of the shares of common stock issuable upon exercise of the Options or
Warrants has been assigned to the Options and Warrants being registered, as
determined pursuant to Rule 457(f)(2).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
4222 EMPEROR BOULEVARD
DURHAM, NORTH CAROLINA 27703
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 1996
------------------------
To the Stockholders of
EnSys Environmental Products, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of EnSys Environmental Products, Inc., a Delaware corporation
("EnSys"), will be held at the offices of Troutman Sanders LLP, 1300 I Street,
N.W., Suite 500 East, Washington, D.C. 20005-3314, at 11:00 a.m., local time, on
Monday, December 30, 1996, to consider and act upon five proposals and to
transact such other business as properly may come before the Meeting or any
adjournment or postponement thereof. The first four proposals (the "Merger
Proposals") are related and approval of each such proposal is conditioned upon
the approval of all of the Merger Proposals. The fifth proposal is independent
of the Merger Proposals and its approval is not conditioned upon approval of all
of the Merger Proposals. The five proposals, more fully described in the
accompanying Joint Proxy Statement/Prospectus and Appendices thereto, provide
for the following:
Merger Proposal One: Approval and adoption of the Agreement and Plan of
Merger dated as of October 11, 1996, as amended (the "Merger Agreement"),
between EnSys and Strategic Diagnostics Inc., a Delaware corporation
("SDI"), providing for the merger (the "Merger") of SDI with and into EnSys,
with EnSys continuing as the surviving corporation (the "Surviving
Corporation"). Under the Merger Agreement: (i) each share of common stock,
par value $.01 per share, of SDI (the "SDI Common Stock") will be converted
into 0.7392048 share(s) of common stock, par value $.01 per share, of the
Surviving Corporation (the "Surviving Corporation Common Stock"); (ii) each
share of Series A Convertible Preferred Stock, par value $.10 per share, of
SDI will be converted into 0.7392048 shares(s) of Series A Convertible
Preferred Stock, par value $.01 per share, of the Surviving Corporation (the
"Surviving Corporation Series A Preferred Stock"); (iii) each issued and
outstanding SDI Option to purchase shares of SDI Common Stock will be
canceled and extinguished and will be converted into a Surviving Corporation
option ("Surviving Corporation Option") to purchase that number of shares of
Surviving Corporation Common Stock which is equal to the number of shares of
SDI Common Stock to which the SDI Option relates multiplied by 0.7818026;
and (iv) each issued and outstanding SDI Warrant to purchase shares of SDI
Common Stock will be canceled and extinguished and will be converted into a
Surviving Corporation warrant ("Surviving Corporation Warrant") to purchase
that number of shares of Surviving Corporation Common Stock which is equal
to the number of shares of SDI Common Stock to which the SDI Warrant relates
multiplied by 0.7818026. Each Surviving Corporation Option or Surviving
Corporation Warrant to be granted to a holder of a SDI Option or a SDI
Warrant will be rounded to the nearest whole share. All SDI Stock Option
Plans will be terminated and the Surviving Corporation will not be bound by
any of the terms thereof nor be liable for any of the obligations
thereunder.
Merger Proposal Two: In order to effectuate the Merger and in
connection therewith, approval and adoption of the amendment and restatement
of EnSys' Certificate of Incorporation to change the corporate name of the
Surviving Corporation to "Strategic Diagnostics Inc."
Merger Proposal Three: In order to effectuate the Merger and in
connection therewith, approval and adoption of the amendment and restatement
of EnSys' Certificate of Incorporation to increase the number of authorized
shares of EnSys capital stock from 25,000,000 shares of common stock to: (i)
35,000,000 shares of Surviving Corporation Common Stock; (ii) 2,164,362
shares of Surviving Corporation Series A Preferred Stock; (iii) 17,500,000
shares of "blank check" preferred stock which may be issued from time to
time by the Board of Directors of the Surviving Corporation with such
rights, preferences and other designations as the Board of Directors shall
determine.
Merger Proposal Four: In order to effectuate the Merger and in
connection therewith, approval and adoption of the amendment and restatement
of EnSys' Certificate of Incorporation to reclassify the Board of Directors.
<PAGE>
Proposal Five: Approval of amendments to the EnSys 1995 Stock Incentive
Plan in accordance with the Amended and Restated EnSys 1995 Stock Incentive
Plan to: (i) increase the number of shares authorized and issuable pursuant
to the plan; (ii) limit the maximum aggregate number of shares of Surviving
Corporation Common Stock that may be subject to awards granted within any
fiscal year to any "covered employee" as defined in Section 162(m) of the
Internal Revenue Code of 1986; (iii) broaden the class of persons eligible
under the plan to receive EnSys stock options which may be granted to
replace options to purchase stock in a company which is party to a merger or
consolidation involving EnSys or which is a party to certain other
acquisitions involving EnSys or its subsidiaries; (iv) eliminate the
requirement that the plan be administered by a Committee consisting solely
of two or more disinterested directors, as defined by Rule 16b-3(c)(2)(i)
under the Securities Exchange Act of 1934, as amended; (v) eliminate the
"formula plan" requirements applicable to stock options granted to
independent directors and conform the provisions applicable to stock option
grants to directors to those previously applicable to non-qualified stock
option grants to employees; and (vi) eliminate certain restrictions on the
ability of an optionee to elect to have tax withholding obligations
satisfied by payment in shares.
THE APPROVAL OF EACH OF THE MERGER PROPOSALS IS CONDITIONED UPON THE
APPROVAL OF ALL OF THE MERGER PROPOSALS. ACCORDINGLY, A VOTE AGAINST ANY OF THE
MERGER PROPOSALS WILL HAVE THE SAME EFFECT AS A VOTE AGAINST ALL OF THE MERGER
PROPOSALS. THE APPROVAL OF THE AMENDED AND RESTATED ENSYS 1995 STOCK INCENTIVE
PLAN IS NOT CONDITIONED ON THE APPROVAL OF THE MERGER PROPOSALS.
The Merger and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus and Appendices thereto, which form
a part of this Notice.
The Board of Directors of EnSys has fixed the close of business on December
2, 1996 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Meeting or any adjournment
or postponement thereof. Only stockholders of record at the close of business on
the Record Date are entitled to notice of and to vote at the Meeting and any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the offices of EnSys located at 4222 Emperor
Boulevard, Durham, North Carolina 27703, at least ten days prior to the Meeting.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF ENSYS HAS APPROVED,
WITH NO MEMBER VOTING AGAINST, THE MERGER PROPOSALS AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE AMENDMENTS TO THE ENSYS CERTIFICATE OF
INCORPORATION CONTEMPLATED THEREBY, AND THE AMENDED AND RESTATED ENSYS 1995
STOCK INCENTIVE PLAN. THE BOARD RECOMMENDS THAT YOU VOTE FOR THE MERGER
PROPOSALS AND THE AMENDED AND RESTATED ENSYS 1995 STOCK INCENTIVE PLAN AT THE
MEETING. WE URGE YOU TO REVIEW CAREFULLY THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS AND ACCOMPANYING APPENDICES, INCLUDING THE DISCUSSIONS OF
CERTAIN RISK FACTORS, AS WELL AS ENSYS' REASONS FOR THE MERGER PROPOSALS AND THE
AMENDED AND RESTATED ENSYS 1995 STOCK INCENTIVE PLAN AND OTHER FACTORS WHICH
SHOULD BE CAREFULLY CONSIDERED IN CONNECTION WITH YOUR VOTE THEREON.
Whether or not you plan to attend the Meeting, please execute and return
promptly the enclosed form of proxy. A return envelope is enclosed for your
convenience and requires no postage for mailing in the United States.
By Order of the Board of Directors,
JAMES M. TERRELL, III
SECRETARY
December 10, 1996
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND MAIL
IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
STRATEGIC DIAGNOSTICS INC.
128 SANDY DRIVE
NEWARK, DELAWARE 19713
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 1996
------------------------
To the Stockholders of
Strategic Diagnostics Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of Strategic Diagnostics Inc., a Delaware corporation ("SDI"), will
be held at SDI's offices at 128 Sandy Drive, Sandy Brae Industrial Park, Newark,
DE 19713-1147, at 11:00 a.m., local time, December 30, 1996, to consider and act
upon a proposal and to transact such other business as properly may come before
the Meeting or any adjournment or postponement thereof. The proposal provides
for the approval and adoption of the Agreement and Plan of Merger dated as of
October 11, 1996, as amended (the "Merger Agreement"), between SDI and EnSys
Environmental Products, Inc., a Delaware corporation ("EnSys"), providing for
the merger (the "Merger") of SDI with and into EnSys, with EnSys continuing as
the surviving corporation (the "Surviving Corporation"). Under the Merger
Agreement: (i) each share of common stock, par value $.01 per share, of SDI (the
"SDI Common Stock") will be converted into 0.7392048 shares(s) of common stock,
par value $.01 per share, of the Surviving Corporation (the "Surviving
Corporation Common Stock"); (ii) each share of Series A Convertible Preferred
Stock, par value $.10 per share, of SDI will be converted into 0.7392048 shares
of Series A Convertible Preferred Stock, par value $.01 per share, of the
Surviving Corporation; (iii) each issued and outstanding SDI Option to purchase
shares of SDI Common Stock will be canceled and extinguished and will be
converted into a Surviving Corporation Option to purchase that number of shares
of Surviving Corporation Common Stock which is equal to the number of shares of
SDI Common Stock to which the SDI Option relates multiplied by 0.7818026; and
(iv) each issued and outstanding SDI Warrant to purchase shares of SDI Common
Stock will be canceled and extinguished and will be converted into a Surviving
Corporation Warrant to purchase that number of shares of Surviving Corporation
Common Stock which is equal to the number of shares of SDI Common Stock to which
the SDI Warrant relates multiplied by 0.7818026. Each Surviving Corporation
Option or Surviving Corporation Warrant to be granted to a holder of a SDI
Option or a SDI Warrant will be rounded to the nearest whole share. All SDI
Stock Option Plans will be terminated and the Surviving Corporation will not be
bound by any of the terms thereof nor be liable for any of the obligations
thereunder.
The Merger and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus and Appendices thereto, which form
a part of this Notice.
The Board of Directors of SDI has fixed the close of business on December 2,
1996 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Meeting or any adjournment
or postponement thereof. Only stockholders of record at the close of business on
the Record Date are entitled to notice of and to vote at the Meeting and any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the offices of SDI located at 128 Sandy Drive,
Newark, Delaware 19713, at least ten days prior to the Meeting.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF SDI HAS APPROVED,
WITH NO MEMBER VOTING AGAINST, THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. THE BOARD RECOMMENDS THAT YOU VOTE FOR THE MERGER AT THE
MEETING. WE URGE YOU TO REVIEW CAREFULLY THE JOINT PROXY STATEMENT/ PROSPECTUS
AND ACCOMPANYING APPENDICES, INCLUDING THE DISCUSSIONS OF CERTAIN RISK FACTORS,
AS WELL AS SDI'S REASONS FOR THE MERGER AND OTHER FACTORS WHICH SHOULD BE
CAREFULLY CONSIDERED IN CONNECTION WITH YOUR VOTE ON THE MERGER.
<PAGE>
Whether or not you plan to attend the Meeting, please execute and return
promptly the enclosed form of proxy. A return envelope is enclosed for your
convenience and requires no postage for mailing in the United States.
By Order of the Board of Directors,
MARTHA C. REIDER
SECRETARY
December 10, 1996
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND MAIL
IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
STRATEGIC DIAGNOSTICS INC.
JOINT PROXY STATEMENT
FOR MEETINGS OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 1996
---------------------
ENSYS ENVIRONMENTAL PRODUCTS, INC.
PROSPECTUS
---------------------
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of EnSys Environmental Products, Inc., a Delaware corporation ("EnSys"), and to
the stockholders of Strategic Diagnostics Inc., a Delaware corporation ("SDI"),
in connection with the solicitation of proxies by their respective Boards of
Directors to be used at a Special Meeting of Stockholders of EnSys (the "EnSys
Meeting") and a Special Meeting of Stockholders of SDI (the "SDI Meeting"), each
of which is to be held on December 30, 1996, or any adjournment(s) or
postponement(s) thereof. At such meetings, the stockholders of each of EnSys and
SDI will be asked to consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of October 11, 1996 (the "Merger
Agreement"), between EnSys and SDI, providing for the merger (the "Merger") of
SDI with and into EnSys, with EnSys continuing as the surviving corporation (the
"Surviving Corporation"). Upon consummation of the Merger: (i) each share of
common stock, par value $.01 per share, of SDI (the "SDI Common Stock") will be
converted into 0.7392048 share(s) of Common Stock, par value $.01 per share, of
the Surviving Corporation (the "Surviving Corporation Common Stock"); (ii) each
share of Series A Convertible Preferred Stock, par value $.10 per share, of SDI
(the "SDI Preferred Stock"), will be converted into 0.7392048 share(s) of Series
A Convertible Preferred Stock, par value $.01 per share, of the Surviving
Corporation (the "Surviving Corporation Series A Preferred Stock"); (iii) each
issued and outstanding SDI Option to purchase shares of SDI Common Stock will be
canceled and extinguished and will be converted into a Surviving Corporation
option (a "Surviving Corporation Option") to purchase that number of shares of
Surviving Corporation Common Stock which is determined when the number of shares
of SDI Common Stock to which the SDI Option relates is multiplied by 0.7818026;
and (iv) each SDI Warrant to purchase shares of SDI Common Stock will be
canceled and extinguished and will be converted into a Surviving Corporation
warrant (a "Surviving Corporation Warrant") to purchase that number of shares of
Surviving Corporation Common Stock which is determined when the number of shares
of SDI Common Stock to which the SDI Warrant relates is
(COVER CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" AT PAGE 12 HEREIN FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS WHICH SHOULD BE CONSIDERED IN EVALUATING THE TRANSACTIONS
CONTEMPLATED BY THIS JOINT PROXY STATEMENT/PROSPECTUS.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed or delivered to the stockholders of EnSys and SDI on or about
December 10, 1996.
------------------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS DECEMBER 9, 1996.
<PAGE>
(COVER CONTINUED FROM PREVIOUS PAGE)
multiplied by 0.7818026. Each Surviving Corporation Option or Surviving
Corporation Warrant to be granted to a holder of a SDI Option or a SDI Warrant
will be rounded to the nearest whole share. All SDI Stock Option Plans will be
terminated and the Surviving Corporation will not be bound by any of the terms
thereof nor be liable for any of the obligations thereunder.
In addition, in connection with and in order to effectuate the Merger,
stockholders of EnSys will be asked to approve three related proposals to amend
and restate EnSys' Certificate of Incorporation (hereafter, the "Surviving
Corporation Certificate"), effective upon filing of a Certificate of Merger with
the Delaware Secretary of State pursuant to Section 1.2 of the Merger Agreement.
Such amendments and restatement will, among other things: (i) change the
corporate name of the Surviving Corporation to Strategic Diagnostics Inc.; (ii)
increase the number of authorized shares of common stock from 25,000,000 shares
to 35,000,000 shares; (iii) authorize the issuance of 2,164,362 shares of the
Surviving Corporation Series A Preferred Stock to be issued in the Merger and
(iv) authorize the issuance of 17,500,000 shares of blank check preferred stock
which may be issued from time to time by the Surviving Corporation's Board of
Directors with such rights, preferences and other designations as the Board of
Directors shall determine; and (iii) reclassify the Board of Directors. A copy
of the Merger Agreement is attached as Appendix A to this Joint Proxy
Statement/Prospectus and a copy of the form of the Surviving Corporation
Certificate is attached as Appendix D to this Joint Proxy Statement/Prospectus.
In addition, at the Meeting stockholders of EnSys will consider and vote
upon a proposal to amend the EnSys 1995 Stock Incentive Plan (the "1995 EnSys
Plan") in accordance with the Amended and Restated EnSys 1995 Stock Incentive
Plan (the "Amended 1995 EnSys Plan") attached as Appendix F to this Joint Proxy
Statement/Prospectus. The Amended 1995 EnSys Plan amends the 1995 EnSys Plan to:
(i) increase the number of shares authorized and issuable pursuant to the plan;
(ii) limit the maximum aggregate number of shares of Surviving Corporation
Common Stock that may be subject to awards granted within any fiscal year to any
"covered employee" as defined in Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"); (iii) broaden the class of persons eligible under
the plan to receive EnSys stock options which may be granted to replace options
to purchase stock in a company which is party to a merger or consolidation
involving EnSys or which is a party to certain other acquisitions involving
EnSys or its subsidiaries; (iv) eliminate the requirement that the plan be
administered by a committee consisting solely of two or more disinterested
directors, as defined by Rule 16b-3(c)(2)(i) under the Securities Exchange Act
of 1934, as amended; (v) eliminate the "formula plan" requirements applicable to
stock options granted to independent directors and conform the provisions
applicable to stock option grants to directors to those previously applicable to
non-qualified stock option grants to employees; and (vi) eliminate certain
restrictions on the ability of an optionee to elect to have tax withholding
obligations satisfied by payment in shares.
EnSys has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") on Form
S-4 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Surviving Corporation Common Stock, Surviving
Corporation Series A Preferred Stock, Surviving Corporation Options and
Surviving Corporation Warrants to be issued pursuant to the Merger Agreement.
This Joint Proxy Statement/Prospectus constitutes the prospectus of EnSys filed
as part of the Registration Statement. All information contained herein with
respect to EnSys has been furnished by EnSys and all information contained
herein with respect to SDI has been furnished by SDI.
The EnSys common stock, par value $.01 per share (the "EnSys Common Stock"),
is quoted on the Nasdaq National Market ("Nasdaq") under the symbol "ENSY." On
July 26, 1996, the day the letter of intent relating to the proposed Merger was
signed and the last trading day before the public announcement of the proposed
Merger, the last reported sale price for a share of EnSys Common Stock was $1.75
per share. On December 6, 1996, the last reported sale price for a share of
EnSys Common Stock was $1.375 per share. Stockholders are encouraged to obtain
current market prices of EnSys Common Stock prior to voting on the Merger.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 1
SUMMARY................................................................... 2
RISK FACTORS.............................................................. 12
HISTORY OF OPERATING LOSSES............................................. 12
COSTS ASSOCIATED WITH THE MERGER........................................ 12
UNCERTAINTY OF INTEGRATING OPERATING ENTITIES........................... 12
MANAGEMENT FOLLOWING THE MERGER; CLASSIFIED BOARD; ANTI-TAKEOVER
MEASURE............................................................... 13
EFFECTS OF CERTAIN SURVIVING CORPORATION CERTIFICATE AND BYLAW
PROVISIONS ON RIGHTS OF SDI STOCKHOLDERS.............................. 13
NO CASH DIVIDENDS....................................................... 14
DEPENDENCE ON KEY PERSONNEL............................................. 14
LIMITATIONS ON USE OF NOLS.............................................. 14
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS............................... 14
DEPENDENCE ON CORPORATE PARTNERS........................................ 14
MARKET ACCEPTANCE....................................................... 15
ENVIRONMENTAL REGULATION AND REGULATORY APPROVAL........................ 15
TECHNOLOGICAL CHANGE.................................................... 15
DEPENDENCE ON NEW PRODUCTS AND MARKETS.................................. 15
COMPETITION............................................................. 16
FLUCTUATIONS AND SEASONALITY IN OPERATING RESULTS; MARKET PRICE......... 16
PRODUCT LIABILITY CLAIMS................................................ 16
UNPREDICTABILITY OF PROPRIETARY RIGHTS AND PATENT PROTECTION............ 16
HAZARDOUS MATERIALS AND POTENTIAL LIABILITY............................. 17
ENSYS ENVIRONMENTAL PRODUCTS, INC. SELECTED HISTORICAL FINANCIAL DATA..... 17
STRATEGIC DIAGNOSTICS INC. SELECTED HISTORICAL FINANCIAL DATA............. 19
OHMICRON CORPORATION SELECTED HISTORICAL FINANCIAL DATA................... 22
SURVIVING CORPORATION AND SUBSIDIARIES SELECTED PRO FORMA FINANCIAL
DATA.................................................................... 23
ENSYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 24
GENERAL................................................................. 24
RESULTS OF OPERATIONS................................................... 24
LIQUIDITY AND CAPITAL RESOURCES......................................... 28
SDI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 29
OVERVIEW................................................................ 29
RESULTS OF OPERATIONS................................................... 30
LIQUIDITY AND CAPITAL RESOURCES......................................... 33
OHMICRON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 33
GENERAL................................................................. 33
RESULTS OF OPERATIONS................................................... 34
</TABLE>
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LIQUIDITY AND CAPITAL RESOURCES......................................... 35
MARKET PRICES............................................................. 36
THE ENSYS MEETING......................................................... 36
GENERAL................................................................. 36
MATTERS TO BE CONSIDERED AT THE ENSYS MEETING........................... 37
RECORD DATE............................................................. 37
PROXIES................................................................. 37
QUORUM.................................................................. 38
VOTE REQUIRED........................................................... 38
THE SDI MEETING........................................................... 38
GENERAL................................................................. 38
MATTERS TO BE CONSIDERED AT THE SDI MEETING............................. 39
RECORD DATE............................................................. 39
PROXIES................................................................. 39
QUORUM.................................................................. 40
VOTE REQUIRED........................................................... 40
THE MERGER................................................................ 41
BACKGROUND OF THE MERGER................................................ 41
ENSYS' REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION.... 45
OPINION OF ENSYS' FINANCIAL ADVISOR..................................... 46
REPORTS OF OUTSIDE CONSULTANTS TO ENSYS................................. 51
SDI'S REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION..... 53
OPINION OF SDI'S FINANCIAL ADVISOR...................................... 53
INTERESTS OF CERTAIN PERSONS IN THE MERGER.............................. 60
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................. 61
ACCOUNTING TREATMENT.................................................... 64
REGULATORY APPROVALS.................................................... 64
DISSENTERS' APPRAISAL RIGHTS............................................ 64
RESALE RESTRICTIONS AND REGISTRATION RIGHTS............................. 65
THE OPERATING AGREEMENT................................................. 66
STOCKHOLDER VOTING AGREEMENTS........................................... 68
THE MERGER AGREEMENT...................................................... 69
THE MERGER.............................................................. 69
CLOSING AND EFFECTIVE TIME OF THE MERGER................................ 69
CONVERSION OF SECURITIES................................................ 69
TREATMENT OF SDI STOCK OPTIONS AND WARRANTS............................. 70
EXCHANGE OF CERTIFICATES................................................ 70
REPRESENTATIONS AND WARRANTIES.......................................... 71
CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME.......... 71
NEGOTIATIONS WITH OTHERS................................................ 72
MANAGEMENT AFTER THE MERGER............................................. 72
INDEMNIFICATION......................................................... 73
CONDITIONS TO THE MERGER................................................ 73
TERMINATION............................................................. 74
EFFECT OF TERMINATION................................................... 74
AMENDMENT AND WAIVER.................................................... 75
</TABLE>
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DESCRIPTION OF ENSYS...................................................... 75
GENERAL................................................................. 75
RECENT DEVELOPMENTS..................................................... 75
MARKET OVERVIEW......................................................... 76
PRODUCTS................................................................ 77
REGULATORY APPROVALS.................................................... 79
SALES AND MARKETING STRATEGY............................................ 80
RESEARCH AND DEVELOPMENT................................................ 81
COLLABORATIVE ARRANGEMENTS.............................................. 81
PROPRIETARY TECHNOLOGY AND PATENTS...................................... 82
MANUFACTURING........................................................... 82
COMPETITION............................................................. 82
ENVIRONMENTAL REGULATIONS............................................... 83
EMPLOYEES............................................................... 83
PROPERTIES.............................................................. 83
EXECUTIVE COMPENSATION.................................................. 83
COMPENSATION OF DIRECTORS............................................... 85
EMPLOYMENT AND SEVERANCE AGREEMENTS..................................... 86
REPORT ON REPRICING OF OPTIONS/SARS..................................... 87
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
ENSYS................................................................. 87
DESCRIPTION OF SDI........................................................ 89
GENERAL................................................................. 89
IMMUNOASSAY TECHNOLOGY.................................................. 91
MARKETS AND PRODUCTS.................................................... 92
REGULATORY APPROVALS.................................................... 95
SALES AND MARKETING..................................................... 96
PROPRIETARY TECHNOLOGY.................................................. 96
MANUFACTURING........................................................... 98
RESEARCH AND DEVELOPMENT................................................ 99
EMPLOYEES............................................................... 99
PROPERTIES.............................................................. 99
EXECUTIVE COMPENSATION.................................................. 100
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SDI... 100
OPERATION, MANAGEMENT AND BUSINESS OF THE SURVIVING CORPORATION AFTER THE
MERGER.................................................................. 103
BUSINESS OF THE SURVIVING CORPORATION................................... 103
MANAGEMENT OF THE SURVIVING CORPORATION................................. 103
DESCRIPTION OF CAPITAL STOCK OF THE SURVIVING CORPORATION............... 106
LISTING OF SURVIVING CORPORATION COMMON STOCK........................... 108
TRANSFER AGENT.......................................................... 108
CORPORATE HEADQUARTERS.................................................. 108
COMPARATIVE RIGHTS OF STOCKHOLDERS........................................ 108
GENERAL................................................................. 108
CLASSIFIED BOARD OF DIRECTORS........................................... 109
NUMBER AND ELECTION OF DIRECTORS........................................ 110
STOCKHOLDER ACTION BY WRITTEN CONSENT................................... 110
SPECIAL MEETING OF STOCKHOLDERS......................................... 111
</TABLE>
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COMMON STOCK............................................................ 111
PREFERRED STOCK......................................................... 111
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BYLAWS................ 112
BUSINESS COMBINATIONS................................................... 112
SPECIAL VOTING REQUIREMENTS............................................. 113
PROPOSAL TO AMEND AND RESTATE ENSYS' CERTIFICATE OF INCORPORATION TO
CHANGE NAME............................................................. 114
PROPOSAL TO AMEND AND RESTATE ENSYS' CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK............... 114
PROPOSAL TO AMEND AND RESTATE ENSYS' CERTIFICATE OF INCORPORATION TO
RECLASSIFY ENSYS' BOARD................................................. 115
PROPOSAL TO APPROVE THE AMENDED AND RESTATED ENSYS 1995 STOCK INCENTIVE
PLAN.................................................................... 115
INCREASE IN THE NUMBER OF SHARES ISSUABLE UNDER THE 1995 ENSYS PLAN..... 116
LIMITATION ON GRANTS OF AWARDS.......................................... 116
SUBSTITUTE AWARDS....................................................... 116
SECTION 16 CHANGES...................................................... 117
SUMMARY OF THE AMENDED AND RESTATED ENSYS 1995 STOCK INCENTIVE PLAN..... 117
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE........................ 119
VOTE REQUIRED FOR APPROVAL.............................................. 120
LEGAL MATTERS............................................................. 120
EXPERTS................................................................... 120
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
SURVIVING CORPORATION AND SUBSIDIARIES PRO FORMA COMBINED FINANCIAL
STATEMENTS............................................................ F-2
ENSYS ENVIRONMENTAL PRODUCTS, INC....................................... F-13
STRATEGIC DIAGNOSTICS INC............................................... F-35
OHMICRON CORPORATION.................................................... F-50
APPENDIX A--AGREEMENT AND PLAN OF MERGER
APPENDIX B--FAIRNESS OPINION OF RAYMOND JAMES & ASSOCIATES, INC.
APPENDIX C--FAIRNESS OPINION OF OPPENHEIMER & CO, INC.
APPENDIX D-- FOURTH AMENDMENT AND RESTATED CERTIFICATE OF INCORPORATION OF
STRATEGIC DIAGNOSTICS INC. (FORMERLY ENSYS ENVIRONMENTAL
PRODUCTS, INC.)
APPENDIX E-- AMENDED AND RESTATED BYLAWS OF STRATEGIC DIAGNOSTICS INC.
(FORMERLY KNOWN AS ENSYS ENVIRONMENTAL PRODUCTS, INC.)
APPENDIX F-- AMENDED AND RESTATED ENSYS ENVIRONMENTAL PRODUCTS, INC. 1995
STOCK INCENTIVE PLAN
APPENDIX G--SECTION 262 OF THE DELAWARE GENERAL CORPORATE LAW
</TABLE>
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AVAILABLE INFORMATION
EnSys is subject to informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission. The
Registration Statement and exhibits thereto and the reports, proxy statements
and other information filed by EnSys can be inspected and copied at the
Commission's Public Reference Room, Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the public reference facilities
maintained by the Commission, at its regional offices located at Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661,
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials can be obtained from the Commission at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, registration statements and certain other
filings made with the Commission through its Electronic Data Gathering, Analysis
and Retrieval ("EDGAR") system are publicly available through the Commission's
site on the Internet's World Wide Web, located at http:// www.sec.gov. The
Registration Statement, including all amendments thereto, has been filed with
the Commission through EDGAR.
As permitted by the rules and regulations of the Commission, this Joint
Proxy Statement/Prospectus does not contain all information set forth in the
Registration Statement and exhibits thereto. For further information, please
refer to the Registration Statement, including the exhibits thereto, all of
which are available for inspection as set forth above. Statements contained in
this Joint Proxy Statement/Prospectus relating to the contents of any contract
or other document referred to herein are not necessarily complete, and reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
All information concerning EnSys contained in this Joint Proxy
Statement/Prospectus has been furnished by EnSys and all information concerning
SDI contained in this Joint Proxy Statement/Prospectus has been furnished by
SDI. No person is authorized to give any information or to make any
representation with respect to the matters described in this Joint Proxy
Statement/Prospectus other than information and representations contained herein
and, if given or made, such information or representation must not be relied
upon as having been authorized by EnSys, SDI or any other person. This Joint
Proxy Statement/ Prospectus does not constitute an offer to sell, or a
solicitation of any offer to purchase, any securities, or a solicitation of a
proxy, in any jurisdiction in which, or to or from any person to or from whom,
it is unlawful to make such an offer or solicitation. Neither the delivery of
this Joint Proxy Statement/Prospectus nor any distribution of securities
hereunder shall under any circumstances be deemed to imply that there has been
no change in the assets, properties or affairs of EnSys or SDI since the date
hereof or that the information set forth herein is correct as of any time
subsequent to the date hereof.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND APPENDICES HERETO.
STOCKHOLDERS ARE URGED TO READ THIS JOINT PROXY STATEMENT/PROSPECTUS AND ITS
APPENDICES BEFORE VOTING ON THE MATTERS DISCUSSED HEREIN.
As used herein, the term "EnSys" refers to EnSys Environmental Products,
Inc. and the term "SDI" refers to Strategic Diagnostics Inc., in both cases
including, unless the context otherwise requires, their respective subsidiaries.
ENSYS
EnSys develops and sells on-site test systems, based primarily on
immunoassay technology, designed for fast and inexpensive detection of
contaminants in soil and water and other media samples. EnSys' disposable test
systems use proprietary immunoassay reagents and other chemical reagents that
allow environmental scientists and engineers, waste managers and waste
generators to accurately test soil and water samples for environmental
remediation and environmental monitoring purposes.
EnSys was incorporated in 1987 as a Delaware corporation. EnSys' principal
executive offices are located at 4222 Emperor Boulevard, Durham, North Carolina
27703, and its telephone number is (919) 941-5509.
SDI
SDI develops, manufactures and markets immunoassay-based test kits which
serve a wide variety of markets including agriculture and food processing,
industrial pollution, medical, and water treatment. SDI also provides antibody
and immunoreagent research and development services. Many of SDI's products are
developed in collaboration with large chemical and pharmaceutical firms. A
leading SDI product is the one step GeneCheck-TM- B.t.k. test which is used to
determine the presence of a gene which provides a plant with a beneficial
attribute such as natural insect resistance. In August 1996, SDI acquired
Ohmicron Corporation ("Ohmicron"), a provider of immunoassay tests for pesticide
and industrial pollution applications. In October 1996, SDI entered into an
agreement with Taconic Farms, Inc.("Taconic") to dissolve TSD BioServices
("TSD"), a partnership between SDI and Taconic and to liquidate its assets, in
connection with which certain of the rights and assets of TSD will be
distributed to SDI.
SDI was incorporated in 1990 as a Delaware corporation. SDI's principal
executive offices are located at 128 Sandy Drive, Newark, Delaware 19713, and
its telephone number is (302) 456-6789.
THE ENSYS MEETING
The EnSys Meeting will be held on Monday, December 30, 1996 at 11:00 a.m.,
local time, at the offices of Troutman Sanders LLP, 1300 I Street, N.W., Suite
500 East, Washington, D.C. 20005-3314.
At the EnSys Meeting, including any adjournment thereof, the stockholders of
EnSys will be asked to consider and vote upon four related proposals (the
"Merger Proposals"): (i) approval and adoption of the Merger Agreement and the
transactions contemplated thereby; (ii) change the corporate name of the
Surviving Corporation to Strategic Diagnostics Inc.; (iii) increase the number
of authorized shares of common stock, authorize the issuance of the Surviving
Corporation Series A Preferred Stock to be issued in the Merger and the issuance
of additional shares of "blank check" preferred stock which may be issued from
time to time by the Surviving Corporation's Board of Directors with such rights,
preferences and other designations as the Board of Directors shall determine;
and (iv) reclassify the Board of Directors. THE APPROVAL OF EACH OF THE MERGER
PROPOSALS IS CONDITIONED UPON THE APPROVAL OF ALL OF THE MERGER PROPOSALS BY THE
STOCKHOLDERS OF ENSYS.
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ACCORDINGLY, A VOTE AGAINST ANY OF THE MERGER PROPOSALS WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST ALL OF THE MERGER PROPOSALS.
In addition, at the EnSys Meeting the stockholders of EnSys will be asked to
consider and vote upon a proposal to make certain amendments to the 1995 EnSys
Plan, as set forth in the Amended 1995 EnSys Plan. The Amended 1995 EnSys Plan
amends the 1995 EnSys Plan to: (i) increase the number of shares authorized and
issuable pursuant to the plan; (ii) limit the maximum aggregate number of shares
of Surviving Corporation Common Stock that may be subject to awards granted
within any fiscal year to any "covered employee" as defined in Section 162(m) of
the Code; (iii) broaden the class of persons eligible under the plan to receive
EnSys stock options which may be granted to replace options to purchase stock in
a company which is party to a merger or consolidation involving EnSys or which
is a party to certain other acquisitions involving EnSys or its subsidiaries;
(iv) eliminate the requirement that the plan be administered by a committee
consisting solely of two or more disinterested directors, as defined by Rule
16b-3(c)(2)(i) under the Exchange Act; (v) eliminate the "formula plan"
requirements applicable to stock options granted to independent directors and
conform the provisions applicable to stock option grants to directors to those
previously applicable to non-qualified stock option grants to employees; and
(vi) eliminate certain restrictions on the ability of an optionee to elect to
have tax withholding obligations satisfied by payment in shares. THE APPROVAL OF
THE FOREGOING AMENDMENTS TO THE 1995 ENSYS PLAN IS NOT CONDITIONED ON THE
APPROVAL OF ANY OF THE MERGER PROPOSALS.
The close of business on December 2, 1996, has been fixed as the record date
(the "Record Date") for the determination of the stockholders of EnSys entitled
to notices of and to vote at the EnSys Meeting. Holders of EnSys Common Stock
are entitled to one vote for each share of EnSys Common Stock held by them. The
holders of a majority of the outstanding shares of EnSys Common Stock, present
either in person or by properly executed proxies, will constitute a quorum at
the EnSys Meeting.
The affirmative vote of holders of two-thirds of the outstanding shares of
EnSys Common Stock is required to approve each of the Merger Proposals. Approval
and adoption of the Amended 1995 EnSys Plan requires the affirmative vote of the
holders of a majority of the outstanding shares of the Ensys Common Stock
present and entitled to vote at the EnSys Meeting. As of the Record Date,
7,217,794 shares of EnSys Common Stock were issued and outstanding, of which
approximately 60% were beneficially owned by directors, executive officers and
affiliates of EnSys (excluding 386,585 shares which may be acquired by such
persons upon exercise of options and other rights which are exercisable within
60 days of the Record Date). Holders of 32% of the currently outstanding shares
of EnSys Common Stock have entered into certain stockholder voting agreements
with SDI pursuant to which such holders (all of whom are directors, executive
officers or affiliates of EnSys) have agreed to vote such shares of EnSys Common
Stock in favor of the approval and adoption of the Merger Agreement at the EnSys
Meeting. See "The EnSys Meeting--Vote Required" and "The Merger--Stockholder
Voting Agreements."
THE SDI MEETING
The SDI Meeting will be held on Monday, December 30, 1996 at 11:00 a.m.,
local time, at SDI's offices at 128 Sandy Drive, Sandy Brae Industrial Park,
Newark, DE 19713-1147.
At the SDI Meeting, including any adjournment thereof, the stockholders of
SDI will be asked to consider and vote upon a proposal to approve and adopt the
Merger Agreement and such other business as properly may come before the SDI
Meeting. The Merger Agreement provides that as of the effective time of the
Merger (the "Effective Time"), SDI will be merged with and into EnSys. See "The
Merger Agreement."
The close of business on December 2, 1996, has been fixed as the Record Date
for the determination of the stockholders of SDI entitled to notice of and to
vote at the SDI Meeting. Holders of SDI Common Stock and SDI Preferred Stock are
entitled to one vote for each share of SDI Common Stock or SDI Preferred Stock,
as the case may be, held by them. The holders of a majority of the outstanding
shares of
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SDI Common Stock and SDI Preferred Stock, present either in person or by
properly executed proxies, will constitute a quorum at the SDI Meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of SDI Common Stock and SDI Preferred Stock, voting together (sometimes referred
to collectively herein as the "SDI Shares"), is required to approve and adopt
the Merger Agreement. Approval and adoption of the Merger Agreement also
requires the affirmative vote of the holders of two-thirds of the outstanding
shares of SDI Preferred Stock, voting as a class, pursuant to the terms of the
SDI Restated Certificate of Incorporation (the "SDI Certificate"). As of the
Record Date, 7,819,493 shares of SDI Common Stock and 2,927,960 shares of SDI
Preferred Stock were issued and outstanding, and approximately 91% of the SDI
Shares were beneficially owned by directors, executive officers and affiliates
of SDI (excluding 869,564 shares which may be acquired by such persons upon
exercise of options, warrants or other rights which are exercisable within 60
days of the Record Date). Holders of 83% of the currently outstanding shares of
SDI Common Stock and all of the currently outstanding SDI Preferred Stock
(representing 88% of the currently outstanding SDI Shares) have entered into
certain stockholder voting agreements with EnSys pursuant to which such holders
(all of whom are directors, executive officers or affiliates of SDI) have agreed
to vote such SDI Shares in favor of the approval and adoption of the Merger
Agreement at the SDI Meeting. See "The SDI Meeting--Vote Required" and "The
Merger--Stockholder Voting Agreements."
THE MERGER
CONVERSION OF SECURITIES. Upon consummation of the transactions
contemplated by the Merger Agreement, SDI will be merged with and into EnSys and
(i) each share of SDI Common Stock will be converted into 0.7392048 share(s) of
Surviving Corporation Common Stock, and (ii) each share of SDI Preferred Stock
will be converted into 0.7392048 shares(s) of Surviving Corporation Series A
Preferred Stock (such conversion ratio for the SDI Common Stock and the SDI
Preferred Stock being sometimes referred to herein as the "Conversion Ratio").
See "The Merger Agreement--Conversion of Securities." Based upon the number of
outstanding shares of EnSys Common Stock and SDI Common Stock as of the Record
Date, assuming that all outstanding options and warrants to purchase EnSys
Common Stock and SDI Common Stock are exercised, approximately 16,761,702 shares
of the Surviving Corporation Common Stock will be outstanding upon consummation
of the Merger, (i) of which approximately 7,827,709 shares, representing
approximately 47% of the total will be held by pre-Merger EnSys stockholders and
(ii) of which approximately 8,933,993 shares, representing approximately 53% of
the total, will be held by former SDI stockholders.
TREATMENT OF STOCK OPTIONS AND WARRANTS. Pursuant to the Merger Agreement,
at the Effective Time, (i) each issued and outstanding option to purchase shares
of SDI Common Stock (an "SDI Option") will be canceled and extinguished and will
be converted into a Surviving Corporation Option to purchase that number of
shares of Surviving Corporation Common Stock which is equal to the number of
shares of SDI Common Stock to which the SDI Option relates multiplied by
0.7818026 and (ii) each warrant to purchase shares of SDI Common Stock (an "SDI
Warrant") will be canceled and extinguished and will be converted into a
Surviving Corporation Warrant to purchase that number of shares of Surviving
Corporation Common Stock which is equal to the number of shares of SDI Common
Stock to which the SDI Warrant relates multiplied by 0.7818026. Each Surviving
Corporation Option or Surviving Corporation Warrant to be granted to a holder of
SDI Options or SDI Warrants will be rounded to the nearest whole share. In
addition, at the Effective Time, all SDI stock option plans will be terminated
and the Surviving Corporation will not be bound by any of the terms thereof nor
be liable for any of the obligations thereunder.
RECOMMENDATION OF THE BOARDS OF DIRECTORS. The EnSys Board of Directors has
approved the Merger Agreement with no member voting against and recommends a
vote for approval and adoption of the Merger Proposals and the Amended 1995
EnSys Plan by the stockholders of EnSys. The Board of Directors of SDI has
unanimously approved the Merger Agreement and unanimously recommends a vote for
approval and adoption of the Merger Agreement by the stockholders of SDI. See
"The Merger--
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EnSys' Reasons for the Merger and Board of Directors' Recommendation" and
"--SDI's Reasons for the Merger and Board of Directors' Recommendation." See
also "Risk Factors" for a discussion of factors which should be carefully
considered by the stockholders of EnSys and SDI in connection with evaluating
and voting on the Merger Agreement and the transactions contemplated thereby.
OPINION OF ENSYS' FINANCIAL ADVISOR. EnSys engaged the investment banking
firm of Raymond James & Associates, Inc. ("Raymond James") to assist the Board
of Directors of EnSys in evaluating the fairness from a financial point of view
of the consideration offered to SDI in connection with the Merger (the "Merger
Consideration"). Raymond James delivered to the EnSys Board of Directors a
written opinion dated October 8, 1996 that, as of the date of such opinion, the
Merger Consideration is fair to the current stockholders of EnSys from a
financial point of view. The summary of the opinion of Raymond James set forth
in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the opinion. Such opinion is not required to be updated at or prior
to the closing of the Merger. For further information regarding Raymond James'
services as financial advisor to EnSys, its opinion and its fee and expense
arrangements, see "The Merger--Background of The Merger" and The Merger--Opinion
of EnSys' Financial Advisor." ENSYS STOCKHOLDERS ARE URGED TO READ THE RAYMOND
JAMES OPINION (INCLUDED AS APPENDIX B) CAREFULLY AND IN ITS ENTIRETY FOR A
DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS CONSIDERED AND THE
ASSUMPTIONS MADE BY RAYMOND JAMES IN RENDERING SUCH OPINION.
OPINION OF SDI'S FINANCIAL ADVISOR. SDI engaged the investment banking firm
of Oppenheimer & Co., Inc. ("Oppenheimer") to assist the SDI Board of Directors
in evaluating the fairness from a financial point of view of the Merger
Consideration. Oppenheimer delivered to the Board of Directors a written opinion
dated October 8, 1996 that, as of the date of such opinion, the Merger
Consideration was fair to the current holders of SDI Common Stock and SDI
Preferred Stock from a financial point of view. The summary of the opinion of
Oppenheimer set forth in this Joint Proxy Statement/Prospectus is qualified in
its entirety by reference to the opinion. Such opinion is not required to be
updated at or prior to the closing of the Merger. For further information
regarding Oppenheimer's services as financial advisor to SDI, its opinion and
its fee and expense arrangements, see "The Merger--Background of The Merger" and
"The Merger--Opinion of SDI's Financial Advisor." STOCKHOLDERS ARE URGED TO READ
THE OPPENHEIMER OPINION (INCLUDED AS APPENDIX C) CAREFULLY AND IN ITS ENTIRETY
FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS CONSIDERED AND THE
ASSUMPTIONS MADE BY OPPENHEIMER IN RENDERING SUCH OPINION.
CLOSING AND EFFECTIVE TIME OF THE MERGER. The closing of the transactions
contemplated by the Merger Agreement (the "Closing") shall take place on either
(i) the later to occur of (a) the first business day following the later to
occur of the EnSys Meeting and the SDI Meeting or (b) the day on which all
conditions set forth in the Merger Agreement are satisfied or waived, or (ii)
such other date, time and place as EnSys and SDI shall agree. As soon as
practicable following the Closing, EnSys will cause a Certificate of Merger to
be filed with the Delaware Secretary of State and the Merger will become
effective (the "Effective Time"). The Effective Time is currently expected to
occur on or shortly after December 30, 1996, subject to approval by the
stockholders of EnSys and SDI of the Merger Agreement herein and satisfaction or
waiver of the conditions precedent to the Merger set forth in the Merger
Agreement. See "The Merger Agreement--Closing and Effective Time of the Merger"
and "--Conditions to the Merger."
CONDITIONS TO THE MERGER. The respective obligations of EnSys and SDI to
consummate the Merger are subject to the fulfillment of each of the following
conditions, any or all of which may be waived by EnSys or SDI, as applicable, in
whole or in part, to the extent permitted by applicable law: (i) the Merger
Agreement shall have been approved by the requisite stockholders of EnSys and
SDI; (ii) neither EnSys nor SDI shall be subject to any order or injunction of a
court of competent jurisdiction which prohibits the consummation of the Merger;
(iii) the Registration Statement of which this Joint Proxy Statement/
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Prospectus is a part shall have become effective and no stop order with respect
thereto shall be in effect; (iv) the shares of Surviving Corporation Common
Stock issued in the Merger shall have been approved for quotation on Nasdaq; (v)
all consents, authorizations, orders and approvals of (or filings or
registrations within) any governmental commission, board or other regulatory
body required in connection with the execution, delivery and performance of the
Merger Agreement shall have been obtained or made, except where a failure to
have obtained or made any such consent, authorization, order, approval, filing
or registration would not have a material adverse effect on SDI and EnSys (and
their respective subsidiaries), taken as a whole, following the Effective Time;
(vi) Grover C. Wrenn and Richard C. Birkmeyer shall have entered into employment
agreements with EnSys or the Surviving Corporation; (vii) EnSys and certain
stockholders of SDI shall have executed and delivered a registration rights
agreement and lock-up letters; (viii) no action shall have been taken nor any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger by any governmental entity which imposes any condition
or restriction upon the Surviving Corporation, EnSys, SDI or their respective
subsidiaries which would so materially adversely impact the economic or business
benefit of the transactions contemplated by the Merger Agreement as to render
inadvisable the consummation of the Merger; (ix) EnSys shall have caused the
Board of Directors, committees and officers of the Surviving Corporation to be
selected pursuant to, and as set forth in, the Merger Agreement; and (x) each of
the holders of SDI Warrants shall have waived or relinquished all rights under
the terms of such warrants and shall have surrendered such warrants to SDI for
cancellation and conversion pursuant to the Merger Agreement.
The obligations of each of EnSys and SDI to effect the Merger also are
subject to the fulfillment or waiver by the other party prior to the Effective
Time of the following conditions: (i) the other party shall have performed in
all material respects its agreements contained in the Merger Agreement required
to be performed by it under the Merger Agreement; (ii) the representations and
warranties of the other party contained in the Merger Agreement shall be true
and correct unless the failure of any of the representations and warranties to
be true and correct would not have or would not be reasonably likely to have a
material adverse effect on such party and its subsidiaries, taken as a whole;
(iii) EnSys and SDI shall have each received certain opinions of its counsel
with respect to the Merger; (iv) EnSys and SDI shall have obtained the consent
or approval of each person whose consent or approval is required in connection
with the transactions contemplated by the Merger Agreement, except where the
failure to obtain such consents and approvals would not have a material adverse
affect. See "The Merger Agreement--Conditions to the Merger."
TERMINATION OF MERGER AGREEMENT; EFFECT OF FAILURE TO CLOSE. As discussed
above, the consummation of the Merger Agreement is subject to a number of
conditions, which, if not fulfilled or waived, permit termination of the Merger
Agreement. If the stockholders of either or both of EnSys or SDI fail to approve
the Merger or the stockholders of EnSys fail to approve the amendment and
restatement of EnSys' Certificate of Incorporation, the Merger will not be
consummated. The Merger Agreement is subject to termination by either EnSys or
SDI if the Merger is not consummated on or before January 31, 1997. In addition,
the Merger Agreement may be terminated under certain other circumstances by
either EnSys or SDI. See "The Merger Agreement--Termination" and "--Effect of
Termination." In the event the Merger is not consummated for any reason, the
respective businesses of EnSys and SDI are expected to continue to operate
independently in a manner substantially similar to their present modes of
operation. If either party unilaterally terminates the Merger Agreement in a
manner not permitted under the Merger Agreement or commits a material breach of
its obligations under the Merger Agreement, and the other party terminates the
Merger Agreement as a result thereof, such party will be obligated to pay to the
other party as liquidated damages a termination fee of $500,000. In addition,
the Operating Agreement will be terminated. See "The Merger--The Operating
Agreement".
AMENDMENT AND RESTATEMENT OF ENSYS' CERTIFICATE OF INCORPORATION. The
Merger Agreement provides for the amendment and restatement of EnSys' Third
Amended and Restated Certificate of Incorporation (the "EnSys Certificate")
effective upon consummation of the Merger. Such amendment and restatement
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will, among other things: (i) change the corporate name of the Surviving
Corporation to "Strategic Diagnostics Inc.;" (ii) increase the number of
authorized shares of common stock, authorize the issuance of the Surviving
Corporation Series A Preferred Stock to be issued in the Merger and of
additional shares of "blank check" preferred stock; and (iii) reclassify the
Board of Directors. See "Description of Capital Stock of the Surviving
Corporation," "Comparative Rights of Stockholders," "Proposal to Amend and
Restate EnSys' Certificate of Incorporation to Change Name," "Proposal to Amend
and Restate EnSys' Certificate of Incorporation to Increase the Number of
Authorized Shares of Capital Stock" and "Proposal to Amend and Restate EnSys'
Certificate of Incorporation to Reclassify EnSys' Board." The amendments to
EnSys' Certificate will be voted upon by EnSys stockholders in connection with
three of four Merger Proposals.
SURRENDER OF SDI STOCK CERTIFICATES. After the Effective Time of the
Merger, holders of SDI Common Stock and SDI Preferred Stock will be furnished
with a transmittal letter to be used to exchange their certificates for the
certificates evidencing shares of the Surviving Corporation Common Stock and
Surviving Corporation Series A Preferred Stock. Stockholders should not return
any stock certificates with the form of proxy accompanying this Joint Proxy
Statement/Prospectus. See "The Merger Agreement-- Exchange of Certificates."
MANAGEMENT AFTER THE MERGER. Following the consummation of the Merger, the
Surviving Corporation's Board of Directors will be comprised of the following
seven individuals: Grover C. Wrenn, Curtis Lee Smith, Jr., Kathleen E. Lamb and
Richard C. Birkmeyer (collectively, the "Class I Directors"), and Richard J.
Defieux, Robert E. Finnigan and Stephen O. Jaeger (collectively, the "Class II
Directors"). Thereafter, the number of directors may be fixed or altered by
resolutions adopted by a two-thirds vote of the Surviving Corporation's Board of
Directors. The Surviving Corporation Certificate further provides that any
vacancy on the Surviving Corporation's Board of Directors, including any newly
created directorship resulting from an increase in the number of directors, may
be filled by vote of a majority of the Surviving Corporation's Board of
Directors then in office; provided, however, that any director that voluntarily
leaves office may vote on his or her successor. Each director will hold office
until his or her successor is elected or qualified, or until his or her earlier
resignation. The directors of the Surviving Corporation will hold office as
follows: Class I Directors will hold office for a term expiring at the 1997
annual meeting of the stockholders and the Class II Directors will hold office
for a term expiring at the 1998 annual meeting of stockholders, with the members
of each class to hold office until their respective successors are duly elected
and qualified. Each Class I Director holding office at the time of the 1997
annual meeting of stockholders will automatically be nominated, subject to such
director's consent, to serve an additional two-year term expiring at the 1999
annual meeting of the stockholders; each Class II Director holding office at the
time of the 1998 annual meeting of the stockholders will automatically be
nominated, subject to such director's consent, to serve an additional two-year
term expiring at the 2000 annual meeting of the stockholders.
Following the consummation of the Merger, the principal executive officers
of the Surviving Corporation will be as follows: Richard C. Birkmeyer--President
and Chief Executive Officer; Grover C. Wrenn-- Chairman of the Board; Gregory J.
Bell--Vice President--Finance and Chief Financial Officer, David P. Herzog--Vice
President--Research and Development; Martha C. Reider--Vice
President--Manufacturing; James W. Stave--Vice President--Corporate Development;
and Anne F. Cavanaugh--Vice President--Acquisitions. Following the consummation
of the Merger, Ralph E. Stever will be Director of Sales of the Surviving
Corporation. See "The Merger Agreement--Management After the Merger" and
"Operation, Management and Business of the Surviving Corporation After the
Merger."
OPERATING AGREEMENT
EnSys and SDI have entered into an operating agreement (the "Operating
Agreement") in anticipation of the Closing of the Merger effective as of October
1, 1996. Unless sooner terminated, the Operating Agreement will be in effect
until the Effective Time or the termination of the Merger Agreement, whichever
is earlier.
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Pursuant to the Operating Agreement, SDI has granted EnSys an exclusive,
worldwide license to market and distribute certain products (the "Licensed
Products"). Upon execution of the Operating Agreement, EnSys will pay to SDI a
one time fee of $300,000, plus royalty fees (the "Royalty Fees") of 15% of net
revenues derived from the sale of the Licensed Products in excess of $2,000,000.
Both EnSys and SDI agree to provide certain services necessary to produce,
distribute and sell the Licensed Products. EnSys will provide, among other
things, managerial services for the day-to-day operation of SDI's Newtown,
Pennsylvania facility (the "Newtown Facility"), personnel and services for
assembly, packaging and shipping the Licensed Products, customer service
information and accounting and cash management services. SDI will provide
personnel at its Newtown Facility, its current inventory of Licensed Products,
full and unrestricted access to the Newtown Facility, including office space,
equipment, trade secrets, formulae, and any intellectual property rights and
manufacturing services necessary to produce the Licensed Products at SDI's
Newark, Delaware facility (the "Delaware Facility").
Title to all SDI properties will remain with SDI. In addition to the Royalty
Fees referenced above, EnSys will reimburse SDI for, among other things, use and
operating costs of the Newtown Facility and costs of labor, materials, supplies
and inventory. The Operating Agreement may be terminated upon failure to comply
with any material term of the Operating Agreement or upon the initiation of
bankruptcy proceedings against either party. In the event of a termination of
the Operating Agreement as a result of a default by SDI, SDI will refund to
EnSys as full and complete liquidated damages for its default an amount equal to
$300,000, less 15% of net revenues of EnSys derived from the sale of the
Licensed Products up to the date of termination. Each party agrees not to hire
any employees of the other party and EnSys agrees to use all reasonable efforts
to market, promote and sell the Licensed Products in the ordinary course of
business during the term of the Operating Agreement.
The Operating Agreement contains various customary representations and
warranties relating to, among other things, each of EnSys' and SDI's: (i)
organization and similar corporate matters; (ii) authorization, execution,
delivery, performance and enforceability of the Operating Agreement; (iii)
absence of any claim, litigation or governmental proceeding against such party
or any of its subsidiaries now pending or threatened in writing that would have
a material adverse effect on such party or impair its ability to perform its
obligations under the Operating Agreement; and (iv) absence of any approval,
consent or authorization by or registration, declaration or filing with any
governmental or public body or other third party required in connection with
execution, delivery, and performance of the Operating Agreement.
In addition, SDI further warrants that (i) it has all rights, including but
not limited to, intellectual property rights, necessary to perform its
obligations under the Operating Agreement and (ii) that, to the best of its
knowledge, there is no claim, litigation or governmental proceeding against SDI
or any of its subsidiaries now pending or threatened in writing with respect to
any of the Licensed Products, their components or their uses.
Each party agrees to indemnify and hold harmless the other party from and
against any and all liability, losses, damages, claims or causes of action, and
related expenses, including reasonable attorneys' fees, caused directly or
indirectly by or as a result of any negligence, gross negligence or willful
misconduct by the indemnifying party or any of its employees, or of any material
breach of the Operating Agreement by the other party. Prompt written
notification to the other party to the Operating Agreement is required in order
to obtain such indemnification.
RISK FACTORS
In considering whether to approve and adopt the Merger Agreement, EnSys and
SDI stockholders should carefully review and consider the information beginning
on page 12 under the caption "Risk Factors."
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of EnSys and the
Board of Directors of SDI with respect to the Merger Agreement and the
transactions contemplated thereby, stockholders should be aware that certain
members of the Board of Directors of both EnSys and SDI and the management of
both EnSys and SDI have interests in the Merger that are in addition to the
interests of stockholders of EnSys and SDI generally (including, without
limitation, the eligibility for severance benefits). The Board of Directors of
both EnSys and SDI were aware of these interests and considered them, among
other factors, in approving the Merger Agreement and the transactions
contemplated thereby. See "The Merger--Interests of Certain Persons in the
Merger."
COMPARATIVE RIGHTS OF STOCKHOLDERS
As a result of the Merger, holders of EnSys Common Stock and holders of SDI
Common Stock and SDI Preferred Stock will become stockholders of the Surviving
Corporation, and the rights of all such former EnSys and SDI stockholders will
thereafter be governed by the Surviving Corporation Certificate, the Surviving
Corporation Bylaws and the DGCL. The rights of the holders of EnSys Common Stock
are presently governed by the EnSys Certificate, the Bylaws of EnSys (the "EnSys
Bylaws") and the DGCL. The rights of holders of SDI Common Stock and SDI
Preferred Stock are presently governed by the SDI Certificate, the Bylaws of SDI
(the "SDI Bylaws") and the DGCL. Both the Surviving Corporation Certificate and
the EnSys Certificate provide for a classified board of directors; SDI's board
is not classified. In addition, the Surviving Corporation's directors may be
removed only for cause. The EnSys Certificate contains a similar provision, but
the SDI Certificate does not require removal of directors only for cause. The
Surviving Corporation Certificate specifies that stockholder action by written
consent must be signed by all the holders of outstanding stock. The SDI Bylaws
provide that stockholder action by written consent is permitted when the same
number of signatures are obtained as would be required to take such stockholder
action at a meeting. The Surviving Corporation Certificate authorizes the
issuance of "blank check" preferred stock which shall be junior to the Surviving
Corporation Series A Preferred Stock in one or more classes or series by the
Board of Directors with such rights, preferences and other terms as shall be
determined by the Board of Directors, in each case without the necessity for any
approval by the stockholders of the Surviving Corporation, while the EnSys
Certificate does not permit such action to be taken by the EnSys Board of
Directors without stockholder approval. The SDI Certificate permits such action
without stockholder approval as long as the newly issued preferred stock is
junior to the outstanding SDI Preferred Stock; if the newly issued preferred
stock is not junior to the SDI Preferred Stock, such action must be approved by
the holders of two-thirds of the outstanding shares of SDI Preferred Stock. The
EnSys Certificate provides that certain transactions involving interested
stockholders be approved by two-thirds of the holders of the outstanding capital
stock of EnSys, and the Surviving Corporation Certificate contains a comparable
provision. The SDI Certificate provides that certain transactions (including
mergers) and certain events affecting the capital stock of SDI (including the
creation of additional classes of preferred stock) must be approved by the
holders of two-thirds of the outstanding shares of SDI Preferred Stock. The
Surviving Corporation Certificate does not contain a similar provision. See
"Comparative Rights of Stockholders" for a discussion of the material
differences between the rights of Surviving Corporation stockholders and the
rights of SDI and EnSys stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a reorganization within the meaning of
Section 368 of the Code. EnSys believes that no gain or loss will be recognized
by EnSys or EnSys stockholders as a consequence of the Merger and has obtained
an opinion from Troutman Sanders LLP to such effect. SDI believes that no gain
or loss will be recognized by SDI or SDI stockholders on the exchange of SDI
Common Stock for Surviving Corporation Common Stock or on the exchange of SDI
Preferred Stock for Surviving Corporation Series A Preferred Stock and has
obtained an opinion from Pepper, Hamilton & Scheetz to such
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effect. See "The Merger--Certain Federal Income Tax Consequences" and "The
Merger Agreement-- Conditions to the Merger."
DISSENTERS' RIGHTS
Under the DGCL, holders of EnSys Common Stock are not entitled to
dissenters' rights in connection with the Merger because the EnSys Common Stock
was quoted on Nasdaq on the record date for the EnSys Meeting. If the Merger is
consummated, holders of SDI Common Stock or SDI Preferred Stock who fully comply
with applicable statutory provisions will be entitled to dissenters' appraisal
rights pursuant to Section 262 of the DGCL, a copy of which is attached as
Appendix G. See "The Merger-- Dissenters' Appraisal Rights."
RESALES OF THE SURVIVING CORPORATION COMMON STOCK AND REGISTRATION RIGHTS
The shares of Surviving Corporation Common Stock to be issued pursuant to
the Merger Agreement have been registered under the Securities Act, and
therefore may be resold without restriction by persons who are not deemed to be
"affiliates" (as such term is defined under the Securities Act) of EnSys or SDI.
Certain of such affiliates, however, have been granted registration rights with
respect to the shares of Surviving Corporation Common Stock and Surviving
Corporation Series A Preferred Stock to be received by them. See "The
Merger--Resale Restrictions and Registration Rights."
REGULATORY APPROVALS
No federal or state regulatory approvals will be required to consummate the
Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method for accounting
and financial reporting purposes. Based upon the outstanding shares of SDI
Common Stock and SDI Preferred Stock and EnSys Common Stock as of the Record
Date, SDI stockholders will receive approximately 52% of the combined shares of
the Surviving Corporation's voting interests. Since the former stockholders of
SDI will own the larger percentage of shares of the Surviving Corporation's
voting interests, SDI has been deemed to be the acquirer for accounting
purposes.
PROPOSAL TO APPROVE THE AMENDED AND RESTATED ENSYS 1995 STOCK INCENTIVE PLAN
On October 2, 1996, the Board of Directors of EnSys approved a proposal to
amend the 1995 EnSys Plan in accordance with the Amended 1995 EnSys Plan. The
Amended 1995 EnSys Plan amends the 1995 EnSys Plan to: (i) increase the number
of shares authorized and issuable pursuant to the plan; (ii) limit the maximum
aggregate number of shares of Surviving Corporation Common Stock that may be
subject to awards granted within any fiscal year to any "covered employee" as
defined in Section 162(m) of the Code; (iii) broaden the class of persons
eligible under the plan to receive EnSys stock options which may be granted to
replace options to purchase stock in a company which is party to a merger or
consolidation involving EnSys or which is a party to certain other acquisitions
involving EnSys or its subsidiaries; (iv) eliminate the requirement that the
plan be administered by a committee consisting solely of two or more
disinterested directors, as defined by Rule 16b-3(c)(2)(i) under the Exchange
Act; (v) eliminate the "formula plan" requirements applicable to stock options
granted to independent directors and conform the provisions applicable to stock
option grants to directors to those previously applicable to non-qualified stock
option grants to employees; and (vi) eliminate certain restrictions on the
ability of an optionee to elect to have tax withholding obligations satisfied by
payment in shares. Approval of the Amended 1995 EnSys Plan by the requisite vote
of the EnSys stockholders is not a condition to, and is not required for,
consummation of the Merger. See "Proposal to Approve the Amended and Restated
EnSys 1995 Stock Incentive Plan."
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NASDAQ STOCK MARKET
The EnSys Common Stock is quoted on Nasdaq under the symbol "ENSY." Upon
consummation of the Merger, EnSys' corporate name will be changed to Strategic
Diagnostics Inc. In connection with such change, the trading symbol of the
Surviving Corporation will be changed to "SDIX." EnSys has applied to include
the shares of Surviving Corporation Common Stock to be issued in the Merger on
Nasdaq.
NO PUBLIC MARKET
There is no established public trading market for the SDI Common Stock or
the SDI Preferred Stock.
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RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY THE STOCKHOLDERS OF
ENSYS AND SDI IN CONNECTION WITH VOTING UPON THE MERGER AGREEMENT. THESE FACTORS
SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK
FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
HISTORY OF OPERATING LOSSES
EnSys has never operated at a profit. For the year ended December 31, 1995
and the nine months ended September 30, 1996, EnSys had a net loss of $2,992,965
and $2,612,158, respectively. Since its inception through September 30, 1996,
EnSys had an accumulated deficit of $20,064,081. SDI has operated at a loss for
each of its last 5 years, however, exclusive of the $3,913,000 acquired research
and development charge incurred in 1996, it had net income of $240,000 for the
nine months ended September 30, 1996. There can be no assurance that the
Surviving Corporation will ever operate profitably. Until such time as the
Surviving Corporation achieves profitability, if ever, the Surviving Corporation
plans to use its existing cash and cash equivalents and marketable securities to
finance its operating needs. Management believes that its available cash, cash
equivalents and marketable securities are sufficient to meet the operating needs
of the Surviving Corporation for at least the next 18 months. The Surviving
Corporation's ability to meet its long-term working capital and capital
expenditure requirements will depend on a number of factors, including the
success of the Surviving Corporation's current and future products, the focus
and direction of the Surviving Corporation's research and development programs,
competitive and technological advances, future relationships with corporate
partners and the Surviving Corporation's marketing and distribution strategy.
Accordingly, there can be no assurance that the Surviving Corporation will be
able to meet these long-term requirements. See "Surviving Corporation and
Subsidiaries Selected Pro Forma Financial Data" and "Surviving Corporation and
Subsidiaries Pro Forma Combined Financial Statements."
COSTS ASSOCIATED WITH THE MERGER
The Merger involves the integration of two companies that have previously
operated independently. After the Merger, EnSys and SDI anticipate that the
Surviving Corporation will consolidate the manufacturing and other facilities of
EnSys and SDI, based on a case-by-case review of the existing operations. In
connection with the Merger, the Surviving Corporation expects to incur
transaction costs of approximately $2,420,000, consisting primarily of
investment banking, professional fees, EnSys employee severance, facility
termination and relocation costs and other fees directly related to the approval
and consummation of the Merger transaction. Of this total, approximately
$1,600,000 has already been incurred, with an estimated $400,000 of additional
expenses to be incurred, if the Merger is not consummated. THE ABOVE AMOUNTS ARE
PRELIMINARY ESTIMATES AND ARE SUBJECT TO CHANGE. The consolidation of the two
companies after the Effective Date of the Merger will result in additional
transition expenses in 1996 and 1997 which are not presently estimable, but
which may be substantial. In addition, there can be no assurance that the
Surviving Corporation will not incur additional charges in subsequent quarters
related to the Merger.
UNCERTAINTY OF INTEGRATING OPERATING ENTITIES
Among the factors considered by the Boards of Directors of EnSys and SDI in
connection with their approval of the Merger Agreement were the opportunities
for operating efficiencies that should result from the Merger. While EnSys and
SDI expect to achieve savings in operating costs as a result of the Merger, no
assurance can be given that difficulties will not be encountered in integrating
the operations of EnSys and SDI or that the benefits and attendant cost savings
expected from such integration will be realized. Any delays or unexpected costs
incurred in connection with such integration could have a material adverse
effect on the results of operations or financial condition of the Surviving
Corporation
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after the Merger. Furthermore, there can be no assurance that the operations,
management and personnel of the two corporations will be compatible or that
EnSys and SDI will not experience the loss of key personnel.
MANAGEMENT FOLLOWING THE MERGER; CLASSIFIED BOARD; ANTI-TAKEOVER MEASURE
After the Merger, the Board of Directors of the Surviving Corporation will
be a staggered board and will consist of seven members. For the initial Board of
Directors of the Surviving Corporation following the Merger, the Boards of
Directors of EnSys and SDI each have designated three of the Board members and
The Perkin-Elmer Corporation ("Perkin-Elmer") has designated one of the Board
members. The affirmative vote of a majority of the seven directors will be
required in order to take any Board action of the Surviving Corporation. SDI
does not currently have a staggered or classified board, the existence of which
will reduce the stockholders' ability to change the composition of the Board and
may be considered to have a deterrent effect upon future change of control
transactions in which stockholders might have realized a market price premium
for their securities. See "The Merger Agreement--Management After The Merger"
and "Operation, Management and Business of the Surviving Corporation After the
Merger-- Management of the Surviving Corporation."
EFFECTS OF CERTAIN SURVIVING CORPORATION CERTIFICATE AND BYLAW PROVISIONS ON
RIGHTS OF SDI STOCKHOLDERS
Upon consummation of the Merger, the former stockholders of SDI will become
stockholders of the Surviving Corporation. As a result, the rights of the former
stockholders of SDI will be governed by the Surviving Corporation Certificate
and By-Laws, which differ in certain material respects from the SDI Certificate
and By-Laws. For example, certain provisions of the Surviving Corporation
Certificate and By-Laws could delay or frustrate the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contest
involving the Surviving Corporation, even if such events could be beneficial to
the interests of the stockholders and could potentially depress the market price
of the Surviving Corporation Common Stock. Unlike the SDI Certificate and
Bylaws, the Surviving Corporation Certificate contains a "fair price" provision
pursuant to which any Business Combination (as defined therein) involving an
Interested Stockholder (as defined therein) and the Surviving Corporation would
require approval by the affirmative vote of the holders of at least two-thirds
of the shares of voting stock of the Surviving Corporation. The fair price
provision of the Surviving Corporation Certificate provides that the two-thirds
stockholder vote is not required if the Business Combination is approved by a
majority of the Continuing Directors (as defined therein) or if certain
procedures and price requirements are satisfied. Also, the Surviving Corporation
will be subject to the provisions of Section 203 of the DGCL which provides,
with certain exceptions, that a Delaware corporation may not engage in any of a
broad range of business combinations with a person or affiliate, or associate of
such person, who is an "interested stockholder" for a period of three years from
the date that such person became an interested stockholder. In addition, the
Surviving Corporation Certificate and By-Laws provide that the Surviving
Corporation's Board of Directors will be classified and will initially consist
of seven members through the 1998 annual meeting of stockholders of the
Surviving Corporation. The SDI By-Laws provide for a non-classified board
consisting of eight members. Classification of directors reduces the
stockholders' ability to change the composition of the Surviving Corporation's
Board of Directors. Specifically, directors in each class in the Surviving
Corporation are elected every two years. In the SDI By-Laws, all directors are
elected annually, and thus stockholders could change the composition of the SDI
board more frequently. See "Comparative Rights of Stockholders."
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NO CASH DIVIDENDS
Neither EnSys nor SDI have ever paid cash dividends on their common stock.
It is anticipated by EnSys and SDI that the Surviving Corporation will retain
any future earnings to finance the growth and development of its business and
will not pay any cash dividends in the foreseeable future.
DEPENDENCE ON KEY PERSONNEL
After the Merger, the Surviving Corporation will be dependent on the
continued service and management experience of its new executive officers and
other key employees. If such executive officers or other key employees were to
leave and the Surviving Corporation was unable to obtain adequate replacements,
the Surviving Corporation's operating results could be adversely affected. In
addition, the Surviving Corporation's growth depends on its ability to attract,
retain and motivate skilled employees, and on the ability of its officers and
key employees to manage growth successfully. See "The Merger--Interests of
Certain Persons in the Merger" and "Operation, Management and Business of the
Surviving Corporation after the Merger--Management of the Surviving
Corporation."
LIMITATIONS ON USE OF NOLS
As of December 31, 1995, EnSys had net operating losses ("NOLs") of
approximately $14,885,000 available to offset taxable income recognized by EnSys
and its subsidiaries in future periods. For federal income tax purposes, these
NOLs will expire between 2002 and 2010. Under Section 382 of the Code, the
benefit of EnSys' NOLs can be reduced or eliminated if EnSys undergoes an
"ownership change" or an "equity structure shift," as defined in Section 382.
For the purposes of Section 382 of the Code, the Merger will constitute an
"ownership change" and an "equity structure shift," with respect to EnSys. Thus,
the amount of taxable income in any year subsequent to the ownership change and
equity structure shift that could be offset by the existing NOLs cannot exceed
the product obtained by multiplying (i) the aggregate value of EnSys stock
immediately prior to the ownership change or equity structure shift (with
certain adjustments) by (ii) the federal long-term tax exempt rate (currently
5.64%). The Surviving Corporation's ability to use the NOLs also depends upon
the Surviving Corporation's taxable income during future periods and thus there
can be no assurance that the Surviving Corporation will become or remain
profitable in the future.
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS
Certain components that will be used in the Surviving Corporation's test
kits are available from only a limited number of sources. If alternative
suppliers were needed in the future or if sufficient supplies could not be
obtained from the existing sources, delays in shipments or increases in costs
could have a material adverse effect on the Surviving Corporation's operating
results. Neither SDI nor EnSys is currently a party to a sole source supplier
contract. See "Description of EnSys--Manufacturing" and "Description of SDI--
Manufacturing."
DEPENDENCE ON CORPORATE PARTNERS
The Surviving Corporation's anticipated strategy will be in part to expand
into current and new markets through business arrangements with third parties.
The success of these arrangements depends upon the future cooperation of the
other parties to such arrangements. There can be no assurance that the business
strategies of the other parties to such arrangements will not change in the
event of changes in their business plans, management or ownership. In addition,
there can be no assurance that the Surviving Corporation will be successful in
developing new similar arrangements.
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MARKET ACCEPTANCE
The use of the immunoassay based test methods for the majority of the
markets served by EnSys and SDI is a new and developing technology. While EnSys
and SDI believe that their immunoassay test methods have been demonstrated to be
highly cost effective for various testing needs, market acceptance has been slow
to date. Future expansion of markets depends on a complex set of criteria. In
the environmental market, the United States Environmental Protection Agency
("EPA") generally has supported the use of field screening methods, but the
promulgation of regulations for accepting these methods can take two or more
years. As with other new technologies, the validity and reliability of each
product must be demonstrated before customers and regulators will accept the
products for environmental applications. Cost, regulatory approval, ease-of-use
and overall reliability all affect market acceptance. There can be no assurance
of market acceptance of the application of immunoassay technology for
environmental or other testing purposes. See "Operation, Management and Business
of the Surviving Corporation After the Merger--Business of the Surviving
Corporation."
ENVIRONMENTAL REGULATION AND REGULATORY APPROVAL
GOVERNMENT REGULATION. Test kits, instruments and systems for the detection
of pesticides, industrial chemicals and hydrocarbons in water, soil and food do
not require pre-market approval by the U.S. Food and Drug Administration (the
"FDA") or any other regulatory agency at this time. However, agencies such as
the EPA, FDA and the Food Safety and Inspection Service of the U.S. Department
of Agriculture are engaged in testing environmental samples and, together with
the Association of Official Analytical Chemists International ("AOAC"), maintain
compilations of official methods for use in testing for environmental
contaminants in certain market segments, along with procedures and guidelines
for validating new methods. Although EnSys and SDI are not currently marketing
their products in market segments where official methods are required, the
commercial value of the Surviving Corporation's products, and the products under
development, would be enhanced if these government agencies and/or the AOAC
determined the Surviving Corporation's products to be officially accepted. While
currently EnSys and SDI have had a number of their product methods approved by
the EPA, there can be no assurance that all of the Surviving Corporation's
products will be so accepted. The Surviving Corporation's products may also be
subject to additional regulation in foreign markets.
TECHNOLOGICAL CHANGE
Technological change and new product development are continuing in the
environmental testing and other markets. While EnSys and SDI believe that the
Surviving Corporation will seek to expand its technological capabilities and the
breadth of its product offerings, there can be no assurance that the Surviving
Corporation's competitors will not develop technological advances that render
the Surviving Corporation's products obsolete. The Surviving Corporation's
future success in the environmental and other testing markets will depend on the
specificity and sensitivity of its products and test systems. See "Description
of EnSys--Products," "--Research and Development" and "--Competition." See also
"Description of SDI--Immunoassay Technology" and "--Research and Development."
DEPENDENCE ON NEW PRODUCTS AND MARKETS
The Surviving Corporation's future success will depend in part on its
ability to continue to develop new products for both its existing markets and
for new environmental applications. EnSys and SDI expect the Surviving
Corporation to develop new tests designed to allow greater sample throughput and
simplify the test procedures for both its existing test products and for new
products. EnSys and SDI expect the Surviving Corporation to build upon their
collective experience in developing antibodies for environmental contaminants to
introduce new tests that will be used for additional applications both in
existing markets and in ones currently not served. There can be no assurance
that the Surviving Corporation will be able to develop simplified test systems
or successfully develop or commercialize products for new markets. See
15
<PAGE>
"Description of EnSys--Products" and "--Research and Development." See also
"Description of SDI-- Immunoassay Technology" and "--Research and Development."
COMPETITION
Competition in the environmental testing industry is intense. While only a
few competitors offer immunoassay based test kits, EnSys and SDI expect that
competition will intensify. In addition, the Surviving Corporation will face
intense competition from existing, well-established environmental testing
laboratories. There also are numerous companies that have commercialized or are
working to develop technologies that could be competitive with the Surviving
Corporation's products. Many of EnSys' and SDI's existing and potential
competitors are large companies with substantially greater resources. EnSys and
SDI believe that the Surviving Corporation's future success will depend on its
ability to continue to develop new products that offer cost effective, reliable
means of testing. See "Description of EnSys-- Competition" and "Description of
SDI--Markets and Products."
FLUCTUATIONS AND SEASONALITY IN OPERATING RESULTS; MARKET PRICE
The environmental remediation industry is affected by a number of factors,
including the spending decisions of industrial companies and general economic
conditions. The Surviving Corporation will be selling testing products to the
environmental, agricultural, and medical markets. Each of these markets has
certain inherent risk factors, including general economic conditions. Initially,
a significant portion of the Surviving Corporation's revenues will be generated
from the environmental remediation industry. EnSys and SDI believe that the
environmental industry is no more subject to negative impact from general
economic conditions than any other industry; however, it is subject to changes
in federal government regulation and enforcement. The EPA is the main regulatory
body, and its powers are derived from certain key legislative acts such as the
Resource Conservation and Recovery Act ("RCRA"). Legislative changes or federal
government budget cuts that impact the EPA could have a material adverse effect
on the Surviving Corporation's operations. In addition, remediation activities
have historically followed seasonal patterns with lower levels of activity
during the period from October to March. These factors generally are beyond the
Surviving Corporation's control, and the Surviving Corporation's sales to the
remediation industry for a particular fiscal year or quarter may not be
indicative of its sales for any subsequent fiscal year or quarter. Fluctuations
in the Surviving Corporation's results of operations could adversely affect the
market price for the Surviving Corporation Common Stock. See "Description of
EnSys" and "Description of SDI."
PRODUCT LIABILITY CLAIMS
The design, development, manufacture and sale of SDI's, EnSys' and the
Surviving Corporation's products could involve a risk of product liability
claims. EnSys currently does not have any product liability insurance. SDI
currently maintains product liability insurance in the amount of $1,000,000 per
occurrence. This policy includes an additional $5,000,000 of umbrella coverage.
The Surviving Corporation intends to obtain product liability insurance similar
in amount and coverage to that currently maintained by SDI; however, the
Surviving Corporation will not have coverage for claims against EnSys' products
for periods prior to the Merger. In addition, a successful claim in excess of
the Surviving Corporation's insurance coverage and the adverse publicity
associated with it could have a material adverse effect on the Surviving
Corporation's business and financial condition.
UNPREDICTABILITY OF PROPRIETARY RIGHTS AND PATENT PROTECTION
The Surviving Corporation's success will depend, in part, on its ability to
protect its proprietary technology and operate without infringing on the
proprietary rights of others in the United States and other countries. There can
be no assurance that any of the Surviving Corporation's proprietary rights will
be adequately safeguarded, that any patents transferred or issued to the
Surviving Corporation will provide
16
<PAGE>
the Surviving Corporation with competitive advantages or will not be challenged
by third parties or that the patents of others will not have an adverse effect
on the ability of the Surviving Corporation to conduct its business. See
"Description of EnSys--Proprietary Technology and Patents" and "Description of
SDI-- Proprietary Technology."
HAZARDOUS MATERIALS AND POTENTIAL LIABILITY
EnSys and SDI believe that the Surviving Corporation will use limited
quantities of hazardous substances for research and development purposes, which
EnSys and SDI believe complies with all federal, state and local environmental
laws applicable to its use, storage and disposal of such materials. The Toxic
Substances Control Act ("TSCA") requires EPA notification prior to manufacturing
a new chemical. EnSys and SDI believe that the Surviving Corporation will
qualify under TSCA's research and development exemption. EnSys has applied, and
EnSys and SDI expect the Surviving Corporation to continue to apply, for low
volume exemptions under TSCA for antibodies and other chemicals used in current
and planned products. Any failure to comply with applicable environmental laws
and regulations could result in extensive fines or environmental liability. See
"Description of EnSys--Environmental Regulations."
ENSYS ENVIRONMENTAL PRODUCTS, INC.
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 is derived
from the audited financial statements of EnSys included elsewhere in this Joint
Proxy Statement/Prospectus. The selected historical financial data as of
December 31, 1991, 1992 and 1993 and for the years ended December 31, 1991 and
1992 is derived from the financial statements of EnSys not included herein. The
selected historical financial data as of September 30, 1996 and for the periods
ended September 30, 1995 and 1996 has been derived from the unaudited financial
statements of EnSys and, in the opinion of management includes all adjustments
(consisting only of normal recurring adjustments) which are necessary to present
fairly the results of operations and financial position of EnSys for those
periods in accordance with generally accepted accounting principles. The
selected historical financial data for the period ended September 30, 1996 is
not necessarily indicative of the results to be expected for the full year. The
following selected historical financial data should be read in conjunction with
"EnSys Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and Notes thereto
included elsewhere in the Joint Proxy Statement/Prospectus.
17
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product and service revenues.......................... $ 457 $ 1,364 $ 2,741 $ 3,384 $ 3,530
Cost of goods sold.................................. 409 615 1,303 1,500 1,544
----------- ----------- ----------- ----------- -----------
Gross profit........................................ 48 749 1,438 1,884 1,986
Operating expenses:
Selling, general and administrative................. 1,684 2,533 3,464 4,633 4,990
Acquired research & development (3)................. -- -- -- -- --
Research and development............................ 785 761 1,028 1,153 689
----------- ----------- ----------- ----------- -----------
Total operating expenses.......................... 2,469 3,294 4,492 5,786 5,679
Operating loss........................................ (2,421) (2,545) (3,054) (3,902) (3,693)
Other income (expense):
Interest income..................................... 42 101 324 683 717
Interest expense.................................... (112) (66) (51) (32) (17)
----------- ----------- ----------- ----------- -----------
Other income (expense), net....................... (70) 35 273 651 700
Net Income (loss)..................................... $ (2,491) $ (2,510) $ (2,781) $ (3,251) $ (2,993)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net lncome (loss) per share........................... $ (1.20) $ (0.56) $ (0.59) $ (0.56) $ (0.50)
Weighted average common shares outstanding (1)........ 2,067,639 4,490,764 4,680,080 5,803,535 5,959,801
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product and service revenues.......................... $ 2,853 $ 3,119
Cost of goods sold.................................. 1,105 1,204
----------- -----------
Gross profit........................................ 1,748 1,915
Operating expenses:
Selling, general and administrative................. 4,143 2,740
Acquired research & development (3)................. -- 1,700
Research and development............................ 543 552
----------- -----------
Total operating expenses.......................... 4,686 4,992
Operating loss........................................ (2,938) (3,077)
Other income (expense):
Interest income..................................... 531 472
Interest expense.................................... (14) (7)
----------- -----------
Other income (expense), net....................... 517 465
Net Income (loss)..................................... $ (2,421) $ (2,612)
----------- -----------
----------- -----------
Net lncome (loss) per share........................... $ (0.41) $ (0.39)
Weighted average common shares outstanding (1)........ 5,949,239 6,775,505
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable debt investments... $ 1,210 $ 5,412 $ 18,255 $ 14,639 $ 11,659
Working capital.......................................... 1,010 5,181 18,440 15,063 12,188
Total assets............................................. 2,246 6,620 20,265 17,127 14,330
Long-term debt and capital lease obligations, less
current portions....................................... 278 170 176 98 29
Convertible preferred stock.............................. 7,311 14,041 -- -- --
Accumulated deficit...................................... (5,918) (8,428) (11,208) (14,459) (17,452)
Net stockholders' equity (deficit)....................... (5,873) (8,376) 19,276 16,294 13,502
Book value per (deficit) share (2)....................... (40.91) (56.21) 3.38 2.78 2.24
<CAPTION>
SEPTEMBER 30,
-------------
1996
-------------
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable debt investments... $ 9,288
Working capital.......................................... 10,591
Total assets............................................. 12,968
Long-term debt and capital lease obligations, less
current portions....................................... --
Convertible preferred stock.............................. --
Accumulated deficit...................................... (20,064)
Net stockholders' equity (deficit)....................... 12,139
Book value per (deficit) share (2)....................... 1.69
</TABLE>
- ------------------------------
(1) Computed as described in Note 1(k) of Notes to the Consolidated Financial
Statements.
(2) The book value (deficit) per share is computed by dividing stockholders'
equity (deficit) by the number of shares of common stock outstanding at the
end of each period. The calculation excludes convertible securities and
other common stock equivalents.
(3) Represents charge related to EnSys acquisition of certain assets of
Millipore Corporation in March 1996 (see Note 3 of Notes to Consolidated
Financial Statements).
18
<PAGE>
STRATEGIC DIAGNOSTICS INC.
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 is derived
from the audited financial statements of SDI included elsewhere in this Joint
Proxy Statement/Prospectus. The selected historical financial data as of
December 31, 1991, 1992 and 1993 and for the years ended December 31, 1991 and
1992 is derived from the financial statements of SDI not included herein. The
selected historical financial data as of September 30, 1996 and for the periods
ended September 30, 1995 and 1996 has been derived from the unaudited financial
statements of SDI and, in the opinion of management includes all adjustments
(consisting only of normal recurring adjustments) which are necessary to present
fairly the results of operations and financial position of SDI for those periods
in accordance with generally accepted accounting principles. The selected
financial data for the period ended September 30, 1996 is not necessarily
indicative of the results to be expected for the full year. The following
selected historical financial data should be read in conjunction with "SDI
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto included
elsewhere in the Joint Proxy Statement/Prospectus. The pro forma financial data
assumes the acquisition of Ohmicron and the dissolution of TSD as discussed in
Note 3 below. All of the data set forth below are qualified by reference to and
should be read in conjunction with SDI's Consolidated Financial Statements and
the Pro Forma Combined Financial Statements and Notes thereto included elsewhere
herein.
19
<PAGE>
STRATEGIC DIAGNOSTICS INC.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Product-related....................... $ 88 $ 137 $ 551 $ 1,192 $ 1,605
Contract and other.................... 457 1,102 2,064 2,580 2,084
--------- --------- --------- --------- ---------
Total revenues........................ 545 1,239 2,615 3,772 3,689
OPERATING EXPENSES:
Manufacturing......................... 241 208 791 910 1,288
Acquired research and development..... -- -- -- -- --
Research and development.............. 674 1,027 1,735 2,832 2,272
Selling, general and administrative... 234 348 1,013 1,385 1,190
--------- --------- --------- --------- ---------
Total operating expenses.............. 1,149 1,583 3,539 5,127 4,750
--------- --------- --------- --------- ---------
Operating income (loss)................. (604) (344) (924) (1,355) (1,061)
OTHER INCOME (EXPENSE):
Interest income....................... 11 10 46 20 8
Interest expense...................... (1) (14) (50) (8) (214)
--------- --------- --------- --------- ---------
Other income (expense), net............. 10 (4) (4) 12 (206)
Equity in income (loss) of TSD
BioServices............................ (95) (150) (60) 42 41
--------- --------- --------- --------- ---------
Net income (loss)....................... $ (689) $ (498) $ (988) $ (1,301) $ (1,226)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income (loss) per share
(1)(4)................................. $ (0.26)
Shares used in computing pro forma net
income (loss) per share (1)(4)......... 4,686,000
<CAPTION>
NINE MONTHS
YEAR ENDED HISTORICAL ENDED
DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
1995 1996
PRO FORMA SEPTEMBER 30, PRO FORMA
FOR OHMICRON ------------------------- FOR OHMICRON
AND TSD(3) 1995 1996 AND TSD(3)
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Product-related....................... $ 5,632 $ 1,153 $ 2,077 $ 5,549
Contract and other.................... 2,022 1,701 1,555 1,473
------------- ----------- ----------- -------------
Total revenues........................ 7,654 2,854 3,632 7,022
OPERATING EXPENSES:
Manufacturing......................... 3,207 898 1,534 3,049
Acquired research and development..... -- -- 3,913 3,913
Research and development.............. 4,089 1,782 1,178 2,188
Selling, general and administrative... 4,698 1,012 864 3,098
------------- ----------- ----------- -------------
Total operating expenses.............. 11,994 3,692 7,489 12,248
------------- ----------- ----------- -------------
Operating income (loss)................. (4,340) (838) (3,857) (5,226)
OTHER INCOME (EXPENSE):
Interest income....................... 27 7 8 21
Interest expense...................... (258) (153) (2) (22)
------------- ----------- ----------- -------------
Other income (expense), net............. (231) (146) 6 (1)
Equity in income (loss) of TSD
BioServices............................ -- 30 178 --
------------- ----------- ----------- -------------
Net income (loss)....................... $ (4,571) $ (954) $ (3,673) $ (5,227)
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Pro forma net income (loss) per share
(1)(4)................................. $ (0.59) $ (0.20) $ (0.73) $ (0.67)
Shares used in computing pro forma net
income (loss) per share (1)(4)......... 7,754,000 4,686,000 5,037,000 7,759,000
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL DECEMBER 31
---------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 56 $ 93 $ 1,259 $ 67 $ 35
Working capital (deficit)......................... (682) (51) 1,288 126 (891)
Total assets...................................... 265 611 3,044 2,106 2,076
Long-term debt, less current portions (including
capital lease obligations)...................... 0 500 0 0 0
Redeemable convertible preferred stock (5)........ 0 0 3,145 3,512 3,879
Accumulated deficit (2)........................... (566) (1,084) (1,094) (2,763) (4,356)
Stockholders' equity (deficit).................... (566) (168) (1,050) (2,580) (4,064)
Book value (deficit) per share (5)(6)(7).......... $ (0.14) $ (0.04) $ (0.26) $ (0.55) $ (0.87)
<CAPTION>
HISTORICAL SEPTEMBER 30, 1996
SEPTEMBER 30, PRO FORMA FOR
1996 TSD(3)
-------------- -------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 246 $ 323
Working capital (deficit)......................... 813 1,042
Total assets...................................... 4,628 5,122
Long-term debt, less current portions (including
capital lease obligations)...................... 39 39
Redeemable convertible preferred stock (5)........ 6,453 6,453
Accumulated deficit (2)........................... (8,506) (8,506)
Stockholders' equity (deficit).................... (4,126) (4,126)
Book value (deficit) per share (5)(6)(7).......... $ (0.53) $ (0.53)
</TABLE>
- ------------------------------
(1) Computed on the basis described for pro forma net income (loss) per share in
Note 2 of Notes to Financial Statements.
(2) There have been no common stock dividends declared or paid since inception
of SDI.
(3) Assumes the Ohmicron acquisition and the TSD dissolution had occurred as of
December 31, 1994 in the case of the statement of operations data or as of
September 30, 1996 in the case of the TSD balance sheet data. The pro forma
financial data excludes the Merger.
(4) The number of shares used in computing the pro forma net loss per share for
pro forma Ohmicron and TSD assumes both transactions had occurred as of
December 31, 1994.
(5) The redeemable convertible preferred stock will be reclassified into
stockholders' equity in connection with the Merger. See Note 6 of Notes to
Financial Statements.
(6) The book value (deficit) per share is computed by dividing stockholders'
equity (deficit) exclusive of the redeemable convertible preferred stock, by
the number of shares of common stock outstanding at the end of each period.
The calculation excludes convertible securities and other common stock
equivalents.
(7) The September 30, 1996 pro forma book value (deficit) per share is computed
by dividing pro forma stockholders' equity (deficit) by the pro forma shares
of common stock and preferred stock outstanding. The calculation excludes
options and warrants.
21
<PAGE>
OHMICRON CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
In August 1996, SDI acquired Ohmicron which it is accounting for under the
purchase method. Given the significance of the acquisition to SDI, the following
selected historical financial data is presented.
The following selected financial information are derived from the
consolidated financial statements of Ohmicron. The financial data for the nine
months ended June 30, 1996 and 1995 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which Ohmicron considers necessary for
a fair presentation of the financial position and the results of operations for
these periods. Operating results for the nine months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the full year.
The data should be read in conjunction with the consolidated financial
statements, related notes and other financial information including "Ohmicron
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein. The financial statements for the years ended
September 30, 1992 and 1991 are not presented separately herein.
OHMICRON CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Product Sales................................... $ 105 $ 951 $ 1,014 $ 1,359 $ 2,252 $ 1,544 $ 1,779
Non-product..................................... 0 794 493 308 163 121 96
------- ------- ------- ------- ------- ------- -------
Total revenues................................ 105 1,745 1,507 1,667 2,415 1,665 1,875
OPERATING EXPENSES:
Cost of sales................................... 49 436 321 358 662 472 477
Research and development........................ 1,206 1,850 2,333 2,158 2,173 1,607 1,478
Selling, general and administrative............. 1,346 2,115 2,832 2,886 3,327 2,425 2,389
Depreciation and amortization................... 122 161 137 153 167 125 120
------- ------- ------- ------- ------- ------- -------
Total operating expenses.......................... 2,723 4,562 5,623 5,555 6,329 4,629 4,464
Operating loss.................................... (2,618) (2,817) (4,116) (3,888) (3,914) (2,964) (2,589)
OTHER INCOME (EXPENSE):
Interest income................................. 36 12 29 42 20 15 6
Interest expense................................ (47) (77) (109) (178) (180) (95) (353)
Other income.................................... 8 4 17 0 0 0 0
Other expense................................... 0 (434) 0 (19) 0 0 0
------- ------- ------- ------- ------- ------- -------
Other income (expense), net..................... (3) (495) (63) (155) (160) (80) (347)
Net loss.......................................... $(2,621) $(3,312) $(4,179) $(4,043) $(4,074) $(3,044) $(2,936)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Net loss per common share......................... $ (6.53) $ (8.21) $(10.29) $ (9.81) $ (9.66) $ (7.21) $ (6.96)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Weighted average number of common shares
outstanding (1)................................. 401,121 403,588 405,929 412,316 421,907 421,944 422,075
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 43 $ 371 $ 957 $ 1,284 $ 555 $ 470 $ 38
Working capital (deficiency)...................... (86) (297) (996) 1,507 (2,410) 108 (5,297)
Total assets...................................... 648 1,169 2,037 2,527 2,130 1,951 1,426
Long-term debt, less current portion.............. 62 54 73 68 78 1,484 53
Accumulated deficit............................... (7,060) (10,372) (14,550) (18,593) (22,666) (21,637) (25,602)
Stockholders' equity (deficit).................... 312 42 (687) 1,873 (2,095) (1,065) (5,031)
</TABLE>
- ------------------------------
(1) Computed on the basis described for loss per share in Note 2 of the Ohmicron
Notes to Financial Statements.
22
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
SELECTED PRO FORMA FINANCIAL DATA
The selected pro forma financial data for the Surviving Corporation and
subsidiaries presented below reflect (i) the Ohmicron acquisition by SDI, (ii)
the dissolution of TSD and (iii) the Merger. See Surviving Corporation and
Subsidiaries Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- ----------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA (1):
REVENUES:
Product related......................................................... $ 9,162 $ 8,668
Contract................................................................ 2,022 1,473
----------------- ----------------
Total revenues........................................................ 11,184 10,141
----------------- ----------------
OPERATING EXPENSES:
Manufacturing........................................................... 4,751 4,253
Acquired research and development....................................... -- 5,613
Research and development................................................ 4,778 2,740
Selling, general and administrative..................................... 9,785 5,962
----------------- ----------------
Total operating expenses.............................................. 19,314 18,568
----------------- ----------------
Operating loss........................................................ (8,130) (8,427)
----------------- ----------------
OTHER INCOME (EXPENSE):
Interest income......................................................... 744 493
Interest expense........................................................ (275) (29)
----------------- ----------------
Total other income (expense).......................................... 469 464
----------------- ----------------
Net loss.................................................................. $ (7,661) $ (7,963)
----------------- ----------------
----------------- ----------------
Net loss per common share (2)(4).......................................... $ (0.65) $ (0.63)
----------------- ----------------
----------------- ----------------
Shares used in computing net loss per common share (2).................... 11,740,000 12,556,000
----------------- ----------------
----------------- ----------------
Equivalent Pro Forma net loss per share (5)............................... $ (0.48) $ (0.47)
----------------- ----------------
----------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
BALANCE SHEET DATA (1):
Cash, cash equivalents and investments..................................... (6) 9,611
Working capital............................................................ (6) 8,612
Total assets............................................................... (6) 17,218
Capital lease obligations, net of current portion.......................... (6) 39
Accumulated deficit........................................................ (6) (12,133)
Stockholders' equity....................................................... (6) 11,696
Book value per share (3)(4)................................................ $ 0.38 $ 0.41
Equivalent Pro Forma book value per share (5).............................. $ 0.28 $ 0.30
----------------- --------
----------------- --------
</TABLE>
- ------------------------------
(1) Assumes (i) the dissolution of TSD, (ii) the Ohmicron acquisition (from the
statement of operations data only) and (iii) the Merger had occurred as of
December 31, 1994 in the case of the statement of operations data or as of
December 31, 1995 or September 30, 1996 in the case of the balance sheet
data. Excludes acquired research and development costs which will be charged
to the statement of operations upon the consummation of the Merger. Based on
the EnSys closing price per share of EnSys Common Stock on October 14, 1996
this amount would be approximately $3,627,000 ($0.28 per share). See Pro
Forma Combined Financial Statements.
(2) Computed on the basis described in Note 5 to the Pro Forma Combined
Financial Statements.
(3) Computed by dividing pro forma stockholders' equity (deficit) excluding the
redemption value of the Series A Preferred Stock by the pro forma number of
shares of common stock outstanding. The calculation excludes options and
warrants.
(4) The EnSys historical book value as of September 30, 1996 is $1.69 and its
net loss per share for the year ended December 31, 1995 and the nine months
ended September 30, 1996 is $0.50 and $0.39, respectively.
(5) The number of shares used in computing the equivalent pro forma net loss per
share and equivalent book value per share is obtained by multiplying the pro
forma number of shares outstanding by the Conversion Ratio.
(6) Disclosure not required.
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ENSYS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
EnSys was formed in 1987 to develop proprietary biotechnology based test
systems designed for the fast and inexpensive detection of hazardous chemicals
in soil and water samples. Since then EnSys has raised approximately $30 million
in equity financing including approximately $16 million from an initial public
offering on October 20, 1993 in which 1,800,000 shares of EnSys Common Stock
were sold. Since January 1991, EnSys has commercialized eleven immunoassay test
kits and four other test kits for the detection of various environmental
contaminants. EnSys markets and sells these test kits and other associated
products and services to environmental consulting and engineering firms,
hazardous waste processing firms, environmental testing laboratories and various
state and federal agencies through distributors and a regionally based direct
sales force in the United States. EnSys also markets and sells its products and
services in Europe through EnSys (Europe) Limited, a wholly-owned subsidiary of
EnSys.
EnSys has incurred net losses since its inception and as of September 30,
1996 it had an accumulated deficit of approximately $20.1 million. Losses have
resulted principally from costs associated with developing immunoassay
technology for environmental applications and from costs associated with EnSys'
sales and marketing activities. Future profitability is dependent on a number of
factors, including continued development of new products, development of
simplified test systems and regulatory and market acceptance of the EnSys'
products.
Marketable securities, excluding cash equivalents, make up 39% of total
assets at September 30, 1996. EnSys considers all of its investments to be
available-for-sale and plans to use the proceeds from sales or maturities of
these investments to finance future operating needs. EnSys maintains cash, cash
equivalents and investments principally made up of direct obligations of the
United States Government or obligations backed by the full faith and credit of
the United States or guaranteed by its agencies or instrumentalities, high grade
debt instruments of United States corporations, money market funds and
commercial paper. The maximum average maturity of the portfolio is limited to 18
months with no security having a maximum maturity of more than 36 months. EnSys'
policy is designed to limit exposure to any one institution.
Approximately 15% of 1995 revenues were attributable to foreign sales. EnSys
believes that its foreign currency exposure is low as all sales to non-European
foreign companies are payable in U.S. dollars and the outstanding balance due on
European sales has historically been approximately 1% of total assets. EnSys
currently has no policy on hedging currency risk as it feels its exposure is
minimal. EnSys will continue to monitor its foreign currency exposure and
implement hedging policies as considered necessary.
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES. Revenues increased 9% to $3,118,607 for the first nine months of
1996 from $2,852,735 for the first nine months of 1995. The number of tests sold
for the first nine months of 1996 increased 63% from approximately 98,400 in
1995 to approximately 160,700 in 1996. Growth in test volumes outpaced growth in
sales revenues due to the large number of Hydrofluor and Envirogard tests sold
in the second and third quarters of 1996. Hydrofluor and Envirogard tests have
similar gross margins but lower selling prices than EnSys' other products. The
increase in revenues for the nine month period was due to sales of the
Envirogard products acquired from Millipore Corporation on March 29, 1996.
GROSS PROFIT. Gross profit increased 10% to $1,914,609 for the first nine
months of 1996 from $1,748,079 for the first nine months of 1995. The increase
in gross profit for the nine month period was due to growth in sales revenues
and the containment of manufacturing costs. Gross profit as a percentage of
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revenues was 61% for the first nine months of 1996, consistent with the same
period in 1995. Net of a $152,349 reserve for slow-moving inventory booked in
the first quarter of 1996, gross profit as a percentage of revenues increased to
66% for the first nine months of 1996, a 5% increase over the same period in
1995. The increase in gross profit as a percentage of revenues (net of the
inventory reserve) resulted from economies of scale as a result of higher
manufactured volumes and the containment of manufacturing costs.
The $152,349 reserve for slow-moving inventory was taken to reserve EnSys'
inventory of Sample Pro Units. The Sample Pro is EnSys' current platform for
running most of its tests. Due to slower than anticipated sales of the Sample
Pro units, EnSys created a reserve for the existing stock in anticipation of the
introduction of the one-step test, which will replace the Sample Pro in the
first half of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 34% to $2,739,972 for the first nine months of
1996 from $4,143,396 for the first nine months of 1995. Severance and other
nonrecurring charges in selling, general and administrative expenses were
$75,000 and $1,120,325 for the first nine months of 1996 and the first nine
months of 1995, respectively. Excluding these charges, selling, general and
administrative expenses decreased 12% during the first nine months of 1996 from
1995 levels. The lower expense levels in 1996 are primarily due to reductions in
management staffing levels and other cost containment efforts.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 2% to $551,984 for the first nine months of 1996 from $543,292 for the
first nine months of 1995. The increase in research and development expenses was
caused by recent increases in spending related to the development of the
previously announced one-step test.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE. Interest and other income
decreased 11% to $472,231 for the first nine months of 1996 from $530,838 for
the first nine months of 1995. The decrease for the nine months ended September
30, 1996 was primarily due to EnSys having less funds to invest. Interest
expense decreased 49% to $7,042 for the first nine months of 1996 from $13,726
for the first nine months of 1995. The decrease for the nine month period was
primarily attributable to EnSys paying down amounts due under lease financing
agreements.
NET LOSS. The net loss increased 8% to $2,612,158 (or $0.39 per share) for
the first nine months of 1996 from $2,421,497 (or $0.41 per share) for the first
nine months of 1995. The severance, purchased R&D and inventory reserve charges
accounted for $1,927,349 (or approximately $0.28 per share) of the net loss
during the first nine months of 1996. Net of these charges, the net loss
decreased 72% to $684,809 (or $0.10 per share). The severance and other
nonrecurring costs discussed above accounted for $1,120,325 (or approximately
$0.19 per share) of the net loss during the nine month period ended September
30, 1995.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1994
REVENUES. Revenues increased 4% to $3,530,540 in 1995 from $3,384,310 in
1994. Excluding a large one-time stocking order of $150,000 and Air Quality
Research ("AQR") sales from 1994 sales, revenues increased 10% over the prior
year. The number of tests manufactured and sold by EnSys increased approximately
38% to approximately 123,000 tests in 1995 from approximately 89,000 tests in
1994. The increase in unit sales exceeded the increase in revenues because
EnSys' sales mix changed to include lower priced tests for CRYPTOSPORIDIUM and
GIARDIA. The tests for CRYPTOSPORIDIUM and GIARDIA have selling prices which are
much lower than for EnSys' other products but they have similar gross margins.
Sales of CRYPTOSPORIDIUM and GIARDIA tests accounted for 9% of revenues and 27%
of test volume in 1995 compared to 2% and 6% respectively, in 1994. Prices for
EnSys' other tests declined approximately 3.5% from 1994 levels. It is likely
that the trend to lower unit prices will continue in the future. As noted above,
the increase in revenues and the increase in the number of tests sold was
attributable to growth in the sales of EnSys' Hydrofluor tests. Sales of
immunoassay based tests for the detection of fuel products, PCBs and
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PAHs declined by 10% in 1995 from 1994 levels. Sales of EnSys' European
subsidiary totaled $462,572 in 1995, up 58% from 1994 levels, while U. S. sales
were flat.
GROSS PROFIT. Gross profit increased 5.4% to $1,986,468 in 1995 from
$1,884,117 in 1994 and gross profit as a percentage of revenues increased to
56.3% in 1995 from 55.7% in 1994. The increase in gross profit resulted
primarily from the increase in revenues and reduced manufacturing costs. The
increase in gross profit as a percentage of revenues resulted from lower unit
material costs and increased manufacturing efficiency.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 7.7% to $4,989,719 in 1995 from $4,633,630 in
1994. Selling, general and administrative expenses in 1995 included an
additional charge of $1,120,325 taken during the first three quarters of the
year. These charges related to the following: $208,519 to write-down intangible
assets purchased during 1995 which EnSys does not believe will generate future
revenues, $170,765 in deposits paid for the manufacture of a system prototype
EnSys decided not to take into production, a $42,813 provision for a note
receivable from a former employee and $698,228 for severance charges. EnSys also
took an additional charge of $501,280 in the fourth quarter of 1994 discussed
below. Excluding the additional charges, selling, general and administrative
expenses decreased 6.4% to $3,869,394 in 1995 from $4,132,350 in 1994. The
majority of the decrease in selling, general and administrative expenses was
attributable to cutbacks in staffing levels.
The $208,519 write-down of intangible assets in 1995 related to the aborted
attempt to license a line of pesticide products from Idetek, Inc. ("Idetek").
Under the terms of the original agreement, EnSys paid to Idetek $230,000 as a
partial payment of the agreed upon licensing fee. Shortly after the inception of
the agreement EnSys sought arbitration in an effort to void the licensing
agreement for non-performance by Idetek under the terms of the licensing
agreement. The arbitrators ruled in Idetek's favor allowing them to keep both
EnSys' prior payment and the line of pesticide products. As a result of this
ruling, EnSys wrote-down the unamortized balance of the licensing fee.
Also in 1995, EnSys expensed $170,765 in deposits paid for the development
of an automated system prototype EnSys decided not to take into production.
EnSys had incurred these charges for the manufacture of the prototype. The
automated system was developed as the next generation of EnSys test platform.
Upon delivery of the prototype, it was decided that the system would not deliver
either the ease of use or lower production cost expected from the next
generation of EnSys products and it was decided not to continue with the
project. At this point all deposits related to this project were expensed.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased 40.2% to $689,275 in 1995 from $1,152,779 in 1994. The majority of the
decrease was attributable to a decision in the fourth quarter of 1994 to
eliminate some of EnSys' low priority research and development programs to focus
on the development of easier to use products and on a smaller number of
individual new products. EnSys reduced its research and development headcount by
45% in 1995 from 1994.
INTEREST INCOME AND INTEREST EXPENSE. Interest income increased 4.9% to
$716,583 in 1995 from $683,082 in 1994. The increase was attributable to higher
rates of interest earned on investments. Interest expense decreased 46.0% to
$17,022 in 1995 from $31,534 in 1994. The decrease was due to the paying down of
amounts due under EnSys' capital lease agreements.
TAXES. As of December 31, 1995, EnSys had net operating loss carryforwards
of approximately $15,155,000 for federal income tax purposes. EnSys' ability to
utilize its net operating loss carryforwards in future years will be subject to
an annual limitation pursuant to the "change in ownership rules" under Section
382 of the Code, as amended. As there was a significant change in ownership
interests during the year ended December 31, 1993, EnSys will be limited each
year in its use of tax carryforwards created in years prior to the ownership
change. See Note 10 of Notes to the Consolidated Financial Statements.
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STOCK-BASED COMPENSATION. SFAS No. 123 "Accounting for Stock-Based
Compensation," was issued on October 23, 1995 and establishes a fair value
method of accounting for such compensation plans. Stock-based compensation plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer. SFAS No. 123 also applies to transactions in
which an entity issues its equity instruments to acquire goods or services from
nonemployees. Under SFAS No. 123, these types of transactions must be accounted
for based on the fair value of the consideration received or the fair value of
the equity instrument issued, whichever is more reliably measured. For stock
options issued to employees, SFAS No. 123 encourages all entities to adopt the
fair value method of accounting, but does allow an entity to continue to measure
the compensation cost of stock compensation plans using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Under the intrinsic value based method, compensation
cost is the excess, if any, of the quoted market price of the stock at grant
date or other measurement date over the amount an employee must pay to acquire
the stock. Most fixed stock option plans (the most common type of stock
compensation plan) have no intrinsic value at grant date, and under APB Opinion
No. 25 no compensation cost is recognized. Entities electing to continue using
the guidance under APB Opinion No. 25 must make pro forma disclosures of net
income and earnings per share as if the fair value method of accounting
prescribed by SFAS No. 123 had been applied. The requirements of SFAS No. 123
are effective for fiscal years beginning after December 15, 1995. EnSys intends
to continue measuring stock compensation expense for stock options issued to
employees under APB Opinion No. 25.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1993
REVENUES. Revenues increased 23.5% to $3,384,310 in 1994 from $2,741,179 in
1993. The number of tests manufactured and sold by EnSys increased approximately
51% to approximately 89,000 tests in 1994 from approximately 59,000 tests in
1993. The increase in unit sales exceeded the increase in revenues because
EnSys' sales mix changed to include lower priced tests for new analytes and
because a greater proportion of tests were sold in lower priced bulk-packaged
formats. The increase in revenues and the increase in the number of tests sold
was primarily attributable to growth in the sales of immunoassay based tests for
the detection of fuel products, PCBs and PAHs, and to a lesser extent the
commercialization of new test kits for PCBs in waste oil, Dioxin,
Cryptosporidium and Giardia.
On June 17, 1994, EnSys disposed of assets comprising its AQR business for
$50,000. AQR revenues in 1994 through the date of sale totaled $38,964 and were
not considered material to EnSys' principal operations.
GROSS PROFIT. Gross profit increased 31.0% to $1,884,117 in 1994 from
$1,438,302 in 1993 and gross profit as a percentage of revenues increased to
55.7% in 1994 from 52.5% in 1993. The increase in gross profit resulted
primarily from the increase in revenues. The increase in gross profit as a
percentage of revenues resulted from increased production volumes, lower unit
material costs and the addition of new, higher margin test kits to EnSys'
product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 33.8% to $4,633,630 in 1994 from $3,464,191 in
1993. Selling, general and administrative expenses in 1994 included an
additional charge of $501,280 taken in the fourth quarter. Of this amount,
$399,238 resulted from the acceleration in vesting of stock options, issued
prior to EnSys' initial public offering in October 1993, that were issued below
fair market value of $7.50 per share. The acceleration in vesting eliminated
charges that would have been recognized through July 1997 and will more
accurately reflect the future operating performance of EnSys. The remaining
$102,042 of the additional charge were severance costs that resulted from the
elimination of some of EnSys' low priority research and development programs,
and the closing of EnSys' sales office in Colorado. Excluding the additional
charge, selling, general and administrative expenses increased 19.3% to
$4,132,350 in 1994 from $3,464,191 in 1993. The majority of the increase in
selling, general and administrative expenses was attributable to increased sales
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and marketing activities in Europe and in the United States, and to further
additions in personnel to EnSys' technical services group.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 12.2% to $1,152,779 in 1994 from $1,027,812 in 1993. The majority of
the increase was attributable to ongoing costs associated with the development
of an automated test system to incorporate EnSys' proprietary immunoassay
technology. In the fourth quarter of 1994, EnSys eliminated some of its low
priority research and development programs to focus on the automated test system
and on a smaller number of specific new products.
INTEREST INCOME AND INTEREST EXPENSE. Interest income increased 111.1% to
$683,082 in 1994 from $323,537 in 1993. The increase was attributable to income
earned on proceeds from the initial public offering of EnSys Common Stock which
closed in October 1993. Interest expense decreased 37.4% to $31,534 in 1994 from
$50,365 in 1993. The decrease was due to the repayment of a loan under a line of
credit agreement and to the paying down of amounts due under EnSys' capital
lease agreements.
LIQUIDITY AND CAPITAL RESOURCES
Working capital which consists principally of cash, cash equivalents and
marketable debt investments was $10.6 million at September 30, 1996 compared to
$12.2 million at December 31, 1995. Cash, cash equivalents and marketable debt
investments which consist primarily of money market accounts and investments in
treasury notes and other government backed securities was $9.3 million at
September 30, 1996 compared to $11.7 million at December 31, 1995.
Inventory balances increased between 1994 and 1995 due to the maintenance of
larger quantities of some high dollar accessories and finished goods. The higher
inventory balances at September 30, 1996 compared to December 31, 1995 resulted
from an increase in the number of products due to the purchase of the Envirogard
product line as well as increased stocking levels to support sales during the
anticipated move of manufacturing operations from North Carolina to Pennsylvania
as part of the Merger with SDI.
Net of an increase in the allowance for doubtful accounts, accounts
receivable did not change significantly between 1994 and 1995. The accounts
receivable balance at September 30, 1996 is significantly higher than the
balance at December 31, 1995 due to higher sales levels in the three months
preceding September 30, 1996. Sales in the third quarter of 1996 totaled
$1,206,831 vs. $677,805 in the fourth quarter of 1995. Sales have historically
trailed off in the fourth quarter due to seasonal factors.
The decrease in working capital was due primarily to the continued funding
of the net loss and cash outlays of approximately $1.4 million related to the
acquisition of the Envirogard product line from Millipore Corporation. On March
29, 1996, EnSys acquired from Millipore certain assets, which consisted
primarily of inventory, equipment, intellectual property rights, contract rights
and customer lists, of Millipore's Envirogard product line. The acquisition was
funded by the issue of 1,100,000 shares of EnSys Common Stock valued at
$1,237,500 and a payment of $1,000,000 in cash. An additional $400,000 was used
to pay for expenses related to the acquisition.
During the year ended December 31, 1995 EnSys used $2,764,268 to fund
operating activities and $91,378 in financing activities. Investing activities
supplied $4,999,070 in cash during the year ended December 31, 1995. Most of the
cash used by operating activities went to fund the net loss while payments on
capital lease obligations comprised most of the cash used by financing
activities. Maturing marketable debt investments provided most of the cash from
investing activities. Operating activities, including the acquisition of the
Envirogard product line, consumed another $2,252,018 of cash during the nine
months ended September 30, 1996. Continuing payments on capital lease
obligations comprised most of the $40,061 used by financing activities during
the first nine months of 1996. Maturing marketable debt investments provided
most of the $2,041,432 from investing activities. EnSys believes that its
available cash will be sufficient to meet its funding needs for at least the
next 24 months.
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SDI
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
SDI's predecessors, Strategic Diagnostics Inc. ("Strategic Diagnostics") and
Strategic Diagnostics Ventures, Inc. ("SDVI"), were incorporated in 1990 and
1991, respectively. Prior to June 1993, these companies were both S corporations
and were owned by the three founders--Richard C. Birkmeyer, Anne F. Cavanaugh
and Martha C. Reider. In June 1993, in connection with obtaining an initial
venture capital financing, Strategic Diagnostics and SDVI became wholly-owned
subsidiaries of Strategic Diagnostic Industries, Inc. ("SDII"). In March 1995,
Strategic Diagnostics and SDVI were merged with and into SDII and SDII was
renamed Strategic Diagnostics Inc. SDI and its predecessor companies are herein
after collectively referred to as "SDI."
In April 1991, SDVI formed TSD, a partnership with an unrelated third party.
In October 1996, the TSD partnership was dissolved and its assets were
liquidated, in connection with which certain of the rights and assets of TSD
will be distributed to SDI. Under the Termination Agreement between SDI and
Taconic, the parties agreed to: (1) terminate the joint venture agreements in
respect of TSD; (2) dissolve TSD, specifically by (a) distributing cash and
proceeds of accounts receivable of TSD to pay costs and expenses incurred in the
liquidation, winding up and dissolution of TSD up to $25,000, (b) paying all
debts and liabilities of TSD owed to third parties and to pay all debts and
liabilities owed to Taconic and SDI, and (c) distributing the balance to SDI and
Taconic in accordance with their respective capital accounts; (3) apportion all
of TSD's assets between SDI and Taconic; (4) grant to SDI all rights in the name
"TSD BioServices, Inc.;" (5) set forth the joint ownership by SDI and Taconic of
the purification technology developed by TSD; (6) have SDI train Taconic
personnel relating to the operation and use of the Taconic technology; (7)
assign all obligations of TSD associated with the Delaware facility to SDI and
assign all obligations of TSD associated with the New York Facility to Taconic;
and (8) indemnify Taconic in respect of TSD obligations and liabilities not
transferred to Taconic pursuant to the liquidation of TSD.
In addition, Taconic and SDI entered into a services agreement whereby
Taconic granted to SDI and TSD: (1) a perpetual research and development license
in respect of the Taconic technology; (2) a five-year resale license in respect
of the Taconic services; and (3) a five-year manufacturing license to use
Taconic technology to manufacture and produce the Taconic services. The research
and development license and the resale license are royalty free. The royalty fee
for the manufacturing license is 10% of net collections of Taconic services. SDI
and TSD granted to Taconic a five-year license to sell TSD products and
services. For all sales of TSD products placed with TSD originated by Taconic,
TSD agreed to pay Taconic a marketing fee of 10% of net collections.
Since its inception in 1990, SDI has focused on using proprietary technology
and know-how to develop, manufacture and market immunoassay test kits for
applications in the industrial/chemical, agricultural and other markets.
Commercial operations were initiated with a contract from Conoco Specialty
Products, Inc. ("Conoco") to develop an immunoassay test to detect certain
corrosion causing bacteria. This product was introduced in late 1991 and SDI
purchased all rights and technology related to this product from Conoco in 1994.
In February 1992, SDI entered into a $3.9 million research and development
partnership with EM Industries Inc. ("EM Industries"), a U.S. affiliate of the
German chemical company Merck KGaA, for the development and manufacture of a
line of immunoassay test kits capable of identifying and quantifying targeted
priority pollutants. The first products under this agreement were introduced in
1993. To date, 15 products have been introduced under this agreement. Under the
terms of the agreement, SDI was responsible for the manufacturing of this
product line, while sales and marketing costs associated with products developed
under the agreement were the responsibility of EM Industries. In addition, the
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agreement provided that, generally, SDI was to sell these products to EM
Industries at SDI's manufacturing cost, until a specified level of sales was
achieved. Due to the exercise by EM Industries in 1994 of a warrant to purchase
common stock of SDI, SDI began receiving a 5% royalty on EM Industries' net
sales beginning in the fourth quarter of 1994. However, in September 1996, EM
Industries and SDI reached an agreement, whereby the February 1992 agreement was
terminated, together with EM Industries' marketing rights thereunder, in
exchange for certain specified royalty payments to EM Industries and 65,000
shares of SDI Common Stock.
Since 1992, SDI has entered into research and development agreements with
multiple corporate partners that have led to the introduction of eight
additional products to the industrial/chemical, agricultural and other markets.
These agreements generally provide that all sales and marketing costs associated
with a new product are borne by the corporate partner. In addition, SDI
currently sells, through a limited in-house sales force, four products which it
has developed and/or acquired.
On August 30, 1996, Ohmicron merged with and into SDI. See "Ohmicron
Management's Discussion and Analysis of Financial Condition and Results of
Operation," "The Merger--Background of the Merger," Note 2 to Pro Forma Combined
Financial Statements and Note 12 to Notes to Financial Statements.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1995
REVENUES. Revenues increased 27% to $3,632,000 in the first nine months of
1996 from $2,854,000 in the first nine months of 1995. This $778,000 increase is
the result of a $924,000 (80%) increase in product-related revenues (revenues
derived from the sale of test kits, reagents and related royalties) and an
increase in other revenues of $40,000, which more than offset a $186,000 (11%)
decrease in contract revenues (revenues derived from research and development
contracts with third parties). Product-related revenues increased to $2,077,000
in the first nine months of 1996 from $1,153,000 in the first nine months of
1995. This was due to overall increased sales for certain of SDI's new products,
especially the first of SDI's strip assays which was introduced in mid-1995,
improved priority pollutant sales over the corresponding period in the prior
year, and the acquisition of the Ohmicron product line at August 30, 1996.
Contract revenues decreased to $1,506,000 in the first nine months of 1996 from
$1,692,000 in the first nine months of 1995 due to the timing of the completion
of milestones achieved under the various agreements, as well as a decrease in
contract revenue received from EM Industries in 1996. Other revenues increased
to $49,000 in the first nine months of 1996 from $9,000 in the first nine months
of 1995. This $40,000 increase was due to Ohmicron contracting certain personnel
services from SDI in August 1996, prior to the acquisition of Ohmicron by SDI.
In October 1996, SDI and EnSys signed an operating agreement, which among
other things, granted to EnSys an exclusive, worldwide license to market and
distribute certain products of SDI. In connection with this agreement, EnSys
paid to SDI a one-time license fee of $300,000 and SDI and EnSys agreed to
provide certain services necessary to produce, distribute and sell the licensed
products. Due to the agreement, SDI's product revenue will be reduced in the
future, since these products will now be sold by EnSys. However, certain
expenses associated with the manufacturing and selling of the licensed products
will be borne by EnSys, thereby reducing SDI's costs in these areas.
MANUFACTURING EXPENSES. Manufacturing expenses increased 71% to $1,534,000
in the first nine months of 1996 from $898,000 in the first nine months of 1995.
This increase was primarily the result of an increase in overall product sales
during the period versus the corresponding period in the prior year.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased 34% to $1,178,000 in the first nine months of 1996 from $1,782,000 in
the first nine months of 1995. This decrease
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is primarily the result of a reduction of research and development personnel and
certain salaries, and related expenses, in the third quarter of 1995.
ACQUIRED RESEARCH AND DEVELOPMENT EXPENSE. Acquired research and
development expense increased 100% to $3,913,000 in the first nine months of
1996 from $0 in the first nine months of 1995 due to the acquisition of
Ohmicron.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 15% to $864,000 in the first nine months of
1996 from $1,102,000 in the first nine months of 1995 primarily due to a
reduction in selling, general and administrative personnel and certain salaries
in the third quarter of 1995.
INTEREST INCOME AND INTEREST EXPENSE. Interest income increased $1,000 to
$8,000 in the first nine months of 1996 from $7,000 in the first nine months of
1995 due to increased cash balances from a January 2, 1996 equity financing.
Interest expense decreased to $2,000 in the first nine months of 1996 from
$153,000 in the first nine months of 1995 primarily due to the conversion of
$1,500,000 in notes payable and related interest to equity in connection with
the January 1996 financing.
EQUITY IN INCOME OF TSD BIOSERVICES. Equity in income of TSD increased
$148,000 to $178,000 in the first nine months of 1996 from $30,000 in the first
nine months of 1995. This increase was primarily due to a significant increase
in revenues for TSD during the first nine months of 1996 versus the
corresponding period in the prior year. As a result of the dissolution of the
TSD partnership discussed above, and the related distribution of certain of the
TSD rights and assets to SDI, future revenues and expenses associated with the
rights and assets so distributed will be included directly into the revenues and
expenses of SDI.
PROVISION FOR INCOME TAXES. Due to net operating loss carry forwards, SDI
has made no provision for income taxes for 1996.
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994
REVENUES. Product related revenues increased $413,000 (35%) to $1,605,000
in 1995 from $1,192,000 in 1994. This increase was primarily due to the
introduction of four new products during the year, increased sales of commercial
cell lines to third parties and increased royalties from EM Industries. Contract
revenues decreased $496,000 (19%) to $2,072,000 in 1995 from $2,568,000 in 1994
due to a reduction of contract funding by EM Industries to $600,000 in 1995 from
$1,709,000 in 1994. Despite the reduction in funding from EM Industries during
the year, overall revenues decreased by only $83,000 (2%) to $3,689,000 in 1995
from $3,772,000 in 1994 due to an overall increase in product related revenues
and existing or new research contract programs outside of the EM Industries
agreement.
MANUFACTURING EXPENSES. Manufacturing expenses increased 42% to $1,288,000
in 1995 from $910,000 in 1994. This increase was primarily the result of an
increase in overall product sales, especially the EM Industries product line,
and the costs associated with new product introductions. By contract, SDI's
sales of product to EM Industries generally provided no profit margin in 1995,
except for royalties.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased 20% to $2,272,000 in 1995 from $2,832,000 in 1994. This decrease was
primarily the result of a reduction of research and development personnel and
certain salaries in the third quarter of 1995, coupled with decreased field
trial, consulting and other research and development expenses as products
previously under development were completed and transferred to manufacturing.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 14% to $1,190,000 in 1995 from $1,385,000 in
1994 primarily due to a reduction in selling, general and administrative
personnel and certain salaries in the third quarter of 1995.
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INTEREST INCOME AND INTEREST EXPENSE. Interest income decreased 60% to
$8,000 in 1995 from $20,000 in 1994. This decrease was primarily the result of
less funds available during the year due to utilization of available cash and
cash equivalents for operating needs. Interest expense increased to $214,000 in
1995 from $8,000 in 1994 primarily due to interest on bridge loans from
stockholders and interest expense imputed on certain warrants issued in
connection with the bridge loans.
EQUITY IN INCOME OF TSD BIOSERVICES. Equity in income of TSD remained
approximately equal to the prior year.
At December 31, 1995, SDI had net operating loss carry forwards for federal
income tax purposes of approximately $2.9 million. In connection with the
acquisition of Ohmicron, SDI's utilization of its net operating loss carry
forwards could be limited pursuant to the Tax Reform Act of 1986, due to
cumulative changes in stock ownership in excess of 50%.
YEAR ENDED DECEMBER 31, 1994 VERSUS YEAR ENDED DECEMBER 31, 1993
REVENUES. Revenues increased 44% to $3,772,000 in 1994 from $2,615,000 in
1993. This increase is the result of a $641,000 (116%) increase in product
related revenues and a $576,000 (29%) increase in contract revenues which
together more than offset a $60,000 (83%) decrease in license and other
revenues. Product related revenues increased to $1,192,000 in 1994 from $551,000
in 1993 primarily due to the introduction of new products during the year and a
full year of sales associated with the Macra Lp-Registered Trademark- product
and related cell lines purchased from Terumo Medical Corporation in 1993.
Contract revenues increased to $2,568,000 in 1994 from $1,992,000 in 1993
primarily due to an increase in contract funding by EM Industries to $1,709,000
in 1994 from $1,362,000 in 1993, as well as the initiation of new research and
development contracts during the year. The reduction in the license and other
revenue in 1994 versus 1993 is the result of a nonrecurring $60,000 license fee
received by SDI in 1993.
MANUFACTURING EXPENSES. Manufacturing expenses increased 15% to $910,000 in
1994 from $791,000 in 1993. This increase was primarily the result of an
increase in overall product sales during the year, with certain efficiencies
gained through the increased manufacturing volume experienced during the year.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 63% to $2,832,000 in 1994 from $1,735,000 in 1993. This increase was
primarily the result of an increase in research and development contracts and
related personnel. Increased costs were also incurred during the period as
certain programs entered more expensive phases of development which included,
among other things, field trials and consulting and outside services. In
addition, SDI significantly expanded its facility space in late 1993, which
increased overall research and development expenses due to the allocated portion
of the additional space and related costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 37% to $1,385,000 in 1994 from $1,013,000 in
1993 primarily due to an increase in selling, general and administrative
personnel and related costs, as well as increased costs associated with the
increased facility space obtained in late 1993.
EQUITY IN INCOME (LOSS) OF TSD BIOSERVICES. Equity in income (loss) of TSD
increased to income of $42,000 in 1994 from a loss of $60,000 in 1993. This
increase in income was attributable to increased revenues for TSD in 1994 versus
1993.
INTEREST INCOME AND INTEREST EXPENSE. Interest income decreased 57% to
$20,000 in 1994 from $46,000 in 1993. This decrease was primarily the result of
less funds available during the year due to utilization of available cash and
cash equivalents for operating needs. Interest expense decreased to $8,000 in
1994 from $50,000 in 1993 primarily due to the repayment of a $500,000 note
payable to EM Industries in March 1994. This note had an annual interest rate of
8% and was outstanding for all of 1993.
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LIQUIDITY AND CAPITAL RESOURCES
SDI has funded its operations primarily through the receipt of payments
under research and development contracts, product sales and private placements
of equity securities totaling approximately $5,000,000. Capital expenditures
have been primarily for research and development and manufacturing equipment and
totaled $41,000 and $73,000 in 1995 and 1994, respectively, and $35,000 through
September 30, 1996. For the year ended December 31, 1995, SDI's net cash used in
operating activities was $1,017,000. For the nine months ended September 30,
1996, SDI's net cash used in operations was $273,000. At September 30, 1996,
SDI's cash and cash equivalents totaled approximately $246,000.
SDI's accounts receivable increased from $560,000 on December 31, 1995 to
$1,252,000 as of September 30, 1996. This increase is due primarily to the
incorporation of Ohmicron's receivables and to strong sales of the GeneCheck-TM-
product. SDI's inventory increased from $447,000 on December 31, 1995 to
$885,000 on September 30, 1996 due to the addition of Ohmicron's inventory.
SDI believes that its current cash resources are sufficient to fund
operations into 1997. See Notes 1, 5 and 6 to Notes to Financial Statements. As
SDI will likely require additional funding to expand its ongoing research and
development activities and to develop its marketing and sales force, SDI plans
to seek additional capital through a variety of strategies, including corporate
collaborations and other financing vehicles, cost synergies generated by the
Merger, and working capital provided by the Merger. If the Merger is approved,
it is anticipated that the working capital provided by the Merger will fund the
Surviving Corporation for at least the next 18 months. If the Merger is not
completed, there can be no assurance that continued funding will be available to
SDI, or that, if available, the amounts will be sufficient or that the terms
will be acceptable to meet SDI's long-term capital requirements.
Even if SDI is able to improve its short-term financial condition by
executing the above-mentioned strategies, its ability to meet its long-term
working capital and capital expenditure requirements will depend on a number of
factors, including the success of the Surviving Corporation's current and future
products, the focus and direction of the Surviving Corporation's research and
development programs, competitive and technological advances, future
relationships with corporate partners, government regulation and the Surviving
Corporation's marketing and distribution strategy. Accordingly, there can be no
assurance that SDI or the Surviving Corporation will be able to meet these
long-term requirements.
OHMICRON
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since its inception, Ohmicron has engaged in the research, development,
marketing and commercialization of its technology and its products. Prior to its
merger with SDI effective August 30, 1996, Ohmicron had two wholly-owned
operating subsidiaries, Ohmicron Environmental Diagnostics, Inc. ("OED") and
Ohmicron Medical Diagnostics, Inc. ("OMD"), and two wholly-owned holding company
subsidiaries, Ohmicron Holdings, Inc. and Ohmicron Technology, Inc. Immediately
preceding the merger with SDI, OMD was spun-off to the former stockholders of
Ohmicron; however, the discussion and analysis of Ohmicron that follows includes
the consolidated results and operations of Ohmicron, including OMD for the
periods presented.
Founded in 1984, Ohmicron began marketing its RaPID
Assay-Registered Trademark- products and completed the technology discovery
phase for the SmartSense-Registered Trademark- biosensor system in 1991, and
left the development stage in 1995. Ohmicron's cumulative net loss from
inception through June 30, 1996 was approximately $26 million. The following
discussion should be read in conjunction with the Consolidated Financial
Statements of Ohmicron appearing elsewhere in this Joint Proxy
Statement/Prospectus. However, due to the nature of
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Ohmicron's merger with SDI, and the spin-off of OMD and its biosensor program,
prior results are not believed to be indicative of future consolidated results
with SDI.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996 VERSUS NINE MONTHS ENDED JUNE 30, 1995
REVENUES. Revenues for the nine months ended June 30, 1995 and 1996 were
$1,874,916 and $1,664,506, respectively. The increase of $210,410 was primarily
the result of higher direct product sales to the U.S. pesticide and remediation
markets that was only partially offset by lower product sales through
distributors and lower revenue associated with research and development
agreements.
MANUFACTURING EXPENSES. Cost of sales increased $5,641 to $476,980 for the
nine months ended June 30, 1996 from $471,339 for the nine months ended June 30,
1995. The increase was principally due to increased sales of RaPID
Assay-Registered Trademark- products, partially offset by higher gross margins.
The gross margin on product sales increased to 73% during the first nine months
of 1996 from 70% for the same period in fiscal 1995 due to a higher proportion
of product sales through Ohmicron's direct sales force and a higher percentage
of kit sales in 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$1,477,851 for the first nine months of fiscal 1996 compared to $1,607,148 for
the corresponding period in fiscal 1995. The decrease of $129,297 was due to
staff reductions and overall decreased product development activity in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $2,388,578 and $2,424,713 for the nine months ended
June 30, 1996 and 1995, respectively. The $36,135 decrease was due to staff
reductions only partially offset by the activity associated with the expansion
of Ohmicron's sales and marketing programs.
DEPRECIATION EXPENSE. Depreciation expense was $120,204 and $125,113 for
the nine months ended June 30, 1996 and 1995, respectively.
INTEREST INCOME AND INTEREST EXPENSE. Interest income was $5,918 and
$14,889 for the nine months ended June 30, 1996 and 1995, respectively. The
decrease in interest income for the nine months ended June 30, 1996 was
primarily due to lower available balances during the period. Interest expense
was $353,478 for the nine months ended June 30, 1996 versus $95,336 for the
corresponding period in fiscal 1995. The increase of $258,142 was primarily due
to accrued interest on notes payable to The Perkin-Elmer Corporation
("Perkin-Elmer") and other bridge notes from stockholders. In connection with
Ohmicron's merger with SDI, these notes, and accrued interest, were converted to
SDI Common Stock.
The net loss was $2,936,257 and $3,044,254, respectively, for the nine
months ended June 30, 1996 and 1995.
FISCAL YEARS ENDED SEPTEMBER 30, 1995 VERSUS FISCAL YEAR ENDED SEPTEMBER 30,
1994
REVENUES. Revenues for the fiscal years ended September 30, 1995 and 1994
were $2,415,792 and $1,667,103, respectively. The increase of $748,689 was
primarily the result of higher direct product sales to the U.S. pesticide and
remediation markets that was only partially offset by lower product sales
through distributors and lower revenue associated with research and development
contracts.
MANUFACTURING EXPENSES. Cost of sales increased $304,694 to $662,406 in
fiscal 1995 from $357,712 in fiscal 1994 due to increased product sales. The
gross margin on product sales decreased from 71% in fiscal 1995 from 74% in
fiscal 1994 due to a higher proportion of products sold through distributors in
fiscal 1995.
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RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$2,173,172 in fiscal 1995, compared to $2,157,515 in fiscal 1994. The increase
of $15,657 was primarily the result of higher material costs in fiscal 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $3,326,966 and $2,886,243 in fiscal 1995 and 1994,
respectively. The increase of $440,723 was primarily the result of higher
selling and marketing costs for the remediation market and the initial marketing
costs associated with expanding Ohmicron's distribution network internationally.
DEPRECIATION EXPENSE. Depreciation expense was $167,102 in fiscal 1995 and
$153,140 in fiscal 1994.
INTEREST INCOME AND INTEREST EXPENSE. Interest income was $20,013 and
$42,096 for fiscal 1995 and 1994, respectively. The decrease in interest income
in fiscal 1995 was primarily due to lower available balances during the period.
Interest expense was $179,700 in fiscal 1995 versus $178,268 in fiscal 1994. The
increase was primarily due to accrued interest on notes payable to stockholders.
Ohmicron also had $19,223 of other expenses during fiscal 1994 as a result of
unrealized losses from the sale of marketable securities during the year. There
was no such corresponding loss in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Ohmicron incurred significant operating losses since inception. As a result
of Ohmicron's recurring losses from operations and requirements for significant
working capital in the future, the Report of Independent Auditors for the year
ended September 30, 1995 contained an explanatory paragraph with respect to
Ohmicron's ability to continue as a going concern. During 1995, Ohmicron funded
its operations primarily with bridge notes from its investors and a $3,000,000
loan from Perkin-Elmer. Ohmicron continued to seek permanent sources of capital
through equity investors or strategic alliances throughout 1995.
Ohmicron's accounts receivable increased from $258,393 as of September 30,
1994 to $584,250 one year later. Revenues for this period increased from
$1,667,103 to $2,415,792. Expressed as a percentage of revenue, accounts
receivable changed from 15% of revenue as of September 30, 1994 to 24% of
revenue at September 30, 1995. This change can be attributed to less aggressive
collection practices as a result of staffing cutbacks during 1995. Accounts
receivable were $389,085 and revenues were $1,874,916 as of June 30, 1996. In
this case, accounts receivable represent 21% of revenue, which is consistent
with its September 30, 1995 level.
Ohmicron's inventory increased from $409,235 as of September 30, 1994 to
$576,297 as of September 30, 1995. This increase is due to the addition of new
products to the Ohmicron product line and the corresponding need to stock
additional raw materials and finished goods. The increase from $576,297 to
$639,243 as of June 30, 1996 can be attributed to an accumulation of finished
goods that were projected to be sold but instead remained in inventory (see
inventory section of notes to Ohmicron statements).
The Perkin-Elmer bridge note was issued in April 1995, and was due and
payable 60 days after demand given at any time after April 15, 1996. The
Perkin-Elmer bridge note was secured by the assets of Ohmicron and was senior in
right of payment to any other bridge notes. In January 1996, Ohmicron faced an
immediate need for funding to continue its operations. Ohmicron raised an
additional $908,660 in bridge financing through the issuance of the January 1996
bridge notes, which were subordinate in right of payment to the Perkin-Elmer
bridge note.
Although Ohmicron continued to seek financing to continue operations and to
repay the Perkin-Elmer bridge note, it was unable to raise permanent equity
financing. In mid-April 1996, Perkin-Elmer gave Ohmicron 60 days notice that it
was calling the bridge note for payment by June 14, 1996. In late April 1996,
despite a cutback in operations and a significant layoff of employees, Ohmicron
again faced an
35
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immediate need for funding to continue operations. Ohmicron raised an additional
$300,000 in bridge financing from existing investors through the issuance of the
April 1996 bridge notes.
After carefully considering Ohmicron's alternatives, Ohmicron entered into
merger discussions with SDI in May 1996. Ohmicron's agreement with SDI provided
that the outstanding bridge notes, including the Perkin-Elmer bridge note, would
be converted into SDI equity at the time of the merger. Ohmicron and
Perkin-Elmer entered into a memorandum of understanding on June 5, 1996 wherein
Perkin-Elmer agreed to the conversion of its note into SDI equity.
SDI and Ohmicron entered into an agreement on June 12, 1996 and amended as
of July 29, 1996, under which SDI agreed to provide certain management services
to Ohmicron and to advance funds to continue Ohmicron's operations until
completion of the merger. Perkin-Elmer agreed to forbear from the enforcement of
its rights under the Perkin-Elmer bridge note until August 31, 1996 to allow SDI
and Ohmicron to consummate the merger. At June 30, 1996, Ohmicron had a working
capital deficit of $5,290,866 and cash and cash equivalents of $38,336.
The merger with SDI was completed on August 30, 1996. Reference is made to
the Liquidity and Capital Resources section of SDI's Management Discussion and
Analysis of Financial Condition and Results of Operations found elsewhere in
this Joint Proxy Statement/Prospectus.
MARKET PRICES
The following table sets forth, for the fiscal quarters indicated, the range
of high and low sale prices of EnSys Common Stock as reported on Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1994
First Quarter............................................. $ 9.50 $ 7.50
Second Quarter............................................ $ 8.25 $ 3.25
Third Quarter............................................. $ 6.25 $ 3.25
Fourth Quarter............................................ $ 5.75 $ 3.00
FISCAL YEAR ENDED DECEMBER 31, 1995
First Quarter............................................. $ 4.25 $ 3.25
Second Quarter............................................ $ 4.00 $ 2.25
Third Quarter............................................. $ 3.38 $ 2.38
Fourth Quarter............................................ $ 3.38 $ 1.63
FISCAL YEAR ENDED DECEMBER 31, 1996
First Quarter............................................. $ 2.50 $ 1.00
Second Quarter............................................ $ 2.25 $ 1.38
Third Quarter............................................. $ 2.13 $ 1.38
</TABLE>
There is no public market for shares of SDI Common Stock or SDI Preferred
Stock.
THE ENSYS MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished by EnSys to the
holders of EnSys Common Stock in connection with the solicitation of proxies by
the Board of Directors of EnSys for use at the EnSys Meeting to be held on
Monday, December 30, 1996, at the offices of Troutman Sanders LLP, 1300 I
Street, N.W., Suite 500 East, Washington, D.C. 20005-3314, at 11:00 a.m., local
time, and any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus, the attached Notice of Meeting and
the accompanying form of proxy are first being mailed to stockholders of EnSys
on or about December 10, 1996.
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MATTERS TO BE CONSIDERED AT THE ENSYS MEETING
At the EnSys Meeting, including any adjournment thereof, holders of shares
of EnSys Common Stock will consider and vote upon (i) the Merger Proposals,
including the approval and adoption of the Merger Agreement and the related
amendments to the EnSys Certificate, (ii) the Amended 1995 EnSys Plan, and (iii)
such other matters as properly may come before the EnSys Meeting.
The EnSys Board of Directors has approved the Merger Proposals, including
the Merger Agreement and the amendment and restatement of EnSys' Certificate,
and the Amended 1995 EnSys Plan. The EnSys Board of Directors recommends that
the holders of EnSys Common Stock vote FOR the Merger Proposals and the Amended
1995 EnSys Plan. See "The Merger--EnSys' Reasons for the Merger and Board of
Directors' Recommendation," "Risk Factors," "Proposal to Amend and Restate
EnSys' Certificate of Incorporation to Change Name," "Proposal to Amend and
Restate Ensys' Certificate of Incorporation to Increase the Number of Authorized
Shares of Capital Stock," "Proposal to Amend and Restate EnSys' Certificate of
Incorporation to Reclassify EnSys' Board" and "Proposal to Approve the Amended
and Restated EnSys 1995 Stock Incentive Plan."
THE APPROVAL OF EACH OF THE MERGER PROPOSALS IS CONDITIONED UPON THE
APPROVAL OF ALL OF THE MERGER PROPOSALS. ACCORDINGLY, A VOTE AGAINST ANY OF THE
MERGER PROPOSALS WILL HAVE THE SAME EFFECT AS A VOTE AGAINST ALL OF THE MERGER
PROPOSALS. THE APPROVAL OF THE AMENDED 1995 ENSYS PLAN IS NOT CONDITIONED ON THE
APPROVAL OF THE MERGER PROPOSALS.
RECORD DATE
The Board of Directors of EnSys has fixed the close of business on December
2, 1996, as the Record Date for the determination of stockholders entitled to
notice of, and to vote at, the EnSys Meeting. Accordingly, only holders of
record of shares of EnSys Common Stock at the close of business on the Record
Date are entitled to notice of, and to vote at, the EnSys Meeting. As of the
Record Date, 7,217,794 shares of EnSys Common Stock were outstanding and held of
record by approximately 81 stockholders.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder does not attend the EnSys Meeting and does not
return the signed proxy card, such stockholder's shares will not be voted. If a
stockholder returns a signed proxy card, but does not indicate how his or her
shares are to be voted, such shares will be voted FOR approval of the Merger
Proposals, including the Merger Agreement and the amendment and restatement of
EnSys' Certificate and the Amended 1995 EnSys Plan. As of the date of this Joint
Proxy Statement/Prospectus, the EnSys Board of Directors does not know of any
other matters which are to come before the EnSys Meeting. If any other matters
are properly presented at the EnSys Meeting for consideration, including, among
other things, consideration of a motion to adjourn the EnSys Meeting to another
time and/or place, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on any such matters in accordance with
their best judgment.
Any proxy given may be revoked by the person giving it at any time before it
is voted. Proxies may be revoked by (i) filing with the Secretary of EnSys, at
or before the taking of the vote at the EnSys Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a later
dated proxy relating to the same shares of EnSys Common Stock and delivering it
to the Secretary of EnSys at or before the taking of the vote at the EnSys
Meeting or (iii) attending the EnSys Meeting and voting in person (although
attendance at the EnSys Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to EnSys Environmental Products, Inc., 4222
Emperor Boulevard, Durham, North Carolina 27703, Attention:
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Corporate Secretary, or hand delivered to the Secretary of EnSys at or before
the taking of the vote at the EnSys Meeting.
EnSys will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of EnSys in person or by
telephone or by other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses incurred in connection with such solicitation.
Arrangements also will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and EnSys will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, Corporate Investor Communications, Inc. will
assist in the solicitation of proxies by EnSys for a fee of $3,500, plus
reimbursement of reasonable out-of-pocket expenses.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
THE PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH BELOW.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of EnSys Common Stock is
necessary to constitute a quorum at the EnSys Meeting.
VOTE REQUIRED
EnSys stockholders are entitled to one vote at the EnSys Meeting for each
share of EnSys Common Stock held of record by them on the Record Date. The
affirmative vote of the holders of two-thirds of the outstanding shares of EnSys
Common Stock is required to approve and adopt the Merger Agreement and the
amendment and restatement of EnSys' Certificate. Approval and adoption of the
Amended 1995 EnSys Plan requires the affirmative vote of the holders of a
majority of the outstanding shares of EnSys Common Stock present and entitled to
vote at the Meeting. Abstentions will be counted for purposes of establishing a
quorum and will have the same legal effect as a vote against the adoption of the
proposals to be voted upon. Shares represented by proxies that reflect
abstentions or broker "non-votes" (i.e., shares held by a broker or nominee
which are represented at the meeting, but with respect to which such broker or
nominee is not empowered to vote on a particular proposal) will be counted as
shares that are present and entitled to vote for purposes of determining a
quorum and will have the effect of a vote against the adoption of the proposals
to be voted upon.
As of the Record Date, EnSys' directors, executive officers and affiliates
may be deemed to be beneficial owners of an aggregate of 4,365,020 shares of
EnSys Common Stock (excluding 386,585 shares which may be acquired by such
persons upon exercise of options or other rights which are exercisable within 60
days of the Record Date), or approximately 60% of the then-outstanding shares of
EnSys Common Stock. Holders of 32% of the currently outstanding shares of EnSys
Common Stock have entered into certain stockholder voting agreements with SDI
pursuant to which such holders (all of whom are directors, executive officers or
affiliates of EnSys) have agreed to vote such shares of EnSys Common Stock in
favor of the approval and adoption of the Merger Agreement. See "The
Merger--Stockholder Voting Agreements."
THE SDI MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished by SDI to the
holders of SDI Common Stock and SDI Preferred Stock in connection with the
solicitation of proxies by the Board of Directors of SDI for
38
<PAGE>
use at the SDI Meeting to be held on Monday, December 30, 1996, at SDI's offices
at 128 Sandy Drive, Sandy Brae Industrial Park, Newark, DE 19713-1147, at 11:00
a.m., local time, and any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus, the attached Notice of Meeting and
the accompanying form of proxy are first being mailed to stockholders of SDI on
or about December 10, 1996.
MATTERS TO BE CONSIDERED AT THE SDI MEETING
At the SDI Meeting, including any adjournment thereof, holders of shares of
SDI Common Stock and SDI Preferred Stock, voting together, and holders of SDI
Preferred Stock, voting as a separate class, will consider and vote upon a
proposal to approve and adopt the Merger Agreement, a proposal to approve and
adopt the Merger Agreement and to consider such other matters as properly may
come before the SDI Meeting.
The SDI Board of Directors has approved the Merger Agreement and the
transactions contemplated thereby and recommends that the holders of SDI Shares
vote FOR approval and adoption of the Merger Agreement. See "The Merger--SDI's
Reasons for the Merger and Board of Directors' Recommendation," and "Risk
Factors."
RECORD DATE
The Board of Directors of SDI has fixed the close of business on December 2,
1996, as the Record Date for the determination of stockholders entitled to
notice of, and to vote at, the SDI Meeting. Accordingly, only holders of record
of shares of SDI Common Stock and SDI Preferred Stock at the close of business
on the Record Date are entitled to notice of, and to vote at, the SDI Meeting.
As of the Record Date, 7,819,493 shares of SDI Common Stock and 2,927,960 shares
of SDI Preferred Stock were outstanding and held of record by approximately 130
stockholders.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder does not attend the SDI Meeting and does not return
the signed proxy card, such stockholder's shares will not be voted. If a
stockholder returns a signed proxy card, but does not indicate how his or her
shares are to be voted, such shares will be voted FOR approval of the Merger
Agreement. As of the date of this Joint Proxy Statement/ Prospectus, the SDI
Board of Directors does not know of any other matters which are to come before
the SDI Meeting. If any other matters are properly presented at the SDI Meeting
for consideration, including, among other things, consideration of a motion to
adjourn the SDI Meeting to another time and/or place, the persons named in the
enclosed form of proxy and acting thereunder will have discretion to vote on
such matters in accordance with their best judgment.
Any proxy given may be revoked by the person giving it at any time before it
is voted. Proxies may be revoked by (i) filing with the Secretary of SDI, at or
before the taking of the vote at the SDI Meeting, a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a later dated proxy
relating to the same SDI Shares and delivering it to the Secretary of SDI at or
before the taking of the vote at the SDI Meeting or (iii) attending the SDI
meeting and voting in person (although attendance at the SDI Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to Strategic
Diagnostics Inc., 128 Sandy Drive, Newark, Delaware 19713-1147, Attention:
Corporate Secretary, or hand delivered to the Secretary of SDI at or before the
taking of the vote at the SDI Meeting.
SDI will bear the cost of the solicitation of proxies from its stockholders.
In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of SDI in person or by
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telephone or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses incurred in connection with such solicitation.
Arrangements also will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and SDI will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
THE PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH BELOW.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding SDI Shares is necessary to constitute a
quorum at the SDI Meeting.
VOTE REQUIRED
SDI stockholders are entitled to one vote at the SDI Meeting for each share
of SDI Common Stock or SDI Preferred Stock held of record by them on the Record
Date. The affirmative vote of the holders of a majority of the outstanding SDI
Shares, voting together, is required to approve and adopt the Merger Agreement.
Approval and adoption of the Merger Agreement also requires the affirmative vote
of the holders of two-thirds of the outstanding shares of SDI Preferred Stock,
voting as a class. Under SDI's Bylaws and the DGCL, shares represented by
proxies that reflect abstentions or "broker non-votes" (i.e., shares held by a
broker or nominee which are represented at the meeting, but with respect to
which such broker or nominee is not empowered to vote on a particular proposal)
will be counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum and will have the effect as a vote against
the adoption of the proposals to be voted upon.
As of the Record Date, SDI's directors, executive officers and affiliates
may be deemed to be beneficial owners of an aggregate of 9,741,346 SDI Shares
(excluding 869,564 shares which may be acquired by such persons upon exercise of
options, warrants or other rights which are exercisable within 60 days of the
Record Date), or approximately 91% of the then-outstanding SDI Shares. SDI has
been advised that its directors and executive officers are contractually bound
to vote in favor of the approval and adoption of the Merger Agreement. Holders
of 83% of the currently outstanding shares of SDI Common Stock and all of the
currently outstanding SDI Preferred Stock (representing 88% of the currently
outstanding SDI Shares) have entered into certain stockholder voting agreements
with EnSys pursuant to which such holders (all of whom are directors, executive
officers or affiliates of SDI) have agreed to vote such SDI Shares in favor of
the approval and adoption of the Merger Agreement at the SDI Meeting. See "The
Merger--Stockholder Voting Agreements."
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THE MERGER
BACKGROUND OF THE MERGER
EnSys has expanded its presence in the market for immunoassay-based
environmental test kits since the introduction of its first commercial test kit
in 1991. However, the market for environmental immunoassay test kits has not
developed as rapidly as had been expected, and EnSys and many of its
competitors, including SDI and Ohmicron (until its merger with SDI in August
1996), historically have found it difficult to generate operating income from
their environmental product lines. As a result, there has been a recent trend
toward consolidation in the industry, as evidenced by EnSys' acquisition in
March 1996 of the assets of the environmental immunoassay division of Millipore
Corporation and SDI's acquisition of Ohmicron in August 1996. The merger of
Ohmicron with and into SDI was approved by SDI stockholders in accordance with
the applicable provisions of the SDI Certificate and the DGCL.
Commencing shortly after EnSys' initial public offering in October 1993 and
continuing periodically through February 1996, EnSys management and management
of Ohmicron discussed possible business combinations involving the business of
EnSys and some or all of the business of Ohmicron. In 1994, senior management of
EnSys and Ohmicron exchanged term sheets concerning a possible business
combination, but were unable to reach an agreement in principle. At that time
Ohmicron had indicated an interest in a merger with EnSys, while EnSys had
indicated an interest in acquiring only certain product lines of Ohmicron.
In April 1995, shortly after being elected President and Chief Executive
Officer of EnSys, Grover C. Wrenn met with Rodney G. Hilton, Ohmicron's
President and Chief Executive Officer, and Ronald J. Brenner, its Chairman of
the Board, to discuss a possible consolidation of the businesses of EnSys and
Ohmicron. Mr. Wrenn was accompanied in such meetings by Gene J. Ostrow of
Raymond James, EnSys' investment advisor. EnSys and Ohmicron exchanged further
business information but ultimately were unable to agree on a basis for
continued discussions, primarily because of differing strategic views of the
marketplace for their respective products and corresponding differences with
respect to an appropriate business strategy for the combined company. As a
result, such discussions were discontinued in August 1995.
In January 1996 a representative of an investor in Ohmicron which also held
a smaller investment in EnSys contacted certain members of the EnSys Board of
Directors individually, suggesting that the Board consider resuming discussions
with Ohmicron concerning a possible transaction with EnSys. Following those
conversations, Mr. Wrenn discussed generally with the investor representative
and Mr. Hilton certain of the strategic issues which had caused the prior
discussions to be discontinued, and Mr. Wrenn and Mr. Hilton agreed to resume
their prior discussions with an additional member of each of their respective
Boards of Directors also participating.
On February 8, 1996, Mr. Wrenn, Mr. Ostrow, David Thomas of Raymond James,
and John H. Timoney, a member of the EnSys Board of Directors, met with Mr.
Hilton, Mr. Brenner and Ohmicron's financial advisors to discuss possible bases
on which the businesses of EnSys and Ohmicron might be combined. Following this
meeting Ohmicron's financial advisor communicated to Raymond James a proposal
pursuant to which a new company would be formed, with EnSys and Ohmicron each
contributing cash and operating assets and the stockholders of each party
receiving stock in the new company. Following careful consideration of this
proposal, the EnSys Board determined that the consideration to be received by
the EnSys stockholders under the Ohmicron proposal was inadequate and that the
proposal should be rejected.
There were no further substantive discussions between representatives of
EnSys and Ohmicron until after the completion of EnSys' acquisition of the
Envirogard product line from Millipore in March 1996. In April 1996, Mr. Wrenn
again spoke with Mr. Hilton by telephone and indicated through EnSys' financial
advisors that EnSys remained interested in entering into a possible combination
with Ohmicron if mutually
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satisfactory terms could be negotiated. On April 19, 1996, Mr. Wrenn and other
members of EnSys management visited Ohmicron's facilities for the purpose of
conducting further due diligence on Ohmicron and its business. Through its
investment advisor, EnSys then orally communicated a preliminary proposal to
Ohmicron in April 1996, pursuant to which EnSys would acquire Ohmicron's
environmental products division on terms substantially equivalent to those of
the Envirogard acquisition. There were no further substantive discussions
between EnSys and Ohmicron concerning a possible combination of their respective
businesses following the communication of such preliminary proposal.
During late 1995 and early 1996, Ohmicron's sales of environmental
immunoassay test kits had been adversely affected in the United States by the
EPA's curtailment of enforcement initiatives due to lack of funding. This
development, which was exacerbated by Ohmicron's inability to raise permanent
equity financing which would permit it to repay certain secured indebtedness to
Perkin-Elmer, had caused Ohmicron to intensify its efforts to identify a
strategic partner or purchaser of its environmental immunoassay business.
After reviewing 1995's financial results, the SDI Board of Directors focused
on growth strategies. Various strategies were proposed and discussed, and
strategic acquisitions of products or companies was identified as a company goal
for 1996.
In March 1996, Mr. Birkmeyer was contacted by Rodney G. Hilton of Ohmicron
Corporation and general discussions were held regarding the business of the two
companies. Several additional telephone conversations and two meetings between
Mr. Birkmeyer and Mr. Hilton were held during April 1996. On May 2, 1996, a
meeting was held at SDI's facility. In attendance were Richard Birkmeyer, Anne
Cavanaugh, and Gregory Bell of SDI and Mr. Hilton, Mr. Brenner and Mr. Tonge of
Ohmicron. At this meeting, a merger of Ohmicron, after OMD, a subsidiary, was
spun off, with SDI was discussed.
An SDI Board of Director's meeting was held on April 11, 1996. Mr. Birkmeyer
presented several growth scenarios and the EnSys/Millipore transaction was
discussed. Mr. Birkmeyer outlined the status of the Ohmicron discussions. The
SDI Board agreed that continued discussions were appropriate but reservations
were expressed about acquiring Ohmicron instead suggesting that SDI may want to
focus on other opportunities. The Board concluded that additional information
should be gathered and more extensive analysis completed.
On May 24, 1996, SDI received a Memorandum of Understanding from Mr. Hilton
of Ohmicron. The Memorandum outlined a merger of the two companies on the terms
discussed in the earlier meeting. The SDI Board reviewed and approved the
Memorandum of Understanding on May 28, and it was signed on May 29, 1996.
Also in May 1996, Mr. Birkmeyer began to discuss possible business
opportunities with Grover C. Wrenn, President and CEO of EnSys. Two meetings
between representatives of SDI and representatives of EnSys were held during
May, 1996, discussed below.
On June 6, 1996, the SDI Board met and Mr. Birkmeyer reviewed the status of
the Ohmicron transactions and the EnSys meetings. Rodney Hilton, David P.
Herzog, Senior Vice President Operations of Ohmicron, and Ralph Stever, Vice
President of Sales of Ohmicron, presented relevant information about Ohmicron's
products, technology and financial condition to the SDI Board. Mr. Bell
presented six financial models which contained projections for SDI alone and SDI
combined with Ohmicron and/or EnSys. The SDI Board agreed that these financial
models implied that the Ohmicron merger provided substantial benefit to SDI. Pro
forma projections in which SDI merged with both Ohmicron and EnSys provided
potential benefits for SDI. The Board concluded that discussions with both EnSys
and Ohmicron should continue.
The SDI Board subsequently approved the merger agreement between SDI and
Ohmicron and the merger of the two companies was completed on August 30, 1996.
In reviewing the merger of SDI and Ohmicron, SDI's board considered a number of
factors including but not limited to the following: (i) the trend toward
consolidation in the non-medical immunoassay testing industry; (ii) the increase
in market
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share and product revenue would enhance SDI's profitability and cash flow; (iii)
the similarity in the Ohmicron products to certain SDI products and SDI core
expertise would enhance their assimilation into SDI manufacturing processes;
(iv) the recognition that Ohmicron's products had a reputation for high quality
and reliability in the industry; (v) the proximity of the Ohmicron facility to
SDI would enable a cost effective consolidation and retention of key personnel;
(vi) the acquisition would provide SDI with an experienced sales and marketing
force that SDI could use to sell its other products in addition to its
environmental test kits; (vii) the acquisition would allow SDI to establish a
relationship with the Perkin-Elmer Corporation which the SDI Board believed may
provide technology exchange and additional business opportunities; (viii) the
historical, current and projected financial condition and results of operations
of SDI and Ohmicron before and after the merger; and (ix) the terms and
conditions of the acquisition and the fact that the merger would be a tax free
reorganization for federal income tax purposes.
After it became apparent to EnSys management that it was unlikely that a
business combination with Ohmicron could be negotiated on terms that would be
satisfactory to both EnSys and Ohmicron, Mr. Wrenn called Richard C. Birkmeyer,
President, Chief Executive Officer and a director of SDI, to discuss the
advisability of entering into discussions which might lead to a business
combination involving EnSys and SDI. On May 2, 1996, Mr. Wrenn, Mr. Ostrow and
Mr. Birkmeyer met in SDI's offices to discuss generally their respective
businesses and the potential synergies that might be realized by a combination
of EnSys and SDI. Thereafter, EnSys and SDI entered into a Confidentiality
Agreement, and on May 14, 1996, Mr. Birkmeyer and Richard J. Defieux, a director
of SDI, visited EnSys' facilities for further discussions with Mr. Wrenn and Mr.
Ostrow. On May 14, 1996, following the meeting with Mr. Birkmeyer and Mr.
Defieux, Mr. Wrenn, Mr. Ostrow and Mr. Thomas met with the EnSys Board and
reviewed with the directors the status of EnSys' merger and acquisitions
efforts, including a summary of the discussions to date with SDI.
On June 20 and June 21, 1996 Mr. Wrenn, Mr. Ostrow of Raymond James and
James M. LaRowe of Raymond James met with SDI management to enable both parties
to conduct general due diligence of each other. On July 6, Kevin R. Carter of
EnSys met with Mr. Birkmeyer and James W. Stave of SDI to enable both parties to
conduct technical due diligence. On July 9, two consultants hired by EnSys
(Donald I. Aiello and Michael Lundy) came to SDI to evaluate the various markets
in which SDI sells its products. On the same day, Yli Vallejo and Gerald L.
Alvey of EnSys met with members of SDI's management. On July 16, Mr. Ostrow of
Raymond James met with Mr. Birkmeyer to enable both parties to continue the
financial due diligence, and on July 22, Mr. Carter of EnSys met with Dr. Stave
of SDI to enable both parties to continue the technical due diligence. During
this period representatives of the companies exchanged business information and
conducted additional due diligence.
The EnSys Board of Directors met on July 1, 1996 to receive an update on the
status of the discussions with SDI and to review with Mr. Wrenn and Mr. Ostrow
the general terms then under discussion with respect to a possible combination
of EnSys with SDI. At the July 1 meeting, Mr. Ostrow provided the EnSys Board
with a detailed review of the financial data and other materials relating to SDI
and the proposed transaction terms then under discussion which had been provided
to the members of the Board in advance of the meeting. Mr. Ostrow also discussed
with the EnSys Board the details of the pending merger of SDI and Ohmicron and
various other factors bearing on the advisability of entering into a business
combination with SDI on terms similar to those which were then under discussion.
Following this meeting, the parties continued their discussions of specific
transaction terms and engaged in further detailed due diligence at the locations
of EnSys and SDI, involving management of both companies.
On July 18, 1996, the EnSys Board met with senior management and its
financial and legal advisors to receive an update on the status of the
discussions with SDI and met with Mr. Birkmeyer to discuss a variety of issues
relating to SDI and its pending merger with Ohmicron. At the meeting Mr. Ostrow
provided the EnSys Board with a detailed overview of the status of the
discussions with SDI and reviewed the terms of a preliminary, non-binding draft
letter of intent providing for the merger of SDI with and into EnSys. Mr. Ostrow
also provided the EnSys Board with a detailed presentation concerning the
various valuation
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analyses that had been conducted by Raymond James in connection with its advice
to EnSys concerning the proposed terms of the merger. Mr. Ostrow's presentation
included the proposed relative post-merger ownership interests of the
stockholders of EnSys and SDI, issues relating to outstanding warrants and
options to acquire SDI stock, and issues relating to the treatment in the
proposed merger of the SDI Preferred Stock.
On July 23, 1996, the EnSys Board met again with its counsel and financial
advisors for the purpose of reviewing the further discussions which had occurred
since the July 18 meeting. Following a further financial presentation by Mr.
Ostrow on the impact of such discussions on the Raymond James valuation model
previously presented to the Board, the EnSys Board authorized the execution of
the proposed letter of intent in substantially the form in which it had been
presented to the Board.
On July 26, 1996, SDI and EnSys entered into a non-binding letter of intent
(the "Letter of Intent") setting forth the principal points of understanding
between them with respect to a possible merger, which terms were substantially
consistent with the terms of the Merger Agreement. Under the terms of the Letter
of Intent, completion of the proposed merger was subject to various
contingencies which included the negotiation and execution of a mutually
satisfactory definitive agreement, the completion of due diligence and the
approval of the stockholders of EnSys and SDI. During August, September and the
beginning of October 1996, the parties negotiated the terms of the Merger
Agreement, the Operating Agreement and related documentation, while continuing
to conduct due diligence and to discuss issues relating to the integration of
their respective businesses.
A meeting of SDI's Board was held on September 9, 1996 and it was decided
that quotes from several investment banking firms would be obtained for a
fairness opinion regarding the EnSys merger. On September 19, 1996 SDI's Board
met to discuss the quotes for the fairness opinion. Oppenheimer & Company was
selected by the Board to provide the fairness opinion based on its experience
with transactions of this nature. The Board reaffirmed its support for moving
ahead with the merger.
On October 2, 1996, the EnSys Board met with its financial and legal
advisors to receive a report on the status of the Merger Agreement and related
documents and to review the financial analyses of the proposed transaction which
had been conducted by Raymond James. Raymond James had provided to the members
of the Board copies of a detailed report summarizing the financial terms of the
Merger Agreement and the assumptions made and the analyses conducted in
connection with its review of the Merger and the preparation of its fairness
opinion, a draft of which had been provided to the directors in advance of the
meeting along with the Raymond James report. See "--Opinion of EnSys' Financial
Advisor."
At a meeting of SDI's Board of Directors held on October 2, 1996, the SDI
Board received presentations from, and reviewed the proposed terms and
conditions of the Merger with, SDI's senior officers and its legal counsel
Pepper, Hamilton & Scheetz. The Board was advised by management that Oppenheimer
was in the process of performing due diligence in connection with its
engagement. The Board approved the Merger subject to the completion of the
definitive Merger Agreement, completion and delivery of the Operating Agreement
and certain other related documents, and the receipt of a written opinion from
Oppenheimer as to the fairness to SDI's current holders of common and preferred
stock, from a financial point of view of the Conversion Ratio.
On October 8, 1996, following further discussions of the terms of the
proposed Merger with its financial and legal advisors, the EnSys Board of
Directors approved the execution of the Merger Agreement.
On October 8, 1996, Oppenheimer rendered its written fairness opinion.
On October 11, 1996, the Merger Agreement was signed by SDI and EnSys.
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ENSYS' REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
The EnSys Board of Directors believes that the Merger will advance its
strategic objectives and enhance stockholder value. The terms of the Merger,
including the conversion ratios, were the result of arm's length negotiations
between EnSys, SDI and their respective representatives. In approving the Merger
Agreement and the transactions contemplated thereby, and in recommending that
the stockholders of EnSys approve the same, EnSys' Board of Directors consulted
with EnSys management and with its financial and legal advisors and considered a
number of factors which included the following:
1. The EnSys Board believed that the trend toward consolidation in the
immunoassay testing industry, as evidenced by EnSys' acquisition of the
Envirogard product line in March 1996 and the merger of Ohmicron and SDI,
constituted a major factor favoring the Merger. The EnSys Board believes
that this consolidation will better position the Surviving Corporation to
compete with the much larger environmental analytical laboratory industry.
In particular, the EnSys Board believed that the Surviving Corporation's
competitiveness will be enhanced by virtue of its larger size, broader
product line and improved cost structure.
2. The EnSys Board believed that another significant factor favoring
the Merger was the cost savings which the Board expects the Surviving
Corporation to realize from the elimination of duplicative products and
reductions in the aggregate research and development, sales and marketing
and general and administrative costs currently being incurred by EnSys and
SDI separately. While these costs savings were not specifically quantified
by the EnSys Board in its analysis of the Merger, they were believed by the
Board to be substantial and had been estimated jointly by EnSys and SDI
management at approximately $2 million for fiscal 1997.
3. The EnSys Board also recognized that the cost savings resulting from
the above-referenced synergies will initially be offset to a significant
extent by the costs (estimated at approximately $2.4 million) associated
with the Merger, including transaction costs, expenses associated with the
consolidation of the businesses, and severance payments to be made to
certain persons as a result of the termination of their employment following
the Merger, but concluded that the long-term benefits of the Merger
outweighed said costs.
4. Another factor the EnSys Board considered to be significant was its
view of the enhanced ability of the Surviving Corporation to market its
consolidated product line by virtue of its ability to present potential
customers with a more focused and coherent explanation of the benefits of
its respective product lines than sometimes resulted from the separate
presentations (with different emphases) concerning the application of
immunoassay technology offered by EnSys (and Envirogard, prior to its
acquisition by EnSys) and SDI (and Ohmicron, prior to its merger with SDI)
to their common customers and sales prospects.
5. The EnSys Board also believed that the emerging technology being
developed by SDI for the application of immunoassay technology to a broad
array of industrial, medical and agricultural problems represented an
attractive investment for EnSys. In connection with its review of SDI's
products and technology, the EnSys Board received and reviewed reports of
two outside consultants. See "--Reports of Outside Consultants to EnSys."
This market diversification offered by a combination with SDI was considered
to be a significant factor favoring the Merger.
6. The EnSys Board also took into consideration the historical
financial condition and results of operations of EnSys and SDI, the pro
forma financial condition and results of operations of the Surviving
Corporation after giving effect to the Merger. The EnSys Board noted that,
although the respective results of operations of EnSys and SDI were
generally improving, neither of the constituent companies had been
profitable as independent companies and that both companies had required
significant capital to cover research and development costs and operating
losses. However, the EnSys Board considered it more significant that, based
on the estimates and analyses set forth in the Raymond James report, the
Surviving Corporation appeared to the EnSys Board to be capable of
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generating cash and operating profits shortly after the completion of the
Merger. In the view of the EnSys Board, this was a significant factor
favoring the Merger.
7. The EnSys Board also carefully considered the financial presentation
and the opinion of Raymond James that the Conversion Ratio is fair to the
EnSys stockholders from a financial point of view. The EnSys Board of
Directors considered the various analyses of EnSys and SDI included in
Raymond James' presentation and felt that such analyses, taken as a whole,
supported a conclusion that the Conversion Ratio was fair, from a financial
point of view, to the EnSys stockholders. See "--Opinion of EnSys' Financial
Advisor." Although the EnSys Board of Directors did not specifically adopt
the Raymond James opinion, it relied upon the opinion, and the financial
presentation of Raymond James was a major factor in the EnSys Board's
decision to recommend approval of the Merger.
8. In light of the factors set forth above, the EnSys Board considered
the Conversion Ratio and resulting consideration to be paid to the SDI
stockholders to be fair to the EnSys stockholders and in the best interests
of EnSys and its stockholders. While the EnSys Board took into account the
extent of the dilution to existing EnSys stockholders resulting from the
Merger, it considered such dilution to be fair and reasonable in light of
its view of the benefits of the Merger to EnSys and its stockholders,
including the EnSys Board's view that the Merger would enhance EnSys
stockholder value.
9. The EnSys Board also considered the remaining terms and conditions
of the Merger Agreement, considered as a whole, and the fact that the Merger
will be a tax free reorganization for federal income tax purposes to be
significant factors favoring the Merger.
Due to the wide variety of factors considered in connection with its
evaluation of the Merger, the EnSys Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination. The
affirmative vote of the holders of two-thirds of the outstanding shares of EnSys
Common Stock is required to approve and adopt the Merger Agreement.
THE BOARD OF DIRECTORS OF ENSYS HAS VOTED IN FAVOR OF THE MERGER, WITH NO
MEMBER VOTING AGAINST, AND RECOMMENDS THAT ENSYS STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. ENSYS' STOCKHOLDERS ARE URGED TO
CAREFULLY REVIEW THE FACTORS DISCUSSED IN "RISK FACTORS" IN CONNECTION WITH
EVALUATING AND VOTING ON THE MERGER AGREEMENT. THE APPROVAL OF EACH OF THE
MERGER PROPOSALS IS CONDITIONED UPON THE APPROVAL OF ALL OF THE MERGER
PROPOSALS. ACCORDINGLY, A VOTE AGAINST ANY OF THE MERGER PROPOSALS WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST ALL OF THE MERGER PROPOSALS.
OPINION OF ENSYS' FINANCIAL ADVISOR
Pursuant to an engagement letter dated February 13, 1995, EnSys retained
Raymond James to furnish financial advisory and investment banking services in
connection with possible strategic business combinations with various companies
to be identified by EnSys or Raymond James from time to time. In connection with
this engagement, EnSys requested Raymond James to render an opinion as to
whether the Merger consideration offered to SDI is fair to stockholders of EnSys
from a financial point of view. Raymond James is a nationally recognized
investment banking firm and, as part of its investment banking business, Raymond
James is regularly engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. EnSys selected Raymond
James to provide investment banking services and advice in general and, in
particular, to render this opinion in connection with the Merger because of
Raymond James' reputation in the investment banking business and experience in
transactions similar to the Merger.
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At a meeting of the Board of Directors of EnSys on October 2, 1996, Raymond
James delivered a draft of its opinion that as of the date of the opinion and
subject to the assumptions, qualifications and limitations set forth in the
opinion letter and summarized herein, that the consideration offered to SDI in
connection with the Merger is fair to the shareholders of EnSys from a financial
point of view. Raymond James delivered such written opinion, dated October 8,
1996, at a meeting of the EnSys Board of Directors held on October 8, 1996.
RAYMOND JAMES' OPINION IS DIRECTED ONLY TO THE FINANCIAL TERMS OF THE MERGER
AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF ENSYS
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE ENSYS MEETING. In connection with
its presentation to the EnSys Board of Directors at the October 2, 1996 meeting,
Raymond James performed certain financial and comparative analyses including
those described below. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analyses and application of those methods to the particular circumstances. As a
result, fairness opinions are not readily susceptible to summary description.
Furthermore, in arriving at its fairness opinion, Raymond James did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Raymond James believes that its analyses must
be considered as a whole and that considering any portions of such analyses and
of the factors which it considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the opinion. In its analyses, Raymond James made certain assumptions as set
forth below. In addition, Raymond James assumed that market acceptance of SDI's
present products and those under development could occur more slowly than
contemplated by SDI management. Any estimates contained in these analyses are
not necessarily indicative of actual values or predictive of future results or
values (including the future market price for Surviving Corporation Common
Stock), which may be significantly more or less favorable than as set forth
therein. In addition, the analyses relating to the value of businesses do not
purport to be appraisals or to reflect the price at which businesses actually
may be sold.
The full text of the written opinion of Raymond James dated October 8, 1996,
which sets forth the assumptions made, factors considered, and limitations and
qualifications of the review undertaken by Raymond James is included as Appendix
B to this Joint Proxy Statement/Prospectus. The summary of the Raymond James
opinion set forth in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the Raymond James opinion. ENSYS STOCKHOLDERS ARE URGED
TO READ THE RAYMOND JAMES OPINION CAREFULLY AND IN ITS ENTIRETY FOR A
DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS CONSIDERED AND THE
ASSUMPTIONS MADE BY RAYMOND JAMES.
In rendering its opinion, Raymond James reviewed and analyzed, among other
things: (i) the Merger Agreement and associated schedules; (ii) SDI's audited
financial statements as of and for the year ended December 31, 1995 and the
related opinion of SDI's independent public accountants; (iii) SDI's interim
period financial statements for the six months ended June 30, 1996, as well as
other SDI financial and operating information requested from and/or provided by
SDI; (iv) SDI's projected financial statements for the years ended December 31,
1996 through 1998; (v) SDI's historical financial statements for the year ended
December 31, 1995 and June 30, 1996, pro forma for the acquisition of Ohmicron,
and the liquidation of TSD; (vi) SDI's projected financial statements for the
years ended December 31, 1996, through December 31, 1998, pro forma for the
acquisition of Ohmicron, the liquidation of TSD and the conversion of the EM
Industries distribution agreement; (vii) certain information provided in
discussions with the management of SDI relating to the business, cash flow,
earnings, assets, financial condition and prospects of SDI, including
management's forecasts and pro forma forecasts for the years ended December 31,
1996 through 1998, business plans, product and technology descriptions and
prospects, description and status of customer relationships, description and
prospects of targeted markets, description of relationships with joint venture
partners, Taconic and E-Merck, and the prospects of the Surviving Corporation
after the Merger; (viii) EnSys audited financial statements as of and for the
fiscal year ended December 31, 1995 and the EnSys Quarterly Report filed on Form
10-Q for the quarters ended March 31,
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1996 and June 30, 1996; (ix) certain information provided in discussions with
the management of EnSys relating to the business, cash flow, earnings, assets,
financial condition and prospects of EnSys, including management's forecasts
(including forecasts pro forma for the EnSys acquisition of the Envirogard
Division of Millipore) for the years ended December 31, 1996 through 1998,
business plans, product and technology descriptions and prospects, description
and status of customer relationships and description and prospects of targeted
markets, and the prospects of the Surviving Corporation after the Merger; (x)
publicly available information concerning companies in industries considered by
Raymond James to be most comparable to EnSys and SDI; (xi) financial and other
information concerning selected completed business combinations deemed to be
generally comparable to the Merger, or otherwise relevant to this opinion, in
whole or in part, involving EnSys and SDI; (xii) the pro forma effect of the
Merger on the projected results of EnSys; (xiii) the reports of consultants
hired by EnSys to assess the products, technology and markets of SDI; and (xiv)
other such financial studies and analyses, including a relative contribution
analysis, as Raymond James deemed relevant and necessary for the purposes of its
opinion.
Raymond James assumed and relied upon the accuracy and completeness of all
such information made available to it by EnSys, SDI or any third party and did
not attempt independently to verify any of such information, nor did it make or
obtain an independent appraisal of the assets or liabilities (contingent or
otherwise) of EnSys or SDI. With respect to the financial projections, pro forma
historical financial statements and pro forma projected financial statements
provided by EnSys and SDI, Raymond James assumed that they were prepared in good
faith and on a reasonable basis reflecting the best currently available
estimates and judgments of applicable management, and relied upon each party to
advise them promptly if any information previously provided became inaccurate or
was required to be updated during the period of the review. Raymond James
further relied upon the assurance of the managements of EnSys and SDI that such
managements were not aware of any facts as to the respective companies that
would make such information inaccurate or misleading. Raymond James also relied,
without independent verification, upon the estimates of the managements of both
EnSys and SDI concerning the business, operations, strategic benefits and
implications of the Merger, including information provided to Raymond James
relating to the synergies expected to be achieved by the combination of the
operations of EnSys and SDI. Raymond James did not conduct physical inspections
of the properties and facilities of EnSys or SDI, nor did it make an independent
investigation of any legal matter involving EnSys or SDI.
The following is a summary of the financial analyses considered by Raymond
James in connection with its opinion letter dated October 8, 1996, a draft of
which was reviewed with the EnSys Board of Directors on October 2, 1996.
PRO FORMA MERGER ANALYSIS. Raymond James analyzed certain pro forma
financial effects resulting from the Merger. When conducting this analysis,
Raymond James relied upon certain assumptions described above and financial
projections provided by the respective managements of EnSys and SDI. Raymond
James analyzed the pro forma financial effect of combining EnSys and SDI and the
potential synergies the respective managements believe are achievable upon
completion of the Merger. The purpose of this analysis was to compare the
projected net income and earnings per share that EnSys stockholders are expected
to achieve on a stand-alone basis to the projected earnings per share that EnSys
shareholders are expected to achieve in the Surviving Corporation. In each of
the years for which this analysis was prepared, 1996, 1997 and 1998, the
combined pro forma earnings per share were substantially higher than the stand
alone earnings per share projected by EnSys. The analysis was based on stand
alone projections provided by the management of both EnSys and SDI as well as
the combined managements' estimates of pretax cost synergies of $2.1 million.
COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available information,
Raymond James compared selected financial data of SDI with similar data of
selected publicly traded companies engaged in businesses considered by Raymond
James to be comparable to SDI. Because Raymond James determined that there were
insufficient publicly held companies which were directly comparable to SDI,
Raymond James analyzed public companies in two separate markets (collectively,
the "Comparable Companies"):
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diagnostic test kit manufacturers which generally develop products and use
technology similar to SDI but generally for different markets and environmental
and water purification firms which serve markets similar to several of SDI's
major markets (the "Comparable Public Company Analysis"). Specifically, with
respect to the market for diagnostic test kit manufacturing, Raymond James
included in its review: Diagnostic Products Corporation, Hach Company, Hycor
Biomedical Incorporated, Idexx Laboratories, Meridian Diagnostics Incorporated,
Neogen Corporation, Quidel Corporation. With respect to environmental and water
purification firms, Raymond James included in its review: Calgon Carbon
Corporation, Davis Water and Waste, Ecology and Environment, Inc., Harding
Lawson Associates Group, Ionics Incorporated, Osmonics Incorporated, Sybron
Chemical Incorporated, Tetra Tech Incorporated, TRC Companies, Inc., Versar
Incorporated, and Roy F. Weston Incorporated. Financial data reviewed for these
companies included, but was not limited to, the latest twelve months revenues,
earnings before interest and taxes ("EBIT"), earnings before interest, taxes,
depreciation and amortization ("EBITDA"), gross profit and net income. Based on
a trailing twelve month financial performance ("TTM"), Raymond James compared
ratios for each set of Comparable Companies, which included Total Enterprise
Value ("TEV") as a multiple of: (i) revenues, (ii) EBITDA, and (iii) EBIT.
Raymond James also compared price per share to book value per share ("P/BV") and
projected earnings per share ("P/E") ratios for each set of Comparable
Companies.
For the diagnostic test kit manufacturing companies, on a TTM basis, the
TEV/revenues multiple ranged from 1.3x to 7.0x, with an average of 3.6x. The
TEV/EBITDA multiple ranged from 8.2x to 36.9x, with an average of 22.8x. The
TEV/EBIT multiple ranged from 11.2x to 80.8x, with an average of 41.3x. The P/BV
multiples for diagnostic test kit manufacturers ranged from 1.3x to 6.5x with an
average of 3.8x. The calendar year 1996 projected P/E multiple ranged from 17.8x
to 75.6x, with an average of 35.6x. The 1997 calendar year P/E multiple ranged
from 15.5x to 27.5x, with an average of 20.9x.
For the environmental and water purification firms, on a TTM basis, the
TEV/revenues multiple ranged from 0.2x to 2.5x, with an average of 1.0x. The
TEV/EBITDA multiple ranged from 3.6x to 15.6x, with an average of 9.0x. The
TEV/EBIT multiple ranged from 6.0x to 40.6x, with an average of 16.9x. The P/BV
multiple ranged from 0.5x to 5.4x with an average of 2.1x. The calendar year
1996 projected P/E multiple ranged from 10.3x to 30.3x, with an average of
19.7x. The calendar year 1997 projected P/E multiple ranged from 10.8x to 24.4x,
with an average of 16.6x. For all Comparable Companies considered, on a TTM
basis, the TEV/revenues multiple had an average of 2.0x. The TEV/EBITDA multiple
resulted in an average of 13.9x. The TEV/EBIT multiple resulted in an average of
26.1x. The P/BV multiple had an average of 2.7x. The calendar year 1996
projected P/E multiple had an average of 25.8x, and the calendar year 1997
projected P/E multiple had an average of 17.9x.
In summary, the average multiples based on revenue implied an equity value
of $20,245,715. The multiples based on EBITDA implied a value of $20,430,651,
the multiples based on EBIT implied a value of $34,149,406, the multiples based
on net income implied a value of $26,816,773, and the multiples based on book
value implied a value of $8,923,988. The overall average of these multiples
implied an overall value of $22,518,432 for SDI in the aggregate.
Because of the lack of the sufficient number of independent Comparable
Companies and the difference between the businesses, operations and prospects of
EnSys and SDI and the businesses, operations and prospects of the companies
included in the Comparable Companies, Raymond James believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis, and accordingly also made qualitative judgments concerning
differences between the financial and operating characteristics of EnSys and SDI
and the companies included in the Comparable Companies that would affect the
public trading value of EnSys, SDI and such Comparable Companies.
DISCOUNTED CASH FLOW ANALYSIS. Raymond James provided an equity evaluation
of SDI based on the projections provided by the management of SDI, as well as on
management's projections as adjusted by Raymond James for lower revenue growth
rates and comparable operating margins primarily to incorporate the possiblity
of slower market penetration of SDI products. The compounded annual revenue
growth
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rate for total revenue for the years 1997-2000 under management's projections
was 36.2%, as compared to the compounded annual revenue growth rate for total
revenue under management's projections as adjusted by Raymond James of 28.0%.
Raymond James applied a range of discount rates, from 15% to 25%, to each
projected future free cash flows of SDI. The discount rates used in the analysis
were based on Raymond James' estimates of the marketplace's perception of SDI's
business and industry. Raymond James determined the present value of future
unlevered free cash flows for the period from 1997 to 2000 for management's
projections, and for the period 1997 to 2001 for the Raymond James' adjusted
projections. To calculate the terminal value at the end of such periods, Raymond
James assumed multiples of 5, 6 and 7 times projected EBITDA in the final years.
Using the assumptions outlined above, the estimated equity value for SDI
based upon management's projections ranged from $21,175,084 to $39,876,881, with
an average of $29,612,754. The estimated equity value for SDI under the Raymond
James' adjusted projections ranged from $14,437,921 to $28,589,968, for an
average value of $20,732,458.
ANALYSIS OF RECENT ENSYS AND SDI ACQUISITIONS. Raymond James determined
that no recent comparable transactions had taken place in the relevant markets.
Therefore, using information made available to it by EnSys and SDI, Raymond
James analyzed recent EnSys and SDI transactions considered by Raymond James to
be comparable to the merger between EnSys and SDI. Specifically, Raymond James
reviewed and considered the following transactions: the acquisition of certain
assets of Millipore by EnSys and the acquisition of Ohmicron by SDI. In
particular, Raymond James noted that with respect to the SDI-Ohmicron
transaction, the applicability of valuation multiples to operating statistics of
Ohmicron and the applicability of valuation multiples to book value of Ohmicron
would be of limited value because of Ohmicron's operating losses and substantial
accumulated deficit at the time of the transaction with SDI. Raymond James
therefore computed the valuation multiple for the SDI-Ohmicron transaction based
on revenue alone. Despite these limitations, Raymond James believed these
transactions to be the most relevant for analysis given the unique nature of the
markets in which EnSys and SDI operate.
Raymond James calculated multiples for projected revenue for fiscal year
1996, operating income projected for fiscal year 1996, and revenue for the
latest twelve months ending June 1996 to determine the implied SDI value. Based
on these valuations, Raymond James calculated a total average value to SDI of
$18,772,441.
ESTIMATED VALUE OF MERGER CONSIDERATION OFFERED FOR SDI; VALUATION OF
ENSYS. Raymond James estimated the value of the aggregate merger consideration
offered to SDI at approximately $17.1 million.
Raymond James used two methods for valuing EnSys. Raymond James analyzed the
average closing price for EnSys' stock for the 30, 60, 90 and 120 days prior to
the rendering of its opinion. For the purpose of valuing EnSys, as well as the
consideration offered to SDI, Raymond James utilized the average closing stock
price for the 30 days prior to rendering its opinion.
In addition, Raymond James valued EnSys on the basis of its relative
contribution to the Surviving Corporation. Raymond James completed an analysis
of the relative contribution of EnSys and SDI to the Surviving Corporation's
revenue, EBITDA and EBIT. Raymond James analyzed the relative ownership of the
Surviving Corporation based on the relative contribution of EnSys and SDI of
their businesses, cash and net operating losses. For a complete discussion of
this analysis see the following section entitled, RELATIVE CONTRIBUTION
ANALYSIS.
RELATIVE CONTRIBUTION ANALYSIS. Based on the projections provided by the
managements of EnSys and SDI, Raymond James analyzed the relative contributions
of each of EnSys and SDI to the Surviving Corporation's historical and projected
revenue, EBITDA, and EBIT. Raymond James analyzed the relative ownership of the
Surviving Corporation based on the relative contribution of EnSys and SDI of
their businesses, cash and net operating losses. Raymond James utilized
multiples of 1.0, 1.5 and 2.0 times total revenue in conducting its analysis and
adjusted the values thereby obtained for cash held by each company and the
present value of each company's respective operating losses. The multiples of
revenue were
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selected based on the Comparable Public Company Analysis and analysis of recent
EnSys and SDI acquisitions. The analysis indicated that a range of relative
contributions for EnSys and SDI from 33.4% and 35.3%, respectively to 64.7% and
66.6%, respectively. Raymond James calculated a mid-point of these ranges to be
48.4% for EnSys and 51.6% for SDI. Raymond James compared these relative
contribution percentages with the ownership percentages contemplated under the
Merger Agreement.
EnSys engaged Raymond James to render its opinion to EnSys' Board of
Directors and not to represent specifically the interests of affiliated or
non-affiliated shareholders of EnSys. As compensation for rendering its fairness
opinion to EnSys, EnSys has agreed to pay Raymond James a fee of $75,000,
contingent upon the consummation of the Merger. EnSys also agreed to reimburse
Raymond James for its reasonable out-of-pocket expenses and to indemnify Raymond
James and its affiliates for certain liabilities, including liabilities under
the federal securities laws, relating to, arising out of or in connection with
its engagement. Upon consummation of the Merger and pursuant to the terms of the
Raymond James engagement letter, EnSys has agreed to pay Raymond James an
investment banking services fee of approximately $343,000. In the ordinary
course of its business, Raymond James may trade the common stock of EnSys for
its own account and, accordingly, may at any time hold a long or short position
in such securities.
REPORTS OF OUTSIDE CONSULTANTS TO ENSYS
In its consideration of the Merger, EnSys management commissioned reports by
two outside consultants, Donald T. Aiello (the "Aiello Report") and Michael
Lundy (the "Lundy Report"), which reports were provided to the EnSys Board and
were reviewed by Raymond James in connection with the preparation of its report
and fairness opinion.
Mr. Aiello was formerly the Chief Operating Officer and Executive
Vice-President of EcoScience Corporation, an agricultural biotechnology company.
Mr. Aiello has worked in the area of marketing and product development for
agricultural chemical products since 1979. As such, Mr. Aiello has substantial
knowledge of the markets for SDI's agricultural diagnostic test products. Mr.
Aiello was identified to EnSys by Raymond James.
At the request of EnSys, Mr. Aiello conducted a review of three SDI
products: the GeneCheck B.t.k. test, the RapidChek Blast Finder test, and the
RapidChek Botrytis test. The Aiello Report evaluated the market prospects of
each of the three SDI products against sales forecasts made by SDI.
Specifically, the Aiello Report analyzed the market performance, sales
forecasts, market acceptance, regulatory environment and internal testing
procedures for SDI's GeneCheck B.t.k. test, RapidChek Blast Finder test, and
RapidChek Botrytis test. The methodology used in the Aiello Report consisted of
discussions with SDI scientists, customers, and other industry contacts.
Focusing on genetically engineered crops, the Aiello Report found that
testing for detection of inserted genes provides a ready market application for
the GeneCheck B.t.k. test. The Aiello Report found the GeneCheck B.t.k. test to
be generally reliable and easy to use, but noted that the potential level of
competition for this particular market was uncertain. Ultimately, the Aiello
Report concluded that SDI's sales estimates for the test were reasonable.
With respect to the RapidChek Blast Finder test, the Aiello Report found the
product to be effective in detecting the rice blast fungus and noted that there
is a foreign market for the product. The Aiello Report noted, however, that SDI
has been able to conduct only one season of field testing for the product and
could face obstacles in shipping, handling and storage of the product in hot
climates. As a result, the Aiello Report determined that the sales forecasts for
the RapidChek Blast Finder test should be adjusted to reflect a slower market
penetration.
Finally, the Aiello Report examined the RapidChek Botrytis test kit and
determined that it was consistent in its ability to measure botrytis and easy to
use. The Aiello Report noted that, while botrytis is a problem on several
varieties of fruits and vegetables, the product has initially been marketed to
the wine
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industry. The Aiello Report concluded that the RapidChek Botrytis test will
probably become the standard of measurement for the wine industry, but that SDI
will have to develop foreign markets or other fruit applications to meet its
sales forecasts.
The Aiello Report concluded that, in general, the SDI products were
effective in the detection and measurement of specific chemical compounds and
the sales forecasts made by SDI were, on the whole, realistic and attainable,
subject to the qualifications summarized above.
Michael Lundy is president of Lundy Associates, Inc., an investor relations
firm retained by EnSys. His report was prepared at the request of EnSys to
supplement its due diligence research for the Merger with SDI. Mr. Lundy was
formerly employed by Hambrecht & Quist as a research analyst for the
environmental services industry. EnSys selected Mr. Lundy because of his
extensive experience and familiarity with the operations of EnSys and knowledge
of SDI, including the markets and principal customers of both EnSys and SDI. Mr.
Lundy receives a monthly retainer of $3500 from EnSys for his investor relations
services.
Mr. Lundy conducted a due diligence review of SDI's products and relevant
market data and prepared the Lundy Report. The Lundy Report was based primarily
on information obtained from SDI and references identified by SDI, including
users of SDI products and representatives of agencies charged with regulation of
industries in which SDI products are currently or may be potentially used. The
Lundy Report, which was not reviewed by SDI or any of SDI's references prior to
its submission, rendered no opinion on the validity of SDI's projections or
forecasts. The Lundy Report did not independently verify the responses obtained
and the accuracy of the information and conclusions derived therefrom was not
guaranteed.
The Lundy Report is a survey of five markets for SDI products: (i) the
pesticide detection market; (ii) the water treatment chemical detection market;
(iii) the industrial markers market; (iv) the research, clinical diagnostics and
clinical trials markets served by TSD; and (v) the medical diagnostics market
served by SDI's Macra Lp(a) test. The Lundy Report described generally the
markets for the products surveyed, the products offered by SDI in those markets,
and the reactions of customers and the EPA to SDI's product offerings.
The Lundy Report noted that immunoassay products in general and SDI products
in particular are gaining acceptance because of their cost savings, portability
and ease of use in the pesticide detection and genetically engineered plant
markets. The Lundy Report also found that market growth opportunities exist in
the development of new products to detect existing and new pesticides as well as
for market penetration in areas traditionally handled by more conventional
analytical methods.
In the water treatment chemical detection market, the Lundy Report noted
that one of SDI's partners who have used SDI's products found them effective,
accurate and easy to use. However, the Lundy Report notes that, while SDI has
developed and continues to develop products for the industry, SDI's products
have not yet received approval from the National Sanitation Foundation in
conjunction with its tests for water filtration devices. The Lundy Report
provides no opinion about the validity of any projections made by SDI.
The Lundy Report noted that SDI has an established partnership in the
industrial marker industry. The Lundy Report offers no opinion as to the
validity of any projections made by SDI. Furthermore, the Lundy Report found
that SDI's products in the industry face competition from a variety of
comparable technologies.
With respect to TSD Bioservices, the Lundy Report found that, while TSD has
existing customer relationships in the market and competitive prices, the market
is also highly competitive. The Lundy Report provides no opinion about the
validity of any projections made by SDI.
Finally, the Lundy Report examined the market for SDI's Macra Lp(a) product.
The Lundy Report noted that Macra Lp(a) has been utilized in clinical
prospective studies funded by the federal government,
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but has not yet received approval by the FDA. The Lundy Report noted, however,
that there is at least one potential competitor developing a similar test.
SDI'S REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
The SDI Board of Directors viewed the Merger with EnSys as an attractive
strategic alliance, which was even more attractive in light of the Ohmicron
acquisition. The key strategic factors in favor of the Merger with EnSys
considered by the SDI Board were:
(a) EnSys' financial condition, in particular its working capital;
(b) EnSys' business products, assets and competitive position, and the
combined market share of the two companies' products;
(c) EnSys' status as a public company providing (i) SDI with increased
access to the capital markets for future acquisitions and research and
development funding and (ii) the SDI stockholders increased liquidity as
well as the opportunity to continue as stockholders of a consolidated
organization with enhanced financial and market strength.
In addition, in its deliberations the SDI Board considered, without
assigning relative weights to, the following additional factors as being
supportive of its determination: (i) the terms and conditions of the Merger,
including the nature and value of the consideration to be paid by EnSys; (ii)
the likelihood that, for federal income tax purposes, no gain or loss will be
recognized by SDI common or preferred stockholders with respect to the EnSys
stock received in exchange for their SDI stock; (iii) the market price of the
Ensys Common Stock since its initial public offering; (iv) the trading volume of
the EnSys Common Stock; (v) the interests of its customers; (vi) the effect of
the Merger on its employees; (vii) the potential for operating efficiencies and
cost savings; and (viii) the talented management teams of EnSys and SDI.
In addition, the SDI Board generally considered those matters discussed
under "Risk Factors" which involve potentially adverse consequences to SDI
and/or the SDI stockholders as a result of the Merger, in particular EnSys'
history of operating losses, costs associated with the Merger, uncertainties
with respect to the integration of the two entities and the effects of the
Merger on the rights of the SDI stockholders. The Board considered that the
potential benefits of the Merger to both SDI and its stockholders outweighed
such risks, without quantifying or giving relative weights to such factors.
Finally, the Board's approval of the Merger was conditioned upon the
subsequent receipt of a written opinion from Oppenheimer as to the fairness to
SDI's current holders of common and preferred stock, from a financial point of
view, of the Conversion Ratio for the SDI Common Stock and SDI Preferred Stock
provided in the Merger Agreement. Oppenheimer's written opinion dated October 8,
1996 is attached as Appendix C to this Joint Proxy Statement/Prospectus.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF DIRECTORS OF SDI UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AS BEING
FAIR AND IN THE BEST INTERESTS OF SDI AND ITS STOCKHOLDERS. THE SDI BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT SDI STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF SDI'S FINANCIAL ADVISOR
SDI retained Oppenheimer to act as its financial advisor and to render its
opinion to SDI's Board of Directors as to the fairness, from a financial point
of view, to SDI's current holders of SDI Common Stock and SDI Preferred Stock,
of the Conversion Ratio for SDI Common Stock and SDI Preferred Stock provided in
the Merger Agreement. SDI selected Oppenheimer based on its qualifications,
expertise and experience. Oppenheimer is a nationally recognized firm, and as
part of its investment banking business, Oppenheimer is regularly engaged in
valuations of businesses and securities in connection with mergers
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and acquisitions, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
The Merger Agreement provides that, among other things, (i) SDI will be
merged with and into EnSys (which will be the Surviving Corporation and which
will be renamed Strategic Diagnostics Inc.), (ii) each issued and outstanding
share of SDI Common Stock will be converted into the right to receive 0.7392048
shares of Surviving Corporation Common Stock and each issued and outstanding
share of SDI Preferred Stock will be converted into the right to receive
0.7392048 shares of Surviving Corporation Series A Preferred Stock, and (iii)
current holders of issued and outstanding SDI Options and SDI Warrants to
purchase SDI Common Stock will have the right to convert such SDI Options or SDI
Warrants for options or warrants, as the case may be, to purchase Surviving
Corporation Common Stock covering that number of shares of Surviving Corporation
Common Stock equal to 0.7818026 multiplied by the number of shares of SDI Common
Stock to which such SDI Option or SDI Warrant currently relates. On October 8,
1996, Oppenheimer delivered its written opinion to SDI's Board of Directors
that, as of such date, the Conversion Ratio for SDI Common Stock and SDI
Preferred Stock provided in the Merger Agreement were fair, from a financial
point of view, to the current holders of SDI Common Stock and SDI Preferred
Stock (the "Fairness Opinion").
The full text of the Fairness Opinion, which sets forth certain assumptions
made, certain procedures followed and certain matters considered by Oppenheimer,
is attached as Appendix C to this Joint Proxy Statement/Prospectus. As set forth
in the Fairness Opinion, Oppenheimer relied upon and assumed the accuracy and
completeness of all of the financial and other information available to it from
public sources and provided to it by SDI, EnSys and their respective
representatives. SDI and EnSys each provided Oppenheimer with its respective
financial forecasts. With respect to the financial forecasts and other data
concerning SDI reviewed by Oppenheimer, the management of SDI advised it that
such forecasts and other data had been reasonably prepared on bases reflecting
their best currently available estimates and judgment as to the future financial
performance of SDI. With respect to the financial forecasts and other data
concerning EnSys reviewed by Oppenheimer, the management of EnSys advised it
that such forecasts and other data had been reasonably prepared on bases
reflecting their best currently available estimates and judgment as to the
future financial performance of EnSys.
In arriving at its opinion, Oppenheimer neither made nor obtained any
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of SDI or EnSys, nor was it furnished with any such evaluations or
appraisals. Oppenheimer also assumed, without independent verification, the
accuracy of the advice and conclusions of the parties' legal counsel and
accountants with respect to tax and accounting matters, including, without
limitation, the treatment of the Merger as a tax-free reorganization for federal
income tax purposes and the accounting of the Merger as a purchase. The Fairness
Opinion was necessarily based on information available to Oppenheimer and the
general economic, financial and stock market conditions and circumstances as
they existed and could be evaluated by Oppenheimer on the date of the Fairness
Opinion. No limitations were imposed by SDI on Oppenheimer with respect to the
investigations made or procedures followed by Oppenheimer.
The summary of the written Fairness Opinion set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of the opinion which is attached as Appendix C hereto. SDI COMMON AND PREFERRED
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THIS OPINION CAREFULLY IN ITS
ENTIRETY IN CONJUNCTION WITH THIS JOINT PROXY STATEMENT/PROSPECTUS FOR THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY OPPENHEIMER.
The Fairness Opinion is directed only to the fairness, from a financial point of
view, to the current holders of SDI Common Stock and SDI Preferred Stock of the
Conversion Ratio for SDI Common Stock and SDI Preferred Stock provided in the
Merger Agreement and does not address any other aspect of the Merger. The
Fairness Opinion does not constitute a recommendation to SDI shareholders as to
how such shareholders should vote with respect to whether they should approve
the Merger Proposals.
In rendering the Fairness Opinion, Oppenheimer: (i) reviewed the Merger
Agreement; (ii) reviewed the historical financial statements and financial
projections and other information prepared by the
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representatives of SDI and EnSys; (iii) reviewed publicly available information
for SDI and EnSys, including, with respect to EnSys, periodic and other reports
filed with the Commission; (iv) reviewed the reported market prices and trading
volumes for EnSys Common Stock; (v) held discussions with the senior management
and representatives of each of SDI and EnSys concerning SDI's and EnSys'
historical and current operations, financial condition and prospects; and (vi)
reviewed such other documents and financial, economic and market criteria and
made such other investigations as it deemed appropriate for the purposes of such
opinion.
VALUATION OF ENSYS. Oppenheimer performed five primary valuation analyses
of EnSys: (i) a Common Stock Trading History Analysis; (ii) a Premiums Paid
Analysis for domestic merger and acquisition transactions of public companies
(1,397 transactions, including cash and stock-for-stock transactions) of less
than $100 million since January 1, 1994 and for domestic merger and acquisition
transactions of public companies (216 transactions) involving stock-for-stock
transactions of less than $100 million since January 1, 1994; (iii) a Comparable
Company Analysis, which consisted of reviewing and considering certain financial
and stock market data for certain other publicly traded companies determined to
be similar to EnSys and SDI; (iv) a Comparable Mergers and Acquisitions
Transaction Analysis which consisted of reviewing certain financial data of
selected comparable acquisitions involving diagnostic test and other companies;
and (v) a Discounted Cash Flow Analysis. These analyses were applied to
projections developed under two scenarios (collectively, the "Scenarios").
Scenario 1 reflects the projections developed by EnSys' management on a
stand-alone basis. Scenario 2 reflects the projections developed by EnSys'
management adjusted to include the effect of certain cost savings synergies
contemplated as a result of the Merger projected by the management of SDI. Each
of the Comparable Company Analysis, Comparable Mergers and Acquisitions
Transaction Analysis and Discounted Cash Flow Analysis was applied to financial
results from the most recent twelve months and to the projected financial
results under Scenario 1 and Scenario 2 to determine a range of implied
enterprise values (equity value plus total debt minus cash, the "Enterprise
Value") for EnSys. EnSys' revenues for the most recent twelve months were
adjusted to include pro forma trailing twelve months results to reflect the
recent acquisition of the Envirogard product line from Millipore Corporation
("Millipore").
In establishing the range of values resulting from the application of each
of the analyses, Oppenheimer made qualitative judgments as to the meaningfulness
of the valuation measurements. The judgments were based upon the number and
similarity of comparable companies and merger and acquisition transactions, as
well as the predictability and volatility of future earnings when assessing the
relative significance of the Discounted Cash Flow Analyses. The relative
appropriateness of certain other valuation measurements, such as operating cash
flow or price/earnings multiples, as used generally for comparative purposes,
were also taken into account in making such judgments.
COMMON STOCK TRADING HISTORY ANALYSIS. Oppenheimer reviewed current and
historical market prices and trading data of EnSys Common Stock during the
period from January 26, 1996 to July 26, 1996 and for the period from July 28,
1995 to July 26, 1996 (the day prior to the date EnSys announced the merger with
SDI, the "Announcement Date"). Oppenheimer noted that during such periods, EnSys
Common Stock traded between a high of $2.25 and a low of $1.375 per share and a
high of $3.375 and a low of $1.125 per share, respectively, and that more than
97.7% of EnSys Common Stock during the period from January 26, 1996 to July 26,
1996 traded at prices below $2.00 per share, and more than 61.5% of EnSys Common
Stock during the period from July 28, 1995 to July 26, 1996 traded at prices
below $2.00 per share. In this analysis, Oppenheimer also noted that the average
daily trading volume for EnSys Common Stock during the period from January 26,
1996 to July 26, 1996 was approximately 5,500 shares and during the period from
July 28, 1995 to July 26, 1996 was approximately 5,700 shares. Given the
relative lack of liquidity of EnSys Common Stock, Oppenheimer also analyzed
EnSys's stockholder concentration and noted that more than 90% of EnSys Common
Stock is held by fewer than 20 holders.
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PREMIUMS PAID ANALYSIS. Oppenheimer analyzed the average premiums paid in
domestic merger and acquisition transactions of public companies (1,397
transactions, including cash and stock-for-stock transactions) with transaction
values of less than $100 million since January 1, 1994. Such average premiums
were approximately 33.3%, 20.9% and 26.1% for one day, one week and one month,
respectively, prior to the transaction announcement date. Oppenheimer also
analyzed the average premiums paid in domestic merger and acquisition
transactions of public companies (216 transactions) with transaction values of
less than $100 million in stock-for-stock transactions since January 1, 1994.
Such average premiums were approximately 41.9%, 45.9% and 53.5% for one day, one
week and one month, respectively, prior to the transaction announcement date.
Since SDI Common Stock is not publicly traded, Oppenheimer derived implied
equity values for SDI by taking a range of implied average equity values based
on the Comparable Company Analysis, the Comparable Mergers and Acquisitions
Transaction Analysis and the Discounted Cash Flow Analysis for SDI. Oppenheimer
calculated an implied average equity value range for SDI of approximately $25.4
million to $36.9 million ($3.02 to $4.39 per share) based on the Comparable
Company Analysis, an implied average equity value of approximately $19.0 million
($2.26 per share) based on the Comparable Mergers and Acquisitions Transaction
Analysis and an implied average equity value of approximately $31.8 million
($3.78 per share) based on the Discounted Cash Flow Analysis. Oppenheimer then
compared these implied equity values of SDI to the equity value of EnSys based
on its share price one day, one week and one month, respectively, prior to the
Announcement Date, which resulted in implied premiums ranging from 231.5% to
119.0% for one-day, 177.0% to 91.0% for one-week and 188.1% to 96.7% for
one-month. Oppenheimer placed relatively little emphasis on the Premiums Paid
Analysis due to the lack of liquidity of EnSys Common Stock evidenced by low
trading volumes and high stockholder concentration.
COMPARABLE COMPANY ANALYSIS. Oppenheimer compared EnSys to the following
eight diagnostic test and other Comparable Companies which are publicly traded:
Hach Company; IDEXX Laboratories, Inc.; Landauer, Inc.; Meridian Diagnostics,
Inc.; Millipore; Neogen Corporation.; Perkin-Elmer; and Quidel Corporation.
Using publicly available information, Oppenheimer analyzed, among other things,
the market values and certain financial criteria for the Comparable Companies
including their (i) revenues, (ii) EBITDA, to the extent available, (iii) EBIT,
and (iv) net income, in each case for the most recent twelve month periods for
which financial data were available and, on an estimated basis, for the twelve
month periods ending on or about December 31, 1996 and 1997 and on implied data
for the twelve month period ending on or about December 31, 1998. In addition,
Oppenheimer evaluated the market values for the Comparable Companies relative to
their tangible book value for the most recent period. Oppenheimer excluded
certain statistics which it deemed to be not representative for the Comparable
Companies as a group. When calculating the implied Enterprise Values of EnSys,
Oppenheimer was constrained frequently to using only Comparable Companies
multiples for revenues and tangible book value given EnSys' lack of historical
and projected earnings. The Comparable Companies multiples were applied to EnSys
for the most recent twelve months and for 1996, 1997 and 1998 projected
operating results. Oppenheimer calculated EnSys' implied 1998 Enterprise Value
by multiplying EnSys' estimated 1998 results by the 1997 Comparable Companies
multiples and discounting the result of such calculation by 20%. These analyses
resulted in an implied Enterprise Value for EnSys which ranged from a low of
$1.5 million to a high of $23.0 million under Scenario 1 and from a low of $7.0
million to a high of $69.2 million under Scenario 2. Oppenheimer noted that the
high implied Enterprise Value under Scenario 1 was based solely on multiples of
revenue.
In addition, Oppenheimer calculated average implied Enterprise Values based
upon trimmed averages (averages that exclude certain data deemed to be not
meaningful, each a "Trimmed Average") of revenues, EBITDA, EBIT, net income and
tangible book value multiples, where available, for the Comparable Companies,
for the same periods which resulted in a range of Trimmed Average implied
Enterprise Values of $7.4 million to $14.9 million under Scenario 1 and $14.0
million to $33.5 million under Scenario 2. Although Oppenheimer considered the
high and low implied Enterprise Values, it deemed the range of Trimmed Average
implied Enterprise Values to be a better measure of EnSys' value.
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COMPARABLE MERGERS AND ACQUISITIONS TRANSACTION ANALYSIS. Using publicly
available information, Oppenheimer analyzed the consideration paid in selected
merger and acquisition transactions involving diagnostic test and other
comparable companies with characteristics it determined to be similar to EnSys
under the Scenarios. Oppenheimer examined fifteen transactions involving
diagnostic test and other comparable companies over the past seven years
consisting of: Millipore Waters Chromatography Division/ Waters Holding Inc.,
AEA Holdings, Inc.; Nunc Group/Sybron International Corp.; Applied Biosystems,
Inc./Perkin-Elmer Corporation; Wellcome Diagnostics/International Murex
Technology Corporation; London Diagnostics, Inc./Nichols Institute, Inc.; Cirrus
Diagnostics, Inc./Diagnostic Products Corporation; ETI Corp./IDEXX Laboratories,
Inc.; Aero M/Aerovox Incorporated; Advanced Magnetics, Inc. (In Vitro product
line)/PerSeptive Biosystems Inc.; Data Measurement Corp./Measurex Corporation;
Millipore Corporation (Envirogard product line)/EnSys Environmental Products,
Inc.; Integrated Genetics Inc./ Genzyme Corporation; Thermo Environmental
Corporation/Thermo Instrument Systems Inc., Thermo Electron Corporation; Idetek
Laboratories Inc./IDEXX Laboratories, Inc.; and Ohmicron Corporation/ Strategic
Diagnostics Inc. Oppenheimer calculated the multiples of the consideration paid
in relation to the acquired companies' most recent twelve months revenue,
EBITDA, EBIT, net income and tangible book value, where available. When
calculating the implied Enterprise Value of EnSys based upon the comparable
mergers and acquisitions, Oppenheimer was constrained to using only multiples
for revenue and tangible book value given EnSys' lack of earnings for the most
recent twelve months. Oppenheimer then applied these multiples to EnSys' most
recent twelve months operating results which resulted in an implied Enterprise
Value range for EnSys of $3.8 million to $15.8 million under both Scenario 1 and
Scenario 2. In addition, Oppenheimer calculated the implied Trimmed Average
Enterprise Value based on revenues and tangible book value, as applied to EnSys'
most recent twelve months, resulting in an implied Trimmed Average Enterprise
Value for EnSys of $10.0 million under both Scenario 1 and Scenario 2.
DISCOUNTED CASH FLOW ANALYSIS. Oppenheimer performed a Discounted Cash Flow
Analysis of the projected after-tax cash flows of EnSys for the fiscal years
ending December 31, 1996 through 2000, under the Scenarios based on forecasts
and other data provided by the management of EnSys. This analysis consisted of
adding the discounted present value of the projected future cash flows from
EnSys and the discounted present value of the terminal value of EnSys at the end
of the reference period. For purposes of such analysis, Oppenheimer used
discount rates of 25%, 30% and 35%. Oppenheimer then calculated the terminal
value by applying EBIT multiples of 12, 14 and 16 to EnSys' projected EBIT for
the year 2000 under both Scenarios. These multiples were based upon the
Comparable Companies in the industry. This analysis resulted in implied
Enterprise Values for EnSys ranging from $6.6 million to $11.8 million, with an
average based upon all of the various discount rates and multiples of $9.0
million, under Scenario 1 and from $20.4 million to $34.8 million, with an
average of $27.0 million, under Scenario 2.
CONTRIBUTION ANALYSIS. As of the date of the Fairness Opinion, as a result
of the Merger, current stockholders of EnSys will own approximately 47.4% of the
Surviving Corporation on a primary basis and SDI will own approximately 52.6%.
Oppenheimer analyzed EnSys' and SDI's relative percentage contribution to the
pro forma operating results for the Surviving Corporation resulting from the
Merger with respect to revenues for the most recent twelve months, comparing
EnSys' revenues to SDI's revenues for the same period. This analysis resulted in
a relative contribution of 37.7%. In addition, for the most recent twelve
months, EnSys' contribution to the Surviving Corporation's pro forma results for
total assets and tangible book value was 69.4% and 152.9%, respectively, under
both Scenario 1 and Scenario 2. Oppenheimer then analyzed EnSys' and SDI's
relative percentage contribution to the pro forma operating results for the
Surviving Corporation resulting from the Merger with respect to revenues,
EBITDA, EBIT, pre-tax income and net income. Such analysis was made for the
fiscal years for each of EnSys and SDI ending December 31, 1996, 1997, 1998,
1999 and 2000, respectively, based upon projected operating results. EnSys'
contribution to the Surviving Corporation's pro forma results for the fiscal
years ending in 1996, 1997 and 1998 would be: (i) 29.1%, 26.2% and 20.7% of
revenues, respectively; 46.7% (of the combined EBITDA loss), 5.1% and 19.1% of
EBITDA, respectively; 52.4% (of the combined EBIT loss), -11.8% and 13.3% of
EBIT, respectively; 64.4% (of the combined pre-tax loss), 11.9% and 24.3% of
pre-tax
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income, respectively; and 64.4% (of the combined net loss), 14.5% and 31.5% of
net income, respectively, under Scenario 1; and (ii) 21.9%, 26.2% and 20.7% of
revenues, respectively; 283.0%, 56.7% and 52.7% of EBITDA, respectively; NM (not
meaningful), 56.9% and 53.0% of EBIT, respectively; 11.0% (to the combined
pre-tax loss), 61.8% and 57.9% of pre-tax income, respectively; and 11.0% (to
the combined net loss), 66.9% and 66.2% of net income, respectively, under
Scenario 2. Contribution percentages represent the relative contributions of
each of EnSys and SDI to the Surviving Corporation's results. Negative
percentages indicate that EnSys contributed an earnings deficit to the overall
positive earnings of the Surviving Corporation in a given year. Percentages
above 100% indicate that EnSys contributed positive earnings (which were offset
by SDI's earnings deficit) to the overall positive earnings of the Surviving
Corporation in a given year.
EPS DILUTION ANALYSIS. Oppenheimer performed an analysis to determine the
pro forma effect of the Merger on SDI's earnings per share ("EPS") for the
fiscal years ending December 31, 1996, 1997, 1998, 1999 and 2000 on a combined
basis. The analysis for the most recent twelve months results did not include
any pro forma adjustments for cost benefits or revenue modifications. The
percentage (dilution)/accretion of SDI's EPS as a result of the Merger would be
- -51.4%, -42.9% and -26.7% for 1996, 1997 and 1998, respectively, under Scenario
1 and 36.6%, 54.1% and 51.9%, for the same periods, respectively, under Scenario
2.
VALUATION OF SDI. In consideration of the fact that the Merger involves the
payment of SDI Common Stock and SDI Preferred Stock to the stockholders of EnSys
based on the Conversion Ratio for SDI Common Stock and SDI Preferred Stock,
Oppenheimer performed a valuation of SDI. Oppenheimer applied the same methods
of analysis used above following the same methodologies in all cases except that
all such analyses were applied to the financial results of SDI for the most
recent twelve months and to SDI's projected results for the years ended 1996
through 2000, such projections having been provided by the management of SDI.
The most recent twelve month results for SDI include pro forma twelve month
results to account for the transactions involving Ohmicron and TSD, as though
they had occurred on July 1, 1995.
Oppenheimer was unable to make a Common Stock Trading History Analysis since
SDI is a private company. Oppenheimer performed a Comparable Company Analysis
using the same Comparable Companies used in the EnSys Comparable Companies
Analysis, resulting in an implied Enterprise Value for SDI which ranged from a
low of $17.5 million to a high of $55.1 million. Oppenheimer noted that the low
implied Enterprise Value in this case was based solely on multiples of revenue.
In addition, Oppenheimer calculated the average implied Enterprise Values based
upon Trimmed Averages of revenues, EBITDA, EBIT, net income and tangible book
value multiples, where available, for the Comparable Companies for the same
periods, which resulted in a range of implied Trimmed Average Enterprise Values
of $25.2 million to $36.7 million. Oppenheimer noted that the low implied
Enterprise Value under the Comparable Companies Analysis was based solely on
multiples of revenue. Although Oppenheimer considered the high and low implied
Enterprise Values, it deemed the range of implied Trimmed Average Enterprise
Values to be a better measure of SDI's value. The Comparable Mergers and
Acquisitions Transaction Analysis compared SDI with the same comparable mergers
and acquisitions transactions used in the EnSys' Comparable Mergers and
Acquisitions Transaction Analysis, resulting in an implied Enterprise Value for
SDI which ranged from a low of $10.6 million to a high of $26.2 million.
Oppenheimer noted that the low and the high implied Enterprise Values were based
solely on multiples of revenue. In addition, Oppenheimer calculated the implied
Trimmed Average Enterprise Value based solely on revenues, as applied to SDI's
most recent twelve months, resulting in an implied Trimmed Average Enterprise
Value for SDI of $18.7 million. Oppenheimer performed a Discounted Cash Flow
Analysis based on projections provided by the management of SDI. Oppenheimer
used discount rates of 30%, 35% and 40% for the SDI Discounted Cash Flow
Analysis. These discount rates were incrementally higher than those used in the
EnSys Discounted Cash Flow Analysis due to the reliance of SDI's projections on
the results of products in early stages of development. Oppenheimer then
calculated the terminal value by applying EBIT multiples of 12,
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14 and 16 to SDI's projected EBIT for the year 2000, which resulted in implied
Enterprise Values for SDI
ranging from a low of $23.0 million to a high of $41.8 million, with an average
of $31.5 million.
VALUATION CONCLUSION. In reviewing the Comparable Company Analysis, the
Comparable Mergers and Acquisitions Transaction Analysis and the Discounted Cash
Flow Analysis performed for EnSys, as well as the Contribution and EPS Dilution
Analysis, Oppenheimer placed relatively greater weight on the Scenario 2
projections and the Discounted Cash Flow Analysis. In evaluating the data from
the analyses, Oppenheimer calculated ranges of implied Conversion Ratios based
upon implied equity values (Enterprise Value minus debt plus cash) to evaluate
the relative equity values of SDI and EnSys. With regard to the Scenario 2
projections, the implied exchange ratios of the transaction ranged from 0.640 to
1.060 based upon the average implied equity value of SDI relative to the average
implied equity value of EnSys as determined by the Comparable Company Analysis,
Comparable Mergers and Acquisitions Transaction Analysis and the Discounted Cash
Flow Analysis. In arriving at its opinion, Oppenheimer also took into account
the benefits to SDI derived from (i) gaining access to the significant cash
resources of EnSys as a result of the Merger, (ii) avoiding the expense and
difficulty associated with raising capital for an early stage company, and (iii)
being a public company. Although Oppenheimer noted that in performing these
analyses, there existed a significant number of relevant companies and
transactions that were available to analyze, the lack of historical earnings for
both EnSys and SDI diminished the relevance of these analyses compared to the
Discounted Cash Flow Analysis.
A fairness opinion is the product of a complex process and cannot
necessarily be partially analyzed or readily summarized. Examining portions of
the analyses summarized above, without considering the analyses as a whole,
could create an incomplete view of the processes underlying Oppenheimer's
opinion. In arriving at its opinion, Oppenheimer considered the results of all
of such analyses as were relevant. The analyses were prepared by Oppenheimer
solely for purposes of providing its opinion as to the fairness of the
Conversion Ratio for SDI Common Stock and SDI Preferred Stock provided in the
Merger Agreement, from a financial point of view, to the current holders of SDI
Common and SDI Preferred Stock. Analyses based upon forecasts of future results
are inherently subject to substantial uncertainties and are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
prices at which businesses may actually be sold or combined. Accordingly,
Oppenheimer expresses no opinion as to what the value of the shares of the
Surviving Corporation actually will be when issued to holders of SDI Common
Stock and SDI Preferred Stock pursuant to the Merger or the price at which the
shares of the Surviving Corporation will trade subsequent to the Merger. While
the foregoing summary of the Fairness Opinion set forth in this Joint Proxy
Statement/Prospectus discloses the material analyses and assumptions utilized by
Oppenheimer in preparing the Fairness Opinion, it does not purport to be a
complete description of the analyses performed by Oppenheimer.
In connection with the Merger, SDI entered into an engagement letter with
Oppenheimer, pursuant to which SDI retained Oppenheimer to provide a fairness
opinion. Pursuant to such letter, SDI agreed to pay Oppenheimer a fee of
$150,000 payable in the form of a retainer fee of $50,000 upon the execution
thereof and the balance of the fee of $100,000 for rendering its opinion at the
request of SDI's Board of Directors in connection with the Merger. SDI has also
agreed to reimburse Oppenheimer for its reasonable out-of-pocket expenses (not
to exceed $50,000 in the aggregate) and to indemnify Oppenheimer and certain
related persons against certain potential liabilities arising out of the
engagement of Oppenheimer, including liabilities under the federal securities
laws.
In the ordinary course of its business, Oppenheimer may actively trade the
securities of EnSys for its own account or for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards of Directors of EnSys and
SDI with respect to the Merger Agreement and the transactions contemplated
thereby, stockholders should be aware that certain members of management of
EnSys and SDI and the Boards of Directors of EnSys and SDI have interests in the
Merger that are in addition to the interests of stockholders of EnSys and SDI
generally.
BIRKMEYER EMPLOYMENT AGREEMENT. The Merger Agreement provides that the
Surviving Corporation will enter into an employment agreement with Richard C.
Birkmeyer, a director and President and Chief Executive Officer of SDI, which
agreement will become effective at the Closing of the Merger. The proposed
employment agreement with Mr. Birkmeyer provides for a base salary of $164,000
per year and will be for an initial term commencing on the date of Closing of
the Merger and terminating on December 31, 1997. The proposed agreement also
provides for automatic annual extensions of one year unless either party gives
written notice to the contrary at least 60 days prior to any anniversary date
under the agreement. The agreement provides for an annual bonus of up to 75% of
Mr. Birkmeyer's annual salary as determined by the compensation committee each
year based on the reaching of certain performance targets and goals. Initially,
the target annual bonus will be 30% of Mr. Birkmeyer's salary. Mr. Birkmeyer's
proposed employment agreement also grants to him options to purchase 100,000
shares of the Surviving Corporation Common Stock at an exercise price of market
price per share and with an expiration date of ten years from the date of grant.
Twenty-five thousand option shares will vest at the Closing of the Merger, and
twenty-five thousand option shares will vest on each of the first, second and
third anniversaries of the date of Closing. If Mr. Birkmeyer's employment is
terminated without cause or if Mr. Birkmeyer terminates his employment with the
Surviving Corporation for Good Reason, Mr. Birkmeyer will receive, among other
things, his current annual salary for a period of twelve months from the date of
termination on the same periodic dates as salary payments would have been made
had Mr. Birkmeyer's employment not been terminated, provided that in the event
the Surviving Corporation should default in the timely payment of any amount due
to Mr. Birkmeyer, Mr. Birkmeyer may, at his option, accelerate the remaining
payments due to him.
EMPLOYMENT OF WRENN. Pursuant to the Merger Agreement, Grover C. Wrenn will
enter into an employment agreement with the Surviving Corporation and will serve
as Chairman of the Board of the Surviving Corporation. Mr. Wrenn will be paid
based on an annual salary of $200,000 with 40% allocated based on eight working
days per month. To the extent Mr. Wrenn works more than eight days in any month,
he will be paid pro rata for the extra days worked. Mr. Wrenn will be entitled
to participate in the Surviving Corporation's income plans, retirement plans and
other benefit plans and be entitled to receive the Surviving Corporation's
customary fringe benefits. Mr. Wrenn will be granted options to purchase 100,000
shares of Surviving Corporation Common Stock under the Amended 1995 EnSys Plan
at an exercise price equal to fair market value. Such options will expire ten
years from the date of grant and will vest as follows: options to purchase
25,000 shares at the Closing, with options to purchase 25,000 shares vesting
upon each of the next three anniversaries of the date of Closing.
TERMINATION BENEFITS. In April 1995, EnSys entered into an employment
agreement with its President and Chief Executive Officer, Grover C. Wrenn, which
entitles him to certain termination benefits in the event of his termination by
the EnSys Board of Directors without cause. These termination benefits include a
continuation of salary for a period of twelve months from the date of
termination at the salary in effect at that time, a continuation of benefits
existing as of the date of termination for a period of twelve months, and the
immediate vesting of any stock issued to Mr. Wrenn under EnSys' stock option
plans along with all stock options becoming exercisable immediately for a period
equal to the greater of the remainder of their term or two years from the date
of termination. In December 1995, EnSys entered into an employment agreement
with its Controller, Manager of Finance and Administration, Treasurer and
Secretary, James M. Terrell, which contains termination benefits similar to Mr.
Wrenn's with the exception of the time period for receipt of salary and
benefits, which is six months from the date of termination
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instead of one year. Upon or prior to the completion of the Merger, these
severance benefits (amounting to an aggregate of $222,000) will become due for
both Messrs. Wrenn and Terrell.
On September 6, 1995, the EnSys Board of Directors passed a resolution
providing for, among other things, severance payments at current salary for
certain officers for a period of six months from termination in the event that
their employment is terminated within twelve months after a change in control of
EnSys. Upon the completion of the Merger, the severance payment in the amount of
$51,500 will become due for one such officer.
STOCK OPTION PLANS. Pursuant to the Merger Agreement, as of the Effective
Time, all SDI Options and all SDI Warrants will be canceled and extinguished and
converted into Surviving Corporation Options or Surviving Corporation Warrants
to purchase shares of Surviving Corporation Common Stock. Each SDI Option will
be converted into a Surviving Corporation Option to purchase 0.7818026 of a
share of Surviving Corporation Common Stock (for an aggregate of 389,782 shares
of Surviving Corporation Common Stock if no SDI Options are exercised prior to
the Closing) and each SDI Warrant will be converted into a Surviving Corporation
Warrant to purchase 0.7818026 of a share of Surviving Corporation Common Stock
(for an aggregate of 599,643 shares of Surviving Corporation Common Stock if no
SDI Warrants are exercised prior to the Closing). Pursuant to the Merger
Agreement, the Surviving Corporation will file a registration statement on Form
S-8 with the Commission with respect to the Surviving Corporation Options
granted to those persons who become employees of the Surviving Corporation.
BOARD OF DIRECTORS. Pursuant to the Merger Agreement, EnSys and SDI have
agreed that three current members of EnSys' Board of Directors (Grover C. Wrenn,
Robert E. Finnigan and Curtis Lee Smith, Jr.) and Stephen O. Jaeger,
Vice-President and Chief Financial Officer of Perkin-Elmer, will serve on the
Surviving Corporation's initial Board of Directors, which will consist of seven
members. In addition, EnSys and SDI have agreed that the following three current
members of the Board of Directors of SDI will serve as directors on the initial
Board of Directors of the Surviving Corporation: Richard C. Birkmeyer, Kathleen
E. Lamb and Richard J. Defieux. See "Operation, Management and Business of the
Surviving Corporation After the Merger--Management of the Surviving
Corporation."
ENSYS' FINANCIAL ADVISOR. Raymond James has provided certain financial
advisory services to EnSys in connection with the Merger pursuant to a written
agreement which expired in August 1995, but which has been automatically renewed
on a month-to-month basis. As compensation for such services, Raymond James will
receive upon consummation of the Merger a cash fee equal to the greater of
$300,000 or 2% of the total consideration paid or received at Closing, plus
expenses, which aggregate amount is currently estimated to be approximately
$343,000. In addition, Raymond James will be paid a fee of $75,000 for rendering
its fairness opinion to the EnSys Board of Directors.
SDI'S FINANCIAL ADVISOR. SDI has engaged Oppenheimer to provide certain
financial advisory services to SDI in connection with the Merger, and to provide
an opinion to the Board of Directors to the effect that the Merger is fair to
SDI stockholders from a financial point of view. As compensation for such
services, SDI will pay Oppenheimer a fee of $150,000.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Troutman Sanders LLP, counsel to EnSys, is of the opinion that, for federal
income tax purposes, the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code and accordingly, that (i) no gain or loss
will be recognized by EnSys as a consequence of the Merger, (ii) no gain or loss
will be recognized by EnSys stockholders as a consequence of the Merger, (iii)
the tax basis of the EnSys stockholder's stock in the Surviving Corporation will
not change as a consequence of the Merger, and (iv) the holding period of the
EnSys stockholder's stock will include the holding period prior to the Merger.
This opinion is conditioned on the truth and accuracy of the representations,
warranties,
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and statements of fact made or to be made by EnSys and SDI and certain SDI
shareholders in connection with the Merger, and a change in any such items may
require a change in the opinion.
As of December 31, 1995, EnSys had NOLs of approximately $14,885,000
available to offset taxable income recognized by EnSys and its subsidiaries in
future periods. For federal income tax purposes, these NOLs will expire between
2002 and 2010. Under Section 382 of the Code, the benefit of EnSys' NOLs can be
reduced or eliminated if EnSys undergoes an "ownership change" or an "equity
structure shift," as defined in Section 382. Generally, an "ownership change"
occurs if one or more stockholders, each of whom owns 5% or more of a company's
capital stock, and certain "public groups," increase their aggregate ownership
of the company by more than 50 percentage points over the lowest percentage of
stock owned by such stockholders or groups over the preceding three-year period
(based on value). An "equity structure shift" means any reorganization, within
the meaning of Section 368 of the Code. If an ownership change or equity
structure shift in EnSys were to occur, the amount of taxable income in any year
(or portion of a year) subsequent to the ownership change or equity structure
shift that could be offset by NOLs or other carryovers existing (or "built-in")
prior to such ownership change or equity shift could not exceed the product
obtained by multiplying (i) the aggregate value of EnSys stock immediately prior
to the ownership change or equity structure shift (with certain adjustments) by
(ii) the federal long-term tax exempt rate (currently 5.64%).
For the purposes of Section 382 of the Code, the Merger will constitute an
"ownership change" and an "equity structure shift," with respect to EnSys, which
will result in the imposition of restrictions on the ability of the Surviving
Corporation to utilize NOLs of EnSys. There can be no assurance that the
Surviving Corporation will be able to utilize all or any NOLs of EnSys. The
Surviving Corporation's ability to use the NOLs depends upon the Surviving
Corporation's taxable income during future periods and there can be no assurance
that the Surviving Corporation will become or remain profitable in the future.
Accordingly, the effect that the annual limitation on the use of NOLs would have
on the Surviving Corporation or whether such limitation would result in a
portion of the NOLs expiring prior to their use, cannot be estimated at the
present time.
Pepper, Hamilton & Scheetz, counsel to SDI, is of the opinion that, as
qualified below, for federal income tax purposes, the Merger will be treated as
a reorganization within the meaning of Section 368(a) of the Code and
accordingly, that (a) no gain or loss will be recognized by SDI as a consequence
of the Merger, (b) no gain or loss will be recognized by SDI stockholders upon
the receipt of Surviving Corporation Common Stock and Surviving Corporation
Series A Preferred Stock in exchange for SDI Common Stock and SDI Preferred
Stock in connection with the Merger, (c) the tax basis of the Surviving
Corporation Common Stock and the Surviving Corporation Series A Preferred Stock
will be the same as the tax basis in the SDI Common Stock and the SDI Preferred
Stock surrendered in exchange therefor, and (d) the holding period for tax
purposes of the Surviving Corporation Common Stock and the Surviving Corporation
Series A Preferred Stock to be received by the SDI stockholders in connection
with the Merger will include the holding period of the SDI Common Stock and the
SDI Preferred Stock surrendered in exchange therefore, provided that the SDI
Common Stock and the SDI Preferred Stock are held as a capital asset at the
Effective Time.
Pepper, Hamilton & Scheetz is also of the opinion that an SDI stockholder
who receives cash in lieu of a fractional share interest in Surviving
Corporation Common Stock or Surviving Corporation Series A Preferred Stock will
be treated for federal income tax purposes as having received cash in redemption
of such fractional share interest. The receipt of such cash should result in
capital gain or loss in an amount equal to the difference between the amount of
cash received and the portion of such stockholder's adjusted tax basis in the
shares of SDI allocable to the fractional share interest. Such capital gain or
loss will be long-term gain or loss if the SDI stock is held as a capital asset
and the SDI stock is held for more than one year.
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Pepper, Hamilton & Scheetz is also of the opinion that an SDI stockholder
who perfects dissenters' rights under the laws of the State of Delaware and who
receives a cash payment of the fair market value of his stock will be treated as
having received such payment in redemption of such shares. Such redemption will
be subject to the conditions and limitations of Code Section 302 including the
attribution rules of Code Section 318. In general, if, immediately after the
Effective Time, a dissenting stockholder owns, actually and constructively, no
Surviving Corporation Common Stock or Surviving Corporation Series A Preferred
Stock, and the SDI stock was owned as a capital asset, the dissenting
stockholder should recognize capital gain or loss measured by the difference
between the amount of cash received by such stockholder and the basis for such
shares. In general, under the constructive ownership rules of the Code, a holder
may be considered to own stock that is owned, and in some cases constructively
owned, by certain related individuals or entities, as well as stock that such
holder (or related individuals or entities) has the right to acquire by
exercising an option or converting a convertible security, this opinion is
conditioned on the truth and accuracy of the representations, warranties, and
statements of fact made or to be made by EnSys and SDI and certain SDI
stockholders in connection with the Merger, and a change in any such items may
require a change in the opinion.
Pepper, Hamilton & Scheetz is also of the opinion that no gain or loss will
be recognized by the holders of non-qualified compensatory SDI Options upon the
conversion of such options into similar non-qualified compensatory Surviving
Corporation Options.
These opinions are conditioned on the truth and accuracy of the
representations, warranties and statements of fact made or to be made by EnSys
and SDI and certain SDI stockholders in connection with the Merger, and a change
in any such items may require a change in these opinions.
Holders of SDI Warrants outstanding as of the Effective Time will have their
SDI Warrants converted into Surviving Corporation Warrants. Such conversion may
be a taxable event. However, in 1994 the Internal Revenue Service ruled
privately that the assumption in a merger of options of the target company by
the surviving company, on identical terms, was not a taxable event. No such
private ruling has been sought in this transaction. Taxpayers may not use
private letter rulings to which they are not parties as precedent. Section
6110(j)(3). Without such a ruling, Pepper, Hamilton & Scheetz has advised SDI
that there is inconclusive authority upon which it can rely and, therefore, it
is unable to issue an opinion as to the tax consequences of the warrant
conversion. Warrant holders should consult their own tax advisors with respect
to the specific tax consequences of the warrant conversion to them.
THE DISCUSSION REGARDING FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE
ADDRESSES CERTAIN MATERIAL FEDERAL INCOME TAX ISSUES ONLY. IT DOES NOT ADDRESS
THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER AND MAY NOT APPLY TO A
STOCKHOLDER WHO ACQUIRED HIS OR HER SHARES OF ENSYS OR SDI PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR RIGHTS OR OTHERWISE AS COMPENSATION. THIS
DISCUSSION RELATES ONLY TO ENSYS COMMON STOCK, SDI COMMON STOCK AND SDI
PREFERRED STOCK HELD AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF THE
CODE BY PERSONS WHO ARE CITIZENS OR RESIDENTS OF THE UNITED STATES. THIS
DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES TO CATEGORIES OF HOLDERS ENTITLED
TO SPECIAL TREATMENT UNDER THE CODE (INCLUDING, WITHOUT LIMITATION, FOREIGN
PERSONS, TAX EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS
AND DEALERS IN STOCKS AND SECURITIES). IT IS BASED ON CURRENTLY EXISTING
PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF
THIS DISCUSSION. NO RULING HAS BEEN SOUGHT FROM THE IRS WITH RESPECT TO THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. ENSYS AND SDI STOCKHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL AND
FOREIGN TAX LAWS.
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ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method for accounting
and financial reporting purposes. Based upon the outstanding shares of SDI
Common Stock and SDI Preferred Stock and EnSys Common Stock as of the Record
Date, SDI stockholders will receive approximately 52% of the combined shares of
the Surviving Corporation Common Stock's voting interests. Since the former
stockholders of SDI will own the larger percentage of shares of Surviving
Corporation Common Stock voting interests, SDI has been deemed to be the
acquirer for accounting purposes.
REGULATORY APPROVALS
No federal or state regulatory approvals will be required to consummate the
Merger.
DISSENTERS' APPRAISAL RIGHTS
Holders of EnSys Common Stock are not entitled to dissenters' appraisal
rights. Holders of SDI Common Stock and SDI Preferred Stock who object to the
Merger may seek the remedies provided by Section 262 of the DGCL. The following
summary does not purport to be a complete statement of the provisions of Section
262 of the DGCL and is qualified in its entirety by reference to Appendix G,
attached hereto, which contains the complete text of that Section.
Prior to the vote on the Merger, a dissenting stockholder must deliver to
the Secretary of SDI at SDI's offices at 128 Sandy Drive, Sandy Brae Industrial
Park, Newark, Delaware 19713-1147, a written demand for appraisal of his shares
of SDI Common Stock or SDI Preferred Stock. The demand will be sufficient if it
reasonably informs SDI of the identity of the stockholder of record and that
such stockholder intends to demand appraisal of his shares. Merely voting
against the Merger or a direction in a proxy to vote against the Merger will not
in and of itself constitute such a demand. In order to be valid, the demand for
appraisal must be signed by the stockholder of record exactly as his name
appears on his stock certificate. If the shares are registered in more than one
name, each such registered holder must sign the demand. If the shares are
registered in the name of a corporation, trust, estate, partnership or other
entity, the individual signing a demand on behalf of the registered owner must
be authorized to do so and must indicate the capacity in which he is signing the
demand.
The dissenting stockholder must not vote in favor of the Merger. However,
the dissenting stockholder need not vote against the Merger. If a dissenting
stockholder returns his signed proxy card and does not specifically vote against
the Merger and thereafter does not revoke his proxy, the proxy will be voted in
favor of the Merger and in that event the dissenting stockholder will be deemed
to have waived his appraisal rights.
After the Effective Time of the Merger, dissenting stockholders will not be
entitled to vote their shares or to receive any dividends or other distributions
that may be paid on SDI Common Stock or SDI Preferred Stock. However, at any
time within 60 days after the Effective Time of the Merger, a dissenting
stockholder may withdraw his demand for appraisal.
Within 10 days after the Effective Time of the Merger, the Surviving
Corporation will mail a notice to each dissenting stockholder stating that the
Merger has become effective and that appraisal rights are available. Within 120
days after the Effective Time of the Merger, either the Surviving Corporation or
any dissenting stockholder may initiate an appraisal proceeding in the Delaware
Court of Chancery to determine the fair value of shares of SDI Common Stock or
SDI Preferred Stock. If a petition for appraisal is timely filed, the court will
hold a hearing on the petition to determine the stockholders entitled to
appraisal rights and the fair market value of the shares of SDI Common Stock or
SDI Preferred Stock owned by those stockholders, exclusive of any element of
value arising from the consummation or expectation of the Merger, together with
a fair rate of interest, if any, to be paid thereon. If such a proceeding is not
initiated within 120 days after the Effective Date of the Merger, the rights of
dissenting
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stockholders to appraisal will terminate. Inasmuch as the Surviving Corporation
has no obligation to and does not intend to file a petition for appraisal, any
stockholder who desires to have a petition filed should file it himself on a
timely basis.
In determining fair value, the court will take into account all relevant
factors. In WEINBERGER V. UOP, INC., 457 A.2d 701 (Del. 1983), the Delaware
Supreme Court stated that proof of value may be made "by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court." The court also stated that, in determining fair
value, the court should consider market value, asset value, dividends, earning
prospects, the nature of the enterprise and other factors that throw any light
on the future prospects of the merged corporation.
The Surviving Corporation will be required to pay the appraised value of the
SDI Common Stock and SDI Preferred Stock, together with any interest awarded by
the court, to the dissenting stockholders holding such shares upon surrender of
their stock certificates. The costs of the proceeding will be charged against
the parties as the court deems equitable, and some or all of the expenses
incurred by a stockholder in the proceeding may be charged against the value of
all of the shares entitled to appraisal.
No notification of the beginning or end of any statutory period under
Section 262 of the DGCL will be given by the Surviving Corporation to any
dissenting stockholder. Stockholders wishing to exercise appraisal rights should
consult their own counsel.
RESALE RESTRICTIONS AND REGISTRATION RIGHTS
Shares of Surviving Corporation Common Stock received by SDI stockholders in
the Merger will be freely tradable without restrictions under the Securities
Act; PROVIDED, HOWEVER, that shares of Surviving Corporation Common Stock
restricted by contract or received by persons who are deemed to be "affiliates"
(as that term is defined in Rule 144 under the Securities Act) of the Surviving
Corporation or SDI ("restricted shares") may be resold by them only in
transactions permitted by the resale provisions of Rule 145 or as otherwise
permitted under the Securities Act. Certain persons who may be deemed
"affiliates" of SDI (the "Restricted Holders") have entered into lock-up letter
agreements not to dispose of the shares of Surviving Corporation Common Stock,
Surviving Corporation Series A Preferred Stock or any security exchangeable or
exercisable for or convertible into Surviving Corporation Common Stock which
they will receive in the Merger (the "Registrable Stock") for a period of six
months following the Closing.
Based upon the number of outstanding shares of EnSys Common Stock and SDI
Common Stock as of the Record Date, and assuming the exercise of all options,
warrants and other rights to purchase EnSys Common Stock or SDI Common Stock,
approximately 16,761,702 shares of Surviving Corporation Common Stock will be
outstanding upon consummation of the Merger, of which approximately 7,496,214
shares of Surviving Corporation Common Stock will be held by the Restricted
Holders. Assuming no options or warrants are exercised prior to the consummation
of the Merger, options, warrants and other rights to purchase approximately
1,599,340 shares of Surviving Corporation Common Stock will be outstanding upon
consummation of the Merger; and such Restricted Holders, in the aggregate, will
hold options and other rights to purchase approximately 511,377 shares of
Surviving Corporation Common Stock.
Pursuant to a registration rights agreement between the Surviving
Corporation and certain of the Restricted Holders, the Surviving Corporation has
agreed, upon demand at any time after June 30, 1997 (the "Registration Period"),
made by any two of the three Restricted Holders that are parties thereto, to
register the sale or other distribution of shares of Surviving Corporation
Common Stock held by such holders as soon as practicable after such demand. Such
demand may be made with respect to any or all of the Registrable Stock;
PROVIDED, HOWEVER, that the aggregate number of shares requested to be
registered in any demand or pursuant to related demands must be at least the
lesser of (i) 50% of the total shares of Registrable Stock originally issued, or
(ii) the remaining shares of Registrable Stock, but in any event not
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less than 1,500,000 shares of Registrable Stock. The Restricted Holders as a
group are entitled to two demand registrations during the Registration Period.
If the Surviving Corporation shall at any time propose the registration
under the Securities Act (other than a registration on Form S-8 or Form S-4) of
any offering of Surviving Corporation Common Stock, the Surviving Corporation is
required to give notice of such registration to such Restricted Holders having
registration rights and allow such holders to include their shares of Surviving
Corporation Common Stock in such registration (subject to reduction upon the
advice of the Surviving Corporation's investment banking firm as necessary to
ensure the orderly sale and distribution of shares of Surviving Corporation
Common Stock being offered by the Surviving Corporation).
THE OPERATING AGREEMENT
BACKGROUND. EnSys and SDI have entered into an Operating Agreement in
anticipation of the closing of the Merger. The term of the Operating Agreement
will be for six (6) months from October 1, 1996, but will automatically
terminate at the Effective Time of the Merger or upon the termination of the
Merger Agreement for any reason, whichever is earlier. Both EnSys and SDI agree
that, in the performance of their respective obligations under the Operating
Agreement, they will be acting separately as independent contractors and not in
a partnership, associate, agency or joint venturer capacity.
LICENSES. Pursuant to the Operating Agreement, SDI has granted to EnSys the
exclusive, worldwide right and license to market, distribute and sell certain
Licensed Products under the existing names and current product specifications of
such Licensed Products. The Operating Agreement grants EnSys the discretion to
set the price and payment terms for the Licensed Products and provides that all
invoices for the Licensed Products will be in EnSys' name. EnSys is obligated to
pay to SDI upon execution of the Operating Agreement for such license a one time
license fee of $300,000, payable upon the execution of the Operating Agreement.
EnSys will pay to SDI Royalty Fees in the amount of 15% of cumulative net
revenues in excess of $2,000,000 derived from the sale of the Licensed Products.
In the event of a termination of the Operating Agreement as a result of a
default by SDI, SDI will refund to EnSys as full and complete liquidated damages
for its default an amount equal to $300,000, less 15% of net revenues of EnSys
derived from the sale of the Licensed Products up to the date of termination.
SERVICES OF ENSYS. Pursuant to the Operating Agreement, EnSys has agreed to
provide at the Newtown Facility the following services (the "EnSys Services"):
(1) management services necessary for the day-to-day operation of the business
at the Newtown Facility, solely with respect to the Licensed Products, but with
no obligation or responsibility to make strategic decisions regarding the future
of the business; (2) services necessary to sell, market and distribute the
Licensed Products from the Newtown Facility, including but not limited to, final
assembly, packaging and shipping of such products; (3) personnel reasonably
necessary to perform the EnSys Services and to manage and assist SDI employees
at the Newtown Facility; (4) customer information services regarding the
Licensed Products; and (5) accounting and cash management services, including
installation and operation of the Impact Financial Management Computer System.
SERVICES OF SDI. Pursuant to the terms of the Operating Agreement, SDI has
agreed to provide to EnSys the following services (the "SDI Services"): (1)
personnel at the Newtown Facility to assist EnSys in the performance of the
EnSys Services; (2) all current inventory of Licensed Products, including all
work in process, final raw materials and supplies, plus the fully manufactured
and processed critical reagents necessary for final assembly of the Licensed
Products at the Newtown Facility at a price equal to SDI's cost; (3) full and
unrestricted access to the Newtown Facility as well as office space, equipment
and utilities necessary to operate the Newtown Facility as it had previously
been operated by SDI; (4) all product literature, customer lists, formulae,
trade secrets and other intellectual property rights necessary to manufacture
and sell the Licensed Products; and (5) manufacturing services at SDI's Delaware
facility to produce the critical reagents.
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TRANSITION PERIOD. Both EnSys and SDI anticipate that performance of their
respective obligations under the Operating Agreement will require a transition
period. As soon as possible EnSys will perform from the Newtown Facility
assembly and shipment of all Licensed Products. EnSys will also perform assembly
and shipment of its own products from the Newtown Facility, to the extent both
parties mutually agree that it is economically feasible. In addition, to the
extent both parties agree it to be economically feasible, EnSys will use all
reasonable efforts to facilitate SDI's ability to manufacture the critical
reagents for EnSys' environmental products at the Delaware Facility.
PAYMENTS. In addition to the Royalty Fees, EnSys will pay or reimburse SDI
for all of SDI's full direct: (1) costs for the use, occupancy and operation of
the Newtown Facility, including insurance, taxes, utility costs, maintenance
costs, waste removal and security costs incurred during the term of the
Operating Agreement in connection with the performance of the EnSys Services or
the SDI Services; (2) labor costs for SDI employees incurred during the term of
the Operating Agreement in connection with the performance of EnSys Services and
SDI Services; and (3) costs of materials, supplies, inventory and critical
reagents transferred by SDI to EnSys.
TERMINATION. The Operating Agreement will terminate immediately under any
of the following conditions: (1) failure of either party to comply with any of
the material terms of the Operating Agreement after twenty (20) days written
notice of such failure by the other party; (2) the filing of a petition in
bankruptcy or the making of any assignment for the benefit of creditors by
either party; (3) the appointment of a receiver for the business of either party
or any part thereof. Upon termination of the Operating Agreement, each party
must return all customer information and commercially sensitive information of
the other party.
RESTRICTIVE COVENANTS. Pursuant to the terms of the Operating Agreement,
each party agrees that it will not nor will it permit any of its subsidiaries to
hire any employee of the other party, provided that both parties and their
respective employees may discuss and negotiate such employees' roles in the
Surviving Corporation.
REPRESENTATIONS AND WARRANTIES. The Operating Agreement contains various
customary representations and warranties relating to, among other things, each
of EnSys' and SDI's: (i) organization and similar corporate matters; (ii)
authorization, execution, delivery, performance and enforceability of the
Operating Agreement; (iii) absence of any claim, litigation or governmental
proceeding against such party or any of its subsidiaries now pending or
threatened in writing that would have a material adverse effect on such party or
impair its ability to perform its obligations under the Operating Agreement and
(iv) absence of any approval, consent or authorization by or registration,
declaration or filing with any governmental or public body or other third party
required in connection with execution, delivery, and performance of the
Operating Agreement.
In addition, SDI further warrants that: (i) it has all rights, including but
not limited to, intellectual property rights, necessary to perform its
obligations under the Operating Agreement and (ii) that, to the best of its
knowledge, there is no claim, litigation or governmental proceeding against SDI
or any of its subsidiaries now pending or threatened in writing with respect to
any of the Licensed Products, their components or their uses.
INDEMNIFICATION. Each party agrees to indemnify and hold harmless the other
party from and against any and all liability, losses, damages, claims or causes
of action, and related expenses, including reasonable attorneys' fees, caused
directly or indirectly by or as a result of any negligence, gross negligence or
willful misconduct by the indemnifying party or any of its employees, or of any
material breach of the Operating Agreement by the other party. Prompt written
notification to the other party to the Operating Agreement is required in order
to obtain such indemnification.
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TITLE. Title to all SDI property used by EnSys under the Operating
Agreement will at all times remain with SDI, and upon termination of the
Operating Agreement, EnSys will make such property available to SDI and will
vacate the Newtown Facility as soon as reasonably practicable. If either party
is required to pay liquidated damages pursuant to the Merger Agreement, such
party must bear all costs of EnSys' vacating the Newtown Facility. Otherwise,
the cost of vacating the Newtown Facility will be shared equally by EnSys and
SDI. Title to all EnSys property used by SDI under the Operating Agreement will
at all times remain with EnSys, and, upon termination of the Operating
Agreement, SDI will make it available to EnSys at the Newtown Facility.
STOCKHOLDER VOTING AGREEMENTS
In order to induce EnSys and SDI to enter into the Merger Agreement, certain
stockholders of SDI have entered into stockholder voting agreements with EnSys
and certain stockholders of EnSys have entered into stockholder voting
agreements with SDI (collectively, the "Voting Agreements") in which such
stockholders have agreed to vote their respective shares of capital stock in
favor of the Merger and the approval of the Merger Agreement. Such stockholders
further agreed to refrain from soliciting proxies or becoming a participant in a
solicitation in opposition to or in competition with the consummation of the
Merger or otherwise encouraging or assisting any party in taking or planning any
actions that would interfere with the consummation of the Merger. The Voting
Agreements entered into by holders of EnSys Common Stock account for 32% of the
outstanding shares eligible to vote at the EnSys Meeting, and the Voting
Agreements entered into by holders of SDI Common Stock and SDI Preferred Stock
account for all of the SDI Preferred Stock and 88% of the outstanding SDI Shares
eligible to vote at the SDI Meeting.
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THE MERGER AGREEMENT
The detailed terms of and conditions to the Merger are contained in the
Merger Agreement, which is included in full as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. The following
summary description of the terms of the Merger Agreement is qualified in its
entirety by, and made subject to, the more complete information set forth in the
Merger Agreement.
THE MERGER
Subject to the terms and conditions of the Merger Agreement, at the
Effective Time, SDI will be merged with and into EnSys and the separate
existence of SDI will cease and, among other things, the corporate name of EnSys
will be changed to Strategic Diagnostics Inc. The Merger will have the effects
specified in the DGCL.
CLOSING AND EFFECTIVE TIME OF THE MERGER
The Closing of the transactions contemplated by the Merger Agreement will
take place on (i) the later of (a) the first business day following the date on
which the later to occur of the EnSys Meeting and the SDI Meeting is held or (b)
the business day on which the last of the conditions set forth in the Merger
Agreement is satisfied or waived, or (ii) such other date and time as SDI and
EnSys agree.
Concurrently with the Closing, EnSys and SDI will cause a Certificate of
Merger to be filed with the Secretary of State of the State of Delaware and the
Merger will become effective upon such filing (the "Effective Time").
CONVERSION OF SECURITIES
Pursuant to the Merger Agreement, at the Effective Time, (i) each issued and
outstanding share of SDI Common Stock (other than any dissenting shares) will be
converted into 0.7392048 share(s) of Surviving Corporation Common Stock and (ii)
each issued and outstanding share of SDI Preferred Stock (other than any
dissenting shares) will be converted into 0.7392048 share(s) of Surviving
Corporation Series A Preferred Stock. The Merger will not affect the shares of
EnSys Common Stock outstanding at the Effective Time, each of which shares will
thereafter be and remain a share of Surviving Corporation Common Stock.
All shares of SDI Common Stock converted in the Merger will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist, and each holder of a certificate representing such shares will cease to
have any rights with respect thereto, except the right to receive, without
interest, shares of Surviving Corporation Common Stock upon the surrender of
such certificate. Each share of SDI Common Stock or SDI Preferred Stock owned by
SDI as treasury shares or owned by any subsidiary of SDI will be canceled and
extinguished and no shares of Surviving Corporation Common Stock or Surviving
Corporation Series A Preferred Stock or other consideration shall be delivered
in exchange therefor. The shares of Surviving Corporation Common Stock and
Surviving Corporation Series A Preferred Stock to be issued pursuant to the
Merger (less any dissenting shares and fractional shares) are collectively
referred to as the "Merger Shares" and the total consideration to be paid for
all of the capital stock of SDI is referred to as the "Aggregate Merger
Consideration."
No fractional shares of Surviving Corporation Common Stock or Surviving
Corporation Series A Preferred Stock will be issued in the Merger, and each
stockholder of SDI will receive cash in lieu of any fraction of a share of
Surviving Corporation Common Stock or Surviving Corporation Series A Preferred
Stock.
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TREATMENT OF SDI STOCK OPTIONS AND WARRANTS
Pursuant to the Merger Agreement, at the Effective Time, (i) each issued and
outstanding SDI Option to purchase shares of SDI Common Stock will be canceled
and extinguished and will be converted into a Surviving Corporation Option to
purchase that number of shares of Surviving Corporation Common Stock which is
determined when the number of shares of SDI Common Stock to which the SDI Option
relates is multiplied by 0.7818026 and (ii) each SDI Warrant to purchase shares
of SDI Common Stock will be canceled and extinguished and will be converted into
a Surviving Corporation Warrant to purchase that number of shares of Surviving
Corporation Common Stock which is determined when the number of shares of SDI
Common Stock to which the SDI Warrant relates is multiplied by 0.7818026. Each
Surviving Corporation Option or Surviving Corporation Warrant to be granted to a
holder of SDI Options or SDI Warrants will be rounded to the nearest whole
share. In addition, at the Effective Time, all SDI stock option plans will be
terminated and the Surviving Corporation will not be bound by any of the terms
thereof nor be liable for any of the obligations thereunder.
As soon as practicable after the Effective Time, the Surviving Corporation
will file a registration statement on Form S-8 with the Commission with respect
to Surviving Corporation Options replacing SDI Options granted under SDI stock
option plans to those persons who become employees of the Surviving Corporation.
The Surviving Corporation also will take all corporate action necessary to
reserve for issuance a sufficient number of shares of Surviving Corporation
Common Stock to be issued upon the exercise of any SDI Options and SDI Warrants
converted by the Merger into Surviving Corporation Options and Surviving
Corporation Warrants.
EXCHANGE OF CERTIFICATES
As of the Effective Time, the Surviving Corporation will deposit with Boston
EquiServe, as exchange agent (the "Exchange Agent"), for the benefit of the
holders of shares of SDI Common Stock and SDI Preferred Stock for exchange in
accordance with the Merger Agreement, certificates representing the shares of
Surviving Corporation Common Stock and Surviving Corporation Series A Preferred
Stock to be issued in exchange for certificates which represented shares of SDI
Common Stock and SDI Preferred Stock, and an amount of cash to be paid in lieu
of fractional shares.
Promptly after the Effective Time, the Surviving Corporation will cause the
Exchange Agent to mail to each holder of record of SDI Common Stock and SDI
Preferred Stock, a letter of transmittal to be used by such holders in
forwarding their certificates representing such shares ("Certificates") and
instructions to use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Surviving Corporation Common Stock and
Surviving Corporation Series A Preferred Stock. SDI STOCKHOLDERS ARE REQUESTED
NOT TO SURRENDER THEIR RESPECTIVE CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A
NOTICE AND TRANSMITTAL FORM FROM THE EXCHANGE AGENT.
Upon the surrender of each Certificate, together with such letter of
transmittal duly executed and completed, the holder of such Certificate will be
entitled to receive in exchange a certificate representing the number of whole
shares of SDI Common Stock or SDI Preferred Stock represented by such
Certificate multiplied by the Conversion Ratio. After the Effective Time, there
shall be no transfers on the stock transfer books of SDI or the Surviving
Corporation of any shares of SDI Common Stock or SDI Preferred Stock.
The Exchange Agent's duties will terminate one year after the Effective Time
(or such earlier date when all of the Aggregate Merger Consideration has been
exchanged) and any remaining portion of the Aggregate Merger Consideration will
be released to the Surviving Corporation. Thereafter, certificates representing
shares of SDI Common Stock or SDI Preferred Stock presented to the Surviving
Corporation will be canceled and exchanged for certificates representing
Surviving Corporation Common Stock or Surviving Corporation Series A Preferred
Stock in accordance with the terms of the Merger Agreement.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, each of EnSys' and SDI's: (i)
organization, existence, and capital structure and ownership of their respective
subsidiaries; (ii) authorization, execution, delivery, performance and
enforceability of the Merger Agreement; (iii) absence of conflicts under their
respective organizational documents, required consents and approvals, breaches
of material contracts, and violations of orders, statutes and regulations; (iv)
permits; (v) financial statements relating to the SDI-Ohmicron Merger; (vi)
documents filed by EnSys with the Commission and the accuracy of information
contained therein; (vii) absence of certain material changes; (viii) litigation,
contracts and employee benefit plans; (ix) compliance with material laws and
regulations, including payment of taxes; (x) labor and employment matters; (xi)
insurance; (xii) title to properties; (xiii) compliance with federal, state and
local environmental laws and regulations; (xiv) relationships with customers and
suppliers; (xv) discussions or negotiations regarding Alternative Transactions,
as defined below; (xv) broker fees; and (xvi) dissolution of the TSD joint
venture between SDI and Taconic.
CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME
Each of EnSys and SDI has agreed that, among other things, prior to the
Effective Time, unless the other party agrees in writing or as otherwise
required or permitted by the Merger Agreement or the Operating Agreement, it
will: (i) conduct its business in the ordinary course of business and consistent
with past practice; (ii) use its reasonable best efforts to preserve intact its
business organization and assets, rights and franchises, maintain its goodwill
with customers, suppliers and others having business relationships with it or
its subsidiaries, and retain the rights and services of its respective officers
and key employees; (iii) use reasonable efforts to keep in full force and effect
all insurance policies, liability insurance and bonds comparable in amount and
scope of coverage to that currently maintained; (iv) subject to the terms of the
confidentiality agreement between EnSys and SDI, provide to the other party and
its officers, employees, accountants, consultants, legal counsel and other
representatives reasonable access to all information regarding the business,
properties, contracts, records and personnel of it or its subsidiaries. In
addition, each of EnSys and SDI has agreed that, among other things, prior to
the Effective Time, unless the other agrees in writing or as otherwise required
or permitted by the Merger Agreement or the Operating Agreement, it will not:
(i) increase any compensation payable to any director, officer or employee of it
or its subsidiaries, except for increases done in the ordinary course of
business and consistent with current policies; (ii) grant severance or
termination pay to or enter into any severance agreement with any director or
officer, unless pursuant to the terms of an existing employment contract that
has been disclosed to the other party; (iii) enter into or amend any employment
agreement with any director or officer that would extend beyond the Effective
Time, except on an at-will basis; (iv) institute any new employee benefit plan
or amend any existing employee benefit plan in any material respect, unless
necessary to comply with applicable law; (v) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any shares of
its capital stock; (vi) directly or indirectly acquire any shares of its capital
stock or its subsidiaries' capital stock; (vii) change the number of shares of
EnSys Common Stock or SDI Common Stock, as the case may be, issued and
outstanding by effecting a stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction; (viii) amend its Certificate of
Incorporation or By-laws, except for, with respect to EnSys, amendments made to
the Certificate of Incorporation and the By-laws for the Surviving Corporation;
(ix) sell, lease or otherwise dispose of any of its or its subsidiaries' assets
which are material, individually or in the aggregate, except in the ordinary
course of business; (x) acquire or agree to acquire the assets of any other
person or business entity, or (xi) incur any debt obligations or purchase money
indebtedness, except in the ordinary course of business and consistent with past
practices.
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NEGOTIATIONS WITH OTHERS
Each of EnSys and SDI and their respective subsidiaries shall not, and shall
use its best efforts to cause its respective directors, officers, employees,
financial advisors, legal counsel, accountants, investment bankers and other
agents and representatives not to, solicit, initiate or encourage, directly or
indirectly, or take any other action to facilitate submission of any inquiry,
proposal or offer from any person or entity relating to any acquisition,
purchase or sale of all or a material amount of the assets of, or any securities
of, or any merger, consolidation or business combination, liquidation,
reorganization or similar transaction with, either of SDI, EnSys or any of its
subsidiaries, as the case may be (an "Alternative Transaction"), or engage or
participate in any discussion or negotiations regarding, or furnish to any other
person any information with respect to, any effort or attempt by any other
person to do or seek any of the foregoing. Neither EnSys nor SDI shall, nor
shall either of them permit any of its subsidiaries to furnish or cause to be
furnished any confidential information concerning their businesses, properties
or assets to any person or entity that is interested in any Alternative
Transaction.
MANAGEMENT AFTER THE MERGER
Pursuant to the Merger Agreement, the By-Laws of the Surviving Corporation
immediately following the Effective Time will be in the form attached to this
Joint Proxy Statement/Prospectus as Appendix E and the following persons will be
elected to the Board of Directors of the Surviving Corporation: Grover C. Wrenn,
Curtis Lee Smith, Jr., Kathleen E. Lamb and Richard C. Birkmeyer, for terms
expiring at the 1997 Annual Meeting of Stockholders; and Richard J. Defieux,
Robert E. Finnigan and Stephen O. Jaeger, for terms expiring at the 1998 Annual
Meeting of Stockholders.
The Surviving Corporation's Board of Directors is obligated to take all
action necessary to appoint the following as the principal executive officers of
the Surviving Corporation: Grover C. Wrenn to be appointed Chairman of the
Board; Richard C. Birkmeyer to be appointed President and Chief Executive
Officer; Gregory J. Bell to be appointed Vice President--Finance and Chief
Financial Officer; David P. Herzog to be appointed Vice President--Research and
Development; Martha C. Reider to be appointed Vice President--Manufacturing;
James W. Stave, to be appointed Vice President--Corporate Development; and Anne
F. Cavanaugh to be appointed Vice President--Acquisitions. Following the
consummation of the Merger, Ralph E. Stever is expected to be appointed Director
of Sales of the Surviving Corporation.
In addition, pursuant to the By-Laws of the Surviving Corporation, promptly
following the Effective Time the Surviving Corporation will take all necessary
actions to establish an audit committee consisting initially of Stephen O.
Jaeger, Kathleen E. Lamb and Curtis Lee Smith, Jr., and a compensation committee
consisting initially of Grover C. Wrenn, Richard J. Defieux and Robert E.
Finnigan.
At each annual meeting, directors will be elected to succeed those directors
whose terms expire at such annual meeting, for a term of office which will
expire at the second succeeding annual meeting. For additional information
concerning the Board of Directors and management of the Surviving Corporation
see "Operation, Management and Business of the Surviving Corporation After the
Merger--Management of the Surviving Corporation."
Pursuant to the Surviving Corporation Certificate, commencing at the
Effective Time of the Merger, the Board of Directors will consist of seven
members, who initially will be selected as follows: three members designated by
EnSys, three members designated by SDI and the remaining member designated by
Perkin-Elmer. The directors of the Surviving Corporation will hold office as
follows: Class I Directors will hold office for a term expiring at the 1997
annual meeting of the stockholders and the Class II Directors will hold office
for a term expiring at the 1998 annual meeting of stockholders, with the members
of each class to hold office until their respective successors are duly elected
and qualified. All Class I Directors holding office at the time of the 1997
annual meeting of stockholders will automatically be nominated, subject to such
director's consent, to serve an additional two-year term expiring at the 1999
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annual meeting of the stockholders; all Class II Directors holding office at the
time of the 1998 annual meeting of the stockholders will automatically be
nominated, subject to such director's consent, to serve an additional two-year
term expiring at the 2000 annual meeting of stockholders.
INDEMNIFICATION
In the event the Merger Agreement is terminated, each party (an
"Indemnifying Party") shall indemnify the other party and its directors,
officers, agents and employees (each an "Indemnified Party"), and shall hold
each Indemnified Party harmless from and against any and all losses, claims,
judgments, damages, liabilities, expenses, costs, including reasonable
attorneys' fees, (collectively, "Losses") to the extent any such Losses are
incurred or paid by an Indemnified Party to an unrelated third party and such
losses relate to or arise from the pre-Closing actions or omission of the
Indemnifying Party, regardless of whether or not such losses result from the
operation of the Indemnifying Party's business.
Upon notification of any actions, suit, proceeding, claim, demand or
assessment from a third party which may give rise to a claim for indemnification
from the Indemnifying Party, the Indemnified Party shall give prompt, written
notice to the Indemnifying Party. The Indemnifying Party shall be entitled to
assume and control defense thereof at its expense and to select counsel
reasonably acceptable to the Indemnified Party. In the event the Indemnifying
Party fails to exercise its right to assume the defense thereof within a
reasonable amount of time, the Indemnified Party may assume and control the
defense thereof and contest such action with such counsel as the Indemnified
Party selects that is reasonably acceptable to the Indemnifying Party. The
Indemnified Party shall have full right to dispose, settle or compromise any
such action so long as it acts reasonably under the circumstances and in good
faith. Both the Indemnified Party and the Indemnifying Party shall cooperate
with one another in good faith in connection with the defense, compromise or
settlement of any third party claim or action. To the extent the indemnification
provisions in the Merger Agreement conflict with the indemnification provisions
in the Operating Agreement, the provisions of the Merger Agreement will control.
CONDITIONS TO THE MERGER
The respective obligations of EnSys and SDI to consummate the Merger are
subject to the fulfillment of each of the following conditions any or all of
which may be waived by EnSys and SDI, in whole or in part, to the extent
permitted by applicable law: (i) the Merger Agreement shall have been approved
by the requisite stockholders of EnSys and SDI; (ii) neither EnSys nor SDI shall
be subject to any order or injunction of a court of competent jurisdiction which
prohibits the consummation of the Merger; (iii) the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part shall have become
effective and no stop order with respect thereto shall be in effect; (iv) the
shares of Surviving Corporation Common Stock issued in the Merger shall have
been approved for quotation on Nasdaq; (v) all consents, authorizations, orders
and approvals of (or filings or registrations within) any governmental
commission, board or other regulatory body required in connection with the
execution, delivery and performance of the Merger Agreement shall have been
obtained or made, except where a failure to have obtained or made any such
consent, authorization, order, approval, filing or registration would not have a
material adverse effect on SDI and EnSys (and their respective subsidiaries),
taken as a whole, following the Effective Time; (vi) Grover C. Wrenn and Richard
C. Birkmeyer shall have entered into employment agreements with EnSys or the
Surviving Corporation; (vii) EnSys and certain stockholders of SDI shall have
executed and delivered a registration rights agreement and lock-up letters;
(viii) no action shall have been taken nor any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger by any
governmental entity which imposes any condition or restriction upon the
Surviving Corporation, EnSys, SDI or their respective subsidiaries which would
so materially adversely impact the economic or business benefit of the
transactions contemplated by the Merger Agreement as to render inadvisable the
consummation of the Merger; (ix) EnSys shall have caused the Board of Directors,
committees and officers of the Surviving Corporation to be selected pursuant to,
and as set forth in, the Merger Agreement; and (x) each
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of the holders of SDI warrants shall have waived or relinquished all rights
under the terms of such warrants and shall have surrendered such warrants to SDI
for cancellation and conversion pursuant to the Merger Agreement.
The obligations of each of EnSys and SDI to effect the Merger also are
subject to the fulfillment or waiver by the other party prior to the Effective
Time of the following conditions: (i) the other party shall have performed in
all material respects its agreements contained in the Merger Agreement required
to be performed by it under the Merger Agreement; (ii) the representations and
warranties of the other party contained in the Merger Agreement shall be true
and correct unless the failure of any of the representations and warranties to
be true and correct would not have or would not be reasonably likely to have a
material adverse effect on such party and its subsidiaries, taken as a whole;
(iii) EnSys and SDI shall have each received certain opinions of its counsel
with respect to the Merger; (iv) EnSys and SDI shall have obtained the consent
or approval of each person whose consent or approval is required in connection
with the transactions contemplated by the Merger Agreement, except where the
failure to obtain such consents and approvals would not have a material adverse
affect.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned any time
prior to the Effective Time, before or after approval by the stockholders of
EnSys and SDI:
(i) by the mutual written consent of EnSys and SDI;
(ii) by either EnSys or SDI in the event the conditions to the Merger shall
not have been met or waived by such party on or prior to January 31,
1997, but only if the party terminating has not caused the condition
giving rise to termination to be not satisfied through its own action
or inaction or is not otherwise in material breach of its obligations
under the Merger Agreement;
(iii) by either EnSys or SDI if any decree, permanent injunction, judgment or
other action by any court of competent jurisdiction or any governmental
entity preventing or prohibiting consummation of the Merger shall have
become final and nonappealable;
(iv) by either EnSys or SDI in the event the other party updates its
schedules under the Merger Agreement as a result of an event that has a
material adverse effect on such party;
(v) by either EnSys or SDI in the event of a material breach by the other
party of any representation, warranty, covenant or agreement contained
in the Merger Agreement; and
(vi) by either EnSys or SDI upon termination of the Operating Agreement.
EFFECT OF TERMINATION
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void, and there shall be no liability under
this agreement on the part of EnSys or SDI or any of their respective officers
or directors and all rights and obligations of each party hereto shall cease;
provided, however, that the confidentiality agreement shall survive any
termination of the Merger Agreement.
In the event of any termination of the Merger Agreement as a direct result
of a material breach of a party's covenants or agreements therein, or if all
conditions to Closing have been satisfied but a party does not proceed to
Closing, any and all remedies available to the non-breaching party at law or in
equity will be preserved.
In the event the Merger is consummated, all Expenses will be paid by the
Surviving Corporation, and if the Merger is not consummated, any such Expenses
shall be paid by the party incurring such Expenses.
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"Expenses" for such purposes includes all reasonable out-of-pocket expenses
actually incurred by a party or on its behalf in connection with or related to
the transactions contemplated by the Merger Agreement.
If either party unilaterally terminates the Merger Agreement in a manner not
permitted under the Merger Agreement, or commits a material breach of its
obligations under the Merger Agreement, and the other party terminates the
Merger Agreement as a result thereof, such party shall be obligated to pay as
liquidated damages to the other party the sum of $500,000 as a termination fee.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties by action taken by or on
behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that after approval of the Merger Agreement
by the stockholders of SDI, or the stockholders of EnSys, no amendment may be
made without approval of such stockholders, which amendment would reduce, or
increase, respectively, the amount or change the type of consideration into
which each share of SDI Common Stock or SDI Preferred Stock will be converted
pursuant to the Merger Agreement upon consummation of the Merger. At any time
prior to the Effective Time, any party may (i) extend the time for the
performance for any of the obligations or other acts of any other party, (ii)
waive any inaccuracies in the representations and warranties of any other party
contained in the Merger Agreement or in any document delivered pursuant to the
Merger Agreement, and (iii) waive compliance by any other party with any of the
agreements or conditions contained in the Merger Agreement.
DESCRIPTION OF ENSYS
GENERAL
EnSys develops and sells biotechnology-based test systems designed for fast
and inexpensive detection of hazardous chemicals in soil and water samples.
EnSys disposable test systems use proprietary immunoassay reagents and other
chemical reagents that allow environmental scientists and engineers, waste
managers and waste generators to accurately test soil and water samples for
environmental remediation and environmental monitoring purposes. EnSys believes
that on-site testing facilitates more effective management of the overall
remediation project, and helps reduce costs associated with site investigation
and clean-up. EnSys' immunoassay test methods have been accepted by the EPA
under draft methods that are used for regulatory compliance purposes under the
Resource Conservation and Recovery Act ("RCRA") and the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA" or "Superfund").
RECENT DEVELOPMENTS
On March 29, 1996, EnSys acquired from Millipore Corporation ("Millipore")
certain assets, which consisted primarily of inventory, work-in-process,
equipment, intellectual property rights, contract rights and customer lists, of
Millipore's "Envirogard" product line. In exchange for such assets, EnSys paid
to Millipore $1,000,000 in cash and issued to Millipore 1,100,000 shares of
EnSys Common Stock, which represented approximately 15 percent of EnSys' total
outstanding shares after the acquisition.
The Envirogard product line consists of immunoassay-based test systems and
related test systems used in the detection of environmental contaminants and
pesticide residues. Envirogard tests are available in two formats: tubes for use
in the field or in the laboratory, and micro-titer plates for detection of
pesticides in parts per billion in the laboratory.
Millipore's 1995 sales with respect to the Envirogard product line were
approximately $2,200,000. Approximately one-half of such 1995 sales occurred in
the United States with approximately one-half in Europe, Canada and the Far
East. Moreover, approximately one-half of such sales were derived from the sale
of products in the environmental monitoring and remediation markets, and the
remainder were
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derived from the sale of products in the pesticide detection market. EnSys
retained four of the approximately 25 Millipore employees associated with the
Envirogard product line and added two additional sales positions in Europe. The
incremental revenue from the Envirogard products added to EnSys' existing cost
structure is expected to accelerate profitability.
As a result of the acquisition of the Envirogard product line, EnSys plans
to expand its product base and target markets, enlarge its research and
development pipeline, strengthen its coverage of the European market and create
opportunities for operating efficiencies which are expected to benefit future
financial performance.
The acquisition of the Envirogard products has provided EnSys with an entry
into a new market: the pesticide detection market. EnSys believes that food
growers and processors, pesticide providers, and landowners, faced with the need
to monitor and control pesticide residues, represent promising markets for
immunoassay-based tests. EnSys also expects the acquisition of the Envirogard
products related to the detection of environmental contaminants to enhance
EnSys' competitive position.
MARKET OVERVIEW
Analysis of soil, water and waste samples to determine the presence of
hazardous chemicals has become increasingly important in connection with
environmental remediation and environmental monitoring activities. These
activities are largely the result of environmental legislation such as RCRA,
CERCLA, TSCA, the Safe Drinking Water Act ("SDWA") and the Federal Water
Pollution Control Act (the "Clean Water Act"). It is estimated that
environmental testing is provided by approximately 1,200 commercial
environmental testing laboratories, as well as "in-house" laboratories at
industrial and disposal facilities. Market research reports estimate that
commercial environmental testing laboratories accounted for approximately one
half of all environmental tests performed and had revenues exceeding $1.1
billion in 1995.
ENVIRONMENTAL REMEDIATION. Environmental remediation activities require a
substantial amount of testing in connection with the clean-up of contaminated
sites. After initial characterization of toxic chemicals at a site, substantial
testing typically is required to complete an assessment of the site to determine
the extent and location of contamination and the appropriate remediation plan.
Upon the commencement of the remediation project, additional testing is
necessary to determine the effectiveness of the remediation measures. In
addition, ongoing testing to monitor soil and groundwater is often required
after completion of the remediation activities. The contaminants of primary
concern for remediation activities include petroleum fuel products, polyaromatic
hydrocarbons ("PAHs"), polychlorinated biphenyls ("PCBs"), benzene, certain
metals and chlorinated solvents.
ENVIRONMENTAL MONITORING. Environmental monitoring activities under SDWA
and National Pollution Discharge Elimination System ("NPDES") legislation
require periodic testing for various hazardous chemicals. The nation's 58,000
drinking water systems test for contaminants such as metals, benzene, other
volatile organic compounds and microbiological contamination. Approximately
6,400 major industrial and municipal waste water treatment facilities monitor
and test waste water for contaminants such as chlorinated solvents, metals and
volatile organic compounds. Hazardous waste handling and disposal companies
carry out large volumes of analytical work, including pre-acceptance testing to
determine the suitability of waste streams for disposal and routine testing of
incoming shipments. In addition, the ongoing management of chemicals in the
petrochemical and pesticide industries also results in the need to test samples
at many points in the production, use and disposal cycle. Electrical utilities
have on-going analytical needs pertaining to disposal of PCB containing
materials.
PESTICIDE RESIDUES. The entrance of pesticides into the water supply as a
result of agricultural and residential runoff continues to be a problem
requiring analytical testing. In areas of substantial agricultural activity,
drinking water is tested for several pesticides in order to ensure compliance
with Federal
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regulations. Imported grains, fruits, and vegetables are tested for the presence
of pesticide residues prior to use in the U.S. In addition, pesticide residues
in crops call for extensive testing at the time of pesticide registration or
reregistration under the Federal Insecticide, Fungicide, and Rodenticide Act
(FIFRA). In spite of their banned status, pesticides such as DDT and chlordane
still persist in soil at sites where they were stored or distributed. The
clean-up of these sites requires the use of specific analytical methods of
pesticide detection.
PRODUCTS
Since January 1991, EnSys has developed or acquired eleven immunoassay-based
testing products and four chemical based testing products. The acquisition of
the Envirogard product line added 90 immunoassay testing products. These testing
products detect some of the most commonly encountered toxic chemicals including
PCBs, fuel products, pentachlorophenol ("PCP"), trinitrotoluene ("TNT"),
benzene, PAHs, crude oil, mercury and pesticides found in soil, water and on
surfaces at contaminated sites. Additionally, the Envirogard products detect
pesticides in drinking water and foodstuffs. The tests do not require
refrigeration and can be used by the engineering and geological staff typically
employed to assess and remediate hazardous waste sites. Test kits include
components for the extraction of target analytes from a sample and then analysis
by immunoassay (where applicable). All of EnSys' test systems are capable of
analyzing at least ten samples per hour and some test systems allow analysis of
as many as forty samples per hour. Sample preparation time is typically less
than five minutes per sample and the immunoassay reaction occurs in less than
fifteen minutes. Generally, less than four hours of training is required before
an operator can effectively use the tests. EnSys test systems are also used
off-site by environmental testing laboratories and in-house laboratories.
During 1994, EnSys entered into an exclusive five year license agreement
with Meridian Diagnostics, Inc. ("Meridian"), under which EnSys would
manufacture and sell Hydrofluor-TM-, an EPA accepted immunoassay-based method
for detecting the pathogenic protozoa CRYPTOSPORIDIUM and GIARDIA in water.
EnSys paid a $50,000 license fee for those rights. According to the EPA,
CRYPTOSPORIDIUM and GIARDIA cause more outbreaks of disease than any other water
born pathogens. The acquisition of Hydrofluor reagents has opened opportunities
for product improvement in this area. EnSys reagents have been designated as the
reagents of choice in the EPA's Information Collection Rule for these pathogenic
protozoa in drinking water. Also during 1994, EnSys entered into a three year
sales and marketing agreement with BioNebraska, Inc. ("BioNebraska"), for the
distribution of the BiMelyze test, an immunoassay-based test for detecting
mercury in soil and water. Sales of the Hydrofluor tests comprised 27% of test
volume and 9% of revenues in 1995. Sales under the BioNebraska agreement have
not been significant to date, and there can be no assurance that significant
sales will be realized under this agreement in the future.
During the Summer of 1995, a Product Approval Committee ("PAC"), consisting
of the heads of the Research and Development, Manufacturing, and Sales,
Marketing and Technical Service departments, along with input from other key
personnel, was established to review priorities in product support and product
development. The feasibility of a one-step device was investigated. Several
designs for an immunochromatography strip test have now been developed. These
formats require only one step in the immunoassay phase, which is the addition of
a sample. Current EnSys immunoassay tests require nine to ten steps. After an
incubation of less than 10 minutes, a result is ready to be read on a hand-held
instrument. Sensitivity has been shown to equal that of the tube format. EnSys
believes that an important innovation in the new method is a positive readout,
wherein the appearance of color is directly proportional to the compound's
concentration. This feature has been difficult to implement for immunoassays for
small molecules. Patents are now pending for these designs. EnSys believes that
the simplification obtained with the one-step product will substantially reduce
the cost of manufacturing. Conversion of our leading coated tube immunoassay
products to this format is now underway. A low-cost reader has been identified
and its transformation to EnSys specifications has been initiated.
The following is an analysis of EnSys' testing products and their
approximate introduction dates:
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<TABLE>
<CAPTION>
ENSYS PRODUCTS TARGET COMPOUNDS EPA METHOD DATE INTRODUCED
<S> <C> <C> <C>
PCB RISc Soil PCBs Proposed Method 4020 3rd Quarter 1991
PCB RISc Wipe PCBs Proposed Method 4020 1st Quarter 1992
PCB RISc Waste Liquid PCBs Proposed Method 4020 2nd Quarter 1994
PETRO RISc Soil gasoline, jet fuel, diesel Proposed Method 4030 1st Quarter 1992
PETRO RISc Water gasoline, jet fuel, diesel 1st Quarter 1993
PENTA RISc Water pentachlorophenol Method 4010 1st Quarter 1991
PENTA RISc Soil pentachlorophenol Method 4010 3rd Quarter 1991
PAH RISc Soil creosote, petrochemicals, Proposed Method 4035 4th Quarter 1992
coal tar residuals, fuels
BENZENE RISc Water benzene 1st Quarter 1995
DIOXIN RISc Test dioxin, 2,3,7,8-TCDD 2nd Quarter 1994
HYDROFLUOR Combo CRYPTOSPORIDIUM, GIARDIA 3rd Quarter 1994
TNT Soil Test trinitrotoluene, Proposed Method 8515 2nd Quarter 1993
dinitrotoluene
RDX Soil Test RDX, HMX 1st Quarter 1995
CRUDE Check Soil Test crude oil, fuel oil 4th Quarter 1994
TTHM Water Test Total Trihalomethanes Draft Method 8530 4th Quarter 1995
</TABLE>
Some of the major new products from the Envirogard product line are as
follows:
<TABLE>
<CAPTION>
ENVIROGARD PRODUCTS TARGET COMPOUNDS EPA METHOD
<S> <C> <C> <C>
BTEX Soil Test benzene, toluene, N/A
BTEX Water Test ethylbenzene, xylenes
DDT Soil Test DDT, DDE, DDD Proposed Method 4042
Chlordane Soil Test chlordane, aldrin, dieldrin Proposed Method 4041
Toxaphene Soil Test toxaphene, heptachlor, Proposed Method 4040
lindane, endrin
2,4-D Soil Test 2,4-D, diclofop Proposed Method 4015
2,4-D Water Test
Silvex Soil Test 2,4,5-T N/A
Acetanilide Test acetanilide N/A
Atrazine Test atrazine N/A
Alachlor Test alachlor N/A
Aldicarb Test aldicarb N/A
</TABLE>
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<TABLE>
<CAPTION>
ENVIROGARD PRODUCTS TARGET COMPOUNDS EPA METHOD
<S> <C> <C> <C>
Bioresmithrin Test bioresmithrin, chrysanthemic N/A
acid
Carbofuran Test carbofuran N/A
Carbendazim/MBC Test benomyl N/A
Chlorpyriphos Test chlorpyriphos methyl, N/A
chlorpyriphos ethyl
Cyclodienes Test cyclodienes N/A
Diazinon Test diazinon N/A
Fenitrothion Test fenitrothion N/A
Imazapyr Test imazapyr, imazaquin N/A
Isoproturon Test isoproturon N/A
Methoprene Test methoprene N/A
Metolachlor Test metolachlor, acetochlor N/A
Metalaxyl Test metalaxyl N/A
Metsulfuron Test metsulfuron N/A
Microcystins Test microcystins N/A
Paraquat Test paraquat, diquat N/A
Parathion/Parathion-Methyl parathion, methyl parathion N/A
Test
Procymidone Test procymidone N/A
Triazine Test triazines: atrazine, N/A
cyanazine, propazine, simazine
Triasulfuron Test triasulfuron N/A
Urea Herbicide Test chlortoluron, diuron, linuron, N/A
metobromuron, monolinuron
</TABLE>
REGULATORY APPROVALS
EnSys believes that regulatory acceptance, though not required for the use
of its products in most cases, is a significant factor in gaining market
acceptance. There are two main areas in which EnSys is seeking regulatory
acceptance for its products: hazardous waste testing methods and water testing
methods.
HAZARDOUS WASTE TESTING METHODS. EPA SW-846 is the compendium of analytical
and test methods published by the EPA's Office of Solid Waste ("OSW"). A number
of provisions of the EPA's hazardous waste regulations under RCRA mandate the
use of SW-846 methods. In other contexts, SW-846 is a guidance document setting
forth acceptable, although not required, methods to be implemented by the user
in response to sampling and analysis requirements. Some states also require the
use of SW-846
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methods under their hazardous waste programs. While SW-846 methods are
technically only applicable to regulatory programs under RCRA, other federal,
state and local environmental programs, including CERCLA and TSCA, often refer
to and rely on SW-846 methods for purposes of remediation and monitoring. The
process for a method to be incorporated into EPA SW-846 generally takes
approximately 24 to 36 months. The OSW evaluates the applicant's test results
and obtains additional information or conducts its own tests if necessary. After
a method is deemed acceptable, it is published by the EPA in draft form (an "EPA
Draft Method"). Periodically, the EPA updates SW-846 through a notice in the
Federal Register referencing the EPA Draft Methods published since the last
update. Following a comment period, the EPA Draft Methods are referenced in the
Federal Register as a Final Rule and incorporated into SW-846. The new test
methods for the third update of the third edition of SW-846 were proposed in the
Federal Register in July 1995. The comment period closed in December 1995 and
the comments are currently being evaluated. The final methods are expected to be
promulgated in early 1997.
In July 1995, the EPA proposed several draft methods that incorporate EnSys'
products: Method 4020 (PCB RISc Soil and Waste Liquid), Method 4030 (Petro RISc
Soil), Method 8515 (TNT Soil Test), and Method 4035 (PAH RISc Soil). In January
1994, the EPA promulgated as a final rule Method 4010 (PENTA RISc Soil and
Water). Proposed methods are those that have been evaluated by the EPA's method
group to determine that they are technologically sound and are now subject to
general scrutiny and public comments.
WATER TESTING METHODS. Water testing methods approved for use in compliance
with the SDWA are published periodically in the Federal Register. Newly
developed methods are reviewed by the EPA's Environmental Monitoring and Systems
Laboratory in Cincinnati to determine whether they are (i) an acceptable version
of a previously approved method or (ii) a new method in need of a comparability
study and proceed through a comment and approval procedure. The EPA has recently
begun a program aimed at expediting the approval of new methods that involves
the cooperation of the Solid Waste, Drinking Water, and Waste Water methods
groups. EnSys began the process of seeking EPA approval of the TTHM Water Test
for drinking water applications in early 1996. The TTHM Water Test has been
accepted as Draft Method 8530 by OSW and will receive further consideration by
the Drinking Water Methods Group.
There can be no assurances that EnSys will continue to receive regulatory
acceptance for its hazardous waste testing methods or for its water testing
methods in the future.
SALES AND MARKETING STRATEGY
EnSys is pursuing a sales strategy designed to maximize its access to the
different potential users of its products. EnSys' strategy is to use multiple
sales channels to take full advantage of the many applications for its testing
methods in the environmental industry. EnSys has used multiple distribution
means for the sales of its products worldwide. In the US, the major route has
been through a national direct sales force. The direct sales force, which
continues to be EnSys' most significant source of sales revenue, was augmented
by the beginnings of an inside sales force in the second half of 1995. It is
anticipated that the inside sales force will improve the productivity of the
direct sales force by providing marketing support and supplying continuously
updated information.
EnSys also continued the distribution of its products in the US through two
additional outlets: Hach Company ("Hach") and Restek Corporation ("Restek"). To
date, sales through these outlets have not been significant. Hach is a supplier
of water quality test kits and process monitoring equipment for the drinking
water and wastewater industries. Hach introduced their version of the EnSys
Benzene Water test in the last quarter of 1995. EnSys' agreement with Hach
expired in November of 1995. EnSys is currently negotiating a new supply
agreement with Hach. During 1994, EnSys signed a distribution and supply
agreement with Restek, a catalog distribution company, pursuant to which Restek
distributes the EnSys products to environmental laboratories. EnSys' agreement
with Restek grants them certain exclusive catalog distribution rights subject to
a minimum annual purchase commitment by Restek. Restek's sales of
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EnSys products did not meet the minimum annual purchase commitment in 1995 and
either party can cancel the existing agreement with 90 days written notice.
In 1995 EnSys entered into a cooperative agreement with PACE, Inc. ("PACE")
to provide for the use of EnSys' products by PACE's environmental laboratories
and field analytical service groups. The agreement granted PACE certain
exclusive rights regarding sales cooperation. The liquidation of PACE, Inc. in
December of 1995 effectively terminated the agreement. EnSys executed a similar
agreement with Columbia Analytical Services, Inc. in January of 1996.
Since the opening of EnSys' European headquarters and sales operations in
London, England in September 1993, the sales of EnSys' products in Europe have
continued to be sold and distributed principally through such office. EnSys uses
a combination of direct sales, sales agents, and distributors to serve the
European market. In November 1993, EnSys signed a distribution and supply
agreement with Draegerwerk GmbH of Lubeck, Germany ("Drager"). Under the terms
of the agreement, Drager was the exclusive supplier of EnSys test kits for
several European markets subject to meeting agreed minimum sales targets. Sales
of products through this channel were substantially below agreed minimum targets
in 1994 and 1995 and the agreement was canceled by EnSys in accordance with its
terms in January 1996.
RESEARCH AND DEVELOPMENT
EnSys devotes substantial resources to research and development and
maintains a comprehensive monoclonal antibody development facility. EnSys
believes that its proprietary methods and reagents are a source of competitive
advantage. EnSys has assembled a scientific staff with experience in the
development of monoclonal antibodies and a variety of complementary skills in
several advanced research disciplines, including synthetic organic chemistry and
immunoassay test systems development. In addition, EnSys maintains consulting
and advisory relationships with a number of prominent scientists with expertise
in the areas of immunology, parasitology, immunochromatography design and
manufacturing processes and environmental analytical chemistry.
EnSys' research and development activities are focused on the enhancement of
its existing immunoassay detection methods, the development of new test kits for
additional hazardous chemicals, and the development of new test systems
incorporating advances in immunoassay technology and improving ease-of use and
sensitivity of EnSys' products. During 1994 and early 1995, EnSys eliminated
some of it low priority product development programs and employees associated
with those programs to focus more extensively on the development of a new test
format which would be easier to use and less expensive to manufacture. See
"--Products." Despite the downsizing of its Research and Development operations,
EnSys continues to maintain its capabilities in monoclonal antibody development
and possesses a growing library of unique monoclonals to environmental
contaminants and xenobiotic agents. EnSys believes that its core expertise in
immunology and organic synthesis remains intact.
COLLABORATIVE ARRANGEMENTS
During 1994, EnSys entered into a collaborative agreement with Meridian for
the joint development of microbiological testing systems for the water treatment
market. Under a separate exclusive five year license agreement with Meridian,
EnSys commenced the manufacture and sale of the Hydrofluor test for
CRYPTOSPORIDIUM and GIARDIA.
Additionally, a supply agreement was entered into in 1995 with Fitzgerald
Industries International, Inc. of Concord, MA to sell EnSys' monoclonal
antibodies for use by researchers in environmental sciences and medical fields.
The research market for EnSys' unique antibodies is still undefined and revenues
from this agreement are uncertain.
During 1996, EnSys entered into a license agreement with Hybrizime
Corporation that will allow Hybrizime to license certain EnSys technology to
develop new assays, as well as to manufacture, use and
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sell products using and/or containing the EnSys technology. The agreement calls
for a base license royalty to be paid to EnSys concurrently with delivery of
certain technology and the payment of additional royalties based on sales
revenues of all licensed products sold by Hybrizime. The non-payment of the base
license royalty within a specified time period will void the license agreement.
Revenues from this agreement are uncertain.
PROPRIETARY TECHNOLOGY AND PATENTS
EnSys' products are based on the use of proprietary reagents, sample
processing technology and test systems developed by EnSys scientists.
Accordingly, EnSys has implemented a number of procedures to safeguard the
proprietary nature of its technology. EnSys requires its employees and
consultants to execute confidentiality agreements upon the commencement of an
employment or consulting relationship with EnSys. However, there can be no
assurance that third parties will not independently develop substantially
equivalent proprietary information and techniques, or otherwise gain access to
EnSys' trade secrets or disclose such technology, all of which could have a
material adverse effect on EnSys.
Additionally, EnSys continues to protect its unique product designs and
processes through the patent process. In addition to its issued patents on
Aldicarb and PAH tests, EnSys was granted patents in 1995 for its Benzene
immunoassay test and in 1996 for its halogenated hydrocarbons ("THM" and "TCE")
tests. EnSys has five patent applications pending in the United States on its
crude oil, PCB, petroleum hydrocarbons ("Petro") tests and two designs for the
one-step immunoassay. There can be no assurance that EnSys' applications will
result in the issuance of any patent or that any patents issued to EnSys would
provide protection that is sufficiently broad to protect EnSys' technology and
products. In addition, there can be no assurance that the patents of others will
not have an adverse effect on EnSys or that others will not independently
develop similar products or design around patents issued to EnSys. There is a
substantial backlog of patent applications at the US Patent Office. Since patent
applications in the United States are confidential until patents issue, and
publication of discoveries in the scientific or patent literature often tend to
lag behind actual discoveries, EnSys cannot be certain that it was the first
creator of inventions covered by pending patent applications or that it was the
first to file patent applications for such inventions.
MANUFACTURING
EnSys' test kits include components for sample processing, antibody-coated
tubes, enzyme conjugate reagents and other supplies necessary to carry out the
test. EnSys also separately sells automated sample processing equipment and
equipment for interpreting test results which are marketed in separate accessory
kits.
EnSys manufactures and assembles its products at its facilities in the
Research Triangle Park area of North Carolina. Certain components and
accessories are currently manufactured by outside vendors. EnSys looks for
multiple sources whenever possible, but several components and accessories can
only be obtained currently from one source. Biological materials are primarily
developed in-house, licensed from third parties or purchased from commercial
sources. EnSys develops many of the immunogens for antibody production
internally. From time to time, EnSys obtains certain organic chemistry services
from outside sources and uses these compounds to make immunogens. The immunogens
are then used by EnSys scientists to make monoclonal and polyclonal antibodies,
or sent to a contract facility for antibody production in a variety of animals.
EnSys can usually ship an order within 48 hours of it being placed, and
accordingly, EnSys maintains no significant backlog.
COMPETITION
The environmental testing business is very competitive and has become
increasingly so throughout the 1990's. According to the International
Association of Environmental Testing Laboratories, the prices
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charged by environmental laboratories for the analysis of environmental samples
have fallen 10-20% in the past year. Many of EnSys' existing or potential
competitors are large companies with substantially greater resources than EnSys.
Other companies may be developing additional products that could be competitive
with the EnSys products. EnSys believes, however, that its competitiveness has
been significantly enhanced as a result of the acquisition of the Envirogard
product line from Millipore.
During 1997 EnSys expects to offer its primary testing products for PCBs,
fuel products, and PAHs in a new, easier to use one-step format that EnSys
believes will allow it to compete even more effectively for the samples that can
be analyzed using its products. EnSys competes primarily on the unique
performance of its tests. The EnSys tests are configured to be usable by field
personnel with little or no formal chemistry training, yet deliver accurate
results that support a variety of field operational decisions. Much of the
overall cost savings (testing, equipment and labor) that can be realized by
testing samples with immunoassay methods require the testing to be done in the
field where lab instrumentation is cumbersome and expensive to use. The ability
to continue to offer low-cost, reliable tests will be a critical factor in
maintaining EnSys' competitive position.
ENVIRONMENTAL REGULATIONS
The environmental legislation and regulations that EnSys believes are most
applicable to its current business are RCRA, CERCLA, TSCA, FIFRA and the Pure
Food and Drug Act. As EnSys expands its product line to meet the environmental
monitoring needs of municipalities and industrial facilities, the SDWA, the
Clean Water Act and the NPDES permitting program under the Clean Water Act also
will be significant to EnSys' business. These laws regulate the management,
disposal and clean-up of hazardous substances and protect the nation's ground
and surface water and drinking water supplies. In addition, regulatory
responsibilities in a number of areas have been delegated to state agencies and
state and local laws and regulations impose additional restrictions and
requirements. While environmental regulations overseas vary, many countries,
particularly in Europe, have counterparts to the US legislation.
EMPLOYEES
As of September 30, 1996, EnSys employed 39 individuals on a full time
permanent basis, down from 52 at the end of 1994. All of EnSys' employees have
executed agreements with EnSys agreeing not to disclose EnSys' proprietary
information, assigning to EnSys all rights to inventions made during their
employment, and prohibiting them from competing with EnSys. None of EnSys'
employees is covered by collective bargaining agreements.
PROPERTIES
EnSys currently leases approximately 18,000 square feet of space in one
building in the Research Triangle park area in North Carolina under a ten-year
lease that expires in 1999 with a renewal option through 2004. This facility is
used for its administrative offices, research and development facilities, and
manufacturing operations. EnSys also leases offices in London, England. During
1994, EnSys closed its sales offices in Denver, Colorado and New Hope,
Pennsylvania. EnSys opened an office in Newport Beach, CA in the first quarter
of 1996, and an office in Chestnut Hill, MA in the second quarter of 1996.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by or
paid to any persons serving as Chief Executive Officer and the other most highly
compensated executive officers of EnSys during the year ended December 31, 1995
for the fiscal years ended December 31, 1993, 1994 and 1995, for services
rendered in all capacities to EnSys and its subsidiaries:
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------------------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION GRANTED (#)(1) COMPENSATION
- --------------------------------------- ----------- --------- --------- -------------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan H. Staple (2) .................... 1995 $ 40,638 $ -- $ -- 35,000(2) $ 226,731(2)
President and Chief 1994 $ 133,920 $ -- $ -- 48,214 $ --
Executive Officer 1993 $ 132,500 $ 30,000 $ -- 113,000 $ --
Grover C. Wrenn (3) ................... 1995 $ 107,917 $ -- $ -- 150,000 $ --
President and Chief
Executive Officer
Ian W. Mackenzie (4) .................. 1995 $ 106,829 $ 25,000 $ 10,075(5) 27,667(6) $ --
Managing Director, 1994 $ 108,500 $ 25,188 $ 16,368(5) -- $ --
EnSys Europe, Ltd. 1993(7) $ 35,000 $ -- $ -- 40,000 $ --
</TABLE>
- ------------------------------
(1) See the following table captioned "Option Grants in Last Fiscal Year" for
additional information.
(2) Effective April 11, 1995, Mr. Staple resigned as President and Chief
Executive Officer of EnSys. As part of his severance agreement with EnSys,
Mr. Staple was paid $121,500 in consulting fees for the period between April
11, 1995 and September 30, 1995 and $105,231 in continuing salary as
stipulated in his employment agreement. As part of Mr. Staple's severance
arrangement, EnSys agreed to accelerate the vesting of 25,000 of such
options and the cancellation of the remaining 10,000. See "Employment and
Severance Agreements" and "Report on Repricing of Options/SARs" herein for
further description of the treatment of Mr. Staple's severance benefits.
(3) Reflects partial year, as Mr. Wrenn's employment as President and Chief
Executive Officer commenced April 11, 1995.
(4) Effective February 29, 1996, Dr. Mackenzie resigned as Managing Director,
EnSys Europe, Ltd.
(5) Comprised of contributions to private pension plan.
(6) 21,667 options granted as part of EnSys' bonus plan were canceled on
September 6, 1995 as condition to the issuance of 6,000 options. See "Report
on Repricing of Options/SARs" herein for further description.
(7) Reflects partial year as Dr. Mackenzie's employment with EnSys commenced
September 1, 1993.
The following table sets forth certain information regarding options granted
by EnSys during the fiscal year ended December 31, 1995 to the persons serving
as Chief Executive Officer during 1995 and the other executive officers named in
the Summary Compensation Table. No stock appreciation rights have been granted
by EnSys.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN FISCAL BASE
NAME GRANTED (#) YEAR (%) PRICE ($/SH) EXPIRATION DATE
- -------------------------------------- ------------------- --------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Alan H. Staple........................ 35,000(1) 7.1% $ 3.25 1/01/05(2)
Grover C. Wrenn....................... 150,000(3) 30.3% $ 2.50 6/20/05
Ian W. Mackenzie...................... 21,667(4) 4.4% $ 3.25 1/01/05(4)
6,000(3) 1.2% $ 2.375 9/06/05(5)
</TABLE>
- ------------------------
(1) Represents stock options granted pursuant to the EnSys 1993 Stock Incentive
Plan (the "1993 EnSys Plan"). When granted, one hundred percent of such
options were to vest on December 31, 2004 or upon the achievement of certain
financial performance goals in 1995 as set forth in the "1995 Management
Incentive Bonus Plan." As part of Mr. Staple's severance arrangement, EnSys
agreed to accelerate the vesting of 25,000 of such options and the
cancellation of the remaining 10,000. See
"Report on Repricing of Options/SARs" herein.
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(2) As part of Mr. Staple's severance agreement, such vested options shall
expire on April 11, 2000.
(3) Represents stock options granted pursuant to EnSys' 1995 EnSys Plan. When
granted, one-third of such options were to vest immediately with one-third
vesting on each of the first two anniversaries of the grant date.
(4) Represents stock options granted pursuant to the 1993 EnSys Plan. When
granted, one hundred percent of such options were to vest on December 31,
2004 or upon the achievement of certain financial performance goals in 1995
as set forth in the "1995 Management Incentive Bonus Plan." Dr. Mackenzie
agreed to the cancellation of these options in connection with the issuance
of 6,000 options at $2.375. See "Report on Repricing of Options/SARs"
herein.
(5) Vesting of these options ceased upon Dr. Mackenzie's resignation on February
29, 1996. The 2,000 options vested prior to his resignation expired on May
29, 1996.
The following table sets forth certain information regarding stock options
exercised during the fiscal year ended December 31, 1995 and stock options held
as of December 31, 1995 by the persons serving as Chief Executive Officer during
1995 and the other executive officers named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED ON VALUE ---------------------------------- --------------------------
NAME EXERCISE(#) REALIZED(1) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE UNEXERCISABLE
- -------------------------- ------------- ---------------- --------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan H. Staple (3)........ 90,684 $ 258,860 121,814 -- $ 29,525 $ --
Grover C. Wrenn........... -- $ -- 50,000 100,000 -- $ --
Ian W. Mackenzie.......... -- $ -- 42,000 -- -- $ --
</TABLE>
- ------------------------------
(1) Value realized equals the aggregate market value of the shares acquired on
the exercise date(s), less the applicable aggregate option exercise price.
(2) Year-end value is based on the closing market price per share on December
29, 1995 ($1.625), less the applicable aggregate option exercise price,
multiplied by the number of unexercised options which are exercisable and
unexercisable, respectively.
(3) See "Employment and Severance Agreements" and "Report on Repricing of
Options/SARs" herein for a description of the treatment of Mr. Staple's
stock options as a result of Mr. Staple's resignation.
COMPENSATION OF DIRECTORS
Except as described below, directors of EnSys do not receive compensation
for service on the Board of Directors or any committee thereof but are
reimbursed for travel expenses incurred in attending meetings of the Board of
Directors and its committees. Pursuant to the terms of the 1995 EnSys Plan, each
non-employee director who is serving as a director of EnSys on the first
business day after each annual meeting of stockholders, will automatically be
granted on such day a non-qualified stock option to acquire 3,000 shares of
EnSys Common Stock at an exercise price equal to the fair market value of the
EnSys Common Stock on such day. The Amended 1995 EnSys Plan would eliminate such
automatic option grants to non-employee directors, and non-employee directors of
EnSys (and, if the Merger is consummated, directors of the Surviving
Corporation) would become eligible to receive grants of non-qualified stock
options subject to substantially the same procedural and other limitations
thereon as apply to grants of non-qualified stock options to employees.
On January 20, 1995, pursuant to the 1993 EnSys Plan, the Stock Option
Committee awarded Messrs. Finnigan, Middleton and Smith each a non-qualified
stock option to acquire 10,000 shares of EnSys Common Stock at an exercise price
of $3.25 per share. On May 16, 1996, pursuant to the 1995
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EnSys Plan, Messrs. Earthman, Finnigan, Middleton, Smith and Timoney were
automatically granted options to purchase 3,000 shares of EnSys Common Stock at
a per share exercise price of $2.125.
EnSys entered into a consulting agreement with Dr. Robert Finnigan effective
September 1991, pursuant to which Dr. Finnigan received options to purchase
5,000 shares of EnSys Common Stock with an exercise price of $0.25 per share and
receives $1,000 for each day of consulting service. This agreement provides that
Dr. Finnigan render certain consulting services to EnSys relating to the
development of business opportunities on an exclusive basis. The agreement can
be terminated by either party upon prior written notice. EnSys also entered into
an agreement with Dr. Finnigan effective March 1, 1992, pursuant to which Dr.
Finnigan received options to purchase 5,000 shares of EnSys Common Stock with an
exercise price of $0.25 per share. This agreement provides that Dr. Finnigan
render scientific advisory consulting services to EnSys for two days per year.
The agreement can be terminated by either party effective March 1 by written
notice prior to February 28 of each year.
On October 2, 1996, the EnSys Board of Directors approved a proposal to
amend the provisions relating to the exercisability of options held by
non-employee directors (which include Messrs. Earthman, Finnigan, Middleton,
Smith and Timoney) following termination of service as a director. The
amendments will be effected by issuing new replacement options in exchange for
the existing options held by the non-employee directors. The replacement options
will have the same substantive terms with respect to exercise price and number
of shares as the existing options. However, the expiration date of the
replacement options will be the earlier of five years after termination or the
expiration date of the existing option. In addition, the replacement options
will be completely vested. Although the replacement options will not be granted
pursuant to the Amended 1995 EnSys Plan, the procedural and administrative terms
of the agreements relating the replacement options (other than termination
provisions) will be the same as the terms pursuant to which non-qualified
employee stock options would be granted under the 1995 EnSys Plan. However, the
replacement options will not terminate upon termination of the non-employee
director's service as a director to EnSys unless the termination is for cause.
EMPLOYMENT AND SEVERANCE AGREEMENTS
In connection with Mr. Staple's resignation as President and Chief Executive
Officer, EnSys entered into a severance and consulting agreement and general
release with Mr. Staple effective April 11, 1995 (the "Effective Date"). Under
the terms of the agreement, EnSys was obligated to continue to pay Mr. Staple's
salary and certain other benefits for a period of one year from the Effective
Date. In addition, a portion of Mr. Staple's outstanding stock options were
amended to provide for an accelerated vesting schedule and to extend the
exercise period for five years from the Effective Date. Furthermore, Mr.
Staple's options to acquire 80,000 shares of EnSys Common Stock were canceled.
Under the agreement, Mr. Staple also agreed to provide consulting services to
EnSys for a period commencing on the Effective Date and ending on September 30,
1995 for a consulting fee of $115,000. Mr. Staple was also paid $6,500 in lieu
of reimbursement for consulting expenses and $105,231 in continuing salary as
stipulated in his employment agreement.
EnSys entered into an employment agreement effective October 26, 1993 with
Dr. Ian Mackenzie, providing for Dr. Mackenzie to serve as Managing Director,
EnSys Europe, Ltd. In connection with Dr. Mackenzie's resignation effective
February 29, 1996, EnSys was obligated to continue to pay Dr. Mackenzie's salary
and certain other benefits for a period of six months after such termination.
Dr. Mackenzie agreed to take a lump sum distribution of $75,000 as full and
complete payment of severance benefits. All options granted to Dr. Mackenzie
pursuant to any of EnSys' stock option and stock incentive plans ceased vesting
upon his resignation.
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EnSys entered into an employment agreement effective April 11, 1995 with Mr.
Grover C. Wrenn, providing for Mr. Wrenn to serve as President and Chief
Executive Officer of EnSys. The agreement provides for (i) an initial base
salary of $150,000 subject to an annual increase of not less than 5% of the then
current annual salary which is to be reviewed no less than annually by the Board
of Directors or compensation committee and (ii) an annual bonus of up to 70% of
base salary based upon performance goals and targets established by agreement
between Mr. Wrenn and the Board of Directors or compensation committee. Under
the terms of the agreement, in June 1995, EnSys granted Mr. Wrenn options to
purchase 150,000 shares of EnSys Common Stock. Such options vest over a two year
period. If Mr. Wrenn's employment is terminated without cause, as that term is
defined in the agreement, EnSys is obligated to continue to pay Mr. Wrenn's
salary and certain other benefits for a period of one year after such
termination. Any options granted to Mr. Wrenn pursuant to any of EnSys' stock
option plans shall continue to vest during such severance period.
REPORT ON REPRICING OF OPTIONS/SARS
During the last completed fiscal year certain options held by named
executive officers were subject to repricing. On September 6, 1995 Dr. Mackenzie
was issued 6,000 options to purchase EnSys Common Stock at a price of $2.375 per
share. In return for these options, Dr. Mackenzie agreed to the cancellation of
21,667 options to purchase EnSys Common Stock at a price of $3.25 per share
issued on January 1, 1995 as part of EnSys' "1995 Management Incentive Bonus
Plan." The 21,667 options issued in January were to vest upon the earlier of (i)
the achievement of certain corporate goals for the 1995 fiscal year, (ii)
December 31, 2004, or (iii) the consummation of any transaction which would
result in a change of control as defined in the 1993 EnSys Plan. At September 6,
1995, it was apparent that the 1995 corporate goals would not be obtained but
EnSys was continuing its pursuit of suitable candidates for merger or
acquisition that might result in a change of control as defined under the 1993
EnSys Plan. EnSys required the cancellation of the 21,667 options issued in
January 1995 as a condition to issuing the 6,000 options in September to prevent
the vesting of said options in the event of a change of control.
As part of his severance agreement, the vesting of certain options granted
to Mr. Staple under the EnSys, Inc. 1990 Stock Option Plan and the 1993 EnSys
Plan was accelerated. The vesting of 6,360 options granted on March 17, 1993 was
accelerated so that they would vest 530 shares per month for one year after the
Effective Date of Mr. Staple's resignation. The vesting of 36,161 options
granted to Mr. Staple on July 14, 1994 was accelerated so that 17,500 options
vested on the Effective Date, and 18,661 options vested on December 31, 1995.
The vesting of 25,000 options granted to Mr. Staple as part of EnSys' bonus plan
was accelerated to the Effective Date and 10,000 options granted as part of the
"1995 Management Incentive Bonus Plan" were canceled at the effective date.
70,000 options granted to Mr. Staple on October 27, 1993 were also canceled on
the Effective Date.
On October 1, 1996, the compensation committee of the EnSys Board of
Directors approved amendments to an option held by Mr. Staple to purchase 25,000
shares of EnSys Common Stock at a per share exercise price of $.50 to extend the
expiration date of such option from July 11, 1996 to November 12, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ENSYS
The following table presents, as of December 2, 1996 information as to (i)
the persons or entities known to EnSys to be beneficial owners of more than 5%
of the EnSys Common Stock on December 2, 1996, (ii) each director, the Chief
Executive Officer and each other executive officer and/or former executive
officer named in the Summary Compensation table, and (iii) all directors and
executive officers
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of EnSys as a group, based on representations of officers and directors of EnSys
and filings received by EnSys on Schedule 13G under the Exchange Act.
<TABLE>
<CAPTION>
NO. OF
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(1) OF CLASS(2)
- ------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
APBI Environmental Sciences Group, Inc. (3) ....................... 729,600 10.1%
c/o Environ Corporation
214 Carnegie Center
Princeton, New Jersey 08540
Palo Alto Investors, Inc. (4) ..................................... 1,140,000 15.8%
431 Florence Street, Suite 200
Palo Alto, CA 94302
U.S. Venture Partners III (5) ..................................... 489,900 6.8%
2180 Sand Hill Road, Suite 300
Menlo Park, California 94025
Millipore Corporation (6) ......................................... 1,100,000 15.2%
80 Ashby Road
Bedford, Massachusetts 01730
Grotech Partners II, L.P. (7) ..................................... 401,800 5.6%
9690 Deereco Road
Timonium, Maryland 21093
William F. Earthman, III (8)....................................... 227,620 3.2%
Robert E. Finnigan (9)............................................. 41,600 *
Andrew C. Middleton (10)........................................... 28,000 *
Curtis Lee Smith, Jr. (11)......................................... 26,000 *
Alan H. Staple (12)................................................ 222,918 3.1%
John H. Timoney (3)................................................ 6,000 *
Grover C. Wrenn (13)............................................... 404,000 5.5%
Ian W. Mackenzie................................................... -- --
All directors and executive officers as a group (10 persons) 890,305 11.7%
(14).............................................................
</TABLE>
- ------------------------
* Represents less than 1%.
(1) Unless otherwise indicated, each of the stockholders designated above has
sole voting and investment power with respect to the securities shown to be
owned by such stockholder. The inclusion herein of securities listed as
beneficially owned does not constitute an admission of beneficial ownership.
(2) Number of shares deemed outstanding includes 7,217,794 shares outstanding
as of December 2, 1996 and any shares subject to options and warrants held
by the person or entity in question that are currently exercisable or
exercisable within 60 days following December 2, 1996. Includes all options
which will be exercisable with a change of control.
(3) Ownership of these shares was reported to EnSys on a Schedule 13G dated
February 14, 1994. Mr. Timoney, a director of EnSys, is a director Applied
Bioscience, which is the parent corporation of APBI Environmental Sciences
Group, Inc. Mr. Timoney disclaims beneficial ownership of the shares held by
APBI Environmental Sciences Group, Inc.
(4) Ownership of these shares was reported to EnSys on a Schedule 13G dated
January 3, 1996. Consists of 1,140,000 shares beneficially owned by Palo
Alto Investors, Inc., a California-based company.
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(5) Ownership of these shares was reported to EnSys on a Schedule 13G dated
February 9, 1994. Consists of 416,175 shares, 68,650 shares and 5,075 shares
held by U.S. Venture Partners III, Second Ventures Limited Partnership and
U.S.V. Entrepreneur Partners, respectively. BHMS Partners III, the general
partner of each of U.S. Venture Partners III, Second Ventures Limited
Partnership and U.S.V. Entrepreneur Partners, and Phil Schlein, Phil Young,
Irwin Federman, Dale Vogel, William Bowes, Jr. and Steve Krausz, the general
Partners of BHMS Partners III, may be deemed to have shared voting and
dispositive power with respect to such shares, however, each disclaims
beneficial ownership of all shares held by U.S. Venture Partners III, Second
Ventures Limited Partnership and U.S.V. Entrepreneur Partners.
(6) Ownership of these shares was reported to EnSys on a Form 4 dated April 24,
1996. Consists of 1,100,000 shares held by Millipore Corporation.
(7) Ownership of these shares was reported to EnSys on a Schedule 13G dated
February 11, 1994. Mid Atlantic Ventures II, L.P., the general partner of
Grotech II, and its general partner Grotech Capital Group, Inc. and Frank
Adams, Stuart Frankel, Dennis Shaughnessy, and Hugh Woltzen, the principals
of Grotech Capital Group, Inc., may be deemed to have shared voting and
dispositive power with respect to such shares, however, each disclaims
beneficial ownership of all shares held by Grotech II.
(8) Ownership of these shares was reported to EnSys on a Schedule 13G dated
February 12, 1996. Consists of 221,620 shares held by The Southern Venture
Fund Limited Partnership ("SVF"), an affiliate of Massey Burch Investment
Group, Inc. ("MBIG"). Mr. Earthman, a director of EnSys, shares voting and
dispositive power over the 221,620 shares held by SVF in his position as a
general partner of SVF and may be deemed to beneficially own such 221,620
shares. In addition, this amount includes 6,000 shares subject to options
held by Mr. Earthman that are exercisable within 60 days of December 2,
1996.
(9) Includes 36,000 shares subject to options held by Dr. Finnigan that are
exercisable within 60 days of December 2, 1996. Represents 5,600 shares
owned jointly with Dr. Finnigan's spouse.
(10) Includes 26,000 shares subject to options held by Dr. Middleton that are
exercisable within 60 days of December 2, 1996.
(11) Includes 26,000 shares subject to options held by Mr. Smith that are
exercisable within 60 days of December 2, 1996.
(12) Includes 20,000 shares held in trusts for the benefit of Mr. Staple's
children and 73,214 shares subject to options held by Mr. Staple that are
exercisable within 60 days of December 2, 1996. Mr. Staple disclaims
beneficial ownership of the 20,000 shares held in trusts for his children.
(13) Includes 254,000 shares held by Mr. Wrenn and 150,000 shares subject to
options held by Mr. Wrenn that are exercisable within 60 days of December 2,
1996.
(14) Includes 386,585 shares subject to options that are exercisable within 60
days of December 2, 1996.
DESCRIPTION OF SDI
GENERAL
SDI was founded to develop commercial, rapid, field-portable immunoassay
tests primarily for non-medical diagnostic testing applications in
industrial/chemical, environmental and agricultural markets. SDI's core
expertise is research, development and manufacturing of immunoassays, including
immunogen and antibody development (especially monoclonal antibodies),
immunoreagent development, assay development and manufacturing.
SDI's founders initiated commercial operations in 1990 with a contract from
Conoco to develop and manufacture a rapid field test to detect corrosion causing
sulfate-reducing bacteria. The sale and marketing of the resulting product,
RapidChek-Registered Trademark- SRB, was the responsibility of the corporate
partner, Conoco.
The initial Conoco agreement is illustrative of one of the strategies SDI
used to grow its business. Corporate partners who had identified a market
opportunity funded SDI to develop and manufacture immunoassay products to meet
the market need. Most of the corporate partner agreements were written so that
SDI retained the right to manufacture the finished product, and the technology
developed during
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the course of the project was co-owned by SDI and its partner. In this way, SDI
developed proprietary technology and built a manufacturing base of commercial
products.
Another key strategy that SDI used to develop its business was the formation
in 1992 of TSD, a joint venture between SDI and a subsidiary of Taconic Farms of
Germantown, NY. Taconic Farms is a privately held company whose business is the
production and sale of mice and rats, primarily to the research community. The
mission of TSD is to supply antibodies, especially monoclonal antibodies,
immunochemical reagents and related services to medical diagnostic and
pharmaceutical companies as well as the research community. TSD's primary
facility occupies approximately 8,000 square feet of space within the same
building as SDI.
The TSD business provides to Taconic Farms a significantly expanded
opportunity to sell its mice (Taconic's core business) for monoclonal antibody
production in ascites (a core SDI competency). Through Taconic Farms, TSD
provides SDI with a consistent supply of high quality mice and animal husbandry
practices. The expertise, facilities, personnel and equipment required by TSD
are paid for to a large extent by revenues from TSD projects, and provide to SDI
a critical mass of technology with which to support its product development
activities. In order to consolidate and streamline activities associated with
the TSD business, Taconic Farms and SDI dissolved the original joint venture
between the two companies and restructured TSD to be a wholly-owned subsidiary
of SDI. Taconic Farms continues to act as TSD's primary agent for sales and
marketing and is the exclusive supplier of mice for projects.
Also in 1992, SDI entered into a 3.9 million dollar research and development
and manufacturing agreement with EM Industries, an affiliate of Merck KGaA,
Darmstadt, Germany, which resulted in the D TECH-Registered Trademark- product
line for rapid detection of priority pollutants in the field. In accordance with
the agreement, EM Science, a subsidiary of EM Industries, sold and marketed the
D TECH product directly to the U.S. market through a dedicated sales force of
approximately 6 full time individuals. D TECH sales by EM Science for 1995 were
approximately $800,000.
While the strategy of using corporate partners to sell and market products
associated with its core business is an effective means of minimizing risk and
reducing costs, SDI recognizes the efficiencies associated with a well managed,
internally staffed sales and marketing effort, providing a market of sufficient
size exists to support such an effort. As the market for environmental
immunoassays developed, SDI believed that there were obvious synergies between
competitors' products and opportunities to be gained through consolidation. In
particular, SDI believed that the ease-of-use and field portability of the D
TECH-Registered Trademark- product line was highly complementary with the more
quantitative, laboratory-based RaPID Assay-Registered Trademark- products sold
by Ohmicron. Additionally, Ohmicron was recognized for the quality of their
products and service which were supported by a staff of highly professional
sales and marketing personnel.
The obvious product synergies, benefits of consolidation, existence of an
experienced sales and marketing organization, and prevailing business climate
compelled SDI and Ohmicron to merge their two businesses together on August 30,
1996. As a result of that transaction, SDI acquired all of the stock of Ohmicron
and its subsidiaries, excluding OMD, which was spun-off to its stockholders
prior to the acquisition date. Ohmicron stockholders received common stock of
SDI representing 26% of diluted equity of SDI, as defined, as of June 30, 1996.
Ohmicron developed, manufactured and marketed immunoassay-based diagnostic
products which detect and measure contaminants in water, soil and food.
Ohmicron's RaPID Assay product line for detection of pesticides and toxic
organic contaminants employs magnetic particle immunoassay technology for highly
precise determination of very low concentrations of contaminants. Sales related
to RaPID Assay for fiscal year ended September 30, 1995, were approximately
$2,300,000.
SDI believes that the D TECH and RaPID Assay product lines for toxic organic
pollutants are highly complementary in that they offer testing solutions for a
wide spectrum of field-screening and laboratory-based applications.
Additionally, the RaPID Assay products for pesticide testing expand the number
of
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markets SDI's products serve. To that end, SDI has recently amended its
agreement with EM Industries to assume sales and marketing responsibilities of
the D TECH product line. As a result of this change and the Ohmicron
acquisition, SDI has established a sales and marketing force to sell D TECH,
RaPID Assay and other SDI products.
IMMUNOASSAY TECHNOLOGY
OVERVIEW. An immunoassay is an analytical test which uses antibodies to
detect the presence of a target compound in a sample matrix with high degrees of
precision and accuracy.
This technology was first developed more than 15 years ago and has rapidly
replaced many laboratory diagnostic tests in the medical industry. The speed
with which this technology has been adopted in the medical arena has been driven
in large part by three factors: (1) a demand for analyses which were otherwise
unavailable through conventional methods; (2) a desire for analytical methods
which could yield results much more quickly than conventional methods; and (3) a
need for more specific and accurate data. The penetration of immunoassay
technology in certain medical markets (drugs of abuse, therapeutic drugs,
steroid and thyroid hormones, infectious diseases) has now progressed to the
point where antibodies can be purchased from catalogs and are utilized on high
volume laboratory equipment.
More recently, immunoassays have been introduced in a variety of industrial,
environmental, and agricultural applications. As with clinical applications,
immunoassay technology has demonstrated its value in these markets by virtue of
its ability to yield specific, accurate and timely data in a manner previously
unavailable. In addition, and in contrast to the health care industry,
immunoassays have been recognized to be a meaningful cost reduction tool which
has accelerated their acceptance.
The advantages of immunoassay technology over other testing methods can be
summarized as follows:
Sensitivity: Immunoassays can measure extremely low concentrations of compounds
(routinely as low as parts per billion; i.e., one millionth of one gram in a
liter of liquid).
Specificity: Immunoassays can measure one specific compound out of a chemical
"soup," reducing the need for sample preparation.
Speed: Total time to obtain a test result ranges from 1 minute to 30 minutes as
compared to several days to several weeks with many competing laboratory testing
methods.
Cost: Price per test for immunoassays range from $1 to $50; price per test for
similar laboratory testing can range from $5 to $1,000.
Accuracy: Immunoassays are typically as or more accurate than their laboratory
counterparts.
Flexibility: Immunoassays can easily be adapted to a wide variety of test
formats, from large scale to disposable, single-use units. They can also be
designed for use by non-technical persons on-site under a variety of field
conditions, using diverse sample types, and still generate extremely reliable
and consistent results.
One well-known and widely accepted application of immunoassay technology is
the home pregnancy test kit. This example illustrates many of the benefits of
immunoassay technology in replacing laboratory diagnostic tests: it enables the
user to inexpensively replace a laboratory diagnostic test by providing rapid,
accurate results in an easy to use format in the privacy of one's own home. This
successful utilization of immunoassay technology outside the laboratory has
facilitated more widespread applications in other industries.
TECHNICAL FOUNDATION. Immunoassay technology relies on the specific binding
characteristics of antibodies. Antibodies are proteins made by cells within the
bodies of animals as part of the immune response to invasion by foreign
substances like bacteria and viruses. An antibody physically binds only to the
substance which elicited its production. This characteristic of specific binding
makes antibodies useful
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tools for detecting substances in complex sample matrices (e.g., blood, plant
tissue, soil). Methods exist for isolating and purifying antibodies from
animals, and labeling them in such a way that they can be used as components, or
reagents, within a test to detect the presence of the substance of interest.
Immunoassay technology has advanced to the point that antibodies can be made to
a wide variety of substances including microorganisms, drugs, hormones,
proteins, polymers and environmental pollutants.
Once an antibody reagent that has the desired performance characteristics
(sensitivity and specificity) has been identified, it must be incorporated into
a test format which is appropriate for the customer's application. In the human
clinical chemistry market, antibodies are employed as reagents on large,
automated instruments that can analyze hundreds of samples per hour. In
contrast, antibodies can also be packaged into single use, disposable formats
such as home pregnancy tests. Immunoassays can be designed to be highly
quantitative or yield a simple yes/no result. The type of test format chosen for
any given application depends on the needs of the customer and may include
factors such as ease-of-use, cost per test, number of samples to be tested, the
location the test will be performed and experience of the user.
IMMUNOASSAY TEST FORMATS. SDI has expertise and proprietary technology
surrounding the development and manufacture of primarily four state-of-the-art
immunoassay formats: latex filtration, magnetic particle, lateral flow, and
microtiter plate. Latex filtration assays offer ease-of-use, field portability
and semi-quantitative results and are ideally suited for on-site, field
screening applications.
Magnetic particle assays have a greater number of steps and require more
technical expertise to execute than latex filtration assays, but are more suited
to processing of larger number of samples at a single time, can be highly
quantitative, and are relatively inexpensive on a cost-per-test basis. These
characteristics make magnetic particle immunoassays effective measurement tools
in both laboratory and certain field applications, especially where highly
precise results are required.
Lateral flow immunoassay strips, often referred to as 'one-step' tests,
require only that the user apply a prepared sample to the test strip to obtain
the test result--much like pH or Litmus paper tests. The low cost and simplicity
of these tests make them ideally suited for a wide range of applications in many
different markets. The current state-of-the-art of lateral flow immunoassays is
such that the results obtained using these tests are qualitative, not
quantitative, which imposes limits on the applicability of the format.
Microtiter plate assays are well established in the medical diagnostic
industry and offer many of the advantages of magnetic particle assays, including
quantitative results and the capacity to analyze large numbers of samples at a
relatively low cost-per-test. Special laboratory equipment, relatively high
levels of technical training, and a time-to-result measured in hours limits this
test format to laboratory applications.
All measurement technologies, including immunoassays, have strengths and
limitations. SDI's expertise with multiple immunoassay formats, coupled with a
thorough understanding of the needs of a market and specific customer
applications, has allowed SDI to develop a diverse array of immunoassay products
to meet the analytical needs of multiple, sizable markets.
MARKETS AND PRODUCTS
SDI sells products in several distinct markets, both through its corporate
partners and through direct sales. This section describes current products as
well as products in development.
INDUSTRIAL/CHEMICAL
The industrial/chemical market segment is comprised of immunoassays for
water treatment chemicals, other proprietary chemicals, industrial markers, and
pollutants.
WATER TREATMENT. The water treatment market encompasses both industrial and
municipal water treatment systems. Water treatment chemicals, typically
polymers, are critical to preparing finished
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drinking water in municipal settings and to controlling water quality in
industrial settings. Competition between water treatment chemical manufacturers
is intense and new chemicals have evolved to the point that some of the more
effective ones are quite expensive. Cost effective use of these chemicals
requires careful control of polymer concentrations throughout the system in
which they are being employed. Many of these polymers are highly toxic and have
been implicated in fish kills when industrial effluents have been discharged to
natural bodies of water. As a result, there is increased regulatory pressure to
measure the amount of chemical being discharged into surface waters. Detection
of these polymers is quite difficult and currently there is no detection method
at the levels at which they are used or discharged in effluents.
Immunoassays have proven to be a reliable and cost-effective way to measure
water treatment polymers. Some specific applications are: (i) measuring
concentrations of chemicals to allow more efficacious use of costly compounds
and (ii) detecting the presence of particular compounds in effluent discharge in
order to gauge regulatory compliance. SDI is currently commercializing four
tests for two specialty chemical companies in this area.
PROPRIETARY CHEMICAL. The proprietary chemical market segment includes
tests, commissioned by chemical manufacturers, that will specifically measure
their compounds. In the chemical market segment the benefits of immunoassay
testing have led to three key applications: (1) regulatory registration, in
which immunoassay data is generated to support the registration of a product
with the EPA; (2) detection, to determine whether a target compound is present
in a complex matrix; and (3) monitoring, in which tests are performed to
determine chemical concentrations for control purposes.
The application of immunoassay technology in conjunction with regulatory
registration is significant because of the requirement that large scale chemical
manufacturers register their chemicals under FIFRA with the EPA. As part of this
registration process, manufacturers must provide extensive data for both
registration and post-registration analyses regarding toxicity and environmental
impact. For many new compounds, certain aspects of this analysis require
sensitivity which instrument-based testing cannot achieve. For others, no
classical analytical methods are available to measure the compound. In either
case, EPA requires the manufacturer to supply a method to monitor the compound
in the environment. SDI is currently commercializing four tests in this area for
two chemical companies. Agreements are in place for the development of seven
additional tests.
INDUSTRIAL MARKERS. SDI is collaborating with a corporate partner in this
market segment, which consists of test kits that detect marked products. The
product marking technology is based on the incorporation of trace levels of
inert chemicals or markers into solid or liquid products or on the surface of
the products. The use of these markers, in conjunction with immunoassay
techniques for marker detection, allows for the covert marking and testing of
nearly any product. This technology can prevent revenue loss due to
counterfeiting and product diversion, limit a manufacturer's exposure to
unwarranted product liability, and enhance process efficiency and product
quality assurance.
PRIORITY POLLUTANT--D TECH-REGISTERED TRADEMARK-. SDI entered the priority
pollutant market in February 1992 when it signed a $3.9 million development
agreement with EM Industries. The products developed under this agreement are
tests that measure contaminants that occur on the EPA Priority Pollutant List
such as benzene, PCBs, TNT, trichlorethylene, and polyaromatic hydrocarbons in
soil and water. The first test was introduced in March 1993 under the brand name
D TECH-Registered Trademark-. The D TECH product line is a latex immunoassay
format which is designed to be easy to use, require a minimum number of steps to
execute, be field-portable and yield a semi-quantitative result.
D TECH's expansion into this market can be attributed to the speed of the
product development schedule and the ease-of-use and quality of the products.
Since 1993, SDI has introduced 15 priority pollutant products.
PESTICIDES AND TOXIC ORGANICS--RAPID ASSAY. Through the acquisition of
Ohmicron, SDI currently markets RaPID Assay kits for detection of 21 different
pesticides (herbicides, insecticides and fungicides),
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and 6 toxic organic compounds. SDI also markets three instruments for use with
the kits, magnetic separation racks, and other miscellaneous testing supplies
and equipment.
Most of the RaPID Assay test kits were developed for detection of pesticides
in water samples. Subsequently, sample preparation protocols have been developed
to test for some of the pesticides in soil and certain foods. RaPID Assay test
kits for toxic organic chemicals were developed for detection in both water and
soil. The highly precise nature of the results obtained from this product makes
it desirable to customers with more quantitative applications.
RaPID Assay products are sold through a direct sales force to commercial
laboratories, government agencies, universities, water companies, remediation
engineering firms, agricultural chemical manufacturers, food processors, and
other industrial concerns. This selling effort is supplemented by distribution
agreements throughout the world. A total of 40 distributors sell SDI's RaPID
Assay products in North and South America, Europe, the Far East, Australia/New
Zealand and South Africa.
AGRICULTURAL
The agricultural market segment includes test kits for genetically
engineered crops and tests for two plant fungi.
GENETICALLY ENGINEERED CROPS. The genetically engineered crops segment
consists of plant tests to determine the presence or absence of a certain gene.
This gene gives the plant some advantage such as natural insect resistance or a
certain growth characteristic. Agricultural companies are spending hundreds of
millions of dollars each year developing genes that impart certain traits to
commercially important crops (e.g. corn, cotton, soybean). Analysts predict that
roughly one quarter of the acreage used to grow corn will be planted with
genetically engineered seed by the year 2000, in comparison to only 0.5% in
1996.
SDI's first test in this market was commissioned by a large agricultural
chemical company which has developed proprietary varieties of insect-resistant
corn and cotton using genetic engineering technology. This test is a one-step
strip test and is sold under the brand name GeneCheck-TM- B.t.k. SDI's customer
sells and markets their seed and the GeneCheck-TM- test to commercial seed
producers. The test is used by the seed companies to determine if the gene for
insect resistance is present in seed sold to farmers. Seed companies use
thousands of these tests in their seed propagation programs to insure that the
seed they sell to farmers contains the resistance gene. SDI's customer also
plans to use the test for enforcement purposes to prevent farmers from
harvesting the seed instead of purchasing it from authorized dealers.
Enforcement will require spot checking of thousands of plants in a field.
Sales of the GeneCheck B.t.k. product have been steadily increasing since
its introduction in the third quarter of 1995. Third quarter 1995 sales were
26,300 tests, fourth quarter sales were 91,000 tests, and 1996 sales through
September 30, 1996 are in excess of 538,000 tests.
RICE BLAST. Rice blast is a fungus that can devastate a rice crop.
Worldwide, over 360 million acres of land are planted with rice. Countries such
as Thailand, China, Japan and Indonesia are dependent on rice both as a food
source and for export revenues. The SDI RapidChek-Registered Trademark- Blast
Finder test kit allows detection of the fungus before visual signs of infection
appear. Early detection of infection allows treatment of the rice with fungicide
before a crop is severely damaged.
SDI and its marketing affiliate have worked with the International Rice
Research Institute to demonstrate the test kit internationally. The government
of Thailand has taken an aggressive role in evaluating the test kit. The Thai
government is sponsoring field tests during both the dry and wet seasons of
1996. In recent Thai field trials the rice blast test kit allowed proper
fungicide treatment that resulted in a 23% increase in rice yield.
BOTRYTIS. Botrytis, or gray mold, effects a wide variety of food crops
including grapes, strawberries, and cucumbers. SDI's RapidChek Botrytis test was
originally developed by a major chemical company to
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serve the wine industry and it has been field tested by the California
Department of Food and Agriculture (CDFA). The CDFA acts as a liaison between
the grape growers and the wineries by testing grapes for sugar content and
establishing botrytis levels in harvested grapes. The use of immunoassays for
grape inspection has been promulgated in the California Code of Regulations.
OTHER PRODUCTS
MACRA-REGISTERED TRADEMARK- LP(A). Macra Lp(a) is a microtiter plate assay
that measures a lipoprotein found in human serum. This lipoprotein has been
shown to be an indicator of risk for myocardial infarction, heart disease and
stroke. SDI purchased this product as part of an acquisition of the diagnostics
business of Terumo Medical Corporation. The product is currently for research
use only, however SDI has prepared and submitted a 510(k) application to the
FDA. A great deal of clinical data has been generated with the Macra kit because
of its market leading position, and its use in benchmark projects such as the
Framingham Study.
TSD BIOSERVICES. TSD was formed in April 1991 as a joint venture between
SDI and Taconic Farms Inc. of Germantown, NY. TSD is a contract producer of
monoclonal antibodies and offers a full menu of antibody related services. Since
its inception, TSD has grown to be a leading provider of high quality
antibodies, reagents, and services to over 120 pharmaceutical, diagnostic, and
academic organizations. In October 1996, SDI and Taconic entered into an
agreement to dissolve the TSD partnership and liquidate its assets in connection
with which certain of the rights and assets of TSD will be distributed to SDI.
RAPIDCHEK-REGISTERED TRADEMARK- SRB. Sulfate Reducing Bacteria (SRBs) are
environmentally significant because they generate hydrogen sulfide gas and cause
corrosion of stainless steel pumps, pipelines, and drilling rigs and result in
the souring of oil reserves. SRBs can be controlled by the addition of treatment
chemicals. Historically, the majority of testing in this market was performed
using a culture method called the American Petroleum Institute Recommended
Procedure No. 38 (API RP38). This method requires that samples be incubated from
14-28 days before a result is obtained. The average cost of this test is $5.00.
While the API RP38 method is regarded as the industry standard for the detection
of SRBs, the RapidChek immunoassay is the first new technology to be introduced
into this market since the API RP38 culture method was developed. SDI's test
provides the user with accurate results in 20 minutes and allows for an
immediate, more cost effective application of treatment chemicals.
REGULATORY APPROVALS
Test kits and instruments for the detection of pesticides and toxic organic
chemicals in water, food and soil do not require pre-market approval by the FDA
or any other regulatory agency. Likewise, tests for water treatment polymers,
genetically engineered traits in plants, and fungal plant pathogens are also
unregulated. However, agencies such as the EPA, the FDA and the Food Safety and
Inspection Service of the U.S. Department of Agriculture are engaged in testing
environmental samples and, together with the AOAC, maintain compilations of
official methods for use in testing for environmental contaminants in certain
market segments. Some of these organizations also issue procedures and
guidelines for validating new methods.
D Tech and RaPID Assay products have received acceptance as analytical
methods by their inclusion in EPA SW-846, published by the OSW. In addition, the
RaPID Assay Atrazine test was accepted as a quantitative method through the OSW
and by the AOAC, and it is anticipated that the EPA Office of Drinking Water
will adopt this method for compliance in the enforcement of the Drinking Water
Regulations for Triazines under the Safe Drinking Water Act. More recently,
SDI's RaPID Assay for Spinosad has been adopted by the EPA as the official
enforcement method for this pesticide.
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The following table presents a summary of SDI's products and EPA approval
status:
<TABLE>
<CAPTION>
SDI'S EPA APPROVAL STATUS
-------------------------
PRODUCT D TECH RAPID ASSAY
- --------------------------------------------------------------- ----------- ------------
<S> <C> <C>
TNT Soil/Water................................................. Approved Approved
PCB Soil....................................................... Approved Approved
BTEX Soil/Water................................................ Pending To submit
RDX Soil/Water................................................. Approved None
PAH Soil/Water................................................. To submit Approved
PCB Wipe....................................................... To submit To submit
</TABLE>
SALES AND MARKETING
SDI's products have been sold primarily through arrangements with corporate
marketing partners, with the exception of the Macra and RapidChek product lines.
The RapidChek SRB test kit is sold directly by SDI and through 5 international
distributors. SDI has arrangements with 3 international distributors for sale of
the Macra test kit. As a result of the recent amendment to the EM Industries
Agreement and the Ohmicron Acquisition, SDI has formed an experienced sales and
marketing organization with which it intends to sell its D TECH and RaPID Assay
product lines directly to the U.S. Market. Sale of the RaPID Assay product line
is supplemented by distribution agreements with 40 distributors in North and
South America, Europe, the Far East, Australia/New Zealand and South Africa.
PROPRIETARY TECHNOLOGY
SDI's current proprietary and patent base consists of the following
technology assets:
SRB DETECTION USING APS REDUCTASE (PATENT #4,999,286). Competing methods
for the detection of SRB have significant problems with cross-reactivity with
similar bacteria. SDI owns a patent for the detection of SRB bacteria using an
intracellular enzyme called APS reductase. The APS reductase enzyme is a
"marker" protein common to all of the otherwise diverse bacterial groups that
are sulfate reducers.
CHEMICAL LYSIS OF BACTERIA. A problem with the detection of bacteria is
that in their natural state they are difficult to differentiate. Some bacterial
tests require an instrument to "break" the bacteria and expose their
differentiating intracellular proteins. SDI scientists developed a reagent that
chemically lyses or breaks open SRB, achieving the same effect and significantly
enhancing the flexibility and convenience of the assay.
FUNGAL EXTRACTION FROM PLANTS. A problem in detecting plant fungi is
removing the fungus from the plant matrix so that it can be measured. SDI has
developed a chemical solution which allows the extraction of fungal antigens
from plant materials. SDI has filed both U.S. and foreign patent applications
for this technology, and recently received notice from the U.S. Patent and
Trademark Office that the patent will issue under patent number 5,558,996.
MONOCLONAL ANTIBODY THAT REACTS SPECIFICALLY WITH RDX. RDX, a common
explosive, is an important compound which the U.S. Department of Energy and U.S.
Department of Defense need to detect, as part of their efforts to remediate
munitions sites. SDI has succeeded in developing an antibody to RDX by using
proprietary immunization and screening techniques.
MONOCLONAL ANTIBODY THAT REACTS WITH BENZENE, TOLUENE, ETHYL BENZENE AND
XYLENE (BTEX). BTEX is one of the most pervasive priority pollutants and
immunoassays for detection have been under development by many companies.
Generating reactivity to each of these four compounds while eliminating
cross-reactivity
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to similar ones has been difficult. SDI has developed an antibody that reacts
with all four compounds which comprise BTEX without significant
cross-reactivity.
LIBRARY OF MONOCLONAL ANTIBODIES TO CLINICAL ANALYSES: SDI acquired 42
monoclonal antibodies for clinical diagnostic applications from Terumo Medical
Corporation in 1993. These antibodies are being licensed by numerous diagnostic
companies for use in commercial assays. SDI has several outstanding licenses to
a variety of diagnostic companies.
MONOCLONAL ANTIBODY TO LP(A): SDI has licensed from Terumo Medical
Corporation the exclusive use of the monoclonal antibody which confers the
specificity in the Macra Lp(a) test.
DIRECT DETECTION OF POLYMERS WITH ANTIBODIES: Polymers are used worldwide
to treat water in industrial and applications including drinking, waste, raw and
process water. Quantification of these polymers is important in establishing and
maintaining water quality, plant performance and regulatory compliance. These
polymers function by forming complexes with undesirable substances in the water
which are subsequently removed from the system by filtration or in settling
ponds. The effectiveness of the polymer is dependent on its concentration in the
system. Too little polymer results in poor water quality and too much polymer is
expensive and may result in equipment fouling and reduced plant performance.
Because the polymer is continually being removed from the system it must be
added back at a rate which yields the most effective operating concentration.
SDI has developed, in collaboration with a corporate partner, antibodies and
immunoassays which directly and quantitatively determine the concentration of a
variety of water treatment polymers. The result of this work has been the
commercialization of test kits for the detection of these polymers and
submission of a patent application covering the direct detection of water
treatment polymers by immunoassay. The U.S. Patent and Trademark Office has
stated that the claims have been allowed and are currently in the process of
resolving a potential interference.
DETECTION OF MARKED POLYMERS. An alternative method of detecting water
treatment polymers is to chemically couple an unrelated "marker" substance to
the polymers and use antibodies and immunoassays to detect the marker. This
technology has been patented by Biocode Incorporated (U.S. Patent 5,429,952).
SDI has licensed the exclusive rights to this technology for the detection of
water treatment polymers.
SDI believes that its patent with its corporate partner covering the direct
detection of water treatment polymers and the Biocode license covering the
detection of marked polymers, provide a proprietary position in the field of
water treatment polymer detection.
DUAL PARTICLE IMMUNOASSAY FORMAT. Immunoassay is a flexible technology
which can be applied to many diverse applications from human clinical
diagnostics to testing of rice in the field. While the antibody used in the
immunoassay fundamentally affects sensitivity and specificity, the way in which
the technology is delivered to the customer, or format, determines to a large
extent the overall performance characteristics of the product. For field
applications it is important to have a simple, user friendly assay which can be
run by untrained individuals, has a minimum number of steps, is rapid, accurate
and reliable under diverse environmental conditions including extremes in
temperature. SDI has developed a novel, semi-quantitative immunoassay format
that meets all of these product performance criteria and is ideally suited for
on-site field applications. A patent application covering this assay format,
referred to as the "Dual Particle Format," has been filed with the U.S. Patent
and Trademark Office.
LATERAL FLOW IMMUNOASSAY FORMAT. Another flexible immunoassay format is the
so-called "one-step" lateral flow device most readily recognized in the home
pregnancy test. The advantages of this format are it is very simple, rapid,
field-portable and low cost. The only manipulation of the test by the user is
the addition of the sample to the test device. SDI has developed a number of
commercial products using this assay format. A patent application covering this
technology is currently under preparation.
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REAGENTS AND IMMUNOASSAYS FOR TRICHLOROETHYLENE ("TCE"). TCE is a widely
used solvent and degreaser and is therefore a common environmental contaminant
and one of the most common pollutants of municipal drinking water. SDI
introduced the first TCE immunoassay to the environmental testing market in May
1995. Developing specific antibodies to very small, chemically-nondescript
molecules such as TCE is extremely challenging and requires substantial
expertise. SDI and EM Industries have filed a patent application covering the
reagents used to produce the TCE antibodies, the antibodies themselves, and the
immunoassays incorporating them.
MAGNETIC PARTICLES. Under two license agreements with Advanced Magnetics,
Inc. ("AMI"), a leading supplier of magnetic particles for use in immunoassays,
SDI, through the acquisition of Ohmicron, has been granted the right and license
throughout the world to use AMI's magnetocluster technology in connection with
SDI's RaPID Assay products. This license carries royalties starting at 4% of net
sales of such products each year and declining to 2% based upon the volume of
sales in such year. These agreements grant SDI the right to develop,
manufacture, market and sell products embodying AMI-developed methods anD
TECHniques, for the production of magnetically separable particles used for the
detection of environmental analytes. In addition, SDI and AMI agreed that all of
SDI's requirements of uncoupled magnetocluster particle reagents are to be
supplied by AMI until September 1997 on specified terms.
IMMUNOASSAY STANDARDS. Through its acquisition of Ohmicron, SDI holds 6
patents and patent applications relating to the development of immunoassay
standards or immunological analogs.
ANTIBODIES TO HEAVY METALS. OMD has funded research at the University of
California for the development of an immunoassay-based test for the detection of
heavy metals (e.g., lead and mercury), SDI, as successor to OMD in that
agreement, has an option to license certain patent rights as a result of that
research. There can be no assurance that SDI will exercise the option, or that
any products can be developed as a result of that research.
Because of the uncertainty concerning patent protection, SDI also relies
upon trade secrets, know-how and continuing technological innovation. SDI has
developed a number of proprietary technologies including stabilization systems
for reagents; chemical syntheses for conjugates, immunogens and analyte analogs,
and preparative procedures for antisera.
SDI maintains a policy requiring employees and consultants to sign
confidentiality agreements under which they agree not to use or disclose SDI's
confidential information as long as that information remains proprietary or, in
some cases, for fixed time periods. There can be no assurance, however, that
such proprietary technology will not be independently developed or that secrecy
will not be breached. All employees are also required to agree to assign to SDI
all rights to any inventions made during their employment or relating to SDI's
activities.
MANUFACTURING
Prior to the acquisition of Ohmicron, SDI manufactured and assembled all of
its products in a leased 26,000 square foot facility in Newark, Delaware. Of the
total, 8,000 square feet are dedicated to an AAALAC accredited animal facility,
which SDI uses for antibody development and large scale monoclonal antibody
production. Ohmicron manufactured and assembled all of its RaPID Assay test kits
in a leased facility located in Newtown, Pennsylvania. The Ohmicron lease
expired on May 31, 1996. On June 24, 1996, SDI entered into a lease with the
facility's landlord for a portion of the same space. It is SDI's intention to
consolidate final assembly and shipping of the D TECH and RaPID Assay product
lines at the Pennsylvania site for approximately one year. Production of certain
critical reagents, lateral flow devices, and other test products are expected to
remain at the Delaware facility.
SDI has developed and manufactured immunoassay products in many formats.
These include microtiter plates, latex particles, magnetic particles and strip
tests. This flexibility in test design permits SDI to
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appropriately match a test to its application. SDI currently manufactures over
25 products, including 5 microtiter plate products, 15 latex particle products,
2 magnetic particle products, and 4 strip tests.
SDI manufactures its products in accordance with the FDA's Good
Manufacturing Practices guidelines. This requires a comprehensive quality
assurance and quality control program, which includes complete documentation of
all operating procedures, equipment calibration procedures, in-coming raw
materials qualification, personnel training, and in-process testing.
In general, raw materials used by SDI in its products are obtainable from
multiple sources. Biological materials are primarily developed in-house,
licensed from third parties or purchased from commercial sources. SDI develops
many of the immunogens for antibody production internally. From time to time,
SDI obtains certain organic chemistry services from outside sources and uses
these compounds to make immunogens. The immunogens are then used by SDI
scientists to make monoclonal antibodies, or sent to a contract facility for
antibody production in rabbits.
The D TECHTOR hand-held reflectometer used in conjunction with the D TECH
product line is manufactured by an outside vendor. The algorithms used in the
meter were developed by SDI and supplied to the vendor. Quality control testing
and inspection are performed by SDI.
The production of all instruments and ancillary equipment for the RaPID
Assay system is performed by outside vendors. Development of software
specifications is performed by SDI and supplied to an outside vendor for
preparation of proprietary software for the RPA-l, the RPA-III and RPA-VI.
Software downloading, manual preparation, quality control testing and inspection
are all performed by SDI.
RESEARCH AND DEVELOPMENT
SDI has devoted substantial resources to research and development since its
inception. SDI plans to continue to pursue new product development. As of
September 30, 1996, SDI's research and development staff consisted of 18
full-time employees, 3 full-time contract, and one part-time employee, of whom 6
hold Ph.D. degrees in chemistry, immunology, microbiology and related fields.
In the three years ended December 31, 1993, 1994, and 1995, SDI incurred
approximately $1,735,000, $2,832,000 and $2,272,000, respectively, in research
and development expenses. No increase in R&D staffing resulted from the Ohmicron
acquisition.
Since its inception, a substantial portion of Ohmicron's financial resources
have been dedicated to research and development. In the three years ended
September 30, 1993, 1994 and 1995, Ohmicron incurred approximately $2,333,000,
$2,158,000 and $2,173,000, respectively, in research and development expenses.
EMPLOYEES
As of September 30, 1996, SDI had 63 full-time and 19 temporary employees.
None of SDI's employees are covered by a collective bargaining agreement. SDI
believes that its relations with its employees are good.
PROPERTIES
SDI's research, administrative and manufacturing facilities occupy
approximately 26,000 square feet of leased space in Newark, Delaware, under
three operating leases that expire in October 2000, October 2001 and November
2003, respectively. SDI also leases warehouse and other space at three locations
of 1,600 square feet or less with leases that run one year or less. SDI believes
that its equipment and facilities are adequate for its present purposes. On June
21, 1996, SDI entered into a lease covering approximately 21,000 square feet of
space formerly leased by Ohmicron in Newtown, Pennsylvania. This lease expires
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June 30, 1998, but may be terminated at June 1997 upon appropriate notice and a
termination payment approximately equal to three months' rent.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by SDI to its
Chief Executive Officer for 1995. No other executive officer of SDI was paid
salary and bonus of $100,000 or more for 1995.
SDI SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
----------------------- OTHER ANNUAL COMPENSATION STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTION GRANTS
- -------------------------------------------------- ---- -------- ------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Richard C. Birkmeyer.............................. 1995 $115,800 $ -- $10,879(1) 64,800
President and Chief Executive Officer
</TABLE>
- ------------------------
(1) Other compensation for Mr. Birkmeyer consists of $3,474 in SDI contributions
to Mr. Birkmeyer's 401(k) account, $3,397 in premium payments on a long-term
disability policy and $4,008 in car lease payments in 1995.
The following table provides information on option grants in 1995 to SDI's
Chief Executive Officer.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO MARKET
OPTION EMPLOYEES IN EXERCISE PRICE AT EXPIRATION
NAME GRANTED(1) FISCAL 1995 PRICE GRANT DATE DATE
- -------------------------------------------- ----------- ------------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Richard C. Birkmeyer........................ 64,800 34.3% $ 0.15 $ 0.50 August 1, 2005
</TABLE>
The following table provides information on the value of the unexercised
options held by SDI's Chief Executive Officer at December 31, 1995. No options
were exercised during 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1995 AT DECEMBER 31, 1995
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard C. Birkmeyer...................................... 27,000 37,800 $ 9,450 $ 13,230
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SDI
The following table presents, as of December 2, 1996 information as to (i)
the persons or entities known to SDI to be beneficial owners of more than 5% of
the SDI Common Stock on December 2, 1996, (ii) each director and the Chief
Executive and (iii) all directors and executive officers of SDI a group, based
on representations of officers and directors of SDI.
<TABLE>
<CAPTION>
NO. OF SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) PERCENT OF CLASS(2)
- ------------------------------------------------------------------------ -------------------- ---------------------
<S> <C> <C>
The Perkin-Elmer Corporation ........................................... 1,770,449 16.5%
761 Main Avenue
Norwalk, Connecticut 06859
</TABLE>
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<TABLE>
<CAPTION>
NO. OF SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) PERCENT OF CLASS(2)
- ------------------------------------------------------------------------ -------------------- ---------------------
<S> <C> <C>
Stephen O. Jaeger (3) .................................................. 1,770,449 16.5%
761 Main Avenue
Norwalk, Connecticut 06859
DSV Partners IV (4) .................................................... 1,738,980 15.8%
221 Nassau Street
Princeton, New Jersey 08542
Morton Collins (4) ..................................................... 1,738,980 15.8%
221 Nassau Street
Princeton, New Jersey 08542
Edison Venture Fund II, L.P. (5) ....................................... 1,458,499 13.3%
997 Lenox Drive #3
Lawrenceville, New Jersey 08648
Edison Venture Fund II-PA, L.P. (5) .................................... 280,481 2.5%
997 Lenox Drive #3
Lawrenceville, New Jersey 08648
Richard J. Defieux (5) ................................................. 1,738,980 15.8%
997 Lenox Drive #3
Lawrenceville, New Jersey 08648
EM Industries, Inc. .................................................... 750,714 7.0%
480 S Democrat Road
Gibbstown, New Jersey 08027
Kathleen E. Lamb (6) ................................................... 750,714 7.0%
480 S Democrat Road
Gibbstown, New Jersey 08027
Joseph M. Corr (7) ..................................................... 292,223 2.7%
CIP Capital L.P.
20 Valley Stream Parkway
Malvern, Pennsylvania 19355
Richard C. Birkmeyer (8)................................................ 2,596,230 24.0%
Anne F. Cavanaugh (9)................................................... 796,790 7.4%
Martha C. Reider (10)................................................... 711,080 6.6%
All directors and executive officers as a group (11 persons) (11)....... 10,610,910 91.3%
</TABLE>
- ------------------------
(1) The address for each of the executive officers of SDI is c/o 128 Sandy
Drive, Newark, Delaware 19713.
(2) Beneficial ownership is determined in accordance with Rule 13d-3(d)
promulgated under the Securities and Exchange Act of 1934, as amended. SDI
Common Stock issuable pursuant to options, warrants and convertible
securities, to the extent such securities are currently exercisable or
convertible, or are exercisable or convertible within 60 days of December 2,
1996, are treated as outstanding for computing the percentage of the person
holding such securities but are not treated as outstanding for computing the
percentage of any other person (irrespective of whether such options or
warrants are currently in-the-money). The number of shares of SDI Common
Stock outstanding as of December 2, 1996 was 7,819,493.
(3) Mr. Jaeger, the Perkin-Elmer designee to the SDI Board of Directors, is the
Vice President, Treasurer and Chief Financial Officer of Perkin-Elmer. As
such, he is deemed to share voting and dispositive control, and therefore to
have beneficial ownership of, the shares of SDI Common Stock held by
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Perkin-Elmer. Mr. Jaeger does not own any outstanding securities of SDI in
his individual capacity and disclaims beneficial ownership of shares held by
Perkin-Elmer.
(4) Reflects 1,463,980 shares of SDI Preferred Stock, which are currently
convertible into an equal number of shares of SDI Common Stock, and warrants
to purchase 275,000 shares of SDI Common Stock, which are currently
exercisable. Mr. Collins is a General Partner of DSV Management, LTD., the
General Partner of DSV Partners IV. Mr. Collins, together with the other
General Partners of DSV Management, LTD., shares voting and investment power
with respect to the shares owned by DSV Partners IV. Mr. Collins does not
own any outstanding securities of SDI in his individual capacity and
disclaims beneficial ownership of the shares held by DSV Partners IV, except
as to his proportionate partnership interest therein.
(5) Reflects an aggregate of 1,463,980 shares of SDI Preferred Stock, which are
currently convertible into an equal number of shares of SDI Common Stock,
and warrants to purchase an aggregate of 275,000 shares of SDI Common Stock,
which are currently exercisable. Mr. Defieux is a General Partner of Edison
Partners II, L.P., the General Partner of Edison Venture Fund II, L.P. and
Edison Venture Fund II-Pa, L.P. Mr. Defieux, together with the other general
Partners of Edison Partners II, L.P. shares voting and investment power with
respect to the shares owned by Edison Venture Fund II, L.P. Mr. Defieux does
not own any outstanding securities of SDI in his individual capacity and
disclaims beneficial ownership of shares held by Edison Venture Fund, L.P.,
except as to his proportionate partnership interest therein.
(6) Ms. Lamb, the Vice President of Finance of EM Sciences, Inc., an affiliate
of EM Industries, Inc., is the designee of EM Industries, Inc. to the SDI
Board of Directors. As such, she is deemed to share voting and dispositive
control, and therefore to have beneficial ownership, of the shares of SDI
Common Stock held by EM Industries, Inc. Ms. Lamb does not own any
outstanding securities of SDI in her individual capacity and disclaims
beneficial ownership of shares held by EM Industries, Inc.
(7) Mr. Corr, a director of SDI, is President of CIP Capital Management Inc.,
the General Partner of CIP Capital L.P. As such, he is deemed to share
voting and dispositive control, and therefore to have beneficial ownership
of, the shares of SDI Common Stock held by CIP Capital L.P. Mr. Corr does
not own any outstanding securities of SDI in his individual capacity and
disclaims beneficial ownership of shares held by CIP Capital L.P., except as
to his proportionate partnership interest therein.
(8) Includes 64,800 shares issuable upon exercise of options currently
exercisable or exercisable within 60 days of December 2, 1996.
(9) Includes 19,650 shares issuable upon exercise of options currently
exercisable or exercisable within 60 days of December 2, 1996.
(10) Includes 19,650 shares issuable upon exercise of options currently
exercisable or exercisable within 60 days of December 2, 1996.
(11) Includes an aggregate of (i) 2,927,960 shares of SDI Preferred Stock, which
are currently convertible into an equal number of shares of SDI Common
Stock, (ii) warrants to purchase 550,000 shares of SDI Common Stock, which
are currently exercisable, and (iii) 319,564 shares issuable upon the
exercise of options currently exercisable or exercisable within 60 days of
December 2, 1996.
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OPERATION, MANAGEMENT AND BUSINESS OF THE
SURVIVING CORPORATION AFTER THE MERGER
BUSINESS OF THE SURVIVING CORPORATION
At the consummation of the Merger, SDI will merge with and into EnSys, with
EnSys continuing as the Surviving Corporation, and the Surviving Corporation
will issue shares of Surviving Corporation Common Stock and/or Surviving
Corporation Series A Preferred Stock to the former stockholders of SDI.
From and after the Effective Time, the Surviving Corporation will
consolidate the operations of each of the constituent companies in order to take
advantage of efficiencies presented by the combination. The Surviving
Corporation expects that decisions as to the continuing employment of pre-Merger
EnSys and SDI officers and employees, and the continuing operation of business
and each company's facilities, will be made on a case-by-case basis after the
consummation of the Merger, based upon the Surviving Corporation's evaluation of
the combined operations of EnSys and SDI.
MANAGEMENT OF THE SURVIVING CORPORATION
DIRECTORS AFTER THE MERGER. Pursuant to the Merger Agreement and the Bylaws
of the Surviving Corporation, as of the Effective Time, the Surviving
Corporation is obligated to take all action to cause: Grover C. Wrenn, Curtis
Lee Smith, Jr., Kathleen E. Lamb and Richard C. Birkmeyer to be elected as
directors of the Surviving Corporation for terms expiring at the 1997 Annual
Meeting of Stockholders; and Richard J. Defieux, Robert E. Finnigan and Stephen
O. Jaeger to be elected as directors of the Surviving Corporation for terms
expiring at the 1998 Annual Meeting of Stockholders. As provided in the
Surviving Corporation's Bylaws, the affirmative vote of a majority of all
directors will be necessary to constitute the act of the Surviving Corporation's
Board of Directors.
At each annual meeting, directors will be elected to succeed those directors
whose terms expire at such annual meeting, for a term of office which will
expire at the second succeeding annual meeting. Pursuant to the Surviving
Corporation Certificate, commencing at the Effective Time of the Merger and
continuing through the 1998 annual meeting of the stockholders of the Surviving
Corporation, the Board of Directors will consist of seven members, who initially
will be selected as follows: three members designated by EnSys, three members
designated by SDI and the remaining member designated by Perkin-Elmer. The
directors of the Surviving Corporation will hold office as follows: Class I
Directors will hold office for a term expiring at the 1997 annual meeting of the
stockholders and the Class II Directors will hold office for a term expiring at
the 1998 annual meeting of stockholders, with the members of each class to hold
office until their respective successors are duly elected and qualified. All
Class I Directors holding office at the time of the 1997 annual meeting of
stockholders will automatically be nominated, subject to such director's
consent, to serve an additional two-year term expiring at the 1999 annual
meeting of the stockholders; all Class II Directors holding office at the time
of the 1998 annual meeting of the stockholders will automatically be nominated,
subject to such director's consent, to serve an additional two-year term
expiring at the 2000 annual meeting of the stockholders. Biographical
information with respect to the proposed directors of the Surviving Corporation
is set forth below.
GROVER C. WRENN, age 54, has served as President and CEO of EnSys since
April 1995. Prior to being appointed President and CEO, Mr. Wrenn had served as
a director of EnSys since 1992. From 1993 until February 1995, Mr. Wrenn served
as President, Chief Executive Officer and a director of Applied Bioscience
International, Inc. From 1982 to 1990, he was Chief Executive Officer and
Founder of Environ International Corporation, which merged with Applied
Bioscience in 1990. Mr. Wrenn also serves as Chairman of the Board of Trustees
of Eckerd College, a director of the University of North Carolina Public Health
Foundation, and a director of the Environmental Law Institute.
RICHARD C. BIRKMEYER, age 42, cofounded SDI in 1990 and has served as its
President and Chief Executive Officer and a director since inception. Prior to
founding SDI, Mr. Birkmeyer was employed by
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E.I. du Pont de Nemours ("DuPont") from 1983 to 1990, where he most recently
served as a product manager. Mr. Birkmeyer received a Ph.D. in
Biochemistry/Immunology from the State University of New York at Binghamton and
his B.S. in Biology from the State University of New York at Plattsburgh. In
addition, Mr. Birkmeyer completed post-doctoral research in immunogenetics at
Iowa State University.
ROBERT E. FINNIGAN, age 69, has served as a director of EnSys since 1991.
Dr. Finnigan is a member of the Scientific Advisory Board of EnSys and is a
consultant to Thermo Instrument Systems and other analytical instrument
manufacturers. From 1967 to 1990, Dr. Finnigan served in various executive roles
at Finnigan Corporation, an analytical instrument manufacturer, and as a
director of Finnigan Corporation throughout that period.
KATHLEEN E. LAMB, age 51, has served as a director of SDI since 1996. Ms.
Lamb is presently the Vice President of Finance of EM Science and, as of May
1996, General Manager of OEM Marketing for EM Science, a division of EM
Industries which is an affiliate of Merck KGaA, Darmstadt, Germany. Prior to
joining EM Science, Ms. Lamb was the Vice-President of Finance for EM
Diagnostics Systems. She is also a member of the Board of Directors of M.E.
Gordon & Associates and has taught finance courses at Rowan College in New
Jersey. Ms. Lamb received her B.S. in Accounting and MBA from Drexel University.
CURTIS LEE SMITH, JR., age 69, has served as a director of EnSys since 1991.
Mr. Smith has also served as Chairman of the Board and Chief Executive Officer
of Handex Corp., an environmental consulting and remediation company, since
1986.
RICHARD J. DEFIEUX, age 45, has served as a director of SDI since 1993. Mr.
Defieux is a General Partner of Edison Partners, L.P., which is the general
partner of Edison Venture Fund, L.P., a private venture capital fund. Since
1990, Mr. Defieux has also been a General Partner of Edison Partners II, L.P.,
which is the general partner of Edison Venture Fund II, L.P., and since 1994 a
General Partner of Edison Partners III, L.P., which is the general partner of
Edison Venture Fund III, L.P. Prior to joining Edison in 1987, Mr. Defieux was a
General Partner of Princeton/Montrose Partners, a venture capital firm. Mr.
Defieux has also served as director of Liberty Technologies, Inc., since 1987.
Mr. Defieux received his B.A. and M.A. degrees in Geology from Boston University
and his M.B.A. from Columbia University.
STEPHEN O. JAEGER, age 52, has served as a director of SDI since August
1996. Mr. Jaeger has been Vice President and Chief Financial Officer of
Perkin-Elmer since 1995, and since 1996 he has also been the Treasurer of
Perkin-Elmer. Prior to his employment by Perkin-Elmer in March 1995, Mr. Jaeger
was employed by Houghton Mifflin and Company from 1987 to 1995, most recently as
Executive Vice President, Chief Financial Officer and Treasurer, and served on
its board of directors. Prior to joining Houghton Mifflin, he served as Senior
Vice President and Chief Financial Officer of British Petroleum North America,
Inc. from 1979 to 1987. Mr. Jaeger is also on the boards of directors of INSO
Corporation and Cassell Plc.
In addition, pursuant to the Merger Agreement and the Surviving Corporation
Bylaws, the Surviving Corporation will take all necessary actions to establish
the audit committee and the compensation committee of the Board of Directors.
The audit committee will initially consist of three members. In addition to
such powers as may be delegated to it from time to time by the Surviving
Corporation's Board of Directors, the audit committee will: recommend outside
accountants for approval by the full Board of Directors and the stockholders of
the Surviving Corporation; meet with the Surviving Corporation's outside
auditors and Chief Financial Officer and their respective staffs to review and
evaluate accounting and control systems, issues and related matters; meet
independently with the Surviving Corporation's auditors and Chief Financial
Officer to discuss the accuracy and integrity of the Surviving Corporation's
financial reporting management information and control systems, and any other
appropriate issues; and address any other matters which are
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appropriate for the audit committee's review or involvement. The initial members
of the audit committee will be Kathleen E. Lamb, Stephen O. Jaeger and Curtis
Lee Smith, Jr.
The compensation committee will initially consist of three members. In
addition to such powers as may be delegated to it from time to time by the
Surviving Corporation's Board of Directors, the compensation committee will:
review and approve salaries for all corporate officers; review and approve all
incentive and special compensation plans and programs, including stock options
and related longer term incentive compensation programs; review and approve
management succession planning; conduct special competitive compensation studies
and retain compensation consultants as deemed necessary and appropriate; and
recommend appropriate programs and actions on any of the above matters to the
full Board of Directors of the Surviving Corporation for their review and
approval. The initial members of the compensation committee will be Grover C.
Wrenn, Richard J. Defieux and Robert E. Finnigan.
In accordance with the Surviving Corporation's Bylaws, each of the foregoing
committees may act only by affirmative vote of a majority of the authorized
number of members of such committee.
EXECUTIVE OFFICERS AFTER THE MERGER. The Surviving Corporation's Board of
Directors is obligated to take all action necessary to cause Grover C. Wrenn to
be appointed Chairman of the Board, Richard C. Birkmeyer, to be appointed
President and Chief Executive Officer, Gregory J. Bell to be appointed Vice
President-Finance and Chief Financial Officer, David P. Herzog to be appointed
Vice President--Research and Development, Martha C. Reider to be appointed Vice
President--Manufacturing, James W. Stave to be appointed Vice
President--Corporate Development, and Anne F. Cavanaugh to be appointed Vice
President--Acquisitions. Biographical information with respect to Ms. Reider and
Ms. Cavanaugh and Messrs. Bell, Herzog, and Stave is set forth below.
MARTHA C. REIDER, age 42, cofounded SDI in 1990 and has served as Vice
President--Manufacturing, Secretary and a director since inception. Prior to
founding SDI, Ms. Reider worked for DuPont from 1976 to 1990 where she most
recently served as supervisor of Quality Control and Quality Assurance. Ms.
Reider received her B.A. in Biological Sciences from Ohio Northern University.
ANNE F. CAVANAUGH, age 37, cofounded SDI in 1990 and has served as a Vice
President, Treasurer and director of SDI since its inception. Prior to joining
SDI, Ms. Cavanaugh was employed by Terumo Medical Corporation and the
Rockefeller University. Ms. Cavanaugh received her B.S. in Biochemistry from
East Stroudsburg University and has attended the University of Delaware's MBA
program.
GREGORY J. BELL, age 37, joined SDI in June 1993 as Vice President-Finance
and Chief Financial Officer. From 1989 to 1993, Mr. Bell served as the Director
of Finance and Administration of Enzymatics, Inc., a public company that
developed and manufactured medical diagnostic test kits. Prior to joining
Enzymatics, Mr. Bell spent more than seven years at Arthur Andersen & Co., where
he was most recently a manager in Arthur Andersen's emerging business practice
group. Mr. Bell received his B.S. in Accounting from the Pennsylvania State
University and is a Certified Public Accountant.
DAVID P. HERZOG, age 47, joined SDI in August 1996 as Vice
President--Research and Development. From May 1988 to July 1996, Dr. Herzog was
employed by Ohmicron where he most recently served as Senior Vice
President--Operations. Prior to joining Ohmicron, Dr. Herzog spent eight years
at Micromedic Systems, a subsidiary of Rohm & Haas Company, and ten years at the
Ames Division of Miles Laboratories. Dr. Herzog received his Ph.D. in
Microbiology from the University of Notre Dame and his B.S. in Biochemistry from
Michigan State University.
JAMES W. STAVE, age 41, joined SDI in March 1991 as a research group leader.
Subsequently, Dr. Stave was promoted to director of Research and Development, in
October 1993 was promoted to Vice President of Research and Development, and in
August 1996 was promoted to Vice President--Corporate Development. Prior to
joining SDI, Dr. Stave worked for DuPont, Molecular Genetics, Inc. and the U.S.
Department of Agriculture. Dr. Stave received his Ph.D. in Microbiology from the
University of Maryland and his B.S. in Biology from Michigan Technological
University.
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In addition to the appointment of the Executive Officers named above, the
Surviving Corporation's Board of Directors is expected to appoint Ralph E.
Stever as Director of Sales.
RALPH E. STEVER, age 51, joined SDI in August 1996 as Director of Sales.
From January 1993 to July 1996, Mr. Stever was employed by Ohmicron where he
most recently served as Vice President of Sales and Marketing. From 1983 to
1993, Mr. Stever was Director of Sales of Becton Dickinson Instrument Systems.
Mr. Stever received his B.S. degree in marketing from Bradley University.
DESCRIPTION OF CAPITAL STOCK OF THE SURVIVING CORPORATION
The Surviving Corporation's authorized capital stock, as set forth in the
Surviving Corporation Certificate which will be adopted by the approval of the
Merger Agreement, will consist of 35,000,000 shares of Surviving Corporation
Common Stock, 2,164,362 shares of Surviving Corporation Series A Convertible
Preferred Stock and 17,500,000 shares of authorized but unissued "blank check"
preferred stock (the "Authorized Preferred Stock"), $0.01 par value per share.
COMMON STOCK. The holders of the Surviving Corporation Common Stock are
entitled to one vote per share held of record on all matters submitted to a vote
of stockholders. The holders of the Surviving Corporation Common Stock have no
cumulative voting rights in the election of directors. Subject to the prior
rights of holders of Surviving Corporation Series A Preferred Stock and any
Authorized Preferred Stock of the Surviving Corporation already outstanding or
which may later be issued, the holders of the Surviving Corporation Common Stock
are entitled to dividends, when and if declared by the Board of Directors out of
funds legally available therefor. In the event of the liquidation, dissolution
or winding up of the Surviving Corporation, the holders of the Surviving
Corporation Common Stock are entitled to share ratably in all assets remaining
after the payment of liabilities and liquidation preferences of any outstanding
shares of preferred stock. Holders of the Surviving Corporation Common Stock
have no preemptive rights and have no right to convert Surviving Corporation
Common Stock into any other securities. All shares of Surviving Corporation
Common Stock issued pursuant to the Merger will be fully paid and
non-assessable.
AUTHORIZED PREFERRED STOCK. The Board of Directors has the authority,
without further stockholder approval, to issue authorized but unissued shares of
"blank check" preferred stock in one or more series and to determine the
preferences, rights, privileges and restrictions of any series, including the
dividend rights, conversion rights, voting rights, rights in terms of
redemption, liquidation preferences, the number of shares constituting any such
series and the designation of such series. Such Authorized Preferred Stock shall
all be of equal rank, but shall rank junior to the Surviving Corporation Series
A Preferred Stock. Issuance of the Authorized Preferred Stock may adversely
affect, among other things, the voting rights of existing stockholders.
SURVIVING CORPORATION SERIES A PREFERRED STOCK. The Merger Agreement
provides for the issuance of 2,164,362 shares of Surviving Corporation Series A
Preferred Stock to the holders of SDI Preferred Stock.
DIVIDENDS. The holders of the Surviving Corporation Series A Preferred
Stock shall be entitled to receive dividends out of funds legally available
therefor on or with respect to the Surviving Corporation Common Stock (other
than a dividend payable solely in shares of Surviving Corporation Common Stock)
in an amount equal to the dividend the holders of Surviving Corporation Series A
Preferred Stock would receive if their shares were converted into Surviving
Corporation Common Stock.
LIQUIDATION RIGHTS. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Surviving Corporation (other than in connection
with a reorganization of the Surviving Corporation in which the rights and
preferences of the Surviving Corporation Series A Preferred Stock are not
materially adversely affected), the holders of Surviving Corporation Series A
Preferred Stock shall be entitled to be paid an amount equal to $2.9466849 per
share of Surviving Corporation Series A Preferred Stock up to an aggregate
maximum liquidation preference of $6,377,693 (the "Liquidation Preference")
before any
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payment or distribution is made to any junior class of stock. Such Liquidation
Preference will be reduced by the amount of any dividends paid to the holders of
Surviving Corporation Series A Preferred Stock.
If the assets to be distributed among the holders of Surviving Corporation
Series A Preferred Stock are insufficient to permit payment of the full
Liquidation Preference, then the entire assets of the Surviving Corporation
legally available for distribution shall be distributed ratably among the
holders of Surviving Corporation Series A Preferred Stock. After the holders of
Surviving Corporation Series A Preferred Stock have been paid the full
Liquidation Preference, the remaining net assets of the Surviving Corporation
may be distributed to the holders of stock ranking junior to the Surviving
Corporation Series A Preferred Stock.
VOTING RIGHTS. The Surviving Corporation Series A Preferred Stock and all
other classes and series of stock of the Corporation otherwise entitled to vote
shall vote together as a single class on all actions to be taken by the
stockholders of the Surviving Corporation. Each share of Surviving Corporation
Series A Preferred Stock shall entitle the holder thereof to the number of votes
per share on each such action equal to the nearest whole number of shares of
Surviving Corporation Common Stock into which each share of Surviving
Corporation Series A Preferred Stock is then convertible.
Except where the vote or written consent of the holders of a greater number
of shares of the Surviving Corporation is required by law or by the Surviving
Corporation Certificate, the approval of the holders of at least two-thirds of
the outstanding shares of Surviving Corporation Series A Preferred Stock in
writing or by vote at a meeting in addition to any other vote required by law or
the Surviving Corporation Certificate is required to: (i) create or authorize
the creation of any additional class or series of shares of stock unless such
class ranks junior to the Surviving Corporation Series A Preferred Stock as to
the distribution of assets on the liquidation, dissolution or winding up of the
Surviving Corporation; (ii) increase the authorized amount of Surviving
Corporation Series A Preferred Stock or increase the authorized amount of any
additional class or series of shares of stock unless the same ranks junior to
the Surviving Corporation Series A Preferred Stock as to the distribution of
assets on the liquidation, dissolution or winding up of the Surviving
Corporation; (iii) create or authorize any obligation or security convertible
into shares of Surviving Corporation Series A Preferred Stock or into shares of
any other class or series of stock unless the same ranks junior to the Surviving
Corporation Series A Preferred Stock as to the distribution of assets on the
liquidation or winding up of the Surviving Corporation; or (iv) redeem or
otherwise acquire any shares of Surviving Corporation Series A Preferred Stock,
except as expressly authorized by the Surviving Corporation Certificate or
pursuant to a purchase offer made pro rata to all holders of the shares of
Surviving Corporation Series A Preferred Stock.
CONVERSION. Each share of Surviving Corporation Series A Preferred Stock
will be convertible, at the option of the holder thereof at any time, into an
equal number of fully paid and nonassessable shares of Common Stock. Upon
conversion, each holder of Surviving Corporation Series A Preferred Stock will
receive cash in lieu of any fractional share of Surviving Corporation Common
Stock. At the time of each conversion, the Surviving Corporation shall pay in
cash an amount equal to all dividends accrued and unpaid up to the time of
conversion on the shares of Surviving Corporation Series A Preferred Stock
surrendered for conversion to the date upon which such conversion is deemed to
take place. Surviving Corporation Series A Preferred Stock will be subject to
certain anti-dilution provisions in the event of a stock split, reverse stock
split, stock dividends, reclassifications, reorganizations and other similar
items.
The Surviving Corporation will at all times reserve and keep available out
of its authorized Surviving Corporation Common Stock a sufficient number of
shares of Surviving Corporation Common Stock to be issued in the event of
conversion of all outstanding shares of Surviving Corporation Series A Preferred
Stock. Shares of Surviving Corporation Series A Preferred Stock which are
converted into shares of Surviving Corporation Common Stock shall be canceled
and shall not be reissued. The Surviving Corporation will at no time close its
transfer books in any manner which interferes with the timely conversion of
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such Surviving Corporation Series A Preferred Stock, except as may otherwise be
required to comply with applicable securities laws.
MANDATORY CONVERSION. If the closing share price of the Surviving
Corporation Common Stock listed on Nasdaq equals or exceeds $4.50 per share for
a period of forty-five (45) consecutive business days, all outstanding shares of
Surviving Corporation Series A Preferred Stock shall automatically convert to
shares of Surviving Corporation Common Stock.
REDEMPTION. Upon 60 days' notice, Surviving Corporation Series A Preferred
Stock will be redeemable by the Surviving Corporation at any time after June 23,
2001, or upon the written request of holders of two-thirds of the outstanding
Surviving Corporation Series A Preferred Stock in the event the Surviving
Corporation effects a transaction in which the Surviving Corporation Series A
Preferred Stock would be converted into or exchanged for securities with lesser
rights, preferences or aggregate stated values.
If the funds of the Surviving Corporation legally available for redemption
of shares of Surviving Corporation Series A Preferred Stock on the redemption
date are insufficient to redeem the total number of outstanding shares of
Surviving Corporation Series A Preferred Stock, the holders of shares of
Surviving Corporation Series A Preferred Stock will share ratably in any funds
legally available for redemption of such shares owned by them if all such
outstanding shares were redeemed in full. The shares of Surviving Corporation
Series A Preferred Stock not redeemed shall remain outstanding and entitled to
all rights and preferences. At any time thereafter when additional funds of the
Surviving Corporation are legally available for the redemption of such shares of
Surviving Corporation Series A Preferred Stock, such funds will be used, at the
end of the next succeeding fiscal quarter, to redeem the balance of such shares,
or such portion thereof for which funds are then legally available, on the basis
set forth above.
Any shares of Surviving Corporation Series A Preferred Stock redeemed or
otherwise acquired by the Surviving Corporation will be canceled and shall not
under any circumstances be reissued. The Surviving Corporation may from time to
time take such appropriate corporate action as may be necessary to reduce the
number of authorized shares of Surviving Corporation Series A Preferred Stock.
LISTING OF SURVIVING CORPORATION COMMON STOCK
The EnSys Common Stock is quoted on Nasdaq under the symbol "ENSY." Upon
consummation of the Merger, EnSys' corporate name will be changed to Strategic
Diagnostics Inc. In connection with such change, the trading symbol of the
Surviving Corporation will be changed to "SDIX." EnSys has applied to include
the shares of the Surviving Corporation Common Stock to be issued in the Merger
on Nasdaq.
TRANSFER AGENT
Boston EquiServ, Boston, Massachusetts, will act as transfer agent for the
Surviving Corporation Common Stock following consummation of the Merger.
CORPORATE HEADQUARTERS
At the Effective Time, the Surviving Corporation will move its corporate
headquarters to the corporate offices presently occupied by SDI in Newark,
Delaware.
COMPARATIVE RIGHTS OF STOCKHOLDERS
GENERAL
As a result of the Merger, holders of EnSys Common Stock and holders of SDI
Common Stock and SDI Preferred Stock will become stockholders of the Surviving
Corporation, and the rights of all such former EnSys and SDI stockholders will
thereafter be governed by the Surviving Corporation Certificate, the Surviving
Corporation Bylaws and the DGCL. The rights of the holders of EnSys Common Stock
are
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presently governed by the EnSys Certificate, Bylaws of EnSys (the "EnSys
Bylaws") and the DGCL. The rights of holders of SDI Common Stock and SDI
Preferred Stock are presently governed by the SDI Certificate, the Bylaws of SDI
(the "SDI Bylaws") and the DGCL. The following summary sets forth certain
material differences between the rights of stockholders of the Surviving
Corporation and the rights of stockholders of EnSys and SDI. The summary does
not purport to be a complete description of the differences between the rights
of such holders, or to give full effect to the provisions of statutory or common
law, and is subject to, and qualified in its entirety by reference to, the DGCL.
CLASSIFIED BOARD OF DIRECTORS
The DGCL provides that a corporation's board of directors may be divided
into various classes with staggered terms of office. The Surviving Corporation
Certificate and Surviving Corporation Bylaws provide that the Surviving
Corporation's Board of Directors will be classified and will initially consist
of seven members through the 1998 annual meeting of stockholders of the
Surviving Corporation. Thereafter, the number of directors may be fixed or
altered by resolutions adopted by a two-thirds vote of the Surviving
Corporation's Board of Directors. The Surviving Corporation Certificate further
provides that, any vacancy on the Surviving Corporation's Board of Directors,
including any newly created directorship resulting from an increase in the
number of directors, may be filled by vote of a majority of the Surviving
Corporation's Board of Directors then in office provided that at such times that
a member of the Board of Directors voluntarily resigns from the Board, he or she
may vote to fill the vacancy. Each director will hold office until his or her
successor is elected or qualified, or until his or her earlier resignation. The
directors of the Surviving Corporation will hold office as follows: Class I
Directors will hold office for a term expiring at the 1997 annual meeting of the
stockholders and the Class II Directors will hold office for a term expiring at
the 1998 annual meeting of stockholders, with the members of each class to hold
office until their respective successors are duly elected and qualified. All
Class I Directors holding office at the time of the 1997 annual meeting of
stockholders will automatically be nominated, subject to such director's
consent, to serve an additional two-year term expiring at the 1999 annual
meeting of the stockholders; all Class II Directors holding office at the time
of the 1998 annual meeting of the stockholders will automatically be nominated,
subject to such director's consent, to serve an additional two-year term
expiring at the 2000 annual meeting of the stockholders.
The EnSys Certificate provides for a classified board of directors, divided
into three classes with staggered three-year terms. The SDI Bylaws provide for a
non-classified board consisting of eight persons. The SDI Bylaws provide that
the number of directors cannot be increased without a separate two-thirds vote
of the holders of SDI Preferred Stock. Classification of directors effectively
reduces the stockholders' ability to change the composition of the Surviving
Corporation's Board of Directors. Thus, after the Merger, former SDI
stockholders will have less ability to change the composition of the Board of
Directors of the Surviving Corporation than they presently possess with respect
to the SDI Board of Directors.
After the Surviving Corporation's 1998 annual meeting of stockholders, at
least two annual meetings of stockholders, instead of one, may be required to
effect a change in the majority of the Surviving Corporation's Board of
Directors. Such a delay may help ensure that the Surviving Corporation's
Directors, if confronted by a stockholder attempting to force a proxy contest,
tender or exchange offer or other extraordinary corporate transaction, would
have sufficient time to review the proposal as well as any available
alternatives to the proposal and act in what they believe to best interest of
the stockholders.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of the Surviving Corporation. The classification of
the Surviving Corporation's Board of Directors might also increase the
likelihood that incumbent directors will retain their positions.
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NUMBER AND ELECTION OF DIRECTORS
The Surviving Corporation Certificate and Surviving Corporation Bylaws
provide that the Surviving Corporation's Board of Directors will be classified
and will initially consist of seven members through the 1998 annual meeting of
stockholders of the Surviving Corporation. Thereafter, the number of directors
may be fixed or altered by resolutions adopted by a two-thirds vote of the
Surviving Corporation's Board of Directors. The Surviving Corporation
Certificate further provides that, any vacancy on the Surviving Corporation's
Board of Directors, including any newly created directorship resulting from an
increase in the number of directors, may be filled by vote of a majority of the
Surviving Corporation's Board of Directors then in office provided that at such
times that a member of the Board of Directors voluntarily resigns from the
Board, he or she may vote to fill the vacancy. Each director will hold office
until his or her successor is elected or qualified, or until his or her earlier
resignation.
The EnSys Bylaws authorize the EnSys Board of Directors to fix the number of
directors from time to time by resolution. The EnSys Bylaws provide that the
three classes of EnSys directors will be as nearly equal in number as possible,
with one class to be elected annually.
The SDI Board of Directors currently consists of eight directors. The SDI
Certificate provides that the number of directors will be fixed from time to
time by the SDI Bylaws, and the SDI Bylaws provide that the number of directors
may not be increased without the approval by written consent or affirmative vote
of the holders of at least two-thirds of the outstanding shares of SDI Preferred
Stock. The SDI Bylaws also require that three of the SDI directors be elected
solely by the holders of SDI Common Stock, that two SDI directors be elected
solely by the holders of SDI Preferred Stock, and that the remaining directors
be elected by plurality vote of the holders of SDI Common Stock, voting as a
separate class, subject to the approval by plurality vote of the holders of SDI
Preferred Stock. The SDI Bylaws provide that vacancies and newly created
directorships may be filled by majority vote of the SDI directors then in
office. Vacancies in any directorship elected solely by the holders of SDI
Preferred Stock may be filled only by vote or written consent of the holders of
SDI Preferred Stock, and vacancies in any directorships elected solely by the
holders of SDI Common Stock may be filled only by the vote or written consent of
the holders of SDI Common Stock, subject to approval by the holders of the SDI
Preferred Stock.
Under the DGCL, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. The Surviving Corporation Bylaws specify that a
director may only be removed for cause, and the EnSys Bylaws contain
substantially similar provisions. The SDI Bylaws provide that any director
elected solely by the holders of SDI Preferred Stock may be removed only by the
holders of SDI Preferred Stock, and that any director elected solely by the
holders of SDI Common Stock may be removed only by the holders of SDI Common
Stock.
The requirement that directors be removed only for cause effectively limits
the stockholders' ability to change the composition of the Surviving
Corporation's Board of Directors. Thus, after the Merger, former SDI
stockholders will have less ability to change the composition of the Board of
Directors of the Surviving Corporation than they presently possess with respect
to the SDI Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Surviving Corporation Certificate provides that any stockholder action
required or permitted to be taken at any meeting of stockholders may be taken
without a meeting if a written consent setting forth the action so taken is
signed by all the holders of outstanding stock entitled to vote thereon.
The EnSys Bylaws contain substantially similar provisions.
The SDI Bylaws provide that any action required or permitted to be taken at
any meeting of stockholders may be taken without a meeting if a consent in
writing setting forth the action so taken is signed by the holders of
outstanding stock having not less than the minimum number of votes necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereupon were and voted.
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The provisions of the Surviving Corporation Certificate allowing stockholder
action only by unanimous written consent may have the effect of delaying
considerations of a stockholder proposal until the next annual meeting of
stockholders. These provisions would also prevent the holders of a majority of
the voting power of the Surviving Corporation Common Stock from unilaterally
using the written consent procedure to take stockholder action.
SPECIAL MEETING OF STOCKHOLDERS
The SDI Bylaws provide that special meetings of stockholders of SDI may be
called by the President or may be called by the President or Secretary at the
request in writing of stockholders owning at least 25% of the voting power of
either the SDI Common Stock or the SDI Preferred Stock.
The Surviving Corporation Bylaws provide that special meetings of the
stockholders of the Surviving Corporation may be called only by the Board of
Directors pursuant to a resolution approved by the affirmative vote of a
majority of the Directors then in office, the Chairman of the Board, if one is
elected, or the President. The EnSys Bylaws contain substantially similar
provisions. The effect of these provisions may be to reduce the ability of
stockholders in the Surviving Corporation to call special meetings without
approval of the Board of Directors.
COMMON STOCK
The terms of the Surviving Corporation Common Stock are substantially
identical to those of the SDI Common Stock and the EnSys Common Stock.
PREFERRED STOCK
Pursuant to the Surviving Corporation Certificate, the Surviving
Corporation's Board of Directors is authorized, subject to the limitations
prescribed by law, to provide for the issuance of shares of preferred stock in
one or more series, to establish the number of shares of each such series and to
fix the designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. The SDI
Certificate contains substantially similar provisions relating to SDI Preferred
Stock. The EnSys Certificate and EnSys Bylaws contain no such provision.
The issuance of such shares of capital stock may have the effect of
delaying, deferring or preventing a change in control of the Surviving
Corporation without any further action by the stockholders of the Surviving
Corporation.
In addition, pursuant to the Merger Agreement, the existing shares of SDI
Preferred Stock will be converted into Surviving Corporation Series A Preferred
Stock. Voting rights on the Surviving Corporation Series A Preferred Stock will
be on an "as if converted to common stock" basis. The Surviving Corporation
Series A Preferred Stock will be redeemable by the Surviving Corporation at any
time after June 23, 2001 and will also be redeemable upon the request of the
holder in the event the Surviving Corporation effects a transaction in which
such preferred shares would be converted into or exchanged for securities with
lesser rights, preferences or aggregate stated values. Shares of Surviving
Corporation Series A Preferred Stock will be convertible to Surviving
Corporation Common Stock at a one-to-one ratio at any time. Furthermore, the
Surviving Corporation Series A Preferred Stock carries a mandatory conversion to
Surviving Corporation Common Stock if Surviving Corporation Common Stock trades
on Nasdaq at an average of $4.50 per share or higher for a period of at least
forty-five (45) consecutive trading days. The Surviving Corporation Series A
Preferred Stock will carry an aggregate liquidation preference of $6,377,693 and
no other preferences.
The existence of the Surviving Corporation Series A Preferred Stock will
potentially reduce the amount of assets available to holders of the Surviving
Corporation Common Stock upon liquidation, dissolution or winding up of the
Surviving Corporation.
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AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Surviving Corporation Certificate provides that the Surviving
Corporation Board of Directors and the stockholders of the Surviving Corporation
will have the power to adopt, alter, amend and repeal the Surviving Corporation
Bylaws. The Surviving Corporation Certificate provides that any such adoption,
alteration, amendment or repeal of the Surviving Corporation Bylaws will require
either the affirmative vote of two-thirds of the Surviving Corporation Board of
Directors then in office or the vote of two-thirds of the total votes eligible
to be cast by Surviving Corporation stockholders, voting together as a single
class at a duly constituted meeting of stockholders called expressly for such
purpose.
The Surviving Corporation Certificate provides that any repeal or alteration
of, or amendment to, the certificate must first be approved by a majority vote
of the Surviving Corporation Board of Directors then in office, subject to the
approval of, the Surviving Corporation stockholders.
The EnSys Certificate and the EnSys Bylaws contain similar provisions.
The SDI Certificate and SDI Bylaws provide that the affirmative vote of a
majority of the SDI Board of Directors or the SDI stockholders is required to
alter, amend or repeal the SDI Certificate or the SDI Bylaws, subject to
approval by the affirmative vote of two-thirds of the holders of SDI Preferred
Stock.
BUSINESS COMBINATIONS
The Surviving Corporation Certificate provides that the following business
combinations require approval by an affirmative vote of least two-thirds of the
holders or the outstanding voting stock of the Surviving Corporation, voting
together as a single class: (i) any merger or consolidation of the Surviving
Corporation or any of its subsidiaries with any interested stockholder or any
other corporation or entity which is, or after such merger or consolidation
would be, an affiliate of any interested stockholder; (ii) any sale, lease,
exchange, transfer or other disposition to or with any interested stockholder,
or any affiliate of any interested stockholder, of any assets of the Surviving
Corporation or any of its subsidiaries with a fair market value of $5 million or
more; (iii) the issuance or transfer by the Surviving Corporation or any of its
subsidiaries of any securities of the Surviving Corporation or any of its
subsidiaries to any interested stockholder or any affiliate of any interested
stockholder in exchange for cash, securities or other property having a value of
$5 million or more; (iv) or the adoption of any plan or proposal for the
liquidation, dissolution or winding up of the Surviving Corporation proposed by
or on behalf of any interested stockholder or any affiliate of any interested
stockholder; (v) any reclassification of securities or recapitalization of the
Surviving Corporation or any merger or consolidation of the Surviving
Corporation with any of its subsidiaries or any other transaction, whether or
not it involves an interested stockholder, which has the effect, directly or
indirectly, of increasing the proportion of the outstanding shares of any class
of equity or convertible securities of the Surviving Corporation or any of its
subsidiaries which is directly or indirectly owned by any interested stockholder
or any affiliate of any interested stockholder. In the event such a business
combination has been approved by a majority of the continuing directors then in
office, a two-thirds vote of the outstanding voting stock would not be required.
The EnSys Certificate contains a substantially similar provision; however,
the SDI Certificate and SDI Bylaws do not.
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation will not engage in any business combination
with any interested stockholder for a three-year period following the date that
such stockholder becomes an interested stockholder unless (i) prior to such
date, the board of directors of the corporation either approved the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares held by
directors who are also officers and shares subject to employee stock
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purchase plans in which employee participants do not have the right to determine
confidentially whether such plan shares will be tendered in a tender or exchange
offer) or (iii) on or subsequent to such date, the business combination is
approved by the board of directors of the corporation and by the affirmative
vote at an annual or special meeting, and not by written consent, of at least
two-thirds of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in Section 203 of the DGCL, an interested
stockholder is defined to include (i) any person that is the owner of 15% or
more of the outstanding voting stock of the corporation or is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation, at any time within three years immediately
prior to the relevant date and (ii) the affiliates and associates of any such
person.
The Surviving Corporation Certificate does not exclude the Surviving
Corporation from the restrictions imposed under Section 203 of the DGCL. Neither
the SDI Certificate nor the EnSys Certificate opt out of the restrictions
provided under Section 203 of the DGCL. The Surviving Corporation Certificate,
however, adds further restrictions on transactions with interested stockholders
in addition to the restrictions imposed in Section 203 of the DGCL. Under
certain circumstances, the provisions in the Surviving Corporation Certificate
may make it more difficult for a person who would be an interested stockholder
to effect various business combinations with the Surviving Corporation than it
would be strictly under Section 203. The additional protections in the Surviving
Corporation Certificate will in all likelihood encourage potential acquirers of
the Surviving Corporation to negotiate in advance with the Surviving Corporation
Board of Directors, since the two-thirds stockholder approval requirement would
be avoided if a majority of the continuing directors then in office approves the
transaction with an interested stockholder.
SPECIAL VOTING REQUIREMENTS
The SDI Certificate requires that two-thirds of the holders of SDI Preferred
Stock approve, either by affirmative vote or written consent, certain activities
and events. Those activities and events include, among other things: (i) the
creation or authorization of any additional class or series of stock not junior
to SDI Preferred Stock; (ii) the liquidation, dissolution, winding up or the
merger or consolidation of SDI into another entity; (iii) the sale of
substantially all of the assets of SDI; (iv) the amendment, alteration or repeal
of the SDI Certificate or SDI Bylaws; (v) the purchase of or the decision to set
aside money to purchase any of SDI's outstanding stock; (vi) the payment of any
dividend on any stock other than the SDI Preferred Stock, except such dividends
in the form of additional shares of SDI Common Stock or paid out pursuant to an
employment agreement; and (vii) any transaction between SDI and an officer,
director or holder of greater than 5% of the outstanding SDI Common Stock. The
SDI Certificate also provides that no amendment to any of the aforementioned
rights of holders of SDI Preferred Stock may be modified without the approval of
two-thirds of the holders of SDI Preferred Stock. The EnSys Certificate and
EnSys Bylaws do not contain any similar provisions.
Under the Surviving Corporation Certificate, the affirmative vote of
two-thirds of the holders of Surviving Corporation Series A Preferred Stock is
required in order to, among other things: (i) create or authorize the creation
of any additional class or series of shares of stock unless such class ranks
junior to the Surviving Corporation Series A Preferred Stock as to the
distribution of assets on the liquidation, dissolution or winding up of the
Surviving Corporation; (ii) increase the authorized amount of Surviving
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Corporation Series A Preferred Stock or increase the authorized amount of any
additional class or series of shares of stock unless the same ranks junior to
the Surviving Corporation Series A Preferred Stock as to the distribution of
assets on the liquidation, dissolution or winding up of the Surviving
Corporation; (iii) create or authorize any obligation or security convertible
into shares of Surviving Corporation Series A Preferred Stock or into shares of
any other class or series of stock unless the same ranks junior to the Surviving
Corporation Series A Preferred Stock as to the distribution of assets on the
liquidation or winding up of the Surviving Corporation; or (iv) redeem or
otherwise acquire any shares of Surviving Corporation Series A Preferred Stock,
except as expressly authorized by the Surviving Corporation Certificate or
pursuant to a purchase offer made pro rata to all holders of the shares of
Surviving Corporation Series A Preferred Stock. While the rights and terms of
the Surviving Corporation Series A Preferred Stock are similar to some of the
rights and terms granted to holders of SDI Preferred Stock, the rights extended
to holders of Surviving Corporation Series A Preferred Stock are not as
extensive as the rights extended to holders of SDI Preferred Stock. As a result,
stockholders of SDI will be unable to exercise the same degree of control over
corporate affairs in the Surviving Corporation that was available to them as
stockholders of SDI.
PROPOSAL TO AMEND AND RESTATE ENSYS' CERTIFICATE OF INCORPORATION TO
CHANGE NAME
The Merger Agreement provides for the amendment and restatement of the EnSys
Certificate effective upon the consummation of the Merger, at which time the
EnSys Certificate will become the Surviving Corporation Certificate. Such
amendment and restatement will, among other things, change the corporate name of
the Surviving Corporation to "Strategic Diagnostics Inc." (the "Name Change
Amendment").
The Name Change Amendment would change the name of EnSys to "Strategic
Diagnostics Inc." The EnSys Board of Directors believes that changing the name
of the Surviving Corporation to adopt the name of SDI will more accurately
reflect the fact that the Surviving Corporation will manufacture and sell a
substantially broader range of diagnostic products than EnSys currently markets,
including many non-environmental products.
PROPOSAL TO AMEND AND RESTATE ENSYS' CERTIFICATE OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK
The Merger Agreement provides for the amendment and restatement of the EnSys
Certificate effective upon the consummation of the Merger, at which time the
EnSys Certificate will become the Surviving Corporation Certificate. Such
amendment and restatement will, among other things, increase the number of
authorized shares of capital stock, authorize the issuance of Surviving
Corporation Series A Preferred Stock and authorize the creation of "blank check"
preferred stock (the "Authorized Shares Amendment"). The Authorized Shares
Amendment would increase the number of authorized shares of Surviving
Corporation Common Stock from 25,000,000 shares to 35,000,000 shares. The
Authorized Shares Amendment would also authorize the creation of 17,500,000
shares of "blank check" preferred stock and 2,164,362 shares of Surviving
Corporation Series A Preferred Stock. See "Operation, Management and Business of
the Surviving Corporation After the Merger -Description of Capital Stock of the
Surviving Corporation."
The EnSys Board of Directors believes that the adoption of the Authorized
Shares Amendment is advantageous to the Surviving Corporation and its
stockholders, providing additional shares of Surviving Corporation Common Stock
and creating a class of authorized but unissued "blank check" preferred stock
that could be used, from time to time, without further action or authorization
by the stockholders (except as may be required by law or by any stock exchange
on which Surviving Corporation securities may be listed), for corporate purposes
which the Surviving Corporation Board of Directors may deem desirable,
including, without limitation, stock splits, stock dividends or other
distributions, financings, acquisitions, stock grants, stock options and
employee benefit plans. While the Surviving Corporation has no present
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plans, agreements or commitments for the issuance of additional shares of
Surviving Corporation Common Stock or Surviving Corporation Series A Preferred
Stock, except as required pursuant to the terms of the Merger Agreement, the
Board of Directors believes that the availability of these shares would allow
the Surviving Corporation to issue additional shares of stock if market or other
conditions indicate that such a course of action is advisable. Furthermore, the
Board of Directors believes that it is in the best interests of the Surviving
Corporation to authorize the creation of the Series A Preferred Stock in order
to effectuate the Merger with SDI.
PROPOSAL TO AMEND AND RESTATE ENSYS' CERTIFICATE OF INCORPORATION TO
RECLASSIFY ENSYS' BOARD
Pursuant to the Board Amendment, the number of classes of directors of the
Surviving Corporation will be reduced from three to two, with directors serving
two-year rather than three-year terms. Commencing at the Effective Time of the
Merger and continuing through the 1998 annual meeting of the stockholders of the
Surviving Corporation, the Board of Directors will consist of seven members. The
initial Board of Directors will be selected as follows: EnSys and SDI will each
select three members and the remaining member will be selected by Perkin-Elmer.
The directors of the Surviving Corporation will hold office as follows: Class I
Directors will hold office for a term expiring at the 1997 annual meeting of
stockholders and the Class II Directors will hold office for a term expiring at
the 1998 annual meeting of stockholders, with the members of each class to hold
office until their respective successors are duly elected and qualified. At each
annual meeting, directors will be elected to succeed those directors whose terms
expire at such annual meeting, for a term of office which will expire at the
second succeeding annual meeting. However, all Class I Directors holding office
at the time of the 1997 annual meeting of stockholders will automatically be
nominated, subject to such director's consent, to serve an additional two-year
term expiring at the 1999 annual meeting of the stockholders; all Class II
Directors holding office at the time of the 1998 annual meeting of the
stockholders will automatically be nominated, subject to such director's
consent, to serve an additional two-year term expiring at the 2000 annual
meeting of the stockholders.
The determination to reduce the number of classes of directors of the
Surviving Corporation from three to two and to reduce the number of years each
director would serve from three years to two years was the result of discussions
between EnSys and SDI. This reclassification represents a compromise between the
current classification of the EnSys Board and the absence of any classification
of the SDI Board. Additionally, EnSys and SDI believe that such compromise will
help assure that the members of the Board of Directors of the Surviving
Corporation are responsive to the concerns of the Surviving Corporation
stockholders by requiring them to stand for election every two years rather than
three years.
The foregoing discussion of the three proposals relating to the Amendment
and Restatement of the EnSys Certificate of Incorporation constitutes a summary
of the proposed amendment and restatement of the EnSys Certificate as set forth
in the Merger Agreement. Such summary is qualified in its entirety by reference
to the complete text of such amendment and restatement, which is set forth in
the form of the Surviving Corporation Certificate, a copy of which is attached
as Appendix D to this Joint Proxy Statement/Prospectus.
PROPOSAL TO APPROVE THE
AMENDED AND RESTATED ENSYS 1995 STOCK INCENTIVE PLAN
EnSys stockholders will consider and vote upon a proposal to approve
amendments to the 1995 EnSys Plan in accordance with the Amended 1995 EnSys
Plan. On October 2, 1996, the EnSys Board of Directors adopted the Amended 1995
EnSys Plan, subject to EnSys stockholder approval. The amendments will
principally (i) increase the number of shares authorized and issuable pursuant
to the plan; (ii) limit the maximum aggregate number of shares of Surviving
Corporation Common Stock that may be subject to awards granted within any fiscal
year to any "covered employee" as defined in Section 162(m) of the Code;
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(iii) broaden the class of persons eligible under the plan to receive EnSys
stock options which may be granted to replace options to purchase stock in a
company which is party to a merger or consolidation involving EnSys or which is
a party to certain other acquisitions involving EnSys or its subsidiaries; (iv)
eliminate the requirement that the plan be administered by a committee
consisting solely of two or more disinterested directors, as defined by Rule
16b-3(c)(2)(i) under the Exchange Act; (v) eliminate the "formula plan"
requirements applicable to stock options granted to independent directors and
conform the provisions applicable to stock option grants to directors to those
previously applicable to non-qualified stock option grants to employees; and
(vi) eliminate certain restrictions on the ability of an optionee to elect to
have tax withholding obligations satisfied by payment in shares.
INCREASE IN THE NUMBER OF SHARES ISSUABLE UNDER THE 1995 ENSYS PLAN
As of December 2, 1996, EnSys had shares available for issuance under the
1995 EnSys Plan which were sufficient to permit EnSys to grant an aggregate of
218,400 additional stock options under the 1995 EnSys Plan. In order to issue
Surviving Corporation Options to purchase Surviving Corporation Common Stock to
persons holding SDI Options and to continue to be able to issue options to EnSys
employees, directors, consultants and advisors, the EnSys Board of Directors has
amended Section 3(a) to increase the aggregate number of shares issuable under
the plan from 500,000 shares to 1,700,000 shares.
The EnSys Board of Directors believes that it is in the best interests of
EnSys and its stockholders to amend the 1995 EnSys Plan to permit the
above-referenced Surviving Corporation Options to be granted pursuant to the
Amended 1995 EnSys Plan, as EnSys believes such procedure represents the most
efficient and cost-effective means by which it may satisfy its obligations in
respect of the currently outstanding SDI Options under the Merger Agreement. The
EnSys Board further believes that sufficient shares should be reserved for
future issuance under the Amended 1995 EnSys Plan as to permit a reasonable
number of future awards to be made to EnSys and Surviving Corporation employees,
directors, consultants and advisors, as the EnSys Board believes that it is in
the best interest of EnSys and the Surviving Corporation to enable such persons
to acquire a proprietary interest in EnSys and the Surviving Corporation and to
encourage those persons upon whose judgment, initiative and efforts EnSys
largely depends (and on which the Surviving Corporation will largely depend) for
the successful conduct of its business.
LIMITATION ON GRANTS OF AWARDS
In order for certain stock options and other stock awards to satisfy the
special provisions relating to the qualified performance-based compensation
exception to the $1 million compensation deduction limitation under Section
162(m) of the Code, the plan must limit the maximum aggregate number of shares
of common stock with respect to which stock options, share awards and
performance share awards may be granted to an employee in any year. The EnSys
Board of Directors has amended Section 3(b) to assure that the Amended 1995
EnSys Plan and grants of awards thereunder comply with this provision of the
Code. The EnSys Board of Directors believes that it is in the best interest of
EnSys and its stockholders to amend the 1995 EnSys Plan to comply with the
special provisions relating to the qualified performance-based compensation
exception.
SUBSTITUTE AWARDS
Section 3(c) of the 1995 EnSys Plan currently provides for the grant of
EnSys stock options to employees of another corporation who concurrently become
employees of the Surviving Corporation as the result of a merger. To expand the
grant of substitute awards in place of stock and stock based awards to include
directors, officers and employees of another corporation who do not become
employed by the Surviving Corporation, the EnSys Board of Directors has adopted
an amendment that permits the Board of Directors to grant substitute awards
under the Amended 1995 EnSys Plan in substitution for stock and stock based
awards held by persons who are or were directors, officers or employees of
another corporation which merges or consolidates with, or the stock or property
of which other corporation is
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acquired by the Surviving Corporation or subsidiary. The Board may direct that
the substitute awards be granted on such terms and conditions as the Board
considers appropriate in the circumstances. Such terms and conditions may vary
from the terms and conditions generally applicable to options granted under the
Amended 1995 EnSys Plan, including the option exercise price and the time
periods during which options granted as substitute awards may be exercised,
before and after the optionee's termination of employment. The EnSys Board of
Directors believes that it is in the best interests of EnSys and its
stockholders to amend the 1995 EnSys Plan to permit the above-referenced
Surviving Corporation Options to be granted pursuant to the Amended 1995 EnSys
Plan, as EnSys believes such procedure represents the most efficient and
cost-effective means by which it may satisfy its obligations in respect of the
currently outstanding SDI Options under the Merger Agreement.
SECTION 16 CHANGES
In August 1996, the Commission amended its rules under Section 16 of the
Exchange Act to relax a number of the regulatory requirements which previously
applied to stock option plans. The Amended 1995 EnSys Plan amends the 1995 EnSys
Plan to provide the EnSys Board of Directors with the added flexibility that is
permitted under the Commission's new rules and makes certain other technical
changes which are permitted under the amended rules.
The EnSys Board of Directors has amended Sections 2(a) and 5(c) of the 1995
EnSys Plan to (i) eliminate the requirement that the plan be administered by a
committee consisting solely of two or more disinterested directors, as defined
by Rule 16b-3(c)(2)(i); and (ii) eliminate the "formula plan" requirements
applicable to stock options granted to independent directors and conform the
provisions applicable to stock options granted to directors to those applicable
to non-qualified stock option grants to employees. Although the requirement that
the Amended 1995 EnSys Plan be administered by a committee consisting solely of
two or more disinterested directors has been eliminated, the EnSys Board of
Directors will have the discretion to delegate its authority to administer the
Amended 1995 EnSys Plan to a committee. The EnSys Board of Directors currently
anticipates that the compensation committee of EnSys will be primarily
responsible for administering the Amended 1995 EnSys Plan.
In addition, the Board of Directors has amended Section 8(b) of the 1995
EnSys Plan to eliminate certain restrictions on the ability of an optionee to
elect to have tax withholding obligations satisfied by payment in shares, as
such restrictions were included in the 1995 EnSys Plan for the purpose of
requiring that the optionee comply with a six-month holding period requirement
which has been eliminated by the new rules.
The EnSys Board of Directors believes that it is in the best interest of
EnSys and its stockholders to amend the 1995 EnSys Plan to provide the Board of
Directors (and any committee administering the Amended 1995 EnSys Plan) with
greater flexibility in the manner in which they may allow those officers and
directors upon whose judgment, initiative and efforts EnSys largely depends for
the successful conduct of its business to acquire a proprietary interest in
EnSys.
SUMMARY OF THE AMENDED AND RESTATED ENSYS 1995 STOCK INCENTIVE PLAN
The Amended 1995 EnSys Plan is summarized below, but the description is
subject to and is qualified in its entirety by the full text of the Amended 1995
EnSys Plan, which is attached as Appendix F to this Joint Proxy
Statement/Prospectus.
Under the Amended 1995 EnSys Plan, EnSys is authorized to grant awards of up
to 1,700,000 shares of common stock, subject to adjustment for stock splits or
similar events, to employees, independent directors, consultants and advisors of
EnSys and its subsidiaries. The Amended 1995 EnSys Plan authorizes (i) the grant
of options to purchase common stock intended to qualify as incentive stock
options under Section 422 of the Code ("Incentive Options"), (ii) the grant of
options to purchase common stock that do not so qualify ("Non-Qualified
Options"), (iii) the issuance or sale of common stock with restrictions
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("Restricted Stock") and (iv) the grant of common stock subject to the
attainment of certain performance goals ("Performance Share Awards").
The Amended 1995 EnSys Plan is administered by the EnSys Board of Directors.
However, the EnSys Board of Directors has the discretion to delegate its
authority to administer the Amended 1995 EnSys Plan to a committee. The EnSys
Board of Directors currently anticipates that the compensation committee of
EnSys will be primarily responsible for administering the Amended 1995 EnSys
Plan. Accordingly, references in this description to the EnSys Board of
Directors shall include the compensation committee and any other committee of
the Board to which the Board may delegate its authority under the Amended 1995
EnSys Plan.
The Board has full power to select, from among the officers, independent
directors, employees, consultants and advisors eligible for awards, the
individuals to whom awards will be granted, to make any combination of awards to
participants, and to determine the specific terms of each award, subject to the
provisions of the Amended 1995 EnSys Plan. Persons eligible to participate in
the Amended 1995 EnSys Plan will be those full or part-time officers,
independent directors, employees, consultants and advisors of EnSys and its
subsidiaries who are responsible for or contribute to the management, growth or
profitability of EnSys and its subsidiaries, as selected from time to time by
the EnSys Board of Directors.
The Amended 1995 EnSys Plan permits the granting of both Incentive Options
and Non-Qualified Options to employees. It also permits the grant of
Non-Qualified Options to independent directors, consultants and advisors. The
option exercise price of each option granted under the Amended 1995 EnSys Plan
will be determined by the EnSys Board of Directors but may not be less than 100%
of the fair market value of the shares on the date of grant in the case of
Incentive Options, and not less than 85% of the fair market value of the shares
in the case of Non-Qualified Options. No Incentive Option may be granted under
the Amended 1995 EnSys Plan to any employee of EnSys or any subsidiary who owns
at the date of grant stock representing in excess of 10% of the voting power of
all classes of stock of EnSys or a parent or a subsidiary unless the exercise
price for stock subject to such option is at least 110% of the fair market value
of such stock at the time of grant and the option term does not exceed five
years. No options may be transferred by the optionee other than by will or the
laws of descent or distribution. Each option may be exercised, during the
lifetime of the optionee, only by such optionee.
The term of each option shall be fixed by the EnSys Board of Directors and
may not exceed 10 years from date of grant in the case of an Incentive Option.
The EnSys Board of Directors shall determine at what time or times each option
may be exercised and, subject to the provisions of the Amended 1995 EnSys Plan,
the period of time, if any, after death, disability or termination of employment
during which options may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the EnSys
Board of Directors. Upon exercise of options, the option exercise price must be
paid in full either in cash or by certified or bank check or other instrument
acceptable to the EnSys Board of Directors or, if the EnSys Board of Directors
so determines, by delivery of shares of Common Stock already owned by the
optionee unless such transaction will result in an accounting compensation
charge with respect to the shares used to pay the exercise price. At the
discretion of the EnSys Board of Directors, options may include a so-called
"reload" feature pursuant to which a participant exercising an option by
delivery of shares of Common Stock may be automatically granted an additional
option to purchase that number of shares equal to the number delivered to
exercise the original option.
Notwithstanding the foregoing, options granted as substitute awards may be
granted on such terms and conditions as the EnSys Board of Directors considers
appropriate in the circumstances. Among other things, such substitute awards may
provide for the option exercise price for options granted as substitute awards
to be based on the option exercise price for the options being substituted for,
and may provide for Options granted as substitute awards to be exercised for a
period that exceeds 10 years from the date of grant of the options being
substituted for.
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The EnSys Board of Directors also may issue Restricted Stock to employees
subject to such conditions or restrictions as the EnSys Board of Directors may
determine. The purchase price, if any, of the shares of Restricted Stock will be
determined by the EnSys Board of Directors. The EnSys Board of Directors may at
any time waive such conditions or restrictions or accelerate the date or dates
on which such conditions or restrictions will lapse. Prior to the vesting of
shares, the participant will have all rights of a stockholder with respect to
the shares, including voting and dividend rights, subject only to the conditions
and restrictions set forth in the Amended 1995 EnSys Plan or in any agreement.
The EnSys Board of Directors also may grant Performance Share Awards to
employees entitling the recipient to receive shares of common stock upon the
achievement of individual or company performance goals and such other conditions
as the EnSys Board of Directors shall determine. Except as otherwise determined
by the EnSys Board of Directors, rights under a Performance Share Award will
terminate upon a participant's termination of employment. Performance Share
Awards may be awarded independently or in connection with stock options or other
awards under the Amended 1995 EnSys Plan.
The Amended 1995 EnSys Plan provides that in the event of a "Change of
Control" (as defined in the Amended 1995 EnSys Plan) of EnSys and a termination
of employment within one year thereafter, (i) all stock options shall
automatically become fully exercisable and (ii) restrictions and conditions on
awards of shares shall automatically be deemed waived. In addition, at any time
prior to or after a Change of Control, the EnSys Board of Directors may
accelerate vesting and waive conditions and restrictions on any grants or awards
to the extent it may determine appropriate.
TAX ASPECTS UNDER THE U.S. INTERNAL REVENUE CODE
The following is a summary of the principal federal income tax consequences
of option grants under the Amended 1995 EnSys Plan. It does not describe all
federal tax consequences under the Amended 1995 EnSys Plan, nor does it describe
state or local tax consequences.
TAX TREATMENT OF INCENTIVE STOCK OPTIONS. Under the Code, an employee will
not realize taxable income by reason of the grant or the exercise of an
incentive stock option. If an employee exercises an incentive stock option and
does not dispose of the shares until the later of (i) two years from the date
the option was granted or (ii) one year from the date the shares were
transferred to the employee, the entire gain, if any, realized upon disposition
of such shares will be taxable to the employee as long-term capital gain, and
EnSys will not be entitled to any deduction. If an employee disposes of the
shares within such one-year or two-year period in a manner so as to violate the
holding period requirements (a "disqualifying disposition"), the employee
generally will realize ordinary income in the year of disposition, and, provided
EnSys complies with applicable tax reporting requirements, EnSys generally will
receive a corresponding, deduction, in an amount equal to the excess of (1) the
lesser of (x) the amount, if any, realized on the disposition and (y) the fair
market value of the shares on the date the option was exercised over (2) the
option price. Any additional gain realized on the disposition will be long-term
or short-term capital gain and any loss will be long-term or short-term capital
loss. The employee will be considered to have disposed of his or her shares if
the employee sells, exchanges, makes a gift of or transfers legal title to the
shares (except by transfer on death). The exercise of an incentive stock option
may subject the employee to the alternative minimum tax.
An incentive stock option that is exercised by an employee more than three
months after an employee's employment terminates will be treated as a
non-qualified stock option for federal income tax purposes. In the case of an
employee who is disabled, the three month period is extended to one year and in
the case of an employee who dies, the three-month employment rule does not
apply.
TAX TREATMENT OF NON-QUALIFIED STOCK OPTIONS. There are no federal income
tax consequences to either the employee, the non-employee director or EnSys on
the grant of a non-qualified stock option. On the exercise of a non-qualified
stock option, the optionee (except as described below) has taxable ordinary
income equal to the excess of the fair market value of the common stock received
on the exercise date over
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the option price of the shares. The optionee's tax basis for the shares acquired
upon exercise of a non-qualified stock option is increased by the amount of such
taxable income. EnSys will be entitled to a federal income tax deduction in an
amount equal to such excess, provided EnSys complies with applicable tax
reporting rules. Upon the sale of the shares acquired by exercise of a
non-qualified stock option, optionee will realize long-term or short-term
capital gain or loss depending upon their holding period for such shares.
Special rules may apply to the exercise of non-qualified stock options by
individuals who are subject to the short-swing profit recapture rules of Section
16(b) of the Exchange Act.
SECTION 162(m). EnSys' deduction for non-qualified stock options and other
awards under the Amended 1995 EnSys Plan is limited to the extent that a
"covered employee" (i.e., the chief executive officer or one of the four highest
compensated officers who is employed on the last day of EnSys' taxable year and
whose compensation is reported in the summary compensation table in EnSys' proxy
statement) receives compensation in excess of $1,000,000 in such taxable year of
EnSys. However, awards to a covered employee that qualify as performance-based
compensation under Section 162(m) may be excluded from the $1,000,000
compensation deduction limitation in Section 162(m).
VOTE REQUIRED FOR APPROVAL
Approval of the Amended 1995 EnSys Plan requires the affirmative vote of the
holders of a majority of the outstanding shares of EnSys Common Stock present
and entitled to vote at the EnSys Meeting. THE BOARD OF DIRECTORS BELIEVES THAT
THIS PROPOSAL IS IN THE BEST INTEREST OF ENSYS AND ITS STOCKHOLDERS AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDED 1995 ENSYS
PLAN.
LEGAL MATTERS
The legality of the shares of Surviving Corporation Common Stock to be
issued in connection with the Merger will be passed upon for EnSys by Troutman
Sanders LLP, Atlanta, Georgia. Troutman Sanders LLP, Atlanta, Georgia is acting
as counsel for EnSys in connection with certain legal matters relating to the
Merger and the transactions contemplated thereby. Pepper, Hamilton & Scheetz,
Berwyn, Pennsylvania, is acting as counsel for SDI in connection with certain
legal matters relating to the Merger and the transactions contemplated thereby.
EXPERTS
The consolidated financial statements of EnSys Environmental Products, Inc.
as of December 31, 1994 and 1995, and for each of the years in the three-year
period ended December 31, 1995, have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of Strategic Diagnostics Inc. as of December 31,
1994 and 1995, and for each of the three years in the period ended December 31,
1995, included in this Joint Proxy and Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The consolidated financial statements of Ohmicron at September 30, 1994 and
1995, and for each of the three years in the period ended September 30, 1995,
included in the Joint Proxy Statement of Ensys Environmental Products, Inc. and
Strategic Diagnostics Inc. which is referred to and made a part of this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph with respect to Ohmicron's ability to continue as a going
concern, as discussed in Note 2 to the notes to financial statements) appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Pro Forma Combined Financial Statements.............................................. F-2
Historical Financial Statements:
EnSys Environmental Products, Inc................................................ F-13
Strategic Diagnostics Inc........................................................ F-35
Ohmicron Corporation............................................................. F-50
</TABLE>
F-1
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SURVIVING CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The accompanying Pro Forma Combined Balance Sheet as of September 30, 1996
and the related Pro Forma Combined Statement of Operations for the nine months
then ended, as well as the Pro Forma Combined Statement of Operations for the
year ended December 31, 1995, give effect to (i) the dissolution of the TSD
BioServices (TSD) joint venture between Strategic Diagnostics Inc. (SDI) and
Taconic Farms, Inc. (Taconic) and the related formation of a wholly-owned
subsidiary by SDI to continue certain of TSD's former business activities (see
Note 2); (ii) the merger of Ohmicron Corporation (Ohmicron) into SDI (see Note
2); and (iii) the Merger of EnSys Environmental Products, Inc. (EnSys) into SDI
(see Note 3). A Combined Statement of Cash Flows is not presented. All relevant
information and adjustments are reflected in either the Pro Forma Combined
Balance Sheet or the Pro Forma Combined Statements of Operations.
These pro forma adjustments for the EnSys and TSD transactions assumed that
these transactions had occurred as of September 30, 1996 in the case of the Pro
Forma Combined Balance Sheet, or as of December 31, 1994 in the case of the Pro
Forma Combined Statements of Operations. The Ohmicron Merger took place on
August 30, 1996. The Ohmicron pro forma adjustments assumed that this
transaction had occurred as of December 31, 1994 in the case of the Pro Forma
Combined Statements of Operations.
The Pro Forma Combined Financial Statements have been prepared by management
and should be read in conjunction with the historical financial statements of
SDI, Ohmicron and EnSys. The Pro Forma Combined Financial Statements are based
on certain assumptions and preliminary estimates which are subject to change.
These statements do not purport to be indicative of the financial position or
results of operations that might have occurred, do not purport to be indicative
of future results, nor do they include the impact of potential future synergies
that may result due to the transactions described. Simultaneously with the
Merger, EnSys will change its name to Strategic Diagnostics Inc.
F-2
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEETS
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
TSD SDI/TSD
SDI TSD PRO FORMA PRO FORMA ENSYS
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 246 $ 77 $ 323 $ 4,217
Marketable debt investments........................ 0 0 0 5,071
Receivables........................................ 1,252 557 1,809 717
Inventories........................................ 885 0 885 1,182
Cost and profits in excess of billings............. 0 358 358 0
Other current assets............................... 412 11 423 232
Receivable from TSD BioServices.................... 280 0 $ (280)(A) 0 0
----------- ----------- ----- ----------- -----------
Total Current Assets............................. 3,075 1,003 (280) 3,798 11,419
----------- ----------- ----- ----------- -----------
PROPERTY AND EQUIPMENT, net.......................... 340 109 -- 449 623
----------- ----------- ----- ----------- -----------
OTHER ASSETS:
Other.............................................. 291 0 291 549
Investment in TSD BioServices...................... 338 0 (338)(A) 0 0
Intangibles........................................ 584 0 584 377
----------- ----------- ----- ----------- -----------
Total Other Assets............................. 1,213 0 (338) 875 926
----------- ----------- ----- ----------- -----------
TOTAL ASSETS......................................... $ 4,628 $ 1,112 $ (618) $ 5,122 $ 12,968
----------- ----------- ----- ----------- -----------
----------- ----------- ----- ----------- -----------
<CAPTION>
ENSYS
PRO FORMA
MERGER COMBINED
ADJUSTMENTS PRO FORMA
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 4,540
Marketable debt investments........................ 5,071
Receivables........................................ 2,526
Inventories........................................ $ (600)(I) 1,467
Cost and profits in excess of billings............. 358
Other current assets............................... (522)(K) 133
Receivable from TSD BioServices.................... 0
----------- -----------
Total Current Assets............................. (1,122) 14,095
----------- -----------
PROPERTY AND EQUIPMENT, net.......................... (350)(I) 722
----------- -----------
OTHER ASSETS:
Other.............................................. 840
Investment in TSD BioServices...................... 0
Intangibles........................................ 4,227(J) 1,561
(3,627)(L)
----------- -----------
Total Other Assets............................. 600 2,401
----------- -----------
TOTAL ASSETS......................................... $ (872) $ 17,218
----------- -----------
----------- -----------
</TABLE>
The accompanying pro forma notes are an integral part of these statements.
F-3
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TSD
PRO FORMA SDI/TSD/
SDI TSD MERGER PRO FORMA ENSYS
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................... $ 1,235 $ 145 $ 338(A) $ 1,718 $ 274
Accrued expenses................................... 755 0 755 506
Payable to Strategic Diagnostics................... 0 280 (280)(A) 0 0
Deferred income.................................... 200 0 200 0
Billings in excess of costs and profits............ 0 11 11 0
Current obligations under capital leases........... 65 0 65 49
Note payable....................................... 7 0 7 0
----------- ----------- ----------- ----------- -----------
Total Current Liabilities........................ 2,262 436 58 2,756 829
----------- ----------- ----------- ----------- -----------
OBLIGATIONS UNDER CAPITAL LEASE, NET OF CURRENT
PORTION............................................ 39 0 0 39 0
----------- ----------- ----------- ----------- -----------
REDEEMABLE CONVERTIBLE PREFERRED STOCK............... 6,453 0 0 6,453 0
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock (pro forma), $.01 par value,
17,500,000 shares authorized, no shares issued
and outstanding.................................. 0 0 0 0
Series A Preferred stock (pro forma), $.01 par
value, 2,164,362 shares authorized, issued and
outstanding...................................... 0 0 0 0
Common stock (pro forma), $.01 par value,
35,000,000 shares authorized, 12,951,001 shares
issued and outstanding........................... 78 0 78 72
Partners' capital.................................. 0 676 (676)(A) 0 0
Additional paid-in capital......................... 4,311 0 4,311 32,277
Unrealized loss on marketable debt investments..... 0 0 0 (17)
Treasury stock, at cost............................ 0 0 0 (129)
Accumulated deficit................................ (8,506) 0 (8,506) (20,064)
Deferred compensation.............................. (9) 0 (9) 0
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity (Deficit)............. (4,126) 676 (676) (4,126) 12,139
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ 4,628 $ 1,112 $ (618) $ 5,122 $ 12,968
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
ENSYS
PRO FORMA
MERGER COMBINED
ADJUSTMENTS PRO FORMA
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................... $ 1,992
Accrued expenses................................... $ 2,420(J) 3,159
(522)(K)
Payable to Strategic Diagnostics................... 0
Deferred income.................................... 200
Billings in excess of costs and profits............ 11
Current obligations under capital leases........... 114
Note payable....................................... 7
----------- -----------
Total Current Liabilities........................ 1,898 5,483
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASE, NET OF CURRENT
PORTION............................................ 0 39
----------- -----------
REDEEMABLE CONVERTIBLE PREFERRED STOCK............... (6,453)(O) 0
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock (pro forma), $.01 par value,
17,500,000 shares authorized, no shares issued
and outstanding.................................. 0 0
Series A Preferred stock (pro forma), $.01 par
value, 2,164,362 shares authorized, issued and
outstanding...................................... 22(O) 22
Common stock (pro forma), $.01 par value,
35,000,000 shares authorized, 12,951,001 shares
issued and outstanding........................... (72)(J) 130
72(M)
(20)(N)
Partners' capital.................................. 0
Additional paid-in capital......................... (950)(I) 23,686
(18,331)(J)
(72)(M)
20(N)
6,431(O)
Unrealized loss on marketable debt investments..... 17(J) 0
Treasury stock, at cost............................ 129(J) 0
Accumulated deficit................................ 20,064(J) (12,133)
(3,627)(L)
Deferred compensation.............................. (9)
----------- -----------
Total Stockholders' Equity (Deficit)............. 3,683 11,696
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $ (872) $ 17,218
----------- -----------
----------- -----------
</TABLE>
The accompanying pro forma notes are an integral part of these statements.
F-4
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(WITH THE EXCEPTION OF OHMICRON CORPORATION WHOSE OPERATIONS ENDED
AUGUST 30, 1996 IN CONNECTION WITH THE MERGER)
(UNAUDITED)
<TABLE>
<CAPTION>
TSD/OHMICRON
ADJUSTED PRO FORMA
SDI TSD OHMICRON MERGER
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES:
Product related................................. $ 2,077 $ 1,781 $ 1,698 $ (7)(B)
Contract........................................ 1,506 0 10 (43)(C)
License and other............................... 49 0 0 (40)(B)
(9)(C)
----------- ----------- ----------- -----
Total net revenues............................ 3,632 1,781 1,708 (99)
----------- ----------- ----------- -----
OPERATING EXPENSES:
Manufacturing................................... 1,534 1,299 405 (32)(B)
(51)(C)
(106)(E)
Acquired research and development............... 3,913 0 0
Research and development........................ 1,178 0 1,011 (1)(C)
Selling, general and administrative............. 864 127 1,959 (15)(B)
106(E)
57(F)
----------- ----------- ----------- -----
Total operating expenses...................... 7,489 1,426 3,375 (42)
Operating income (loss)....................... (3,857) 355 (1,667) (57)
OTHER INCOME (EXPENSE):
Interest income................................. 8 2 11
Interest expense................................ (2) 0 (338) 318(G)
----------- ----------- ----------- -----
Total other income (expense), net............. 6 2 (327) 318
EQUITY IN INCOME OF TSD BIOSERVICES............... 178 0 0 (178)(H)
----------- ----------- ----------- -----
NET INCOME (LOSS)................................. $ (3,673) $ 357 $ (1,994) $ 83
----------- ----------- ----------- -----
----------- ----------- ----------- -----
Net loss per common share.........................
Shares used in computing net loss per common
share...........................................
Historical weighted average shares outstanding.... 5,037,000 422,000
----------- -----------
<CAPTION>
SDI/TSD/ ENSYS
OHMICRON PRO FORMA
PRO FORMA ENSYS MERGER COMBINED
COMBINED HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES:
Product related................................. $ 5,549 $ 3,119 $ 8,668
Contract........................................ 1,473 0 1,473
License and other............................... 0 0 0
----------- ----------- ----- -----------
Total net revenues............................ 7,022 3,119 0 10,141
----------- ----------- ----- -----------
OPERATING EXPENSES:
Manufacturing................................... 3,049 1,204 4,253
Acquired research and development............... 3,913 1,700 5,613
Research and development........................ 2,188 552 2,740
Selling, general and administrative............. 3,098 2,740 $ 67(P) 5,962
57(Q)
----------- ----------- ----- -----------
Total operating expenses...................... 12,248 6,196 124 18,568
Operating income (loss)....................... (5,226) (3,077) (124) (8,427)
OTHER INCOME (EXPENSE):
Interest income................................. 21 472 493
Interest expense................................ (22) (7) (29)
----------- ----------- ----- -----------
Total other income (expense), net............. (1) 465 0 464
EQUITY IN INCOME OF TSD BIOSERVICES............... 0 0 0
----------- ----------- ----- -----------
NET INCOME (LOSS)................................. $ (5,227) $ (2,612) $ (124) $ (7,963)
----------- ----------- ----- -----------
----------- ----------- ----- -----------
Net loss per common share......................... $ (0.63)
-----------
-----------
Shares used in computing net loss per common
share........................................... 12,556,000
-----------
-----------
Historical weighted average shares outstanding.... 6,776,000
-----------
</TABLE>
NOTE: The combined pro forma net loss excludes the estimated nonrecurring charge
for acquired technology in connection with the EnSys (see Note 3) merger, which
will be charged to the Statement of Operations at the effective time of the
merger.
The accompanying pro forma notes are an integral part of these statements.
F-5
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
TSD/OHMICRON
ADJUSTED PRO FORMA
SDI TSD OHMICRON MERGER
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES:
Product related................................. $ 1,605 $ 1,641 $ 2,391 $ (5)(B)
Contract........................................ 2,072 0 213 (263)(C)
License and other............................... 12 0 0 (12)(C)
----------- ----------- ----------- -----
Total net revenues............................ 3,689 1,641 2,604 (280)
----------- ----------- ----------- -----
OPERATING EXPENSES:
Manufacturing................................... 1,288 1,457 689 (5)(B)
(245)(C)
142(D)
(119)(E)
Research and development........................ 2,272 0 1,989 (30)(C)
(142)(D)
Selling, general and administrative............. 1,190 104 3,210 119(E)
75(F)
----------- ----------- ----------- -----
Total operating expenses...................... 4,750 1,561 5,888 (205)
Operating income (loss)....................... (1,061) 80 (3,284) (75)
OTHER INCOME (EXPENSE):
Interest income................................. 8 2 17
Interest expense................................ (214) 0 (278) 234(G)
----------- ----------- ----------- -----
Total other income (expense), net............. (206) 2 (261) 234
EQUITY IN INCOME OF TSD BIOSERVICES............... 41 0 0 (41)(H)
----------- ----------- ----------- -----
NET INCOME (LOSS)................................. $ (1,226) $ 82 $ (3,545) $ 118
----------- ----------- ----------- -----
----------- ----------- ----------- -----
Net loss per common share.........................
Shares used in computing net loss per common
share...........................................
Historical weighted average shares outstanding.... 4,686,000 422,000
----------- -----------
----------- -----------
<CAPTION>
SDI/TSD/ ENSYS
OHMICRON PRO FORMA
PRO FORMA ENSYS MERGER COMBINED
COMBINED HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES:
Product related................................. $ 5,632 $ 3,530 $ 9,162
Contract........................................ 2,022 0 2,022
License and other............................... 0 0 0
----------- ----------- --- -----------
Total net revenues............................ 7,654 3,530 11,184
----------- ----------- --- -----------
OPERATING EXPENSES:
Manufacturing................................... 3,207 1,544 4,751
Research and development........................ 4,089 689 4,778
Selling, general and administrative............. 4,698 4,990 $ 20(P) 9,785
77(Q)
----------- ----------- --- -----------
Total operating expenses...................... 11,994 7,223 97 19,314
Operating income (loss)....................... (4,340) (3,693) (97) (8,130)
OTHER INCOME (EXPENSE):
Interest income................................. 27 717 744
Interest expense................................ (258) (17) (275)
----------- ----------- --- -----------
Total other income (expense), net............. (231) 700 469
EQUITY IN INCOME OF TSD BIOSERVICES............... 0 0 0
----------- ----------- --- -----------
NET INCOME (LOSS)................................. $ (4,571) $ (2,993) $ (97) $ (7,661)
----------- ----------- --- -----------
----------- ----------- --- -----------
Net loss per common share......................... $ (0.65)
-----------
-----------
Shares used in computing net loss per common
share........................................... 11,740,000
-----------
-----------
Historical weighted average shares outstanding.... 5,960,000
-----------
-----------
</TABLE>
NOTE: The combined pro forma net loss excludes the estimated nonrecurring charge
for acquired technology in connection with the EnSys (see Note 3) merger, which
will be charged to the Statement of Operations at the effective time of the
merger.
The accompanying pro forma notes are an integral part of these statements.
F-6
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--HISTORICAL
The historical balances represent the financial position and results of
operations for each company and were derived from the respective financial
statements for the indicated period. The unaudited adjusted Ohmicron historical
balance sheet and statement of operations have been prepared on a basis
consistent with the Ohmicron audited financial statements (except as discussed
below) included elsewhere in this Joint Proxy Statement/Prospectus and, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial conditions and
results of operations for the periods presented. The unaudited adjusted Ohmicron
historical balance sheet and statement of operations has been adjusted to remove
the balances related to Ohmicron Medical Diagnostics, Inc. (OMD), which was
spun-off from Ohmicron prior to Ohmicron's acquisition by SDI. Included as part
of the Pro Forma Combined Statement of Operations for the twelve months ended
December 31, 1995 is the unaudited Ohmicron statement of operations for the
twelve months ended December 31, 1995. The audited Ohmicron financial statements
are as of and for the twelve months ended September 30, 1995. In order to
prepare the adjusted Ohmicron statements (exclusive of OMD) on a calendar year
basis, the three month period ending December 31, 1994 was removed from the
fiscal year end statements. To complete the calendar year presentation, the
three month period ending December 31, 1995 was added. All Ohmicron information
contained in the proforma financial statements excludes all OMD activity as of
and for the periods presented. The unaudited TSD balance sheet and statement of
operations, in the opinion of management, include all adjustments (including
only normal recurring adjustments) necessary to present fairly the financial
condition and results of operations for the period presented.
NOTE 2--DISSOLUTION OF TSD BIOSERVICES AND ACQUISITION OF OHMICRON CORPORATION
In October 1996, SDI entered into an agreement with Taconic to dissolve TSD,
a partnership between Taconic and SDI and to liquidate its assets, in connection
with which certain of the rights and assets will be distributed to SDI. Upon
dissolution, certain rights and assets formerly owned by the joint venture will
be placed in a wholly-owned subsidiary of SDI. The agreement to dissolve TSD
provides that each of the former partners receive rights to perform services
that were considered to be either a core part of that partner's expertise, or an
area in which the partner wanted to increase its market presence or technical
competency. The dissolution agreement also provided that certain services
previously provided by TSD, such as ascites production and sales and marketing,
would be subcontracted to Taconic by SDI in the future based on established fees
set annually. Because the basic nature of the TSD business will not
substantially change, but rather, will be divided to maximize operational
efficiency, it is not anticipated that the overall revenues and operating
expenses will change significantly in the near future. SDI believes that the
increased costs associated with subcontracting sales and marketing activities to
Taconic will be offset by manufacturing efficiencies provided by Taconic in the
ascites production area. For accounting purposes, this transaction will be
treated as a purchase, with the consideration provided being SDI's investment of
$338,000 which approximates the fair market value of the assets received. The
dissolution of the joint venture and the related payment to Taconic for its
share of the partners' capital of the venture is shown on a pro forma basis in
the entries below.
In addition, on August 30, 1996, SDI acquired Ohmicron and certain of its
wholly owned subsidiaries for 3,068,779 shares of SDI Common Stock (or 2,268,456
shares after the merger with EnSys). Prior to the acquisition, Ohmicron spun-off
certain assets and liabilities of another of its wholly-owned subsidiaries, OMD.
The acquisition of Ohmicron was recorded using the purchase method of accounting
using the fair market value of the SDI Common Stock issued to Ohmicron. The
total purchase price of approximately
F-7
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2--DISSOLUTION OF TSD BIOSERVICES AND ACQUISITION OF OHMICRON CORPORATION
(CONTINUED)
$4,503,000, including estimated transaction costs of $533,000 has been allocated
to the fair market value of the assets acquired and liabilities assumed. Based
on the foregoing estimated purchase price, the amount allocated to acquired
research and development of $3,913,000 was charged to the statement of
operations at the time of the merger. In connection with the Ohmicron
transaction, all identifiable assets acquired including intangible assets were
assigned a portion of the cost of the acquired company based on an independent
valuation of Ohmicron's assets. Such allocation included the evaluation of each
development project identified to determine if technological feasibility had
been achieved and if there were any alternative future uses. Ohmicron's current
RaPID Assay Product Family will be phased out over the next four years, and
replaced with Ohmicron's new On-Site Products. Technology challenges for the
development are substantial and future revenue growth is dependent on the
On-Site Products. Based on the above, it has been determined that technological
feasibility has not been achieved. In addition, since alternative uses of this
developmental technology do not exist the cost of such technology has been
charged to expense in accordance with SFAS No. 2. The remaining amount of
intangible assets of approximately $590,000 included approximately $384,000 for
developed technology, $103,000 for assembled workforce and $103,000 for
goodwill. The intangible assets purchased will be amortized on a straight-line
basis over 7-10 years.
The following pro forma adjustments, in thousands, are made to reflect the
dissolution of TSD and the acquisition of Ohmicron:
PRO FORMA COMBINED BALANCE SHEET
(A) Elimination of intercompany receivable and payable account balances
between SDI and TSD and the related investment and partners' capital
account, and the establishment of a payable to Taconic for its share of
partners' capital.
<TABLE>
<CAPTION>
DR CR
---- ----
<S> <C> <C>
Payable to Strategic Diagnostics.................. $280
Partners' capital................................. 676
Receivable from TSD BioServices................... $280
Investment in TSD BioServices..................... 338
Accounts payable to Taconic Farms................. 338
</TABLE>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(B) Elimination of intercompany sales during the period between SDI and
Ohmicron.
(C) Elimination of intercompany revenues during the period between SDI
and TSD.
(D) Reclassification of certain SDI and TSD intercompany expenses for
consistent presentation.
(E) Adjustment to selling, general and administrative expenses, as well
as manufacturing expenses due to the dissolution of the TSD joint venture
and the new agreement between SDI and Taconic.
(F) Amortization of other intangibles from the Ohmicron acquisition for
the period using a 7-10 year life.
F-8
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2--DISSOLUTION OF TSD BIOSERVICES AND ACQUISITION OF OHMICRON CORPORATION
(CONTINUED)
(G) Elimination of interest expense on notes payable to Ohmicron
stockholders and Perkin-Elmer for the period.
(H) Elimination of equity in income of TSD for the period.
NOTE 3--MERGER
The Merger agreement provides that SDI common and preferred stockholders
will receive .7392048 share of Surviving Corporation stock for each share of SDI
Common or Preferred Stock. This will result in the former SDI stockholders
owning 5,780,207 shares of Surviving Corporation Common Stock and 2,164,362
shares of Surviving Corporation Series A Convertible Preferred Stock or
approximately 52% of the 15,175,363 voting shares outstanding after the Merger.
The Surviving Corporation Series A Convertible Preferred Stock will be
redeemable by the Surviving Corporation at any time after June 23, 2001 and will
also be redeemable upon the request of the holder in the event the Surviving
Corporation effects a transaction in which such preferred shares would be
converted into or exchanged for securities with lesser rights, preferences or
aggregate stated values. Shares of Surviving Corporation Series A Preferred
Stock will be convertible to Surviving Corporation Common Stock at a one-to-one
ratio at any time and carry a mandatory conversion to Surviving Corporation
Common Stock if Surviving Corporation Common Stock trades in the Nasdaq National
Market at an average of $4.50 per share or higher for a period of at least
forty-five (45) consecutive trading days. The Surviving Corporation Series A
Convertible Preferred Stock will carry an aggregate liquidation preference of
$6,377,693 and no other preferences. In addition to the Surviving Corporation
common and preferred stock noted above, current SDI option and warrant holders
will receive Surviving Corporation options and warrants to purchase .7818026
shares of Surviving Corporation Common Stock for each option or warrant held.
Currently, at the completion of the Merger, SDI option and warrant holders will
receive options and warrants for the purchase of 389,782 and 599,643 shares,
respectively, of Surviving Corporation Common Stock. The difference in exchange
ratios between stockholders and option and warrant holders is due to the stock
preferences received by SDI's preferred stockholders upon exchange of their
shares. The cost of receiving these preferences will be shared by all SDI
stockholders in the transaction, but will not be borne by the SDI option and
warrant holders.
The Merger will be accounted for as a purchase transaction with SDI as the
acquiring company. Based on the $1.75 per share closing price of EnSys Common
Stock on October 14, 1996, the estimated total purchase price of EnSys would be
$15,416,000, which consists of the following: (i) the $12,549,000 market value
of the outstanding shares of EnSys Common Stock at September 30, 1996 (7,170,794
shares multiplied by $1.75 per share), (ii) the $447,000 fair value of the
outstanding options and warrants to purchase EnSys Common Stock and (iii)
estimated transaction costs of approximately $2,420,000. Since SDI is the
acquirer for accounting purposes, the EnSys options and warrants are required to
be valued for purchase accounting purposes as they are additional consideration
in the transaction. The valuation for EnSys options and warrants was provided by
Raymond James using a traditional valuation approach. Of the approximately
$2,420,000 of estimated transaction costs, approximately $495,000 relates to
severance payments to EnSys employees, $350,000 to facility termination and
moving and $60,000 to employee relocation. In connection with the Merger,
approximately 35 employees will be terminated in December 1996. The estimated
total EnSys purchase price has been allocated to the fair market value of the
assets acquired and liabilities assumed. Based on the foregoing estimated
purchase price, the amount allocated to acquired research and development of
$3,627,000 will be charged to the statement of operations upon the
F-9
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3--MERGER (CONTINUED)
effective time of the Merger. The remaining amount of intangible assets of
approximately $600,000 includes approximately $394,000 for developed technology,
$46,000 for assembled workforce and $160,000 for goodwill. The intangible assets
purchased will be amortized on a straight-line basis over 7 - 10 years. No pro
forma entry has been made to provide for the impact of any cash payment required
to be made to possible dissenters to the transaction, since it is not believed
that the impact of potential dissenters to the Merger would be material to the
financial position or results of operations of the Surviving Corporation. The
following pro forma adjustments, in thousands, are required to reflect the
Merger:
PRO FORMA COMBINED BALANCE SHEET
(I) Adjustment of certain EnSys inventory and property and equipment to
fair market value. The finished good and raw material inventories have been
reduced to realizable levels to reflect management's estimate of excess or
obsolete inventory based on current product offerings, expected future
products and anticipated needs of markets served by the Surviving
Corporation.
<TABLE>
<CAPTION>
DR CR
------- -------
<S> <C> <C>
Additional paid-in capital........................ $ 950
Inventories....................................... $ 600
Property and equipment............................ 350
</TABLE>
(J) Elimination of the EnSys stockholders' equity accounts due to the
application of purchase accounting and recording of purchase.
<TABLE>
<CAPTION>
DR CR
------- -------
<S> <C> <C>
Intangible assets................................. $ 4,227
Common stock...................................... 72
Additional paid-in capital........................ 18,331
Accrued expenses.................................. $ 2,420
Unrealized loss on marketable debt investments.... 17
Treasury stock.................................... 129
Accumulated deficit............................... 20,064
</TABLE>
(K) Reduce accrued expenses and other current assets for deal costs
already recorded in the historical SDI and EnSys balance sheets at September
30, 1996.
<TABLE>
<CAPTION>
DR CR
------- -------
<S> <C> <C>
Accrued expenses.................................. $ 522
Other current assets.............................. $ 522
</TABLE>
F-10
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3--MERGER (CONTINUED)
(L) Record acquired research and development technology charge to
intangible assets and accumulated deficit.
<TABLE>
<CAPTION>
DR CR
------- -------
<S> <C> <C>
Accumulated deficit............................... $ 3,627
Intangible assets................................. $ 3,627
</TABLE>
In connection with the Merger, all identifiable assets acquired by SDI
including intangible assets were assigned a portion of the cost of the acquired
company based on an independent valuation of EnSys' assets. Such allocation
included the identification and evaluation of each development project to
determine if technological feasibility had been achieved and if there were any
alternative future uses. EnSys' primary research and development focus, the
OneStep Assay, is currently under development. If such technology is not fully
developed on a timely basis, the existing products may not be competitive enough
to satisfy the technical requirements of a changing market or be cost effective.
The costs of developing the remaining technology for the OneStep Assay is
significant. As a result of the substantial time and effort to produce the
product in accordance with all functions and specifications, it has been
determined that technological feasibility has not been achieved. In addition,
since alternative uses of this developmental technology do not exist, the costs
of such technology has been charged to expense in accordance with SFAS No. 2.
(M) Record issuance of 7,170,794 shares of Common Stock to EnSys
shareholders in connection with the Merger.
<TABLE>
<CAPTION>
DR CR
------- -------
<S> <C> <C>
Additional paid-in capital........................ $ 72
Common stock...................................... $ 72
</TABLE>
(N) Adjustment to SDI Common Stock due to reverse stock split in
connection with the Merger.
<TABLE>
<CAPTION>
DR CR
------- -------
<S> <C> <C>
Common stock...................................... $ 20
Additional paid-in capital........................ $ 20
</TABLE>
(O) Reclassification of SDI Redeemable Convertible Preferred Stock into
stockholders' equity in connection with the Merger due to the elimination of
redemption rights outside the control of SDI.
<TABLE>
<CAPTION>
DR CR
------- -------
<S> <C> <C>
Redeemable convertible preferred stock............ $ 6,453
Preferred stock................................... $ 22
Additional paid-in capital........................ 6,431
</TABLE>
F-11
<PAGE>
SURVIVING CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3--MERGER (CONTINUED)
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(P) Reflect pro forma impact of new employment agreements with current
Chief Executive Officers of SDI and EnSys entered into in connection with
the Merger.
(Q) Amortization of other intangibles from the Merger for the period
using a 7-10 year life.
NOTE 4--INCOME TAXES
The Pro Forma Combined Statements of operations do not reflect tax benefits
of the pro forma losses, as realization of such benefits is uncertain. The
Surviving Corporation's and subsidiaries' net operating loss carryforwards will
be subject to limitation.
NOTE 5--PRO FORMA NET LOSS PER SHARE
The shares used in computing pro forma net loss per share (after conversion
into EnSys shares, as applicable) assumes that the acquisition of Ohmicron by
SDI and the Merger had occurred at the beginning of the year.
CALCULATION OF PRO FORMA SHARES OUTSTANDING
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
EnSys historical average Common Shares outstanding.... 5,960,000 6,776,000
Equivalent EnSys shares issued to SDI (including
shares issued to the former Ohmicron shareholders)... 5,780,000 5,780,000
11,740,000 12,556,000
----------------- ------------------
----------------- ------------------
</TABLE>
CALCULATION OF PRO FORMA COMMON SHARES OUTSTANDING
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
<S> <C> <C>
SDI Equivalent Common Shares outstanding.............. 5,780,000
EnSys shares outstanding at September 30, 1996........ 7,203,000
Less--EnSys Treasury Stock at September 30, 1996...... (32,000) 7,171,000
---------- ------------------
Total............................................. 12,951,000
------------------
------------------
</TABLE>
The pro forma number of preferred shares outstanding at September 30, 1996
represents the 2,164,000 shares issued to SDI preferred stockholders in
connection wtih the Merger.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
EnSys Environmental Products, Inc.:
We have audited the accompanying consolidated balance sheets of EnSys
Environmental Products, Inc. and subsidiary as of December 31, 1994 and 1995 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 financial position of EnSys
Environmental Products, Inc. and subsidiary at December 31, 1994 and 1995 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 1, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" on January 1, 1994.
KPMG Peat Marwick LLP
Raleigh, North Carolina
February 16, 1996
F-13
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
--------------
<S> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents....................................................................... $ 4,217,210
Marketable debt investments (cost of $5,088,753 at September 30, 1996 (unaudited)).............. 5,071,359
Accounts receivable, trade, less allowance for doubtful accounts of $79,995 at
September 30, 1996 (unaudited)................................................................ 717,200
Inventory, primarily raw materials.............................................................. 1,181,981
Prepaids and other current assets............................................................... 232,257
--------------
Total current assets........................................................................ 11,420,007
--------------
Equipment, furniture and fixtures:
Equipment, furniture and fixtures............................................................... 2,051,254
Leasehold improvements.......................................................................... 317,135
--------------
2,368,389
Less accumulated depreciation and amortization................................................ 1,745,967
--------------
622,422
--------------
Intangible asset, less accumulated amortization of $61,667 at September 30, 1996 (unaudited)...... 376,864
Pledged certificates of deposit................................................................... 100,000
Other assets...................................................................................... 448,239
--------------
Total assets...................................................................................... $ 12,967,532
--------------
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade......................................................................... $ 273,992
Accrued expenses:
Salaries and wages............................................................................ 192,876
Other......................................................................................... 312,928
Current portion of capital lease obligations...................................................... 48,868
--------------
Total current liabilities..................................................................... 828,664
--------------
Stockholders' equity:
Common stock, $.01 par value, 25,000,000, shares authorized, 7,202,672 shares issued at
September 30, 1996 (unaudited)................................................................ 72,027
Additional paid-in capital...................................................................... 32,277,353
Treasury stock at cost (32,146 shares at September 30, 1996 (unaudited))........................ (129,037)
Unrealized loss on marketable debt investments.................................................. (17,394)
Accumulated deficit............................................................................. (20,064,081)
--------------
Net stockholders' equity...................................................................... 12,138,868
--------------
Commitments and contingencies
Total liabilities and stockholders' equity........................................................ $ 12,967,532
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1995 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
Product and service revenues........................................................ $ 2,852,735 $ 3,118,607
Cost of goods sold.................................................................. 1,104,656 1,203,998
------------- -------------
Gross profit.................................................................... 1,748,079 1,914,609
------------- -------------
Operating expenses:
Selling, general and administrative............................................... 4,143,396 2,739,972
Purchased research and development................................................ -- 1,700,000
Research and development.......................................................... 543,292 551,984
------------- -------------
Total operating expenses.......................................................... 4,686,688 4,991,956
------------- -------------
Operating loss.................................................................. (2,938,609) (3,077,347)
------------- -------------
Other income (expense):
Interest and other income......................................................... 530,838 472,231
Interest expense.................................................................. (13,726) (7,042)
------------- -------------
Other income, net............................................................... 517,112 465,189
------------- -------------
Net loss........................................................................ $ (2,421,497) $ (2,612,158)
------------- -------------
------------- -------------
Net loss per common and common equivalent share..................................... $ (0.41) $ (0.39)
------------- -------------
------------- -------------
Weighted average common and common equivalent shares outstanding.................... 5,949,239 6,775,505
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK LOSS ON
--------------------------- ADDITIONAL MARKETABLE
NUMBER OF PAID-IN DEBT
SHARES PAR VALUE CAPITAL INVESTMENTS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995...................... 6,018,935 $ 60,189 $ 31,028,302 $ (17,590)
Exercise of options............................. 83,737 838 22,551 --
Other issuances of common stock, net of issuance
costs......................................... 1,100,000 11,000 1,226,500 --
Common stock repurchased........................ -- -- -- --
Unrealized gain on marketable debt
investments................................... -- -- -- 196
Net loss........................................ -- -- -- --
------------ ------------ ------------ ------------
Balance at September 30, 1996..................... 7,202,672 $ 72,027 $ 32,277,353 $ (17,394)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
TREASURY STOCK
--------------------------- NET
NUMBER OF ACCUMULATED STOCKHOLDERS'
SHARES COST DEFICIT EQUITY
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995...................... 24,146 $ (117,038) $(17,451,923) $13,501,940
Exercise of options............................. -- -- -- 23,389
Other issuances of common stock, net of issuance
costs......................................... -- -- -- 1,237,500
Common stock repurchased........................ 8,000 (11,999) -- (11,999)
Unrealized gain on marketable debt
investments................................... -- -- -- 196
Net loss........................................ -- -- (2,612,158) (2,612,158)
------ ------------ ------------ ------------
Balance at September 30, 1996..................... 32,146 $ (129,037) $(20,064,081) $12,138,868
------ ------------ ------------ ------------
------ ------------ ------------ ------------
</TABLE>
F-16
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1995 1996
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Operating activities:
Net loss........................................................................ $ (2,421,497) $ (2,612,158)
Adjustments to reconcile net loss to net cash used by operating activities:
Common stock issued in connection with product line acquisition attributed to
purchased research and development.......................................... -- 1,237,500
Disposal of capital equipment (gain)/loss..................................... 6,346 (5,000)
Translation (gain)/loss....................................................... (980) --
Change in cash due to exchange rates.......................................... 1,180 --
Depreciation.................................................................. 316,957 265,912
Amortization.................................................................. 32,394 47,500
Changes in operating assets and liabilities:
Increase in accounts receivable, trade...................................... (240,596) (293,081)
Increase in inventories..................................................... (303,411) (420,883)
(Increase) decrease in prepaids and other current assets.................... 19,603 (89,984)
Increase in other assets.................................................... (283,603) (434,236)
Increase (decrease) in accounts payable, trade.............................. (39,380) 194,652
Increase (decrease) in accrued expenses..................................... 461,743 (142,240)
-------------- --------------
Net cash used by operating activities....................................... (2,451,244) (2,252,018)
-------------- --------------
Investing activities:
Capital expenditures............................................................ (342,929) (103,745)
Proceeds from disposal of capital equipment..................................... 1,562 25,500
Purchases of marketable debt investments........................................ (6,688,338) (5,817,145)
Sales and maturities of marketable debt investments............................. 13,461,734 7,936,822
-------------- --------------
Net cash provided by investing activities................................... 6,432,029 2,041,432
-------------- --------------
Financing activities:
Issuances of capital stock:
Common issued................................................................... 51,537 23,389
Treasury stock repurchased...................................................... (69,703) (11,999)
-------------- --------------
Common (net of redemptions)..................................................... (18,166) 11,390
Principal payments on capital lease obligations................................. (59,593) (51,451)
-------------- --------------
Net cash used by financing activities....................................... (77,759) (40,061)
-------------- --------------
Increase (decrease) in cash and cash equivalents............................ 3,903,026 (250,647)
-------------- --------------
Cash and cash equivalents at beginning of period.................................. 2,324,433 4,467,857
-------------- --------------
Cash and cash equivalents at end of period........................................ $ 6,227,459 $ 4,217,210
-------------- --------------
-------------- --------------
</TABLE>
Note:In March 1996, EnSys issued 1,100,000 shares of common stock with an
aggregate value of $1,237,500 for the acquisition of the Envirogard product
line from Millipore Corporation.
See accompanying notes to financial statements.
F-17
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of EnSys
Environmental Products, Inc. (the "Company") have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995. In the opinion of management, the accompanying financial statements
include all adjustments (of a normal recurring nature) necessary for a fair
presentation. The results of operations for the nine-month period ended
September 30, 1996 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2. SEVERANCE AND OTHER NONRECURRING CHARGES
On April 11, 1995 Alan H. Staple resigned as President and Chief Executive
Officer and the Board of Directors appointed Grover C. Wrenn as President and
Chief Executive Officer of the Company. In connection with Mr. Staple's
resignation, the Company entered into a severance and consulting agreement and
general release with Mr. Staple effective April 11, 1995. Under the terms of the
agreement, the Company was obligated to continue to pay Mr. Staple's salary and
certain other benefits for a period of one year from the effective date of the
agreement. In addition, Mr. Staple agreed to provide consulting services to the
Company for a period commencing on the effective date and ending September 30,
1995 for a consulting fee of $115,000. The Company's Statements of Operations
for the nine months ended September 30, 1995 includes charges of $493,630 to
cover the anticipated severance costs associated with Mr. Staple's resignation
as well as those related to the resignation of Dr. Stephen Friedman on March 31,
1995 from his position as Senior Vice President, Research and Development.
On July 21, 1995 James D. Tegeder resigned as Senior Vice President, Sales
and Marketing. In connection with Mr. Tegeder's resignation, the Company entered
into a severance agreement and general release with Mr. Tegeder effective July
21, 1995. Under the terms of the agreement, the Company was obligated to
continue to pay Mr. Tegeder's salary and certain other benefits for a period of
one year from the effective date of the agreement. On August 4, 1995 Ian A.W.
Howes resigned as Vice President, Finance and Administration, Secretary and
Treasurer. In connection with Mr. Howes' resignation, the Company entered into a
severance and general release with Mr. Howes effective August 4, 1995. Under the
terms of the agreement, the Company was obligated to continue to pay Mr. Howes'
salary and certain other benefits for a period of six months from the effective
date of the agreement. The Company's Statements of Operations for the nine
months ended September 30, 1995 include charges of $204,607 to cover the
antipated severance costs associated with Mr. Tegeder's and Mr. Howes'
resignations.
The Statement of Operations for the nine months ended September 30, 1995
includes a $208,519 write-down of intangible assets in 1995 related to the
aborted attempt to license a line of pesticide products from Idetek, Inc.
("Idetek"). Under the terms of the original agreement, EnSys paid to Idetek
$230,000 as a partial payment of the agreed upon licensing fee. Shortly after
the inception of the agreement EnSys sought arbitration in an effort to void the
licensing agreement for non-performance by Idetek under the terms of the
licensing agreement. The arbitrators ruled in Idetek's favor allowing them to
keep both EnSys' prior payment and the line of pesticide products. As a result
of this ruling, EnSys wrote-down the unamortized balance of the licensing fee.
F-18
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SEVERANCE AND OTHER NONRECURRING CHARGES (CONTINUED)
Also in 1995, EnSys expensed $170,765 in deposits paid for the development
of an automated system prototype EnSys decided not to take into production.
EnSys had incurred these charges for the manufacture of the prototype. The
automated system was developed as the next generation of EnSys test platform.
Upon delivery of the prototype, it was decided that the system would not deliver
either the ease of use or lower production cost expected from the next
generation of EnSys products and it was decided not to continue with the
project. At this point all deposits related to this project were expensed.
On February 29, 1996, Dr. Ian Mackenzie resigned as Managing Director of
EnSys (Europe) Limited. The Company had entered into an employment agreement
effective October 26, 1993 with Dr. Mackenzie. In connection with his
resignation, the Company paid Dr. Mackenzie the equivalent of six months salary
and benefits as required by his employment agreement. The Company's Statement of
Operations for the six months ended June 30, 1996 includes a charge of $75,000
to cover the severance costs associated with Dr. Mackenzie's resignation.
NOTE 3. RECENT DEVELOPMENTS
On March 29, 1996, the Company acquired from Millipore Corporation
("Millipore") certain assets, which consist primarily of inventory,
work-in-process, equipment, intellectual property rights, contract rights and
customer lists, of Millipore's "Envirogard-TM-" product line. In exchange for
such assets, the Company paid to Millipore $1,000,000 in cash and issued to
Millipore 1,100,000 shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), which represented approximately 15% of the Company's
total outstanding shares after the acquisition. The total costs associated with
the purchase were $2,697,983. Of this amount, $1,237,500 was attributed to the
common stock. The per share value of the common stock was arrived at by
discounting the $1.50 market price of the common stock on March 29, 1996 by 25%.
The discount reflects certain voting, transfer and other restrictions contained
in the Registration Rights Agreement by and among EnSys and Millipore dated
March 28, 1996. The acquisition resulted in an estimated charge of $1,700,000
included in the Company's Statement of Operations for the six months ended June
30, 1996 for acquired research and development.
On October 11, 1996, EnSys and Strategic Diagnostics Inc. ("SDI") announced
the signing of a definitive agreement to merge the two companies which was
approved by both boards. The two companies had announced a non-binding letter of
intent to combine on July 29, 1996. The merger, which will be submitted for
approval by the shareholders of both companies and is subject to various closing
conditions, is expected to be completed by year-end or shortly thereafter. Under
the terms of the agreement, common shareholders of SDI would receive 5,780,207
shares of EnSys' common stock, and preferred shareholders of SDI would receive
2,164,362 shares of a new class of EnSys convertible preferred stock. An
additional 989,425 shares would be reserved for issuance to holders of SDI
warrants and options. The transaction will be accounted for as a purchase.
SDI, founded in 1990, develops, manufactures, and markets immunoassay-based
test kits which serve a wide variety of markets including agriculture and food
processing, industrial pollution, medical, and water treatment. In addition to
providing such tests in a variety of formats for field and laboratory use, SDI
provides antibody and immunoreagent research and development services. Many of
SDI's products have been developed in collaboration with large chemical and
pharmaceutical firms. In July, 1996, SDI signed a definitive agreement to
acquire Ohmicron Corporation, based in Newtown, Pennsylvania, which produces
immunoassay tests for pesticide and industrial pollution applications.
F-19
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. RECENT DEVELOPMENTS (CONTINUED)
SDI and EnSys have entered into an operating agreement, effective until the
completion of the merger, in which SDI has granted to EnSys a non-exclusive
license to market and sell certain of SDI's immunoassay-based products
throughout the world. EnSys will pay to SDI a one-time license fee of $300,000
plus royalty fees of 15 percent of the net revenues from the sale of the
licensed products in excess of $2 million.
NOTE 4. INTANGIBLES
The intangibles balance includes an estimate of approximately $388,000
attributed to the value of developed technology, assembled workforce and
goodwill acquired in the Envirogard product line transaction. APB Opinion 17
discusses what should be considered in estimating useful lives of intangible
assets. Paragraph 28 states that an "analysis of all factors should result in a
resonable estimate of the useful life." Among the factors are contract life,
extensions, demand, competitor actions, as well as consistency with other asset
service lives and other economic factors. The amortization period was based on
the useful economic lives for the identified intangible assets, namely, the
developed technology and the assembled workforce. The economic model used in
valuing the developed technology reflected an income stream, including an
allocation of income from "core" technology used in completing research and
development projects, that endured on average approximately seven (7) years. The
remaining economic life of the workforce was based on the employee turnover
expectations of 10 percent annually. The reciprocal of this percentage is
equivalent to the average life of the assets, or in this case, approximately 10
years. Goodwill will be amorized over a period of 10 years.
Statement of Financial Accounting Standards No. 121 ("SFAS 121") requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If changes in circumstances indicate that the carrying amount of an
asset that an entity expects to hold and use may not be recoverable, future cash
flows expected to result from the use of the asset and its disposition must be
estimated. If the undiscounted value of the future cash flows is less than the
carrying amount of the asset, an impairment will be recognized. EnSys adoped
SFAS 121 at January 1, 1996. EnSys believes there would have been no material
impact had SFAS 121 been adopted at September 30, 1995, as Ensys evaluated the
valuation of long-term assets in relation to expected future revenues.
F-20
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Current
assets:
Cash
and
cash
equivalents
(note 2)... $ 2,324,433 $ 4,467,857
Marketable
debt
investments
(held as
available
for sale)
(note 3)... 12,314,327 7,190,840
Accounts
receivable,
trade,
less
allowance
for
doubtful
accounts
of
$37,520
and
$96,970
at
December
31, 1994
and
1995,
respectively... 491,712 424,119
Inventory,
primarily
raw
materials... 495,938 761,098
Prepaids
and
other
current
assets
(note
4)... 170,883 142,273
------------- -------------
Total
current
assets... 15,797,293 12,986,187
------------- -------------
Equipment,
furniture
and
fixtures:
Equipment,
furniture
and
fixtures
(note
6)... 1,647,496 1,974,831
Leasehold
improvements... 309,580 310,313
------------- -------------
1,957,076 2,285,144
Less
accumulated
depreciation
and
amortization... 1,052,423 1,480,055
------------- -------------
904,653 805,089
------------- -------------
Intangible
asset,
less
accumulated
amortization
of $4,167
and $14,167
at
December
31, 1994
and
1995,
respectively... 45,833 35,833
Pledged
certificates
of deposit
(note
5)... 100,000 100,000
Other
assets
(note
4)... 279,044 402,534
------------- -------------
Total
assets... $ 17,126,823 $ 14,329,643
------------- -------------
------------- -------------
LIABILITIES, AND STOCKHOLDERS' EQUITY
Current
liabilities:
Accounts
payable,
trade... $ 178,002 $ 79,340
Accrued
expenses:
Salaries
and
wages... 192,521 309,559
Taxes... 67,063 70,844
Other... 219,498 267,641
Current
portion
of
capital
lease
obligations
(note 6)... 77,603 70,930
------------- -------------
Total
current
liabilities... 734,687 798,314
------------- -------------
Capital
lease
obligations,
less current
portion
(note 6)... 98,423 29,389
------------- -------------
Total
liabilities... 833,110 827,703
------------- -------------
Stockholders'
equity
(notes 7,8
and 9):
Common
stock, $.01
par value,
25,000,000
shares
authorized,
5,867,189
and
6,018,935
shares
issued at
December
31, 1994
and
1995,
respectively... 58,672 60,189
Additional
paid-in
capital... 30,963,535 31,028,302
Unrealized
loss on
marketable
debt
investments... (234,453) ( 17,590)
Treasury
stock
at
cost
(5,858
shares
and
24,146
shares
at at
December
31,
1994
and
1995,
respectively)... (35,083) (117,038)
Accumulated
deficit... (14,458,958) (17,451,923)
------------- -------------
Net
stockholders'
equity... 16,293,713 13,501,940
------------- -------------
Commitments
and
contingencies
(notes 5 and
6)
Total
liabilities
and
stockholders'
equity... $ 17,126,823 $ 14,329,643
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
F-21
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Product and service revenues......................................... $ 2,741,179 $ 3,384,310 $ 3,530,540
Cost of goods sold................................................... 1,302,877 1,500,193 1,544,072
------------- ------------- -------------
Gross profit..................................................... 1,438,302 1,884,117 1,986,468
------------- ------------- -------------
Operating expenses:
Selling, general and administrative................................ 3,464,191 4,633,630 4,989,719
Research and development........................................... 1,027,812 1,152,779 689,275
------------- ------------- -------------
4,492,003 5,786,409 5,678,994
------------- ------------- -------------
Operating loss................................................... (3,053,701) (3,902,292) (3,692,526)
Other income (expense):
Interest income.................................................... 323,537 683,082 716,583
Interest expense................................................... (50,365) (31,534) (17,022)
------------- ------------- -------------
Other income (expense), net...................................... 273,172 651,548 699,561
------------- ------------- -------------
Net loss......................................................... $ (2,780,529) $ (3,250,744) $ (2,992,965)
------------- ------------- -------------
------------- ------------- -------------
Net loss per common and common equivalent share...................... $ (0.59) $ (0.56) $ (0.50)
------------- ------------- -------------
------------- ------------- -------------
Weighted average common and common equivalent shares outstanding..... 4,680,080 5,803,535 5,959,801
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
F-22
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK LOSS ON
---------------------------- ADDITIONAL MARKETABLE
NUMBER OF PAID-IN DEBT
SHARES PAR VALUE CAPITAL INVESTMENTS
------------ ------ ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992........... 149,027 1,490 49,941 --
Conversion of preferred stock to
common stock........................ 3,694,817 36,948 14,141,667 --
Exercise of warrants.................. 23,160 232 54,468 --
Exercise of options................... 29,938 299 7,256 --
Other issuances of common stock, net
of issuance costs................... 1,800,059 18,001 15,984,849 --
Common stock redeemed and canceled.... (660) (7) (653) --
Deferred compensation................. -- -- 189,966 --
Net loss.............................. -- -- -- --
------------ ------ ------------ ------------
Balances at December 31, 1993........... 5,696,341 56,963 30,427,494 --
Exercise of warrants.................. 265 3 1,311 --
Exercise of options................... 165,583 1,656 67,379 --
Other issuances of common stock, net
of issuance costs................... 5,000 50 (3,500) --
Common stock repurchased.............. -- -- -- --
Deferred compensation................. -- -- 470,851 --
Unrealized loss on marketable debt
investments......................... -- -- -- (234,453)
Net loss.............................. -- -- -- --
------------ ------ ------------ ------------
Balances at December 31, 1994........... 5,867,189 58,672 30,963,535 (234,453)
Exercise of options................... 151,746 1,517 64,767 --
Commonstock repurchased............... -- -- -- --
Unrealized gain on marketable debt
investments......................... -- -- -- 216,863
Net loss.............................. -- -- -- --
------------ ------ ------------ ------------
Balances at December 31, 1995........... 6,018,935 60,189 31,028,302 (17,590)
------------ ------ ------------ ------------
------------ ------ ------------ ------------
<CAPTION>
TREASURY STOCK NET
---------------------------- STOCKHOLDERS'
NUMBER OF ACCUMULATED EQUITY
SHARES COST DEFICIT (DEFICIT)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992........... -- -- (8,427,685) (8,376,254)
Conversion of preferred stock to
common stock........................ -- -- -- 14,178,615
Exercise of warrants.................. -- -- -- 54,700
Exercise of options................... -- -- -- 7,555
Other issuances of common stock, net
of issuance costs................... -- -- -- 16,002,850
Common stock redeemed and canceled.... -- -- -- (660)
Deferred compensation................. -- -- -- 189,966
Net loss.............................. -- -- (2,780,529) (2,780,529)
------ ------------ ------------ ------------
Balances at December 31, 1993........... -- -- (11,208,214) 19,276,243
Exercise of warrants.................. -- -- -- 1,314
Exercise of options................... -- -- -- 69,035
Other issuances of common stock, net
of issuance costs................... -- -- -- (3,450)
Common stock repurchased.............. 5,858 (35,083) -- (35,083)
Deferred compensation................. -- -- -- 470,851
Unrealized loss on marketable debt
investments......................... -- -- -- (234,453)
Net loss.............................. -- -- (3,250,744) (3,250,744)
------ ------------ ------------ ------------
Balances at December 31, 1994........... 5,858 (35,083) (14,458,958) 16,293,713
Exercise of options................... -- -- -- 66,284
Commonstock repurchased............... 18,288 (81,955) -- (81,955)
Unrealized gain on marketable debt
investments......................... -- -- -- 216,863
Net loss.............................. -- -- (2,992,965) (2,992,965)
------ ------------ ------------ ------------
Balances at December 31, 1995........... 24,146 (117,038) (17,451,923) 13,501,940
------ ------------ ------------ ------------
------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net loss.......................................................... $ (2,780,529) $ (3,250,744) $ (2,992,965)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization................................... 305,910 277,940 469,153
(Gain)loss on sale of equipment................................. -- (39,107) 6,346
Other........................................................... -- (4,259) 4,857
Deferred compensation........................................... 189,966 470,851 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, trade............. ( 87,954) (130,631) 63,188
Increase in inventories....................................... (341,917) ( 17,707) (265,656)
(Increase) decrease in prepaids and other current assets...... (139,325) (7,902) 28,294
(Increase) decrease in other assets........................... 28,126 (234,564) (148,383)
Increase (decrease) in accounts payable, trade................ 15,561 (88,228) (98,662)
Increase in accrued expenses.................................. 285,536 46,707 169,560
(Decrease) in accrued interest on borrowings under line of
credit...................................................... (18,054)
-------------- ------------- -------------
Net cash used by operating activities......................... (2,542,680) (2,977,644) (2,764,268)
-------------- ------------- -------------
Investing activities:
Capital expenditures.............................................. (456,966) (372,252) (342,842)
Proceeds from sale of equipment................................... -- 50,000 1,562
Decrease in certificates of deposit............................... 20,000 -- --
Purchases of marketable debt investments.......................... (21,437,924) (13,630,656) (8,749,582)
Sales and maturities of marketable debt investments............... 6,323,060 17,725,960 14,089,932
-------------- ------------- -------------
Net cash provided (used) by investing activities................ (15,551,830) 3,773,052 4,999,070
-------------- ------------- -------------
Financing activities:
Capital stock transactions:
Common issued................................................... 16,065,105 66,899 66,284
Treasury stock repurchased...................................... -- (35,083) (81,955)
Common redeemed and canceled.................................... (660) -- --
-------------- ------------- -------------
Net common stock................................................ 16,064,445 31,816 (15,671)
Series D preferred.............................................. 138,010 -- --
Principal payments on capital lease obligations................... (266,421) (113,711) ( 75,707)
Repayments on long-term debt and long-term line of credit......... (113,451) (101) --
-------------- ------------- -------------
Net cash provided (used) by financing activities................ 15,822,583 (81,996) (91,378)
-------------- ------------- -------------
Increase (decrease) in cash and cash equivalents................ (2,271,927) 713,412 2,143,424
Cash and cash equivalents at beginning of period.................... 3,882,948 1,611,021 2,324,433
-------------- ------------- -------------
Cash and cash equivalents at end of period.......................... $ 1,611,021 $ 2,324,433 $ 4,467,857
-------------- ------------- -------------
-------------- ------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............................ $ 68,419 $ 31,534 $ 17,022
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
Supplemental disclosures of noncash investing and financing activities are
described in note 10.
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION EnSys Environmental Products, Inc. (the "Company")
develops, manufactures and markets on-site test kits to detect certain chemical
and environmental contaminants. The consolidated financial statements include
the accounts of EnSys Environmental Products, Inc. and its subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation. EnSys has incurred significant net losses since its inception in
1987. These losses have resulted primarily from costs associated with developing
immunoassay technology for environmental applications and from costs associated
with EnSys's administrative, sales and marketing activities. EnSys expects to
incur future losses as it continues to simplify and refine its current products
and its sales and marketing activities.
(b) CASH EQUIVALENTS EnSys considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
(c) MARKETABLE DEBT INVESTMENTS EnSys's investments include primarily
investments in marketable debt securities which are recorded at cost, net of
amortization of premiums and discounts. All premiums and/or discounts are
amortized over the remaining term of the related security using the straight
line method which does not differ significantly from the level-yield method.
EnSys adopted Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("Statement 115") at
January 1, 1994. This statement addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. These investments are classified in
three categories and are accounted for as follows: (1) debt securities that
EnSys has the positive intent and the ability to hold to maturity are classified
as held-to-maturity and reported at cost; (2) debt and equity securities that
are bought and held principally for the purpose of selling them in the near term
are classified as trading securities and reported at fair value with unrealized
gains and losses included in earnings; (3) debt and equity securities not
classified as either held-to-maturity securities or trading securities are
classified as available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of equity. EnSys has no securities classified as trading securities or
as held-to-maturity securities at December 31, 1995. Unrealized gains and losses
on investments available-for-sale are reported as a separate component of
stockholders' equity. The classification of investments is determined on the
date of acquisition. EnSys reviews its investment portfolio as deemed necessary
and where appropriate, adjusts individual investments for other-than-temporary
impairments.
(d) ACCOUNTS RECEIVABLE EnSys provides an allowance for doubtful accounts
as needed, based on management's analysis of the age and composition of accounts
receivable.
(e) INVENTORIES Inventories are stated at the lower of cost or market and
consist primarily of test kit components and accessories. Cost is determined
using standard costs which approximate average cost.
(f) EQUIPMENT, FURNITURE AND FIXTURES Equipment furniture and fixtures are
recorded at cost. Equipment under capital leases is stated at the present value
of the minimum lease payments at the inception of the lease.
Depreciation of equipment, furniture and fixtures is calculated using the
straight-line method over the estimated useful lives of the assets. The
estimated useful life of equipment, furniture and fixtures is four to five
years. Equipment held under capital leases and leasehold improvements are
amortized on a straight-line basis over the lesser of the lease term or
estimated useful life of the asset.
F-25
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) INTANGIBLE ASSET Intangible asset consists of product license rights
which is amortized using the straight-line method over five years (term of
license agreement).
(h) REVENUE RECOGNITION Revenue from the sale of test kits is recognized
upon shipment to the customer.
(i) RESEARCH AND DEVELOPMENT COSTS Research and development costs are
charged to operations as incurred.
(j) INCOME TAXES The Company uses the asset and liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
(k) PER SHARE AMOUNTS Net loss per common and common equivalent share for
the period July 1, 1993 to December 31, 1995 is determined on a basis consistent
with Accounting Principles Board Opinion 15. Stock, options and warrants issued
in the twelve month period preceding September 15, 1993 (the filing of the
Registration Statement for the Company's initial public stock offering) have
been treated as outstanding for all reported periods through June 30, 1993.
During this period a treasury stock approach was used in determining the
incremental shares outstanding. Because the Company incurred losses in each
period the impact of the incremental shares was anti-dilutive.
(l) USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting
Standards No. 107 "Disclosures About Fair Value of Instruments" requires that
fair values be disclosed for the Company's financial instruments. The carrying
amount of cash and cash equivalents, accounts receivable, accounts payable, and
accrued expenses are considered to be representative of their respective fair
value.
(n) IMPAIRMENT OF INTANGIBLE AND TANGIBLE LONG TERM ASSETS. Statement of
Financial Accounting Standards No. 121 ("SFAS 121") requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If changes in
circumstances indicate that the carrying amount of an asset that an entity
expects to hold and use may not be recoverable, future cash flows expected to
result from the use of the asset and its disposition must be estimated. If the
undiscounted value of the future cash flows is less than the carrying amount of
the asset, an impairment will be recognized. EnSys adopted SFAS 121 at January
1, 1996. EnSys believes that if SFAS 121 had been adopted at December 31, 1995,
the impact would have been immaterial, as EnSys evaluated the valuation of
long-term assets in relation to expected future revenues.
F-26
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Deposit accounts...................................................................... $ 550,607 $ 284,292
Securities with original maturities of less than three months......................... -- 1,488,617
Money market accounts................................................................. 1,773,826 2,694,948
------------ ------------
Total............................................................................. $ 2,324,433 $ 4,467,857
------------ ------------
------------ ------------
</TABLE>
(3) MARKETABLE DEBT INVESTMENTS
Marketable debt investments at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
GROSS
PRINCIPAL UNREALIZED
ISSUER AMOUNTS COST LOSS CARRYING VALUE
- --------------------------------------------------------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
Securities of US Government and its agencies............. $ 3,500,000 $ 3,465,028 $ (4,014) $ 3,461,014
American Express......................................... 500,000 495,331 (1,381) 493,950
General Electric......................................... 500,000 497,622 (4,756) 492,866
John Deere Credit Corp................................... 500,000 493,152 (1,902) 491,250
Sterling Drug Bond....................................... 264,000 283,884 663 284,547
Heller Financial Note.................................... 400,000 409,508 1,585 411,093
Ford MTN #00159.......................................... 1,500,000 1,563,905 (7,785) 1,556,120
------------ ------------ ----------- --------------
Total................................................ $ 7,164,000 $ 7,208,430 $ (17,590) $ 7,190,840
------------ ------------ ----------- --------------
------------ ------------ ----------- --------------
</TABLE>
Marketable debt investments at December 31, 1994 consisted of the following:
<TABLE>
<CAPTION>
GROSS
PRINCIPAL UNREALIZED
ISSUER AMOUNTS COST LOSS CARRYING VALUE
- ------------------------------------------------------ ------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Securities of US Government and its agencies.......... $ 8,070,000 $ 8,166,047 $ (148,005) $ 8,018,042
American General...................................... 260,000 276,731 (1,456) 275,275
Waste Management...................................... 500,000 509,738 (1,904) 507,834
Heller Financial...................................... 400,000 417,564 (6,173) 411,391
Sterling Drug......................................... 264,000 288,700 (4,046) 284,654
Zenith Income......................................... 1,300,000 1,311,009 -- 1,311,009
Ford MTN #00159....................................... 1,500,000 1,594,814 (88,692) 1,506,122
------------- ------------- ----------- --------------
Total............................................. $ 12,294,000 $ 12,564,603 $ (250,276) $ 12,314,327
------------- ------------- ----------- --------------
------------- ------------- ----------- --------------
</TABLE>
Gross unrealized losses on marketable debt investments were $250,276, and
$17,590 as at December 31, 1994 and 1995, respectively. Net realized losses on
marketable debt investments were $2,985, $28,410 and $8,581 for the years ended
December 31, 1993, 1994 and 1995 respectively.
F-27
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) NOTES RECEIVABLE
On January 16, 1995, the Company made a loan to the then Senior Vice
President, Sales and Marketing, in the sum of $350,000. The loan was made in
connection with the executive's relocation to North Carolina and to assist him
with the purchase of a home. The loan is secured by this home. The loan carries
interest at the rate of 5.8% per annum. At December 31, 1995 the outstanding
loan balance was $350,000 of which $4,663 is payable in 1996. If not sooner
paid, the entire loan balance is due and payable on January 16, 2001.
(5) LETTERS OF CREDIT
The Company is a guarantor on a $100,000 irrevocable standby letter of
credit issued by a financial institution for the Company's leased office
facilities. The letter of credit had an expiration date of August 8, 1995 but
was automatically renewed through December 31, 1998 as prescribed by the
Company's lease agreement. The letter of credit is collateralized by $100,000 in
certificates of deposit.
(6) LEASES
The Company leases equipment under capital lease agreements which expire at
various dates through 1997.
Equipment held under capital leases and related accumulated amortization
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Equipment............................................................. $ 318,606 $ 245,095
Less accumulated amortization......................................... 166,360 166,375
---------- ----------
$ 152,246 $ 78,720
---------- ----------
---------- ----------
</TABLE>
During 1993 one of the capital lease agreements expired, and the Company
exercised its option to purchase equipment under that lease agreement. The
original cost of the equipment purchased was $525,817. Assets with an original
cost of $68,801 were retired during 1993.
During 1994 four of the capital lease agreements expired, and the Company
exercised its option to purchase equipment under these lease agreements. The
original cost of equipment purchased was $218,098. Assets with an original cost
of $51,988 were retired during 1994.
During 1995 one of the capital lease agreements expired, and the Company
exercised its option to purchase equipment under that lease agreement. The
original cost of the equipment purchased was $73,511. No leased equipment was
retired during 1995.
The Company leases its principal facilities and office space in North
Carolina under an operating lease extending through September 1999, with an
option to renew for an additional five years at rates prevailing at the date the
option is exercised. The Company has the option to cancel the operating lease
agreement in 1996 with the payment of a $225,000 penalty. The lease requires a
$100,000 irrevocable standby letter of credit through December 31, 1998 (see
Note 5). Total rental expense was approximately $138,000, $206,000 and $194,881
for the years ended December 31, 1993, 1994, and 1995, respectively.
F-28
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LEASES (CONTINUED)
Future minimum lease payments under the noncancellable operating lease and
the present value of future minimum capital lease payments at December 31, 1995
are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1996.................................................................................. $ 78,022 $ 165,595
1997.................................................................................. 28,121 173,702
1998.................................................................................. -- 182,108
1999.................................................................................. -- 190,944
Thereafter............................................................................ -- --
---------- ----------
Total minimum lease payments.......................................................... $ 106,143 $ 712,349
----------
----------
Less amounts representing interest (at a weighted average rate of 11.58%)................. 5,824
----------
Present value of future minimum lease payments............................................ 100,319
Less current portion of obligations under capital leases.................................. 70,930
----------
Capital lease obligations, less current portion........................................... $ 29,389
----------
----------
</TABLE>
(7) STOCK WARRANTS
Common stock warrants outstanding at December 31, 1994 and 1995 were
942,521. There were no issuances or exercises of common stock warrants during
the years ended December 31, 1994 and 1995. These warrants contain exercise
prices ranging from $2.50 to $7.50 per share of common stock and expire at
various dates through 2001.
(8) COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
For common stock warrants........................................... 942,521 942,521
For possible future issuance to directors, key employees and
others............................................................ 1,299,080 1,799,080
---------- ----------
2,241,601 2,741,601
---------- ----------
---------- ----------
</TABLE>
(9) STOCK OPTION PLAN
In 1991, the Company adopted a stock option plan (the "1990 Stock Option
Plan") which allows for the issuance of incentive and non-qualified common stock
options. Directors, consultants and advisors of the Company can only be issued
non-qualified stock options unless the individual is also an employee of the
Company.
Options are granted at 100% of fair market value at the date of grant (110%
for stockholders owning more than 10% of the Company's common stock) and may be
exercised upon terms approved by the Board of Directors of the Company. Vested
options are exercisable as prescribed by the Board of Directors of the
F-29
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCK OPTION PLAN (CONTINUED)
Company. Options not yet vested are exercisable in full, but are subject to
repurchase rights by the Company.
All options granted under the 1990 Stock Option Plan expire between five and
ten years from the grant date. Options to purchase up to 849,000 shares of
common stock had been authorized under this plan at December 31, 1994 and 1995.
In 1993, the Company adopted a stock option plan (the "1993 Stock Option
Plan") which allows for the issuance of incentive and non-qualified common stock
options. Directors, consultants and advisors of the Company can only be issued
non-qualified stock options unless the individual is also an employee of the
Company.
Options are granted at 100% of fair market value at the date of grant (110%
for stockholders owning more than 10% of the Company's common stock) and may be
exercised upon terms approved by the Board of Directors of the Company. Vested
options are exercisable as prescribed by the Board of Directors of the Company.
Options not yet vested are not exercisable.
All options granted under the 1993 Stock Option Plan expire in ten years
from the grant date. Options to purchase up to 300,000 shares of common stock
had been authorized under this plan at December 31, 1994 and 1995.
In 1995, the Company adopted a stock option plan (the "1995 Stock Option
Plan") which allows for the issuance of incentive and non-qualified common stock
options. Directors, consultants and advisors of the Company can only be issued
non-qualified stock options unless the individual is also an employee of the
Company.
Incentive stock options are granted at not less than 100% of fair market
value at the date of grant (110% for stockholders owning more than 10% of the
Company's common stock) and may be exercised upon terms approved by the Board of
Directors of the Company. Non-qualified stock options are granted at not less
than 85% of fair market value at the date of grant. Vested options are
exercisable as prescribed by the Board of Directors of the Company. Options not
yet vested are not exercisable.
All options granted under the 1995 Stock Option Plan expire not more than
ten years from the grant date. Options to purchase up to 500,000 shares of
common stock had been authorized under this plan at December 31, 1995.
In July 1993, the Company granted options to employees to purchase 136,950
shares of Common Stock at prices ranging from $1.75 to $2.50 per share. At the
date of grant, the rights to these options vested at the rate of 25% per annum
beginning in 1993. In 1994, the Company accelerated the vesting of these options
so that the remaining 75% of the vesting occurred in 1994. As a result, the
Company recognized compensation expenses of $189,966 and $470,851 in 1993 and
1994, respectively.
F-30
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCK OPTION PLAN (CONTINUED)
Stock option transactions for the years ended December 31, 1993, 1994 and
1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
NON-QUALIFIED STOCK OPTIONS
Options outstanding at January 1............................................. 50,000 55,000 55,000
Granted in 1993 at $7.75..................................................... 5,000 -- --
Granted in 1995 (at prices ranging from $2.50 to $3.25)...................... -- -- 55,000
Exercised(at a price of $0.25)............................................... -- -- (3,750)
Canceled..................................................................... -- -- --
--------- ---------- ----------
Options outstanding at end of period......................................... 55,000 55,000 106,250
--------- ---------- ----------
--------- ---------- ----------
INCENTIVE STOCK OPTIONS
Options outstanding at January 1............................................. 498,981 746,761 839,209
Granted in 1993 (at prices ranging from $.50 to $10.00)...................... 294,750 -- --
Granted in 1994 (at prices ranging from $3.25 to $7.50)...................... -- 300,667 --
Granted in 1995 (at prices ranging from $2.38 to $3.25)...................... -- -- 494,939
Exercised (at prices ranging from $0.25 to $1.75 per share).................. (29,938) (165,583) (147,996)
Canceled..................................................................... (17,032) (42,636) (289,090)
--------- ---------- ----------
Options outstanding at end of period......................................... 746,761 839,209 897,062
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The options outstanding at December 31, 1995 are exercisable at prices
ranging from $.25 to $7.75 per share. The number of exercisable non-qualified
stock options were 50,000, 55,000 and 61,250 at December 31, 1993, 1994 and
1995, respectively. The number of exercisable incentive stock options was
641,761, 568,223 and 601,952 at December 31, 1993, 1994 and 1995, respectively.
(10) NONCASH INVESTING AND FINANCING ACTIVITIES
The following items represent significant noncash investing and financing
activities entered into by the Company:
The Company incurred capital lease obligations of $130,243 during the year
ended December 31, 1993.
As part of the initial stock offering in 1993, outstanding shares of
Convertible Preferred Stock in the amount of $14,178,615 were converted into
Common Stock.
F-31
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES
The components of net deferred tax assets and the net deferred tax
liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards.......................................... $ 4,969,000 $ 5,724,000
Tax credit carryforwards........................................ 312,000 421,000
Allowance for doubtful accounts................................. 13,000 137,000
Reserves and accruals........................................... 10,000 36,000
Uniform cost capitalization..................................... 18,000 15,000
Inventory reserve............................................... 31,000 43,000
Capital loss carryforward....................................... -- 19,000
Depreciation.................................................... -- 45,000
------------ ------------
Total gross deferred tax assets................................. 5,353,000 6,440,000
Valuation allowance............................................. 5,343,000 6,440,000
------------ ------------
Net deferred taxes.............................................. 10,000 --
Deferred tax liabilities:
Depreciation.................................................... $ 10,000 $ --
------------ ------------
Net deferred tax asset (liability)................................ $ -- $ --
------------ ------------
------------ ------------
</TABLE>
At December 31, 1994 and 1995, the Company had net operating loss
carryforwards of approximately $12,760,000 and $15,155,000, respectively, for
federal income tax purposes. The net operating loss carryforwards expire in
various amounts from 2002 through 2010. Additionally, the Company has net
operating loss carryforwards for state income tax purposes at December 31, 1994
and 1995 of $12,068,000 and $10,954,000 respectively, which expire between 1996
and 2000.
The Tax Reform Act of 1986 contains provisions which limit the ability to
utilize net operating loss carryforwards in the case of certain events including
significant changes in ownership interests. If the Company's net operating loss
carryforwards are limited, and the Company has taxable income which exceeds the
permissible yearly net operating loss carryforward, the Company would incur a
federal income tax liability even though net operating loss carryforwards would
be available in future years.
As there was a significant change in ownership interests (as defined) during
the years ended December 31, 1992 and 1993, the Company will be limited each
year in its use of tax carryforwards originating in years prior to the ownership
change.
At December 31, 1994 and 1995, the Company had available $312,000 and
$421,000, respectively, of research and development credits which expire in
varying amounts between 2003 and 2009.
(12) INITIAL PUBLIC OFFERING
On October 20, 1993 the Company closed an initial public offering in which
1,800,000 shares of Common Stock were sold. The net proceeds from the sale of
these shares (after deducting underwriting discounts and commissions and
offering expenses) were $16,002,850. Upon consummation of the offering all of
the Company's outstanding preferred stock in the amount of $14,178,615 was
converted into
F-32
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) INITIAL PUBLIC OFFERING (CONTINUED)
3,694,817 shares of common stock. Prior to the offering, the Company's Board of
Directors authorized a 1-for-5 reverse split of its common stock.
(13) SUBSEQUENT EVENT
On March 29, 1996, the Company acquired from Millipore Corporation
("Millipore") certain assets, which consist primarily of inventory,
work-in-process, equipment, intellectual property rights, contract rights and
customer lists, of Millipore's "Envirogard" product line. In exchange for such
assets, the Company paid to Millipore $1,000,000 in cash and issued to Millipore
1,100,000 shares of the Company's common stock, par value $0.01 per share (the
"Common Stock").
(14) SEVERANCE AND OTHER NONRECURRING CHARGES
On March 31, 1995, Dr. Stephen Friedman resigned as Senior Vice President,
Research and Development. EnSys had entered into a two year employment agreement
effective July 30, 1993 with Dr. Friedman. In connection with Dr. Friedman's
resignation, EnSys was obligated to pay Dr. Friedman's salary and certain other
benefits for a period of one year after such termination. EnSys' Statement of
Operations for the year ended December 31, 1995 includes a charge of $130,884 to
cover those severance costs.
On April 11, 1995 Alan H. Staple resigned as President and Chief Executive
Officer and the Board of Directors appointed Grover C. Wrenn as President and
Chief Executive Officer of the Company. In connection with Mr. Staple's
resignation, the Company entered into a severance and consulting agreement and
general release with Mr. Staple effective April 11, 1995. Under the terms of the
agreement, the Company was obligated to continue to pay Mr. Staple's salary and
certain other benefits for a period of one year from the effective date of the
agreement. In addition, Mr. Staple agreed to provide consulting services to the
Company for a period commencing on the effective date and ending September 30,
1995 for a consulting fee of $115,000. The Company's Statement of Operations for
the year ended December 31, 1995 includes charges of $362,745 to cover the
anticipated severance costs associated with Mr. Staple's resignation.
On July 21, 1995 James D. Tegeder resigned as Senior Vice President, Sales
and Marketing. In connection with Mr. Tegeder's resignation, the Company entered
into a severance agreement and general release with Mr. Tegeder effective July
21, 1995. Under the terms of the agreement, the Company was obligated to
continue to pay Mr. Tegeder's salary and certain other benefits for a period of
one year from the effective date of the agreement. On August 4, 1995 Ian A.W.
Howes resigned as Vice President, Finance and Administration, Secretary and
Treasurer. In connection with Mr. Howes' resignation, the Company entered into a
severance and general release with Mr. Howes effective August 4, 1995. Under the
terms of the agreement, the Company was obligated to continue to pay Mr. Howes'
salary and certain other benefits for a period of six months from the effective
date of the agreement. The Company's Statements of Operations for the year ended
December 31, 1995 includes charges of $204,607 to cover the anticipated
severance costs associated with Mr. Tegeder's and Mr. Howes' resignations.
The Statement of Operations for the year ended December 31, 1995 includes a
$208,519 write-down of intangible assets in 1995 related to the aborted attempt
to license a line of pesticide products from Idetek, Inc. ("Idetek"). Under the
terms of the original agreement, EnSys paid to Idetek $230,000 as a partial
payment of the agreed upon licensing fee. Shortly after the inception of the
agreement EnSys sought arbitration in an effort to void the licensing agreement
for non-performance by Idetek under the
F-33
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) SEVERANCE AND OTHER NONRECURRING CHARGES (CONTINUED)
terms of the licensing agreement. The arbitrators ruled in Idetek's favor
allowing them to keep both EnSys' prior payment and the line of pesticide
products. As a result of this ruling, EnSys wrote-down the unamortized balance
of the licensing fee.
Also in 1995, EnSys expensed $170,765 in deposits paid for the development
of an automated system prototype EnSys decided not to take into production.
EnSys had incurred those charges for the manufacture of the prototype. The
automated system was developed as the next generation of EnSys test platform.
Upon delivery of the prototype, it was decided that the system would not deliver
either the ease of use or lower production cost expected from the next
generation of EnSys products and it was decided not to continue with the
project. At this point all deposits related in this project were expensed.
Selling, general and administrative expenses in 1994 include an additional
charge of $501,280. Of this amount, $399,238 resulted from the acceleration in
vesting of stock options, issued prior to the Company's initial public offering
in October 1993, that were issued below fair market value of $7.50 per share.
The acceleration in vesting eliminated charges that would have been recognized
through July 1997 and will more accurately reflect the future operating
performance of the Company. The remaining $102,042 of the additional charge were
severance costs that resulted from the elimination of some of the Company's low
priority research and development programs, and the closing of the Company's
sales office in Colorado.
F-34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Strategic Diagnostics Inc.:
We have audited the accompanying balance sheets of Strategic Diagnostics
Inc. (a Delaware corporation) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended December 31, 1995. 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 financial position of Strategic Diagnostics Inc.
as of December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
July 24, 1996
F-35
<PAGE>
STRATEGIC DIAGNOSTICS INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------- SEPTEMBER 30
1994 1995 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 67 $ 35 $ 246
Receivables......................................................... 561 560 1,252
Inventories......................................................... 377 447 885
Other current assets................................................ 130 97 412
Receivable from TSD BioServices..................................... 165 231 280
----------- ----------- -------------
Total current assets.............................................. 1,300 1,370 3,075
----------- ----------- -------------
PROPERTY AND EQUIPMENT:
Equipment........................................................... 489 530 700
Furniture and fixtures.............................................. 24 24 35
Leasehold improvements.............................................. 29 29 29
----------- ----------- -------------
542 583 764
Less -- Accumulated depreciation and amortization................... (222) (334) (424)
----------- ----------- -------------
Net property and equipment........................................ 320 249 340
----------- ----------- -------------
OTHER ASSETS:
Restricted cash..................................................... 75 49 73
Prepaid rent........................................................ 89 68 55
Other............................................................... 203 180 163
Investment in TSD BioServices....................................... 119 160 338
Intangible assets................................................... -- -- 584
----------- ----------- -------------
Total other assets................................................ 486 457 1,213
----------- ----------- -------------
$ 2,106 $ 2,076 $ 4,628
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................................... $ 484 $ 222 $ 1,235
Accrued expenses.................................................... 190 328 755
Deferred revenue.................................................... -- 211 200
Current portion of capital lease obligations........................ -- -- 65
Notes payable....................................................... 500 1,500 7
----------- ----------- -------------
Total current liabilities......................................... 1,174 2,261 2,262
----------- ----------- -------------
CAPITAL LEASE OBLIGATIONS............................................. -- -- 39
----------- ----------- -------------
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK....................... 3,512 3,879 6,453
----------- ----------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value, 8,000,000 shares authorized, 4,685,714
issued and outstanding in 1994 and 1995, respectively............. 47 47 78
Additional paid-in capital.......................................... 164 294 4,311
Accumulated deficit................................................. (2,763) (4,356) (8,506)
Deferred compensation............................................... (28) (49) (9)
----------- ----------- -------------
Total stockholders' deficit....................................... (2,580) (4,064) (4,126)
----------- ----------- -------------
$ 2,106 $ 2,076 $ 4,628
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE>
STRATEGIC DIAGNOSTICS INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Product related...................... $ 551 $ 1,192 $ 1,605 $ 1,153 $ 2,077
Contract............................. 1,992 2,568 2,072 1,692 1,506
License and other.................... 72 12 12 9 49
--------- --------- --------- --------- ---------
Total net revenues............... 2,615 3,772 3,689 2,854 3,632
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Manufacturing........................ 791 910 1,288 898 1,534
Acquired research and development.... -- -- -- -- 3,913
Research and development............. 1,735 2,832 2,272 1,782 1,178
Selling, general and
administrative..................... 1,013 1,385 1,190 1,012 864
--------- --------- --------- --------- ---------
Total operating expenses......... 3,539 5,127 4,750 3,692 7,489
--------- --------- --------- --------- ---------
Operating income (loss).......... (924) (1,355) (1,061) (838) (3,857)
INTEREST (EXPENSE) INCOME, net......... (4) 12 (206) (146) 6
EQUITY IN INCOME (LOSS) OF TSD
BIOSERVICES.......................... (60) 42 41 30 178
--------- --------- --------- --------- ---------
NET INCOME (LOSS)...................... (988) (1,301) (1,226) (954) (3,673)
ACCRETION OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK LIQUIDATION VALUE.... (192) (367) (367) (275) (477)
--------- --------- --------- --------- ---------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS......................... $ (1,180) $ (1,668) $ (1,593) $ (1,229) $ (4,150)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NET LOSS PER SHARE APPLICABLE TO COMMON
STOCKHOLDERS......................... $ (0.30) $ (0.41) $ (0.34) $ (0.26) $ (0.82)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SHARES USED IN COMPUTING NET LOSS
APPLICABLE TO COMMON STOCKHOLDERS.... 4,000,000 4,114,000 4,686,000 4,686,000 5,037,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE>
STRATEGIC DIAGNOSTICS INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED DEFERRED
STOCK CAPITAL DEFICIT COMPENSATION TOTAL
----------- ----------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993............................ $ -- $ 916 $ (1,052) $ -- $ (136)
Distribution to stockholders........................ -- -- (2) -- (2)
Stock transfer among stockholders................... -- 262 -- -- 262
Issuance of warrant in exchange for extinguishment
of liability...................................... -- 1 -- -- 1
Reclassification of S corporation accumulated
deficit to additional paid-in capital due to S
Corporation termination........................... -- (1,179) 1,179 -- --
Exchange of SDI and SDVI common stock for Strategic
Diagnostic Industries, Inc. common stock.......... 40 -- (40) -- --
Issuance of common stock options.................... -- 43 -- (43) --
Amortization of deferred compensation............... -- -- -- 5 5
Accretion of redeemable convertible preferred stock
liquidation value................................. -- -- (192) -- (192)
Net loss............................................ -- -- (988) -- (988)
----- ----------- ------------- ----- ---------
BALANCE, DECEMBER 31, 1993.......................... 40 43 (1,095) (38) (1,050)
Exercise of warrants................................ 7 (7) -- -- --
Issuance of warrants in connection with debt........ -- 23 -- -- 23
Amortization of deferred compensation............... -- -- -- 10 10
Issuance of new warrant to Conoco................... -- 105 -- -- 105
Accretion of redeemable convertible preferred stock
liquidation value................................. -- -- (367) -- (367)
Net loss............................................ -- -- (1,301) -- (1,301)
----- ----------- ------------- ----- ---------
BALANCE, DECEMBER 31, 1994.......................... 47 164 (2,763) (28) (2,580)
Issuance of warrants in connection with debt...... -- 75 -- -- 75
Amortization of deferred compensation............. -- -- -- 34 34
Issuance of common stock options.................. -- 55 -- (55) --
Accretion of redeemable convertible preferred
stock liquidation value......................... -- -- (367) -- (367)
Net loss.......................................... -- -- (1,226) -- (1,226)
----- ----------- ------------- ----- ---------
BALANCE, DECEMBER 31, 1995.......................... 47 294 (4,356) (49) (4,064)
Amortization of deferred compensation
(unaudited)..................................... -- -- -- 40 40
Accretion of redeemable convertible preferred
stock liquidation value (unaudited)............. -- -- (477) -- (477)
Acquisition of Ohmicron Corporation (unaudited)... 31 4,017 -- -- 4,048
Net loss (unaudited).............................. -- -- (3,673) -- (3,673)
----- ----------- ------------- ----- ---------
BALANCE, SEPTEMBER 30, 1996 (unaudited)............. $ 78 $ 4,311 $ (8,506) $ (9) $ (4,126)
----- ----------- ------------- ----- ---------
----- ----------- ------------- ----- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
STRATEGIC DIAGNOSTICS INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................... $ (988) $ (1,301) $ (1,226) $ (954) $ (3,673)
Adjustments to reconcile net loss to net cash used in
operating activities--
Acquired research and development write off................ -- -- -- -- 3,913
Issuance of new warrant to Conoco.......................... -- 105 -- -- --
Depreciation and amortization.............................. 78 100 135 84 96
Equity in losses (income) of investment in TSD
BioServices.............................................. 60 (42) (41) (30) (178)
Amortization of deferred compensation...................... 5 10 34 17 40
Stock transfer among stockholders.......................... 262 -- -- -- --
Imputed interest on note payable........................... -- 23 75 50 --
(Increase) decrease in--
Receivables.............................................. (575) 40 1 (75) (450)
Receivable from TSD BioServices.......................... (35) (104) (66) (42) (49)
Inventories.............................................. (238) (87) (70) (100) (51)
Other current assets..................................... 5 (104) 33 90 (385)
Prepaid rent............................................. (43) 23 21 16 13
Other assets............................................. (223) 23 -- 18 17
Increase (decrease) in--
Accounts payable......................................... 135 253 (262) (227) 484
Accrued expenses......................................... 135 (28) 138 96 61
Deferred income.......................................... -- -- 211 68 (111)
--------- --------- --------- --------- ---------
Net cash used in operating activities.................. (1,422) (1,089) (1,017) (989) (273)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash.............................................. (75) -- 26 13 (2)
Investment in TSD BioServices................................ (45) (30) -- -- --
Proceeds from Ohmicron acquisition........................... -- -- -- -- 54
Purchases of property and equipment.......................... (144) (73) (41) (41) (35)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities...... (264) (103) (15) (28) 17
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable................................... -- 500 1,000 1,000 --
Payment on note payable...................................... (100) (500) -- -- --
Advances to stockholders..................................... 1 -- -- -- --
Distribution to stockholders................................. (2) -- -- -- --
Repayments on capital lease obligations...................... -- -- -- -- (6)
Proceeds from sale of preferred stock, net................... 2,953 -- -- -- 473
--------- --------- --------- --------- ---------
Net cash provided by financing activities................ 2,852 -- 1,000 1,000 467
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 1,166 (1,192) (32) (17) 211
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................. 93 1,259 67 67 35
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 1,259 $ 67 $ 35 $ 50 $ 246
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest....................................... $ -- $ 53 $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
1. BACKGROUND:
Strategic Diagnostics Incorporated (SDI) and Strategic Diagnostic Ventures,
Inc. (SDVI) were incorporated in Delaware in March 1990 and February 1991,
respectively. Prior to June 1993, these companies were both S Corporations and
were owned by the same three founders. In April 1991, SDVI formed TSD
BioServices (TSD), a partnership with Taconic Ventures, Inc. (TVI) (see Note
12). In June 1993, SDI and SDVI exchanged all of their outstanding shares with
Strategic Diagnostic Industries, Inc. (SDII), a Delaware corporation,
incorporated in June 1993. At that time the same three founders owned each of
the three entities. One of the founders had voting majority ownership of each of
the entities. Accordingly, the merger transaction was accounted for as an
exchange among entities under common control. In March 1995, SDI and SDVI were
merged with and into SDII, and SDII was renamed Strategic Diagnostics Inc.
BASIS OF PRESENTATION
The historical financial statements presented herein include the combined
accounts of SDI and SDVI for the period January 1, 1993 through June 22, 1993,
and the consolidated financial statements of SDII and its subsidiaries for the
period from June 23, 1993 through March 31, 1995. As used herein, unless the
context requires otherwise, "the Company" collectively refers to Strategic
Diagnostics Inc. and its previously combined subsidiaries for the periods
indicated. All intercompany balances and transactions in all appropriate periods
have been eliminated in combination/consolidation.
1996 FINANCING
In January 1996, the Company (i) amended its authorized capital stock by
increasing the authorized shares to 12,141,634, consisting of 9,213,674 of $.01
par value Common Stock and 2,927,960 shares of $.10 par value of Series A
Redeemable Convertible Preferred Stock (Series A), (ii) converted the $1,500 of
Notes Payable and $124 of accrued interest into 927,960 shares of Series A at
$1.75 per share, (iii) received an additional investment of $500 for the
purchase of 285,714 shares of Series A, and (iv) incurred $27 of fees related to
the above transactions.
BUSINESS
The Company develops, manufactures and markets immunoassay test kits for
applications in the industrial/chemical, agricultural and other markets. In
addition, the Company offers immunochemical services to third parties through
its TSD affiliate.
The Company has negative working capital, an accumulated deficit and a
stockholders' deficit as of December 31, 1995. Subsequent to December 31, 1995,
$1,500 of short-term notes payable were converted to Series A, and the Company
received additional funding from its stockholders. Excluded from stockholders
equity is $5,879 of Series A (includes December 31, 1995 balances and the 1996
notes payable conversion and stock purchase). The Series A is not redeemable
until 1998 and 1999 (see Note 6 and 12). The Company has been involved in
significant merger and acquisition activity in 1996 (see Note 12) (unaudited).
The Company is subject to those risks of entities in similar stages of
development. These risks include the Company's ability to successfully develop,
produce and market its products, its dependence on its key collaborative
partners and management personnel, and its need for additional financing and
ability
F-40
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
1. BACKGROUND: (CONTINUED)
to obtain this financing. Management believes that its current cash resources
are sufficient to fund operations into 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The balance sheet as of June 30, 1996 and the statements of operations for
the six months ended June 30, 1995 and 1996 are unaudited and, in the opinion of
management of the Company, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results for
those interim periods. The results of operations for the six months ended June
30, 1996 are not necessarily indicative of the results to be expected for the
full year.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share is calculated by dividing net loss by the
weighted average number of shares outstanding. The calculation assumes that the
dividend and conversion features of the Series A did not exist for all periods
presented, which is contemplated in the merger transaction with EnSys (Note 12).
This computation excludes options, warrants and conversion of Series A for all
periods presented with net losses since their inclusion would be antidilutive.
Pro forma net loss per share for the year ended December 31, 1995 and for the
nine month periods ended September 30, 1995 and 1996 was $.26, $.20, and $.73,
respectively. Shares used in computing pro forma net loss per share were
4,686,000, 4,686,000 and 5,037,000, respectively.
HISTORICAL NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Historical net loss per share for all periods presented is calculated by
dividing net loss available to common stockholders by the average number of
shares outstanding. Net loss available to common stockholders is the sum of the
net loss plus the accretion of the redeemable convertible preferred stock
liquidation value.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
adopted Statement of Financial Accounting
F-41
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," effective January 1, 1994, and the impact of adoption was
immaterial.
INVENTORIES
The Company's inventories are valued at the lower of cost (first-in,
first-out method) or market. Realization of the Company's inventories is
dependent upon the successful marketing of its products. At December 31,
inventories consisted of the following:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Raw materials................................................................. $ 273 $ 383
Work in progress.............................................................. 72 46
Finished goods................................................................ 32 18
--------- ---------
$ 377 $ 447
--------- ---------
--------- ---------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives
(generally three to five years) of the assets.
REVENUE RECOGNITION
Product related revenues are recognized upon product shipment (see Note 8).
Revenue recognized under the Company's collaborative agreements is recorded upon
completion of certain performance requirements of the contracts. License revenue
is recognized upon transfer of such licenses.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
INCOME TAXES
SDI and SDVI had been S Corporations for income tax purposes, and thus the
losses had passed through to the income tax returns of the stockholders. Upon
exchanging all of its outstanding shares with SDII in June 1993, the S
Corporation status's were terminated, and the Company became a C Corporation.
Therefore, no net operating loss carryforwards exist from the period from
inception through June 23, 1993.
As of December 31, 1995, the Company had a federal net operating loss
carryforward of approximately $2,850, which will begin to expire in the year
2009 if not previously used. The net operating loss carryforwards differ from
the accumulated deficit principally due to differences in the recognition of
certain research and development expenses and depreciation and amortization and
the accretion of preferred stock for financial and federal income tax reporting.
F-42
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The amount of net operating loss carryforwards that can be utilized in any
one period in the future may be limited by federal income tax regulations due to
changes in ownership.
Significant components of the Company's deferred tax assets for federal and
state tax purposes as of December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Net operating loss carryforwards....................................... $ 573 $ 969
Depreciation and amortization.......................................... (29) (36)
--------- ---------
Total deferred tax assets.............................................. 544 933
Valuation allowance for deferred tax assets............................ (544) (933)
--------- ---------
Net deferred tax assets................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>
3. OTHER ASSETS:
In December 1993, the Company purchased all product rights, technology,
patents, trademarks and other rights for its RapidChek Sulfate Reducing Bacteria
product from Conoco Specialty Products Inc. (Conoco) for $225. This acquisition
is being amortized over 10 years. Included in other assets is $203 and $180 for
1994 and 1995, respectively, representing the unamortized portion of this
acquisition at year-end.
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present.
SFAS No. 121 also addresses accounting for long-lived assets where disposal is
expected. Management continually evaluates whether events or circumstances have
occurred that indicate that the remaining useful lives of the other assets
should be revised or that the remaining balance of such assets may not be
recoverable based upon expectations of future undiscounted cash flows in
accordance with SFAS No. 121. SDI adopted SFAS No. 121 effective January 1,
1996. Management believes that if the adoption of SFAS No. 121 was made at
December 31, 1995, the impact would be immaterial as the Company used
undiscounted cash flows to measure any impairment in long-lived assets.
Also included in the 1994 and 1995 financial statements is $119 and $160,
respectively, representing the Company's 50% interest in TSD under the equity
method of accounting. Summarized financial information of TSD is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------------
<S> <C> <C> <C>
Total Assets.................................. $ 502 $ 656 $ 1,112
--------- --------- ------
--------- --------- ------
Partners' Capital............................. $ 238 $ 320 $ 676
--------- --------- ------
--------- --------- ------
Revenues...................................... $ 1,351 $ 1,641 $ 1,781
--------- --------- ------
--------- --------- ------
Net Income.................................... $ 84 $ 82 $ 357
--------- --------- ------
--------- --------- ------
</TABLE>
F-43
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
4. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Legal and professional.................................................. $ 76 $ 99
Interest................................................................ 8 124
Other................................................................... 106 105
--------- ---------
$ 190 $ 328
--------- ---------
--------- ---------
</TABLE>
5. NOTES PAYABLE:
In February 1992, SDI entered into an agreement with EM Industries, Inc.
(EM), an affiliate of E Merck, for the development and manufacture of a product
line of immunoassays capable of identifying and quantifying certain substances
found on the priority pollutant list published by the Environmental Protection
Agency (see Note 7). In connection with this agreement, the Company received
$1,362, $1,709 and $600 in 1993, 1994 and 1995, respectively, for the
achievement of certain defined development milestones. In addition, in August
1992, EM loaned the Company $500 at an annual interest rate of 8%. This loan,
along with $53 in accumulated interest, was repaid in March 1994.
In October 1994 and April 1995, the Series A stockholders provided $500 and
$1,000, in working capital loans to the Company. These notes bear interest at 9%
and 10% per annum, respectively, and each became due during 1995. In addition,
114,286 and 285,714 warrants were issued, respectively, for the purchase of
common stock of the Company at an exercise price of $1.75 per share. The warrant
values deemed for accounting purposes were $23 and $75, respectively, which were
recorded as an asset and amortized over the term of the loans. The warrants have
an exercise period of five years.
In January 1996, these working capital notes and related accrued interest
were converted into additional shares of Series A (see Note 1).
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In June 1993, the Company sold an aggregate of 1,714,286 shares of Series A
for $1.75 per share and received proceeds of $3,000, net of transaction costs of
$47. In addition, warrants were issued for the purchase of 150,000 shares of the
Company's common stock at $1.75 per share. These warrants have an exercise
period of five years.
In connection with the 1996 equity financing (Note 1), 50% of the Series A
is redeemable on January 1, 1998 and 1999, respectively, if requested by 66 2/3%
of the holders of Series A. The redemption price of each share of Series A is
equal to the greater of $1.75 plus unpaid dividends or the fair market value of
the share, as defined. Each share of Series A is convertible into one share of
common stock at the option of the holder or upon an underwritten public
offering, as defined. Each share of Series A has voting rights equal to the
number of shares that would be received if it were converted into common stock.
The Series A has an annual dividend rate of $.21 per share. Any dividend that is
not paid is cumulative. Cumulative dividends on the Series A at December 31,
1995, were $908.
F-44
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
As of December 31, 1995, the Company has accreted to the redemption value of
the Series A. Series A is senior to the Company's common stock in liquidation
and has a liquidation value of $1.75 plus unpaid dividends.
In connection with the proposed EnSys Transaction (Note 12), certain rights
of the Series A holders including dividend and mandatory redemption features
will terminate (unaudited).
7. COMMON STOCK:
In connection with the signing of the EM agreement (see Note 5), SDI granted
to EM a warrant to purchase up to 30% of SDI's common stock at the time of
exercise on a fully diluted basis, as defined. The exercise of this warrant by
EM entitled SDI to receive royalties of 5% to 15% on EM sales of products
developed under the agreement. If the products developed under the agreement are
not successful, EM would still own 30% of SDI's common stock. The warrant had no
exercise price at the warrant issuance date (i.e., 30% of the common stock of
SDI was issued at no cost). Since the equity issuance was made in connection
with a development agreement, this transaction was accounted for under the
guidelines of SFAS No. 68, "Research and Development Arrangements." Given the
early stage of business development of SDI in 1992, these warrants were deemed
to have a nominal value for accounting purposes. During 1994 EM exercised the
warrant in SDI and exchanged the common stock of SDI for 685,714 shares of SDII
common stock. The accounting for the warrant exercise and stock exchange was to
reclassify from paid-in capital to common stock the par value of the shares
issued.
In connection with an existing collaborative arrangement with Conoco, in
November 1992, SDI and Conoco entered into an agreement whereby Conoco purchased
a warrant exercisable into 3% of the outstanding common stock of SDI. The
warrant's original exercise price was $300 with an expiration date of November
30, 1997. In December 1994, the Company and Conoco agreed to exchange the
original warrant for a new warrant that enables Conoco to purchase 210,000
shares of the Company's common stock for an exercise price of one dollar. In
connection with this exchange, the Company recorded a charge of $105 in the
statement of operations reflecting the fair value of the new warrant in 1994. If
Conoco exercises this warrant, and the Company completes an equity financing
with aggregate proceeds of $7 million or greater, then Conoco has the right to
require the Company to repurchase the warrant at a price equal to 210,000 shares
multiplied by the price per share received in the equity financing.
In June 1993, the common stock stockholders entered into an agreement that,
among other things, places restraints on the stockholders' abilities to sell
their stock without giving the right of first refusal to the other stockholders.
This agreement terminates at the earlier occurrence of an initial public
offering or June 23, 2003.
In 1993, the Company established a nonqualified stock option plan. The
number of options to be granted and the option prices are determined by a
committee of the Board of Directors in accordance with the terms of the plan.
Options currently outstanding are exercisable for ten years from the grant date
and vest over periods from one to five years. As of December 31, 1995, 214,034
options were exercisable. For options granted, the Company recognizes as
deferred compensation the excess of the deemed value for accounting purposes of
the common stock issuable upon exercise of options over the aggregate exercise
F-45
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
7. COMMON STOCK: (CONTINUED)
price of such options. The deferred compensation is amortized over the vesting
period of the shares and options.
The following table summarizes the plan's activities:
<TABLE>
<CAPTION>
PRICE AGGREGATE
NUMBER RANGE PRICE
--------- --------- ----------
<S> <C> <C> <C>
Initial Authorization (August 5, 1993)
Granted................................................... 216,618 $ .15 $ 32,493
--------- ----------
Balance, December 31, 1993.................................. 216,618 .15 32,493
Granted................................................... 148,500 .50 74,250
Canceled.................................................. (9,000) .50 (4,500)
--------- ----------
Balance, December 31, 1994.................................. 356,118 .15-.50 102,243
Granted................................................... 187,100 .15-.50 38,566
Canceled.................................................. (35,050) .50 (17,525)
--------- ----------
Balance, December 31, 1995.................................. 508,168 .15-.50 $ 123,284
--------- ----------
--------- ----------
</TABLE>
In April 1993, two of SDI's founding stockholders transferred SDI common
stock to the other founder as additional compensation for services provided to
SDI. Such transaction was accounted for as a capital contribution by the two
founders and a stock issuance by the Company. The Company recorded a $262 charge
to its statement of operations, which represents fair value of the underlying
shares as determined by an independent appraiser.
In 1993, the Company issued warrants for the purchase of 7,000 shares of
common stock at $.15 per share in consideration of a liability for services
previously rendered. These warrants expire in 1998.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The
Company is required to adopt this standard for the year ending December 31,
1996. The Company has elected to adopt the disclosure requirement of this
pronouncement. The adoption of this pronouncement will have no impact on the
Company's statement of operations.
8. REVENUES:
The Company earns revenue in three major areas: product-related, contract
revenue, and license and other revenue.
PRODUCT-RELATED REVENUES
The Company generates product revenue through the sale of products it has
developed or acquired. Product sales are made to collaborative partners,
distributors or directly to the end users of the products. Included in
product-related revenues are royalties earned through the sale of antibodies to
a distributor, who pays a royalty based on sales. In addition, in 1994, the
Company began receiving royalties from EM
F-46
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
8. REVENUES: (CONTINUED)
based on EM sales of products developed by SDI for EM (see Notes 7 and 12).
Royalties earned from EM were $7 and $35 in 1994 and 1995, respectively.
CONTRACT REVENUES
The Company has entered into various assay development and other
collaborative arrangements. Revenue recognized under such collaborative
agreements is recorded upon completion of certain performance requirements of
the contracts.
LICENSE AND OTHER REVENUES
The Company generates license revenue through the licensing of various cell
lines to customers. License Revenue is recognized upon the transfer of such
licenses.
MAJOR CUSTOMERS
During 1993 and 1994, EM was the Company's only major customer, providing
revenues of $1,442 and $1,900, respectively. During 1995, three customers
accounted for 26%, 17% and 14% of the Company's revenue, respectively. Amounts
due from such customers included in accounts receivable at year-end were $44,
$191 and $55, respectively.
9. RELATED-PARTY TRANSACTIONS:
TSD is a partnership owned by the Company and a subsidiary of Taconic Farms,
Inc. (Taconic). TSD purchases certain supplies, raw materials and services from
Taconic and the Company. In 1993, 1994 and 1995, the Company included in
revenues $92, $208 and $275 of contract and other revenues resulting from
transactions with TSD (see Note 12).
In 1991, TSD entered into a five-year management agreement with each of its
partners. The agreements provide that the partners may charge TSD for work
performed on behalf of the partnership by any of the partners' principals. To
date, the partners have elected not to charge TSD for these and certain other
expenses related to the partnership, but rather have elected to absorb such
costs in the parent organizations. Such costs were immaterial.
F-47
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under an operating lease. Rent
expense for the years ended December 31, 1993, 1994 and 1995, was $92, $226 and
$226, respectively. Future commitments under this noncancelable lease at
December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996.................................... $ 199
1997.................................... 198
1998.................................... 190
1999.................................... 118
2000.................................... 110
2001 and thereafter..................... 174
---------
$ 989
---------
---------
</TABLE>
In addition, the Company has guaranteed the rent for the first five-year
renewal period of TSD's Delaware facility in the event that TSD elects not to
renew the lease. The renewal period on the TSD facility lease begins in November
1996, with a total potential five-year commitment of approximately $189.
In July 1993, the Company purchased certain equipment, inventory, cell lines
and product rights for Macra-Registered Trademark- Lp(a) from Terumo Medical
Corporation (Terumo) for $128. In connection with this agreement, the Company
agreed to pay Terumo a royalty on net sales of the Macra-Registered Trademark-
Lp(a) product. The royalty is based on a specified formula, but generally
requires the Company to pay a 6% royalty on the net sales of Macra-Registered
Trademark- products, with a minimum royalty payment each year of $10. The
Company paid Terumo $18, $43 and $25 in royalties under this agreement in 1993,
1994 and 1995, respectively.
11. RETIREMENT SAVINGS PLAN:
In 1992, the Company instituted a retirement savings plan qualified under
Section 401(k) of the Internal Revenue Code. The plan allows for eligible
employees to contribute a portion of their gross wages to the plan. The Company
matches employees' contributions on a 50% basis up to 6% of gross wages. In
1993, 1994 and 1995, the Company recognized expense of $15, $30 and $51,
respectively, associated with this plan.
12. OTHER (UNAUDITED) EVENTS SUBSEQUENT TO DECEMBER 31, 1995
On August 30, 1996, SDI acquired Ohmicron Corporation (Ohmicron) and certain
of its whollly-owned subsidiaries for 3,068,779 shares of SDI Common Stock (or
2,268,456 shares after the Merger with EnSys--see below). Prior to the
acquisition, Ohmicron spun-off certain assets and liabilities of another of its
wholly-owned subsidiaries, Ohmicron Medical Diagnostics, Inc. (OMD). The
acquisition of Ohmicron was recorded using the purchase method of accounting
using the fair market value of the SDI Common Stock issued to Ohmicron. The fair
market value of the common stock issued to Ohmicron was based on several factors
including recent equity transactions as well as the subsequent negotiated merger
with EnSys (see below). Recent equity transactions included the January 2, 1996
sale of 1,213,674 shares of Series A at $1.75 per share. The Series A was
mandatorily redeemable, received dividends, registration rights and
F-48
<PAGE>
STRATEGIC DIAGNOSTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 UNAUDITED)
12. OTHER (UNAUDITED) EVENTS SUBSEQUENT TO DECEMBER 31, 1995 (CONTINUED)
senior liquidation rights to the common stock. The common stock was valued at
$1.29 per share reflecting a discount from the Series A due to the difference in
preferences between the two classes of stock. The total purchase price of
approximately $4,503, including estimated transaction costs of $533, has been
allocated to the fair market value of the assets acquired and liabilities
assumed. Based on the foregoing estimated purchase price, the amount allocated
to acquired research and development of $3,913 was charged to the statement of
operations at the time of the merger. The amount allocated to other intangibles
of $590 will be amortized on a straight line basis over 7-10 years.
In addition, in September 1996 SDI and EM reached an agreement in principle
whereby SDI acquired the product rights to the D TECH-Registered Trademark-
product line from EM in exchange for a royalty payment based on sales of
specified SDI products into selected markets (see Notes 5 and 8) and 65,000
shares of SDI common stock. In connection with this agreement, EM will no longer
sell the D TECH product line in North America and SDI will receive no further
royalty rights on any EM product sales.
In October 1996, SDI entered into an agreement with Taconic to dissolve TSD
and to liquidate its assets, in connection with which certain of the rights and
assets of TSD will be distributed to SDI.
The Company and EnSys Environmental Products, Inc. ("EnSys") entered into an
Agreement and Plan of Merger (the "Merger") in October 1996. In connection with
the Merger, all shares of SDI common and preferred stock will be converted into
shares of EnSys at the Conversion Ratio, as defined. In addition, certain rights
including dividend and mandatory redemption features of the Series A will
terminate. The consummation of the Merger is subject to the approval of the
Company and its stockholders. Since the Merger will result in the former SDI
stockholders holding a majority of the common stock voting interests, the Merger
will be accounted for as a purchase transaction with SDI as the acquirer. See
the Pro Forma Financial Statements. In addition, the Company and EnSys entered
into an operating agreement which is expected to be in effect until the
consummation of the Merger.
F-49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Ohmicron Corporation
We have audited the consolidated balance sheets of Ohmicron Corporation as
of September 30, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended September 30, 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ohmicron Corporation at September 30, 1994 and 1995 and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Ohmicron Corporation will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company's recurring losses from
operations and requirements for significant working capital in the future raise
substantial doubt about the entity's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts and
classification of liabilities that might result from the outcome of this
uncertainty.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 27, 1995
F-50
<PAGE>
OHMICRON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------- JUNE 30
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $1,284,439 $ 554,814 $ 38,336
Accounts receivable, less allowance for doubtful accounts of $4,000 at
September 30, 1994, $10,000 at September 30, 1995 and $10,000 at June 30,
1996........................................................................ 258,393 584,250 389,085
Inventory..................................................................... 409,235 576,297 639,243
Prepaid expenses.............................................................. 57,306 21,689 39,994
Note receivable--related party................................................ 50,000 -- --
---------- ---------- ----------
Total current assets............................................................ 2,059,373 1,737,050 1,106,658
Property and equipment:
Furniture, fixtures and office equipment...................................... 255,015 286,546 316,177
Laboratory equipment.......................................................... 492,594 512,025 514,538
Leasehold improvements........................................................ 235,629 236,179 236,179
---------- ---------- ----------
983,238 1,034,750 1,066,894
Accumulated depreciation and amortization..................................... 634,292 777,219 870,999
---------- ---------- ----------
348,946 257,531 195,895
Intangible assets, net of accumulated amortization.............................. 86,220 103,404 95,817
Other assets.................................................................... 31,984 32,258 27,777
---------- ---------- ----------
Total assets.................................................................... $2,526,523 $2,130,243 $1,426,147
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-51
<PAGE>
OHMICRON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------- JUNE 30
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable.................................................... $ 310,850 $ 270,049 $ 523,741
Accrued expenses.................................................... 135,464 300,122 615,985
Note payable--Perkin Elmer.......................................... -- 2,600,000 3,000,000
Notes payable-related party......................................... -- 877,000 2,195,645
Current obligations under capital lease............................. 62,096 65,870 68,668
Deferred rent....................................................... 43,192 33,682 --
------------ ------------ ------------
Total current liabilities............................................. 551,602 4,146,723 6,404,039
Obligations under capital lease, less current portion................. 67,766 78,026 52,671
Deferred rent......................................................... 33,682 -- --
Stockholders' (deficit) equity:
Convertible preferred stock, $.01 par value:
Authorized shares--6,000,000, liquidation preference of
$19,914,290 at September 30, 1995 and June 30, 1996:
Series A, authorized, issued and outstanding shares-- 800,001..... 8,000 8,000 8,000
Series B, authorized, issued and outstanding shares-- 1,294,048... 12,940 12,940 12,940
Series C, authorized shares--2,275,001, issued and outstanding
shares -- 2,043,345 in 1994, 2,080,845 in 1995 and 2,080,845 in
1996............................................................ 20,433 20,808 20,808
Series D, authorized shares--321,604, issued and outstanding
shares -- 251,604............................................... 2,516 2,516 2,516
Series E, authorized, issued and outstanding shares-- 247,620..... 2,476 2,476 2,476
Series F, authorized shares--100,000 issued and outstanding shares
-- none
Common stock, $.01 par value:
Authorized shares--12,000,000, issued and outstanding
shares--421,794 in 1994, 422,019 in 1995 and 422,119 in 1996.... 4,218 4,220 4,221
Deferred compensation............................................... (17,500) -- --
Additional paid-in capital.......................................... 20,433,021 20,520,706 20,520,905
Accumulated deficit................................................. (18,592,631) (22,666,172) (25,602,429)
------------ ------------ ------------
Total stockholders' (deficit) equity.................................. 1,873,473 (2,094,506) (5,030,563)
------------ ------------ ------------
Total liabilities and stockholders' (deficit) equity.................. $ 2,526,523 $ 2,130,243 $ 1,426,147
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-52
<PAGE>
OHMICRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 NINE MONTHS ENDED JUNE 30
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales, net.................. $ 1,013,997 $ 1,358,904 $ 2,252,343 $ 1,543,929 $ 1,779,443
Contract revenue.................... 484,282 306,796 163,449 120,577 95,473
Royalty income...................... 8,700 1,403 -- -- --
------------- ------------- ------------- ------------- -------------
1,506,979 1,667,103 2,415,792 1,664,506 1,874,916
Costs and expenses:
Cost of sales....................... 320,721 357,712 662,406 471,339 476,980
Research and development............ 2,332,855 2,157,515 2,173,172 1,607,148 1,477,851
Selling, general and
administrative.................... 2,831,925 2,886,243 3,326,966 2,424,713 2,388,578
Depreciation and amortization....... 137,260 153,140 167,102 125,113 120,204
------------- ------------- ------------- ------------- -------------
5,622,761 5,554,610 6,329,646 4,628,313 4,463,613
------------- ------------- ------------- ------------- -------------
Operating loss........................ (4,115,782) (3,887,507) (3,913,854) (2,963,807) (2,588,697)
Other income (expense):
Interest income..................... 29,496 42,096 20,013 14,889 5,918
Interest expense.................... (108,590) (178,268) (179,700) (95,336) (353,478)
Other expense....................... -- (19,223) -- -- --
Other income........................ 16,996 -- -- -- --
------------- ------------- ------------- ------------- -------------
Other income (expense), net........... (62,098) (155,395) (159,687) (80,447) (347,560)
------------- ------------- ------------- ------------- -------------
Net loss applicable to common
shares.............................. $ (4,177,880) $ (4,042,902) $ (4,073,541) $ (3,044,254) $ (2,936,257)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net loss per common share............. $ (10.29) $ (9.81) $ (9.66) $ (7.21) $ (6.96)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average number of common
shares outstanding.................. 405,929 412,316 421,907 421,944 422,075
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
F-53
<PAGE>
OHMICRON CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ADDITIONAL
CONVERTIBLE CAPITAL- PAID-IN
PREFERRED PREFERRED CAPITAL-
STOCK STOCK COMMON STOCK COMMON STOCK
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, September 30, 1992....................... $ 42,420 $ 10,018,486 $ 4,050 $ 643,628
Issuance of stock, net of issuance costs:
12,280 shares of Series D at $25.00 per share... 123 276,177
66,020 shares of Series D at $25.00 per share... 660 1,474,730
64,871 shares of Series D at $25.00 per share... 649 1,438,896
42,000 preferred stock warrants................. 52,500
Exercise of stock options--4,000 shares of
common stock at $.33 per share................ 40 1,280
Exercise of stock options--1,600 shares of
common stock at $.33 per share................ 16 512
Exercise of stock options--1,696 shares of
common stock at $2.50 per share............... 17 4,223
Compensation expense related to vested options....
Net loss..........................................
------------ ------------ ------ ------------
Balance, September 30, 1993....................... 43,852 13,260,789 4,123 649,643
Issuance of stock, net of issuance costs:
Exercise of stock options--9,500 shares of
common stock at $.33 per share................ -- -- 95 3,040
Exercise of stock options--10 shares of common
stock at $2.50 per share...................... -- -- -- 25
3,745 shares of Series C at $2.00 per share..... 37 7,453 -- --
247,620 shares of Series E at $26.25 per share.. 2,476 6,497,721 -- --
Compensation expense related to vested options..
28,000 Series D preferred stock warrants........ -- 14,350 -- --
Net loss.......................................... -- -- -- --
------------ ------------ ------ ------------
Balance, September 30, 1994....................... 46,365 19,780,313 4,218 652,708
Issuance of stock, net of issuance costs:
37,500 shares of Series C at $2.00 per share.... 375 74,625 -- --
Exercise of stock options--225 shares of common
stock at $2.00 per share...................... -- -- 2 448
83,524 Series F preferred stock warrants........ -- 12,612 -- --
Compensation expense related to vested options.. -- -- -- --
Net loss.......................................... -- -- -- --
------------ ------------ ------ ------------
Balance, September 30, 1995....................... 46,740 19,867,550 4,220 653,156
Exercise of stock options--100 shares of common
stock at $2.00 per share (Unaudited)............ -- -- 1 199
Net loss (Unaudited).............................. -- -- -- --
------------ ------------ ------ ------------
Balance, June 30, 1996 (Unaudited)................ $ 46,740 $ 19,867,550 $ 4,221 $ 653,355
------------ ------------ ------ ------------
------------ ------------ ------ ------------
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance, September 30, 1992....................... $ (295,000) $(10,371,849) $ 41,735
Issuance of stock, net of issuance costs:
12,280 shares of Series D at $25.00 per share... 276,300
66,020 shares of Series D at $25.00 per share... 1,475,390
64,871 shares of Series D at $25.00 per share... 1,439,545
42,000 preferred stock warrants................. 52,500
Exercise of stock options--4,000 shares of
common stock at $.33 per share................ 1,320
Exercise of stock options--1,600 shares of
common stock at $.33 per share................ 528
Exercise of stock options--1,696 shares of
common stock at $2.50 per share............... 4,240
Compensation expense related to vested options.... 199,500 199,500
Net loss.......................................... (4,177,880) (4,177,880)
------------ ------------ ------------
Balance, September 30, 1993....................... (95,500) (14,549,729) (686,822)
Issuance of stock, net of issuance costs:
Exercise of stock options--9,500 shares of
common stock at $.33 per share................ -- -- 3,135
Exercise of stock options--10 shares of common
stock at $2.50 per share...................... -- -- 25
3,745 shares of Series C at $2.00 per share..... -- -- 7,490
247,620 shares of Series E at $26.25 per share.. -- 6,500,197
Compensation expense related to vested options.. 78,000 -- 78,000
28,000 Series D preferred stock warrants........ -- -- 14,350
Net loss.......................................... -- (4,042,902) (4,042,902)
------------ ------------ ------------
Balance, September 30, 1994....................... (17,500) (18,592,631) 1,873,473
Issuance of stock, net of issuance costs:
37,500 shares of Series C at $2.00 per share.... -- -- 75,000
Exercise of stock options--225 shares of common
stock at $2.00 per share...................... -- -- 450
83,524 Series F preferred stock warrants........ -- -- 12,612
Compensation expense related to vested options.. 17,500 -- 17,500
Net loss.......................................... -- (4,073,541) (4,073,541)
------------ ------------ ------------
Balance, September 30, 1995....................... -- (22,666,172) (2,094,506)
Exercise of stock options--100 shares of common
stock at $2.00 per share (Unaudited)............ -- -- 200
Net loss (Unaudited).............................. -- (2,936,257) (2,936,257)
------------ ------------ ------------
Balance, June 30, 1996 (Unaudited)................ $ -- $(25,602,429) $ (5,030,563)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-54
<PAGE>
OHMICRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30 JUNE 30
--------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $(4,177,880) $(4,042,902) $(4,073,541) $(3,044,254) $(2,936,257)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 137,260 153,140 167,102 125,113 120,204
Amortization of notes payable discount............. 25,710 40,790 12,528 12,529 --
Loss (gain) on sale of marketable securities....... (16,458) 19,223 -- -- --
Compensation expense related to vested options..... 199,500 78,000 17,500 17,500 --
Interest on debt converted to Series E preferred
stock............................................ -- 153,394 -- -- --
Change in assets and liabilities:
(Increase) decrease in accounts receivable....... 6,251 (110,785) (325,857) (217,182) 195,165
Increase in inventory............................ (33,062) (158,771) (102,321) (81,371) (57,961)
Decrease in prepaid expenses and other current
assets......................................... 3,696 21,525 66,364 28,441 14,330
Increase (decrease) in other assets.............. (596) 5,002 (273) 1,136 4,481
Increase (decrease)in accounts payable and
accrued expenses............................... (440,123) (39,031) 93,110 72,721 536,921
(Decrease) increase in deferred rent............. 50,405 26,469 (43,192) (30,562) (33,682)
----------- ------------ ----------- ----------- -----------
Total adjustments.............................. (67,417) 188,956 (115,039) (71,675) 779,458
----------- ------------ ----------- ----------- -----------
Net cash used in operating activities.................. (4,245,297) (3,853,946) (4,188,580) (3,115,929) (2,156,799)
----------- ------------ ----------- ----------- -----------
INVESTING ACTIVITIES
Capital expenditures................................... (69,679) (98,363) (19,868) (14,026) (1,204)
Purchase of intangible assets.......................... (48,016) (36,655) (48,699) (31,818) (23,170)
Purchase of marketable securities...................... (1,144,109) (1,284,010) -- -- --
Proceeds from sale of marketable securities............ 1,001,000 1,424,353 -- -- --
----------- ------------ ----------- ----------- -----------
Net cash (used in) provided by investing activities.... (260,804) 5,325 (68,567) (45,844) (24,374)
----------- ------------ ----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of promissory notes and
detachable warrants.................................. 2,100,000 1,400,000 3,477,084 2,277,084 1,718,646
Net proceeds from issuance of preferred stock.......... 3,231,235 2,854,644 75,000 75,000 --
Net proceeds from issuance of common stock............. 1,570 3,160 450 51,450 200
Principal payments under capital lease obligations..... (87,856) (81,723) (75,012) (55,775) (54,151)
Proceeds from/(repayment of) note receivable--related
party................................................ (153,216) -- 50,000 -- --
----------- ------------ ----------- ----------- -----------
Net cash provided by financing activities.............. 5,091,733 4,176,081 3,527,522 2,347,759 1,664,695
----------- ------------ ----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents... 585,632 327,460 (729,625) (814,014) (516,478)
Cash and cash equivalents at beginning of period....... 371,347 956,979 1,284,439 1,284,439 554,814
----------- ------------ ----------- ----------- -----------
Cash and cash equivalents at end of period............. $ 956,979 $ 1,284,439 $ 554,814 $ 470,425 $ 38,336
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest................. $ 45,690 $ 28,158 $ 30,615 $ 22,652 $ 23,762
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
Capital lease obligations incurred..................... $ 113,118 $ 63,185 $ 89,046 $ 68,545 $ 30,941
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
Conversions of promissory notes and accrued interest to
Series E preferred stock............................. $ -- $ 3,653,394 $ -- $ -- $ --
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-55
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Ohmicron Corporation (the Company), a Delaware Corporation, develops and
manufactures certain antigenic determinants. The Company has two wholly-owned
operating subsidiaries, Ohmicron Environmental Diagnostics, Inc. and Ohmicron
Medical Diagnostics, Inc. and two wholly-owned holding company subsidiaries,
Ohmicron Holdings, Inc. and Ohmicron Technology, Inc. Substantially all of the
Company's operating revenues have been from product sales and contract revenues
to support the Company's research and development efforts (Note 12). The Company
came out of the development stage during the year ended September 30, 1995.
2. ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The financial statements and disclosures included herein for the nine months
ended June 30, 1996 and 1995 are unaudited. These financial statements and
disclosures have been prepared by the Company in accordance with generally
accepted accounting principles and reflect all adjustments, consisting of
adjustments of a normal and recurring nature, which, in the opinion of
management, are necessary for a fair presentation of the Company's financial
position and the results of its operations and cash flows.
BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements of the Company have been prepared on a
going-concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. Accordingly, the
consolidated financial statements do not include any adjustments that might be
necessary should the Company be unable to continue in existence. The Company has
incurred substantial losses of $4,073,541, $4,042,902, and $4,177,880 in 1995,
1994, and 1993, respectively, ($2,936,257 through June 30, 1996) and has an
accumulated deficit amounting to $22,666,172 and a working capital deficit of
$2,409,673 through September 30, 1995 ($25,602,429 and $5,290,866, respectively,
through June 30, 1996). These factors combined with the Company's requirements
for significant working capital in the future raise substantial doubt about the
Company's ability to continue as a going concern. Management believes that
actions presently being taken will provide for the Company to continue as a
going concern. Included in management's plans is the potential infusion of
capital through additional financing from equity investors and corporate
partners, increased sales revenue from its immunoassay-based environmental
products and significant revenues from distribution/marketing agreements. See
Note 15
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Ohmicron Corporation and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in the accompanying consolidated financial
statements.
USE OF ESTIMATES
The preparation 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 those estimates.
F-56
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is computed using the straight-line
method over the lesser of the estimated useful lives of the improvements or the
remaining lease term.
INTANGIBLE ASSETS
Intangible assets include patents, trademarks, and organization costs which
are being amortized using the straight-line method over a 60-month period.
RESEARCH AND DEVELOPMENT
All research and development costs are charged to operations as incurred.
REVENUE RECOGNITION
Contract revenue is recognized as earned in accordance with the terms of the
related agreements. Revenue from research and development contracts is
recognized as the services are performed using the percentage-of-completion
method. The Company measures the extent of progress toward completion on all
research and development contracts using the cost-to-cost method. Product sales
revenue is recognized upon shipment of goods.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be classified as cash equivalents.
DEFERRED RENT
The Company's principal office space lease provided for a period of free
rent prior to the commencement of rent payments. The Company has provided for
deferred rent expense for the difference between rent payments made and the
straight-line allocation of total rent payments to be made over the term of the
lease.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
approach. The Company has deferred tax assets arising from the difference in
recording certain income and expense items for financial statement and tax
reporting purposes, primarily due to the carryforward of net operating losses
and research and development credits.
F-57
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
LOSS PER COMMON SHARE
Loss per common share is based on the weighted average number of common
shares outstanding during the year. No exercise of stock options, warrants or
the conversion of preferred stock was assumed because the exercise of these
securities would be antidilutive.
3. INVENTORY
Inventory consists of the following at:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------------- ----------
1995 1994 1996
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials............................................ $ 284,996 $ 216,941 $ 292,672
Work in process.......................................... 15,879 12,550 21,112
Finished goods........................................... 275,422 179,744 325,459
---------- ---------- ----------
$ 576,297 $ 409,235 $ 639,243
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consists of the following at:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------------- ----------
1995 1994 1996
---------- ---------- ----------
<S> <C> <C> <C>
Patents and copyrights................................... $ 199,500 $ 152,023 $ 219,861
Trademarks............................................... 15,018 13,795 14,640
Organization costs....................................... 11,368 11,368 11,368
---------- ---------- ----------
225,886 177,186 245,869
Less accumulated amortization............................ 122,482 90,966 150,052
---------- ---------- ----------
$ 103,404 $ 86,220 $ 95,817
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
5. OBLIGATIONS UNDER CAPITAL LEASE
The Company has entered into agreements to lease certain assets which have
been accounted for as capital leases and are included in property and equipment
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------------- ----------
1995 1994 1996
---------- ---------- ----------
<S> <C> <C> <C>
Equipment under capital lease............................ $ 197,796 $ 207,253 $ 172,489
Less accumulated depreciation............................ 76,742 58,352 70,552
---------- ---------- ----------
$ 121,054 $ 148,901 $ 101,937
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-58
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OBLIGATIONS UNDER CAPITAL LEASE (CONTINUED)
Future minimum lease payments for the years subsequent to September 30, 1995 and
June 30, 1996 under the aforementioned capital lease agreements (including
interest ranging from 14% to 27% per annum) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- ----------
<S> <C> <C>
1996............................................................... $ 87,192 $ --
1997............................................................... 62,379 86,615
1998............................................................... 19,208 46,183
1999............................................................... 5,976 10,237
2000............................................................... 2,989 4,482
------------- ----------
Total minimum lease payments....................................... 177,744 147,517
Less amount representing interest.................................. 33,848 26,178
------------- ----------
Present value of net minimum lease payments........................ 143,896 121,339
Less current obligations under capital lease....................... 65,870 68,668
------------- ----------
Obligations under capital lease, less current portion.............. $ 78,026 $ 52,671
------------- ----------
------------- ----------
</TABLE>
6. NOTES PAYABLE
During April 1995, the Perkin-Elmer Corporation (Perkin) agreed to advance
Ohmicron Holdings, Inc. a loan in the aggregate amount of $3,000,000 at an
interest rate of 10% per year. As of September 30, 1995, $2,600,000 has been
advanced to the Company. During October 1995, the remaining installment of
$400,000 was advanced by Perkin to the Company . The loan is payable within
sixty days following written demand by the holder of the note made at any time
after April 15, 1996, but in any event the entire principal is payable in full
on October 15, 1996. The loan is secured by a pledge of all of the outstanding
capital stock of Ohmicron Environmental Diagnostics, Inc. ("OED") and a security
interest in all tangible assets of OED and OED's license for the technology,
patent and trademark rights to manufacture, sell and distribute products
marketed under certain trade names. Accrued interest on the loan aggregated
$76,438 at September 30, 1995 and $300,660 at June 30, 1996. See Note 15 for
conversion of this note and related accrued interest.
During January 1995, the Company received $877,000 in bridge loans at an
interest rate of 10% from existing investors of the Company. Accrued interest
including amortization of notes payable discount aggregated $72,597 and $125,904
at September 30, 1995 and June 30, 1996, respectively. These notes and the
related accrued interest are payable on demand after repayment of the notes
payable with Perkin and the January 1996 and April 1996 bridge loans, and
included 83,524 detachable Series F preferred stock warrants. See Note 15 for
conversion of this note and related accrued interest.
During January 1996 and April 1996, the Company received $908,660 and
$330,000, respectively, in bridge loans at an interest rate of 10% from existing
investors of the Company. Interest on these loans accrued to $34,055 and $5,605,
respectively, at June 30, 1996. These notes and related accrued interest were
payable on demand after repayment of the notes payable with Perkin. See Note 15
for conversion of these notes and related accrued interest.
F-59
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
During March 1994, the Company converted $3,500,000 bridge loans and
$153,394 interest payable into shares of Series E preferred stock. These bridge
loans included 70,000 detachable Series D preferred stock warrants, of which
28,000 were issued in 1994 and 42,000 were issued in 1993.
7. RELATED PARTY TRANSACTIONS
During the year ended September 30, 1989 the Company granted a $50,000
noninterest bearing note, secured by 228,000 shares of the Company's common
stock, to a former officer which was due and payable in September 1994. The note
was repaid to the Company during October 1994.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
---------------------- ----------
1995 1994 1996
---------- ---------- ----------
<S> <C> <C> <C>
Accrued compensation and related taxes................... $ 135,615 $ 109,964 $ 92,036
Accrued interest......................................... 136,507 -- 466,224
Accrued professional fees................................ 28,000 25,500 57,725
---------- ---------- ----------
$ 300,122 $ 135,464 $ 615,985
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
9. STOCK OPTION PLANS
During 1987, the Company established a stock option plan whereby the Company
may grant either incentive or non-qualified stock options to purchase the
Company's common stock. Such stock options are granted at the fair market value
of such stock as determined by the Board of Directors at the date of grant. The
incentive stock options vest in installments over a 36- to 48-month period from
the date of grant with vested options exercisable up to 10 years from such date.
During fiscal year 1994, the Board of Directors increased the number of shares
available for grant from 754,800 to 1,224,688.
<TABLE>
<CAPTION>
COMMON COMMON SHARE
SHARES OPTIONS
AVAILABLE ISSUED AND PRICE PER
FOR GRANT OUTSTANDING SHARE
------------ ------------- -------------
<S> <C> <C> <C>
Balance at September 30, 1993.................... 86,254 657,250 $ .29 - $3.75
Authorized..................................... 469,888 -- --
Granted........................................ (171,640) 171,640 $2.00
Exercised...................................... -- (9,510) $ .33 - $2.50
------------ ------------- -------------
Balance at September 30, 1994.................... 384,502 819,380 $ .29 - $3.75
Granted........................................ (158,225) 158,225 $2.00
Exercised...................................... -- (225 ) $2.00
------------ ------------- -------------
Balance at September 30, 1995.................... 226,277 977,380 $ .29 - $3.75
Canceled....................................... 500 (500 ) $2.00
Exercised...................................... -- (100 ) $2.00
------------ ------------- -------------
Balance at June 30, 1996......................... 226,777 976,780 $ .29 - $3.75
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
F-60
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS (CONTINUED)
At September 30, 1995 and 1994, and June 30, 1996, respectively, 645,929,
470,636 and 777,117 common stock options were exercisable.
The Company adopted an Equity Incentive Option Plan for Outside Directors
(Director Option Plan), which was last amended in March 1993, providing for the
grant of nonqualified stock options up to an aggregate of 180,000 shares. The
amended plan provides that each individual who becomes an outside Director will
be granted an initial option for 12,000 shares of the Company's common stock and
that on each of the first five anniversaries of the date of the initial stock
option award, each outside Director who remains an outside Director on the
respective anniversary date will be granted an option to purchase an additional
6,000 shares of common stock. These options are exercisable in three equal
cumulative installments commencing on the first anniversary of the grant date.
The price of the shares subject to each option in the amended Director
Option Plan shall be 100% of the fair market value, as defined, for such shares
on the date the options are granted. Through September 30, 1995, 84,000 shares
of the Company's common stock have been granted to three outside Directors at an
exercise price of $2.00, the estimated fair market value at the date of grant.
At September 30, 1995, 44,000 of these options were exercisable. Additionally,
54,000 cumulative options are to be granted ratably to the outside Directors if
they remain outside Directors on their respective anniversary date.
The difference between the estimated fair value of the shares underlying the
options based upon the per share price in an April 1992 proposed initial public
offering, and the exercise price at the grant date was recorded as deferred
compensation and was amortized over the related vesting period.
10. LEASES
The Company occupies its corporate headquarters and uses certain machinery
and equipment under various operating leases. Rental expense under such
arrangements was approximately $155,000, $153,000, and $113,000 in 1995, 1994,
and 1993, respectively, and $120,000 during the nine months ended June 30, 1996.
Future minimum lease payments under noncancelable operating leases subsequent to
September 30, 1995 are approximately $139,000 in 1996.
11. INCOME TAXES
At September 30, 1995, the Company had net operating loss (NOL)
carryforwards of approximately $22,180,000 for financial reporting purposes. Due
to temporary differences arising primarily from the use of different accounting
methods for financial statement and tax reporting purposes related to research
and
F-61
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
development costs, the Company has available for federal income tax purposes the
following operating loss carryforwards and unused research and development
credits:
<TABLE>
<CAPTION>
RESEARCH AND
NET OPERATING DEVELOPMENT
YEAR OF EXPIRATION LOSSES CREDIT
- ---------------------------------------- ------------- ------------
<S> <C> <C>
2000.................................... $ 36,000 $ --
2002.................................... 86,000 --
2003.................................... 896,000 44,000
2004.................................... 590,000 87,000
2005.................................... 578,000 103,000
2006.................................... 2,073,000 99,000
2007.................................... 2,128,000 93,000
2008.................................... 3,031,000 172,000
2009.................................... 3,166,000 151,000
2010.................................... 3,576,000 162,000
------------- ------------
$16,160,000 $ 911,000
------------- ------------
------------- ------------
</TABLE>
The timing and manner in which the operating loss carryforwards and credits may
be utilized in any year by the Company may be limited by provisions of the
Internal Revenue Code regarding changes in ownership of corporations.
The following schedule represents the items which give rise to significant
portions of deferred tax assets.
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
NOL carryforward................................................ $ 5,494,000 $ 4,266,000
Capitalized research and development............................ 1,902,000 1,756,000
Credit carryforward............................................. 911,000 767,000
Other........................................................... 140,000 117,000
------------- -------------
Total deferred tax assets....................................... 8,447,000 6,906,000
Valuation allowance............................................. (8,447,000) (6,906,000)
------------- -------------
Net deferred tax asset.......................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
The deferred tax asset valuation allowance increased by approximately
$1,541,000 and $1,492,000 during the years ended September 30, 1995 and 1994,
respectively.
12. DISTRIBUTION AGREEMENTS
The Company entered into several exclusive and non-exclusive distribution
agreements in North America and various countries overseas during the years
ended September 30, 1995 and 1994, certain of which require minimum purchases
and are renewable annually. Purchases under these agreements were approximately
$424,000, $222,000 and $149,000 for the years ended September 30, 1995, 1994,
and 1993, respectively, and $259,000 for the nine months ended June 30, 1996.
F-62
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. RESEARCH AND DEVELOPMENT CONTRACTS
During fiscal years 1995, 1994, and 1993, the Company entered into various
contracts with manufacturers to develop pesticide test kits. Certain
manufacturers have granted the Company exclusive worldwide licenses to
manufacture and market the kits. In connection with the contracts, the Company
incurred development costs of $115,000, $125,000 and $70,000, respectively, and
earned revenues of $163,000, $157,000 and $120,000, respectively, during the
years ended September 30, 1995, 1994, and 1993. During the nine months ended
June 30, 1996 the Company incurred development costs of $15,000 and earned
revenues of $96,000. One of the contracts also provides for royalties to be paid
to the manufacturer based upon the selling price of the products. There were
minimal sales subject to royalties during the years ended September 30, 1995,
1994, and 1993, and for the nine months ended June 30, 1996.
The Company entered into several license agreements during fiscal years 1994
and 1993 with certain pesticide and diagnostic test system manufacturers which
provided total fees of $150,000 and $350,000, respectively, for the right to
utilize the Company's existing technology and proprietary information. The
Company has recognized these fees as contract revenues during the year ended
September 30, 1994 and 1993. No such agreements existed during the year ended
September 30, 1995.
14. CAPITAL STOCK
The Company has six series (A-F) of authorized convertible preferred stock.
The issued Series A, Series B and Series C preferred stock has no ranking
priority and are similar in all material aspects. The preferred stock is
convertible into $.01 par value common stock at a conversion ratio of 3 shares
of common stock for 5 shares of preferred stock for Series A, Series B and
Series C and at a ratio of 5 shares of common stock for 1 share of preferred
stock for Series D, Series E and Series F, subject to adjustment in certain
circumstances. Conversion is at the option of the preferred stockholders until
such time, if ever, that the Company consummates a public offering at a
designated price and from which the Company receives proceeds of at least
$5,000,000 at which time such conversion becomes mandatory. The preferred stock
has voting rights equal to its common stock conversion ratio, subject to certain
restrictions.
In connection with the January 1995 bridge loans (Note 6), the Company
issued detachable stock warrants, which expire in January 2000, to purchase
83,524 shares of Series F preferred stock at the lower of $5.25 per share or the
common equivalent purchase price of the security issued by the Company in any
subsequent round of financing. The warrants automatically convert into
substantially identical warrants to purchase shares of the Company's common
stock upon the consummation by the Company of a public offering as defined in
the warrant agreement. At September 30, 1995 and June 30, 1996, no warrants have
been exercised. The estimated fair market value of the warrants of $12,612 has
been included in additional paid-in capital during the year ended September 30,
1995.
In connection with the bridge loans (Note 6), the Company issued detachable
stock warrants, which expire from July 1998 to February 1999, to purchase 70,000
shares of Series D preferred stock at the lower of $5.00 per share or the common
equivalent purchase price of the security issued by the Company in any
subsequent round of financing that is consummated prior to such time as the
Company's operations shall be profitable for two consecutive fiscal quarters as
defined in the warrant agreement. The warrants automatically convert into
substantially identical warrants to purchase shares of the Company's common
stock upon the consummation by the Company of a public offering as defined in
the warrant agreement. At September 30, 1995 and June 30, 1996, no warrants have
been exercised. The estimated fair market value of the warrants was $66,850 of
which $14,350 has been included in additional paid-in capital during the year
ended September 30, 1994.
F-63
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. CAPITAL STOCK (CONTINUED)
The Company issued warrants to the holders of Series C preferred stock to
purchase 525,000 shares of Series C preferred stock at $2.00 per share. As of
September 30, 1995, 330,844 warrants have been exercised, 101,054 expired and
93,102 are outstanding. The outstanding warrants expired during June 1996.
During October 1993, the Company issued warrants to certain placement agents
in connection with a Private Offering Memorandum to purchase 97,353 shares of
common stock at $6.65 per share until December 1995 and at $7.50 per share
thereafter. At September 30, 1995 and June 30, 1996, no warrants have been
exercised. The warrants expire December 1997.
15. EVENTS (UNAUDITED) SUBSEQUENT TO THE BALANCE SHEET DATE
PLAN OF MERGER
On July 3, 1996, the Company's Board of Directors unanimously approved an
Agreement and Plan of Merger with Strategic Diagnostics Inc. (SDI) effective
August 30, 1996. Pursuant to the Merger Agreement, SDI will be the surviving
corporation of the Merger and the holders of the Company's Series D and Series E
Preferred Stock and holders of certain outstanding promissory notes previously
issued by the Company (Note 6) will receive 3,068,779 shares of, $.01 par value,
Common Stock of SDI as follows:
- all outstanding shares of the Company's Series D Convertible Preferred
Stock will be canceled and converted to 116,097 fully paid and
nonassesssable shares of Common Stock of SDI.
- all outstanding shares of the Company's Series E Convertible Preferred
Stock will be canceled and converted into 119,966 fully paid and
nonassesssable shares of Common Stock of SDI.
- each of the promissory notes issued by the Company on January 23, 1995 in
the aggregate principal amount of $877,000 plus accrued interest of
$140,560 (Note 6) will be canceled and converted into 61,800 fully paid
and nonassesssable shares of Common Stock of SDI.
- each of the promissory notes issued by the Company on January 29, 1996 in
the aggregate principal amount of $908,660 plus accrued interest of
$49,240 (Note 6) will be canceled and converted into 174,259 fully paid
and nonassesssable shares of Common Stock of SDI.
- each of the promissory notes issued by the Company on April 29, 1996 in
the aggregate principal amount of $330,000 plus accrued interest of
$11,121 (Note 6) will be canceled and converted into 826,208 fully paid
and nonassesssable shares of Common Stock of SDI.
- the promissory note issued by a subsidiary of the Company, Ohmicron
Environmental Diagnostics (OED), to Perkin on April 14, 1995 in the
principal amount of $3,000,000 plus accrued interest of $350,660 (Note 6)
will be canceled and converted into 1,770,449 fully paid and
nonassesssable shares of Common Stock of SDI. Perkin agreed to the
conversion, subject to certain events as outlined in a June 5, 1996 letter
of understanding between Perkin and the Company.
- each share of the Company's Common Stock, and each share of the Company's
Series A, Series B and Series C Convertible Preferred Stock, will be
canceled and extinguished for no consideration, and the holders of these
shares will have no further rights with respect to such shares or with
respect to any shares of SDI Common Stock.
- all options and warrants exercisable for the purchase of the Company's
capital stock will terminate for no consideration, and the holders of such
options and warrants will have no further rights with
F-64
<PAGE>
OHMICRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EVENTS (UNAUDITED) SUBSEQUENT TO THE BALANCE SHEET DATE (CONTINUED)
respect to such options and warrants or with respect to any of the
Company's capital stock or any shares of SDI Common Stock.
Further, immediately prior to the Merger, the Company spun-off its wholly
owned subsidiary, Ohmicron Medical Diagnostics, Inc. (OMD) to its stockholders.
In this spin-off, the Company distributed shares of OMD's capital stock as
follows:
- the holders of each share of the Company's common stock will receive one
share of common stock of OMD (OMD Common).
- the holders of the Series A-Series E Preferred Stock will receive one
share of Preference Stock of OMD (OMD Preference) for each share of
Company common stock that would be issuable upon the conversion of the
Series A-E Preferred Stock.
- the holders of the January 1995, January 1996 and April 1996 Bridge Notes
and the Perkin-Elmer Bridge Note will not be entitled to receive any OMD
Common or OMD Preference.
The Company entered into an agreement with SDI on June 12, 1996 (Service
Agreement) whereby SDI agreed to provide certain management services to the
Company on a contract basis and to advance certain funds on the Company's
behalf. This agreement was evidenced by a $130,000 demand note dated June 12,
1996. The amounts payable by the Company to SDI under the demand note and
related Service Agreement are secured by the assets of the Company's
environmental immunoassay business. Such amounts will be forgiven by SDI upon
the consummation of the Merger. Through June 30, 1996, $79,995 was advanced by
SDI to the Company which is reflected in notes payable in the accompanying
financial statements.
During September 1996, SDI entered into a merger agreement with EnSys
Environmental Products, Inc. (EnSys), a public company. During October 1996, SDI
and EnSys filed a Joint Proxy Statement/ Prospectus with the Securities and
Exchange Commission in connection with the proposed merger.
F-65
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
STRATEGIC DIAGNOSTICS INC.
AND
ENSYS ENVIRONMENTAL PRODUCTS, INC.
OCTOBER 11, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Effective Time . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Effect of the Merger . . . . . . . . . . . . . . . . . . . 2
1.4. Restated Certificate of Incorporation; By-Laws . . . . . . 2
1.5. Directors and Officers . . . . . . . . . . . . . . . . . . 2
1.6. Taking Necessary Action; Further Action. . . . . . . . . . 2
1.7. The Closing. . . . . . . . . . . . . . . . . . . . . . . . 2
1.8. General Definitions. . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 - CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . 3
2.1. Conversion of Shares . . . . . . . . . . . . . . . . . . . 3
2.2. No Fractional Shares . . . . . . . . . . . . . . . . . . . 4
2.3. Dissenting Shares. . . . . . . . . . . . . . . . . . . . . 4
2.4. Exchange of Certificates . . . . . . . . . . . . . . . . . 5
2.5. Conversion of Stock Options and Warrants . . . . . . . . . 6
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SDI. . . . . . . . . . . . . . . 7
3.1. Organization and Qualification; Subsidiaries . . . . . . . 7
3.2. Certificate of Incorporation; By-Laws. . . . . . . . . . . 8
3.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . 8
3.4. Authority; Vote Required . . . . . . . . . . . . . . . . . 9
3.5. No Conflict; Required Filings and Consents . . . . . . . .10
3.6. Permits; Compliance. . . . . . . . . . . . . . . . . . . .11
3.7. Financial Statements . . . . . . . . . . . . . . . . . . .11
3.8. Absence of Certain Changes and Events. . . . . . . . . . .12
3.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . .14
3.10. Contracts; No Default. . . . . . . . . . . . . . . . . . .14
3.11. Employee Benefit Plans; Labor Matters. . . . . . . . . . .15
3.12. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.13. Intellectual Property Rights . . . . . . . . . . . . . . .17
3.14. Insurance. . . . . . . . . . . . . . . . . . . . . . . . .18
3.15. Title to Properties. . . . . . . . . . . . . . . . . . . .18
3.16. Accounts Payable; Accounts Receivable. . . . . . . . . . .19
3.17. Hazardous Substances . . . . . . . . . . . . . . . . . . .19
3.18. Customers and Suppliers. . . . . . . . . . . . . . . . . .20
3.19. Employee Relations . . . . . . . . . . . . . . . . . . . .20
-i-
<PAGE>
3.20. Certain Transactions . . . . . . . . . . . . . . . . . . .20
3.21. Directors and Officers . . . . . . . . . . . . . . . . . .21
3.22. Registration Statement; Proxy Statement/Prospectus . . . .21
3.23. TSD BioServices. . . . . . . . . . . . . . . . . . . . . .21
3.24. Section 203 of the DGCL Not Applicable . . . . . . . . . .21
3.25. Misstatements and Omissions. . . . . . . . . . . . . . . .22
3.26. No Existing Discussions. . . . . . . . . . . . . . . . . .22
3.27. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . .22
3.28. Continuity of Business Enterprise. . . . . . . . . . . . .22
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF ENSYS . . . . . . . . . . . . .22
4.1. Organization and Qualification; Subsidiaries . . . . . . .23
4.2. Certificate of Incorporation; By-Laws. . . . . . . . . . .23
4.3. Capitalization . . . . . . . . . . . . . . . . . . . . . .23
4.4. Authority; Vote Required . . . . . . . . . . . . . . . . .24
4.5. No Conflict; Required Filings and Consents . . . . . . . .25
4.6. Permits; Compliance. . . . . . . . . . . . . . . . . . . .26
4.7. Reports and Financial Statements . . . . . . . . . . . . .26
4.8. Absence of Certain Changes and Events. . . . . . . . . . .27
4.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . .29
4.10. Contracts; No Default. . . . . . . . . . . . . . . . . . .29
4.11. Employee Benefit Plans; Labor Matters. . . . . . . . . . .30
4.12. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .32
4.13. Intellectual Property Rights . . . . . . . . . . . . . . .32
4.14. Insurance. . . . . . . . . . . . . . . . . . . . . . . . .33
4.15. Title to Properties. . . . . . . . . . . . . . . . . . . .33
4.16. Accounts Payable; Accounts Receivable. . . . . . . . . . .34
4.17. Hazardous Substances . . . . . . . . . . . . . . . . . . .34
4.18. Customers and Suppliers. . . . . . . . . . . . . . . . .35
4.19. Employee Relations . . . . . . . . . . . . . . . . . . . .35
4.20. Certain Transactions . . . . . . . . . . . . . . . . . . .35
4.21. Directors and Officers . . . . . . . . . . . . . . . . . .36
4.22. Registration Statement; Proxy Statement/Prospectus . . . .36
4.23. Section 203 of the DGCL Not Applicable . . . . . . . . . .36
4.24. Misstatements and Omissions. . . . . . . . . . . . . . . .36
4.25. No Existing Discussions. . . . . . . . . . . . . . . . . .37
4.26. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . .37
4.27. Continuity of Business Enterprise. . . . . . . . . . . . .37
ARTICLE 5 - COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
5.1. Affirmative Covenants of SDI and EnSys . . . . . . . . . .37
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<PAGE>
5.2. Negative Covenants of SDI and EnSys. . . . . . . . . . . .38
ARTICLE 6 - ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . .40
6.1. Registration Statement and Joint Proxy Statement . . . . .40
6.2. Stockholders' Meetings . . . . . . . . . . . . . . . . . .40
6.3. Appropriate Action; Consents; Filings. . . . . . . . . . .40
6.4. Access to Information. . . . . . . . . . . . . . . . . . .41
6.5. Update Disclosure; Breaches. . . . . . . . . . . . . . . .42
6.6. Public Announcements . . . . . . . . . . . . . . . . . . .42
6.7. Indemnification. . . . . . . . . . . . . . . . . . . . . .42
6.8. Treatment of SDI Options . . . . . . . . . . . . . . . . .44
6.9. No Solicitation of Other Offers. . . . . . . . . . . . . .44
6.10. Interim Financial Statements . . . . . . . . . . . . . . .44
6.11. Satisfaction of Conditions . . . . . . . . . . . . . . . .44
6.12. Operating Agreement. . . . . . . . . . . . . . . . . . . .45
ARTICLE 7 - CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . .45
7.1. Conditions to Obligations of Each Party Under
This Agreement . . . .. . . . . . . . . . . . . . . . . .45
7.2. Additional Conditions to Obligations of EnSys. . . . . .46
7.3. Additional Conditions to Obligations of SDI. . . . . . . .47
ARTICLE 8 - TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . .48
8.1. Termination. . . . . . . . . . . . . . . . . . . . . . . .48
8.2. Effect of Termination. . . . . . . . . . . . . . . . . . .48
8.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . .49
8.4. Termination Fee. . . . . . . . . . . . . . . . . . . . . .49
ARTICLE 9 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . .49
9.1. Non-Survival of Representations and Warranties . . . . . .49
9.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . .50
9.3. Amendment. . . . . . . . . . . . . . . . . . . . . . . . .51
9.4. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . .51
9.5. Headings . . . . . . . . . . . . . . . . . . . . . . . . .51
9.6. Severability . . . . . . . . . . . . . . . . . . . . . . .51
9.7. Entire Agreement . . . . . . . . . . . . . . . . . . . . .52
9.8. Assignment . . . . . . . . . . . . . . . . . . . . . . . .52
9.9. Parties in Interest. . . . . . . . . . . . . . . . . . . .52
9.10. Governing Law. . . . . . . . . . . . . . . . . . . . . . .52
9.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . .52
-iii-
<PAGE>
TABLE OF DEFINED TERMS
1933 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
1934 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Aggregate Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . 4
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Alternative Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Applicable Per Share Merger Consideration. . . . . . . . . . . . . . . . . . . 4
BioServices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Breaching Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Certificate of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Confidentiality Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . .41
Constituent Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
EnSys. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
EnSys Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
EnSys Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . .23
EnSys Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
EnSys Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
EnSys Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . .31
EnSys Environmental Products . . . . . . . . . . . . . . . . . . . . . . . . .33
EnSys Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .26
EnSys Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . .33
EnSys Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . .32
EnSys Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . .27
EnSys Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
EnSys Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
EnSys Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
EnSys Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
EnSys Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
EnSys Stockholders' Meeting. . . . . . . . . . . . . . . . . . . . . . . . . .21
EnSys Warrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
EnSys Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-iv-
<PAGE>
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Governmental Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Indemnified Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Joint Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Merger Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Nasdaq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Non-breaching Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Ohmicron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Required Public Announcement . . . . . . . . . . . . . . . . . . . . . . . . .42
Requisite EnSys Stockholder Approval . . . . . . . . . . . . . . . . . . . . .25
Requisite SDI Stockholder Approval . . . . . . . . . . . . . . . . . . . . . .10
Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SDI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SDI Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . 8
SDI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SDI Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
SDI Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . .15
SDI Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .11
SDI Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SDI Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . .17
SDI Interim Financial Statements . . . . . . . . . . . . . . . . . . . . . . .11
SDI Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SDI Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SDI Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
SDI Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SDI Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
SDI Stock Option Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
SDI Stockholders' Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . .21
SDI Warrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SDI Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SDI-Ohmicron Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . .12
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
SEC Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Section 262. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-v-
<PAGE>
Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Treasury Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Update Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
-vi-
<PAGE>
TABLE OF SCHEDULES AND EXHIBITS
Schedule Description
- -------- -----------
1.5 . . . . . . . . . . . . . . . .Surviving Corporation Directors and Officers
2.5-1 . . . . . . . . . . . . . . . . . . . . . EnSys Options or EnSys Warrants
3.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SDI Knowledge
3.1(a). . . . . . . . . . . . . . . . . . . . . . . .SDI Foreign Qualifications
3.1(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . .SDI Subsidiaries
3.2 . . . . . . . . . . . . . . . . . . . . . .SDI Certificate of Incorporation
3.3(a). . . . . . . . . . . . . . . . . . . . . . . . .SDI Options and Warrants
3.3(b). . . . . . . . . . . . . . . . . . . . . . . . . . Stock of Subsidiaries
3.3(c). . . . . . . . . . . . . . . . . . . . . . . . .SDI Capital Stock Issues
3.5 . . . . . . . . . . . . . . . . . . . . .SDI Consents and Notices; Defaults
of SDI Contracts
3.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SDI Permits
3.7 . . . . . . . . . . . . . . . . . . . . . . . . .SDI-Ohmicron Balance Sheet
3.7(a). . . . . . . . . . . GAAP Variations in SDI Interim Financial Statements
3.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SDI Changes
3.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SDI Litigation
3.10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SDI Contracts
3.11. . . . . . . . . . . . . . . . . .SDI Employee Benefit Plans and Contracts
3.12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SDI Taxes
3.13. . . . . . . . . . . . . . . . . . . . . . . . . SDI Intellectual Property
3.14. . . . . . . . . . . . . . . . . . . . . . . . . . .SDI Insurance Policies
3.15. . . . . . . . . . . . . . . . . . . . . . . . . .SDI Real Property Leases
3.16. . . . . . . . . . . . . . . . . . . Accounts Receivable; Accounts Payable
3.18. . . . . . . . . . . . . . . . . . . . . . . . . . Customers and Suppliers
3.19. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Employee Relations
3.21. . . . . . . . . . . . . . . . . . . . . . . . .SDI Directors and Officers
3.23. . . . . . . . . . . . . . . . . . . . . TSD Pro Forma Financial Statement
4.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EnSys Knowledge
4.1(a). . . . . . . . . . . . . . . . . . . . . . .EnSys Foreign Qualifications
4.1(b). . . . . . . . . . . . . . . . . . . . . . . . . . . .EnSys Subsidiaries
4.2 . . . . . . . . . . . . . . . . . . . . .EnSys Certificate of Incorporation
4.3(a). . . . . . . . . . . . . . . . . . . . . . . .EnSys Options and Warrants
4.3(b). . . . . . . . . . . . . . . . . . . . . . . . . . Stock of Subsidiaries
4.3(c). . . . . . . . . . . . . . . . . . . . . . . .EnSys Capital Stock Issues
4.5 . . . . . . . . . . . . . . . . . . . .EnSys Consents and Notices; Defaults
of EnSys Contracts
4.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EnSys Permits
4.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SEC Filings
4.7(a). . . . . . . . . . GAAP Variations in EnSys Interim Financial Statements
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<PAGE>
4.7(b). . . . . . . . . . . . . . . . . . . . . . . . . . . EnSys Balance Sheet
4.8 . . . . . . . . . . . . . . . . . . . Absence of Certain Changes and Events
4.10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EnSys Contracts
4.11. . . . . . . . . . . . . . . . .EnSys Employee Benefit Plans and Contracts
4.13. . . . . . . . . . . . . . . . . . . .EnSys Intellectual Property Licenses
4.14. . . . . . . . . . . . . . . . . . . . . . . . . .EnSys Insurance Policies
4.15. . . . . . . . . . . . . . . . . . . . . . . . .EnSys Real Property Leases
4.20. . . . . . . . . . . . . . . . . . . . . . . . .EnSys Certain Transactions
4.21. . . . . . . . . . . . . . . . . . . . . . . .EnSys Directors and Officers
Exhibit Description
- ------- -----------
1.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . Certificate of Merger
1.4(a). . . . . . . . . . . .Surviving Corporation Certificate of Incorporation
1.4(b). . . . . . . . . . . . . . . . . . . . . . Surviving Corporation By-Laws
6.12. . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Agreement
7.1(f). . . . . . . . . . . . . . . . . . . . . .Forms of Employment Agreements
7.1(g). . . . . . . . . . . . . . . . . . Form of Registration Rights Agreement
7.1(h). . . . . . . . . . . . . . . . . . . . . . . . . .Form of Lock-up Letter
7.2(c). . . . . . . . . . . . . . . . . . . . . . . . . . . EnSys Legal Opinion
7.3(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . SDI Legal Opinion
-viii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of October 11, 1996
(the "Agreement"), is made and entered into by and between EnSys Environmental
Products, Inc., a Delaware corporation ( "EnSys"), and Strategic Diagnostics
Inc., a Delaware corporation ("SDI").
BACKGROUND
The respective Boards of Directors of EnSys and SDI have determined
that it is advisable and in the best interests of the respective corporations
and their stockholders that EnSys and SDI combine in order to advance the long-
term business interests of EnSys and SDI, and that such strategic combination
shall be effected by the terms of this Agreement through a transaction in which
SDI will be merged with and into EnSys in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DGCL") and the terms of
this Agreement, pursuant to which EnSys will be the surviving corporation (the
"Merger"). The Merger is intended to qualify as a "reorganization" under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
AGREEMENTS
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the relevant provisions of the
DGCL, at the Effective Time (as defined in Section 1.2 hereof), SDI shall be
merged with and into EnSys. As a result of the Merger, the separate corporate
existence of SDI shall cease and EnSys shall continue as the surviving
corporation of the Merger under the laws of the State of Delaware, with its name
changed to "Strategic Diagnostics Inc." (the "Surviving Corporation"). EnSys
and SDI are sometimes collectively referred to in this Agreement as the
"Constituent Corporations."
1.2. EFFECTIVE TIME. Subject to the terms and conditions of this
Agreement, at the time of the Closing (as defined in Section 1.7 hereof), a
certificate of merger in substantially the form of Exhibit 1.2 attached hereto
(the "Certificate of Merger") shall be duly executed by the Surviving
Corporation and shall be filed with the Secretary of State of the State of
Delaware in accordance with the DGCL on the Closing Date (as defined in Section
1.7 hereof). The
<PAGE>
Merger shall become effective upon the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware in accordance with the
provisions and requirements of the DGCL. The date and time when the Merger
shall become effective is hereinafter referred to as the "Effective Time."
1.3. EFFECT OF THE MERGER. The Merger shall have the effects
specified in Section 259 of the DGCL.
1.4. RESTATED CERTIFICATE OF INCORPORATION; BY-LAWS. At the
Effective Time, the Third Amended and Restated Certificate of Incorporation of
EnSys and the By-Laws of EnSys shall be amended and restated in their entirety
in the forms attached hereto as Exhibit 1.4(a) and Exhibit 1.4(b), respectively,
and such amended and restated Certificate of Incorporation (which shall become
effective only at the Effective Time) and By-Laws (which shall become effective
only at the Effective Time) shall become the Certificate of Incorporation and
the By-Laws of the Surviving Corporation.
1.5. DIRECTORS AND OFFICERS. At and after the Effective Time, in
each case until their respective successors are duly elected or appointed and
qualified, the initial directors and officers of the Surviving Corporation shall
be those individuals listed on Schedule 1.5 hereto.
1.6. TAKING NECESSARY ACTION; FURTHER ACTION. EnSys and SDI shall
each use all reasonable efforts to take all action as may be reasonably
necessary or appropriate to effectuate the Merger in accordance with the terms
and conditions of this Agreement and under the DGCL. If at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all properties, interests, assets, rights,
privileges, immunities, powers and franchises of either of the Constituent
Corporations, the officers of the Surviving Corporation are fully authorized in
the name of each Constituent Corporation or otherwise to take, and shall take,
all such lawful and necessary action.
1.7. THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") will take place on (i) the later of (A) the first
business day following the Stockholders' Meetings described in Section 6.2 and
(B) the business day on which the last of the conditions set forth in Article 7
to be fulfilled prior to Closing is fulfilled or waived or (ii) on such other
date as the parties hereto may agree (the "Closing Date"), at 10:00 a.m. (local
time) at the offices of Pepper, Hamilton & Scheetz, Suite 1401, 1201 Market
Street, Wilmington, DE 19899-1709, or at such other place as the parties hereto
shall mutually agree (including Closing by facsimile transmission exchange of
executed documents or signature pages followed promptly by overnight courier of
originals), and will be effective as of the Effective Time. At the Closing,
each of EnSys and SDI will execute and deliver to the other all documents
reasonably requested by the other to give effect to the terms of this Agreement.
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<PAGE>
1.8. GENERAL DEFINITIONS.
(a) The term "Material Adverse Effect" as used in this
Agreement in conjunction with the term "SDI" or "EnSys", as the case may be,
shall mean any change or effect that, individually or when taken together with
all other such changes or effects, is materially adverse to the financial
condition, results of operations, liabilities, business or assets of SDI or
EnSys (each taken as a whole together with its respective Subsidiaries), as the
case may be.
(b) The term "Affiliate" as used in this Agreement shall
mean, with respect to any person or entity, a person or entity that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with the first mentioned person or entity. The term
"control" (including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly or as trustee or executor, of the
power to direct or cause the direction of the management or policies of a person
or entity whether through the ownership of stock or as trustee or executor, by
contract or credit arrangement or otherwise.
(c) The term "Subsidiary" (or its plural) as used in this
Agreement with respect to SDI, EnSys, the Surviving Corporation or any other
person or entity shall mean any corporation, partnership, joint venture or other
legal entity of which SDI, EnSys, the Surviving Corporation or such other person
or entity, as the case may be (either alone or through or together with any
other Subsidiary), owns, directly or indirectly, at least 50% of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity.
ARTICLE 2
CONVERSION OF SECURITIES
2.1. CONVERSION OF SHARES.
(a) At the Effective Time by virtue of the Merger and
without any further action on the part of EnSys, SDI, the Surviving Corporation
or the holders of any of the following securities:
(i) each outstanding share of SDI Common Stock, par value
$.01 per share (the "SDI Common Stock") and SDI Series A Convertible Preferred
Stock, par value $.10 per share (the "SDI Preferred Stock") issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares (as defined in Section 2.3)) shall be canceled and extinguished and shall
be converted into the right to receive (subject to the provisions set forth in
Section 2.2 with respect to fractional shares) the following:
-3-
<PAGE>
(A) with respect to SDI Common Stock, .7392048 of
a fully paid and nonassessable share of EnSys Common Stock, par value $.01 per
share ("EnSys Common Stock"), per share of SDI Common Stock; and
(B) with respect to SDI Preferred Stock, .7392048
of a fully paid and nonassessable share of EnSys Series A Convertible Preferred
Stock, par value $.01 per share ("EnSys Preferred Stock"), per share of SDI
Preferred Stock; and
(ii) each share of SDI Common Stock and SDI Preferred
Stock owned by SDI as treasury shares or owned by any Subsidiary of SDI
(collectively "Treasury Shares") shall be canceled and extinguished, and no
shares of EnSys Common Stock, EnSys Preferred Stock or other consideration shall
be delivered in exchange therefor.
(b) The rights and preferences of the EnSys Preferred Stock are
set forth in the Restated Certificate of Incorporation of EnSys attached hereto
as Exhibit 1.4(a), which will become effective at the Effective Time upon its
filing with the Secretary of State of the State of Delaware. The shares of
EnSys Common Stock and EnSys Preferred Stock to be issued pursuant to the
Merger, which shall total 5,780,207 and 2,164,362 shares, respectively, in the
aggregate (less any Dissenting Shares (as defined in Section 2.3) and any
fractional shares paid in cash, as provided for in Section 2.2), are
collectively referred to herein as the "Merger Shares," and the total
consideration to be paid for all of the capital stock of SDI is referred to
herein as the "Aggregate Merger Consideration." The exchange ratio formulas set
forth in subparagraphs (a)(i) and (a)(ii) above are generically referred to
herein, without respect to particular class of stock, as the "Applicable Per
Share Merger Consideration."
2.2. NO FRACTIONAL SHARES. No fractional shares of EnSys Common Stock
or EnSys Preferred Stock will be issued in the Merger, and each stockholder of
SDI will receive cash in lieu of any fraction of a share of EnSys Common Stock
or EnSys Preferred Stock, as the case may be, in an amount equal to such
fraction multiplied by the average closing bid price of EnSys Common Stock on
the Nasdaq National Market of The Nasdaq Stock Market, Inc. ("Nasdaq") for the
five (5) trading days immediately preceding the Closing Date.
2.3. DISSENTING SHARES.
(a) Notwithstanding anything in this Agreement to the contrary,
if Section 262 of the DGCL ("Section 262") shall be applicable to the Merger,
shares of SDI Common Stock and SDI Preferred Stock that are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders who have not voted for or consented to the Merger, have performed
all such acts as are required to perfect appraisal rights pursuant to Section
262, and, as of the Effective Time, have not effectively withdrawn or lost such
right to appraisal ("Dissenting Shares"), shall not be converted into or
represent a right to receive the Applicable Per Share Merger Consideration
pursuant to Section 2.1, but the holders thereof shall be entitled only to such
rights as are granted by Section 262. Each holder of Dissenting Shares
-4-
<PAGE>
who becomes entitled to payment for such shares pursuant to Section 262 shall
receive payment therefor from the Surviving Corporation in accordance with
Section 262; provided, however, that if such holder of Dissenting Shares shall
have effectively withdrawn such holder's demand for appraisal of such shares or
lost such holder's right to appraisal and payment of such shares under Section
262, such holder or holders (as the case may be) shall forfeit the right to
appraisal of such shares and each such share shall thereupon be deemed, as of
the Effective Time, to have been canceled, extinguished and converted into and
represent the right to receive payment from the Surviving Corporation of the
Applicable Per Share Merger Consideration as provided in Section 2.1.
(b) Prior to the Effective Time, SDI shall give EnSys (i) prompt
written notice of any demand for fair value, any withdrawal of a demand for fair
value and any other instrument served pursuant to Section 262 received by SDI,
and (ii) the opportunity to participate in all negotiations and proceedings with
respect to demands for fair value under such Section 262. SDI shall not, except
with the prior written consent of EnSys, voluntarily make any payment with
respect to any demand for fair value or offer to settle or settle any such
demand. After the Effective Time, the Surviving Corporation shall be solely and
fully liable to pay any and all consideration due in respect of Dissenting
Shares.
2.4. EXCHANGE OF CERTIFICATES.
(a) EnSys' stock transfer agent, Boston EquiServe, shall act as
exchange agent (the "Exchange Agent") in effecting the exchange of the Aggregate
Merger Consideration for certificates representing shares of SDI Common Stock
and SDI Preferred Stock entitled to the Applicable Per Share Merger
Consideration pursuant to Section 2.1 (including lost share affidavits
reasonably acceptable in form and substance to EnSys, the "Certificates").
Subject to the terms and conditions hereof, immediately prior to the Effective
Time, EnSys shall deposit with the Exchange Agent the Merger Shares plus an
amount of cash to be paid in lieu of fractional shares that together are equal
to the Aggregate Merger Consideration (net of any amounts relating to any
Dissenting Shares). The Exchange Agent shall hold such Merger Shares and cash
in escrow for the purposes set forth in Section 2.1.
(b) Promptly after the Effective Time, the Exchange Agent shall
mail to each record holder of Certificates a letter of transmittal and
instructions for use in surrendering Certificates and receiving the Applicable
Per Share Merger Consideration therefor. The form of the transmittal letter
shall have been agreed upon by EnSys and SDI prior to the Effective Time. Upon
the surrender of each Certificate, together with such letter of transmittal duly
executed and completed in accordance with the instructions thereto, the holder
of such Certificate shall be entitled to receive in exchange therefor the
Applicable Per Share Merger Consideration multiplied by the number of shares of
SDI Common Stock or SDI Preferred Stock represented by such Certificate, and
such Certificate shall be canceled. Until so surrendered and exchanged, each
such Certificate shall represent solely the right to receive the Applicable Per
Share Merger Consideration multiplied by the number of shares of SDI Common
Stock or SDI Preferred Stock,
-5-
<PAGE>
as the case may be, that are represented by such Certificate. If any Merger
Shares are to be issued to a person other than the person in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition to such exchange that the Certificate so surrendered be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
similar taxes required by reason of the issuance of such Merger Shares to a
person other than the registered holder of the Certificate surrendered, or such
person shall establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not applicable.
(c) Promptly following the date which is one year after the
Effective Time, or such earlier date when all of the Aggregate Merger
Consideration has been exchanged pursuant to this Section 2.4, the Exchange
Agent's duties shall terminate and any portion of the Aggregate Merger
Consideration shall be released to the Surviving Corporation. Thereafter, each
holder of a Certificate may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the Applicable Per Share Merger Consideration
multiplied by the number of shares of SDI Common Stock or SDI Preferred Stock
represented by such Certificate.
(d) After the Effective Time there shall be no transfers on the
stock transfer books of SDI or the Surviving Corporation of any shares of SDI
Common Stock or SDI Preferred Stock. If, after the Effective Time, Certificates
are presented to the Surviving Corporation or the Exchange Agent, they shall be
canceled and exchanged for the Applicable Per Share Merger Consideration, as
provided in this Article 2, subject to applicable law in the case of Dissenting
Shares.
2.5. CONVERSION OF STOCK OPTIONS AND WARRANTS. At the Effective Time,
each outstanding stock option or warrant (whether vested or not) to purchase
shares of SDI Common Stock (an "SDI Option" or an "SDI Warrant", as the case may
be, or, collectively, the "SDI Options" or the "SDI Warrants") shall be canceled
and extinguished and converted into and deemed to constitute a stock option or a
warrant, as the case may be, to purchase shares of EnSys Common Stock (an "EnSys
Option"or an "EnSys Warrant", as the case may be, or, collectively, the "EnSys
Options" or the "EnSys Warrants") on the following conversion basis. The terms
of all of the EnSys Options and EnSys Warrants to be granted pursuant to this
section including exercise prices and vesting, and the exercise period is set
forth on Schedule 2.5-1 hereto, and Schedule 2.5-1 also contains the forms of
all of such EnSys Options and EnSys Warrants to be granted pursuant to this
Section 2.5. Each SDI Option to purchase one share of SDI Common Stock will be
converted into an EnSys Option to purchase .7818026 of a share of EnSys Common
Stock, and each SDI Warrant to purchase one share of SDI Common Stock will be
converted into an EnSys Warrant to purchase .7818026 of a share of EnSys Common
Stock, and in each case the EnSys Options or EnSys Warrants to be granted to a
holder shall be rounded to the nearest whole share. All SDI Options will be
converted into EnSys Options to purchase an aggregate of 391,658 shares of EnSys
Common Stock, and all SDI Warrants will be converted into EnSys Warrants to
purchase an aggregate of 599,643 shares of EnSys Common Stock.
-6-
<PAGE>
Notwithstanding anything contained herein to the contrary, in the event any of
the SDI Options or SDI Warrants are exercised between the date hereof and the
Effective Time, such exercise shall reduce the aggregate number of SDI Options
or SDI Warrants, as the case may be, to be issued pursuant to this Section 2.5
and shall increase the aggregate number of shares of EnSys Common Stock to be
issued pursuant to Section 2.1 hereof. In addition, at the Effective Time, all
SDI Option plans shall be terminated, and the Surviving Corporation shall not be
bound by any of the terms thereof or be liable for any obligations thereunder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SDI
Except as set forth in SDI's disclosure schedules attached to this
Agreement and made a part hereof (together with EnSys' disclosure schedules,
hereinafter referred to as the "Schedules"), SDI represents and warrants to
EnSys as follows (notwithstanding anything in this Agreement to the contrary,
(i) any matter disclosed in any part of SDI's Schedules shall be deemed to be
disclosed in all parts of such Schedules where such matter is required to be
disclosed, regardless of whether such matter is specifically cross-referenced,
(ii) the disclosure of any matter in such Schedules shall not necessarily be
deemed an indication that such matter is material or is required to be
disclosed, (iii) with respect to any representation, warranty or statement of
SDI in this Agreement that is qualified by or to SDI's knowledge, such knowledge
shall be deemed to exist only if any of the individuals listed on Schedule 3.0
has actual knowledge, or that knowledge which a reasonably prudent person should
have as a result of such person's performance of his or her duties as an
employee, officer or director of SDI or any of its Subsidiaries, or after making
reasonable inquiry and exercising due diligence with respect thereto, of the
matter to which such qualification applies, and (iv) for purposes of this
Article 3, and except as otherwise specifically provided for in Section 3.7(a),
all references to "SDI" contained herein shall be deemed to include the combined
entity following the merger of Ohmicron Corporation, a Delaware corporation
("Ohmicron"), with and into SDI:
3.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of SDI and
its Subsidiaries is a corporation, duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted and is duly qualified
and in good standing to do business in each jurisdiction (a true and complete
list of which jurisdictions is set forth on Schedule 3.1(a)) in which the nature
of the business conducted by it or the ownership or leasing of its properties
makes such qualification necessary, except such jurisdictions, if any, where the
failure to be so qualified would not have a SDI Material Adverse Effect. A true
and complete list of all of SDI's directly or indirectly owned Subsidiaries,
together with the jurisdiction of incorporation or organization of each
Subsidiary and the percentage of each Subsidiary's outstanding capital stock or
other equity interest owned by SDI or another Subsidiary of SDI, is set forth on
Schedule 3.1(b). SDI has no direct or
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indirect ownership interest in any subsidiary, partnership, joint venture or
other entity except as set forth on Schedule 3.1(b).
3.2. CERTIFICATE OF INCORPORATION; BY-LAWS. Attached hereto as
Schedule 3.2 are complete and correct copies of SDI's Restated Certificate of
Incorporation (the "SDI Certificate of Incorporation") and By-Laws, as amended
to date, and the Certificate of Incorporation and By-Laws of each of its
Subsidiaries. Neither SDI nor any of its Subsidiaries is in violation of any of
the provisions of its respective Certificate of Incorporation or By-Laws, as
amended or restated.
3.3. CAPITALIZATION.
(a) The authorized and the issued and outstanding capital stock
of SDI consists of:
(i) 13,072,040 shares of SDI Common Stock of which (A)
7,819,493 shares are validly issued and outstanding, fully paid and
nonassessable, (B) 2,927,960 shares are duly reserved for issuance upon
conversion of shares of SDI Preferred Stock, (C) 616,618 shares are duly
reserved for issuance upon exercise of SDI Options granted or available for
grant by the Board of Directors of SDI, and (D) 767,000 shares are duly reserved
for issuance upon exercise of SDI Warrants;
(ii) 2,927,960 shares of SDI Preferred Stock, all of which
shares are duly designated as SDI Series A Convertible Preferred Stock, of which
2,927,960 shares are validly issued and outstanding, fully paid and
nonassessable; and
(iii) No other shares of capital stock of SDI are
authorized or outstanding. No shares of SDI Common Stock or SDI Preferred Stock
are reflected on the books and records of SDI as Treasury Shares.
(b) Information as of the date of this Agreement relating to the
amounts of the authorized and issued and outstanding capital stock of each
Subsidiary is listed on Schedule 3.3(b).
(c) Except as described in this Section 3.3, no shares of SDI
Common Stock or SDI Preferred Stock are reserved for any other purpose. Since
December 31, 1995, no shares of SDI Common Stock or SDI Preferred Stock have
been issued by SDI, except in connection with the Ohmicron Merger or pursuant to
the exercise of outstanding SDI Options in accordance with their terms. Except
as contemplated by this Agreement or as described on Schedule 3.3(c), there have
been no changes in the terms of any outstanding SDI Options or SDI Warrants or
the grant of any additional SDI Options or SDI Warrants since December 31, 1995,
and neither SDI nor any committee or person administering any stock option plan
of SDI has taken any action under or pursuant to such plan in respect of the
Merger. All outstanding shares
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of SDI Common Stock and SDI Preferred Stock have been duly authorized, are
validly issued, fully paid and nonassessable and, except as set forth on
Schedule 3.3(c), are not subject to preemptive rights under the DGCL, the SDI
Certificate of Incorporation or By-Laws or any agreement to which SDI is a
party. Each of the outstanding shares of capital stock of, or other equity
interests in, each of SDI's Subsidiaries has been duly authorized and is validly
issued, fully paid and nonassessable and such shares or other equity interests
are owned by SDI free and clear of all security interests, liens, claims,
pledges, agreements, limitations on SDI's voting rights, charges or other
encumbrances of any nature whatsoever, subject to federal and state securities
laws. Except as described in Schedule 3.3(a), there are no options, warrants or
other rights, agreements, arrangements or commitments to which SDI or any of its
Subsidiaries is a party of any character relating to the issued or unissued
capital stock of, or other equity interests in, SDI or any of its Subsidiaries
or obligating SDI or any of its Subsidiaries (either before or after the
Effective Time) to grant, issue, sell or register for sale any shares of the
capital stock of, or other equity interests in, SDI or any of the Subsidiaries.
There are no outstanding stock appreciation rights or other similar rights,
agreements or commitments of SDI or, except as described in Section 3.3(a),
securities or obligations of SDI convertible into or exchangeable for any shares
of capital stock of SDI. Except as set forth on Schedule 3.3(c), as of the date
of this Agreement, there are no obligations, contingent or otherwise, of SDI or
any of its Subsidiaries to (x) repurchase, redeem or otherwise acquire any
shares of SDI Common Stock or SDI Preferred Stock, or the capital stock of, or
other equity interests in, any Subsidiary of SDI, or (y) provide funds to, or
make any investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the obligations of, any
Subsidiary of SDI, except for the provision of funds to, making an investment in
(in the form of a loan, capital contribution or otherwise) or provision of any
guarantees of obligations of Subsidiaries in the ordinary course of business.
Except as set forth on Schedule 3.3(c), there are no contracts, commitments or
agreements relating to the voting, purchase or sale of SDI's capital stock
(including, without limitation, any redemption by SDI thereof) (i) between or
among SDI and any of its stockholders and (ii) to SDI's knowledge, between or
among any of SDI's stockholders. There are no accrued but unpaid dividends owed
with respect to any of SDI's capital stock.
3.4. AUTHORITY; VOTE REQUIRED.
(a) SDI has the requisite corporate power and authority to
execute and deliver this Agreement and all other agreements required to be
executed by it pursuant to the terms hereof, to perform its obligations
hereunder, and to consummate the transactions contemplated by this Agreement,
subject to the Requisite SDI Stockholder Approval (as hereinafter defined). The
execution and delivery of this Agreement by SDI and the consummation by SDI of
the transactions contemplated hereby, have been duly authorized by the unanimous
approval of SDI's Board of Directors, and no other corporate actions or
proceedings on the part of SDI are necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement, except for the
Requisite SDI Stockholder Approval, in accordance with the DGCL and the SDI
Certificate of Incorporation and By-Laws. This Agreement has been duly executed
and delivered by SDI and constitutes the legal, valid and
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binding obligation of SDI, enforceable against SDI in accordance with its terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws relating to or affecting the rights and remedies of creditors
generally and by general principles of equity.
(b) The affirmative vote of the holders of at least a majority
of the outstanding shares of SDI Common Stock and SDI Preferred Stock voting
together as one class (with each share of SDI Preferred Stock being entitled to
the number of votes equal to the number of shares of SDI Common Stock into which
each share of SDI Preferred Stock could be converted on the record date for the
vote), and of the holders of at least two thirds of the outstanding shares of
SDI Preferred Stock voting separately as one class, are the only votes of the
holders of any class or series of capital stock of SDI necessary to approve this
Agreement and the Merger (together, the "Requisite SDI Stockholder Approval").
3.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by SDI does
not, and the performance of this Agreement by SDI will not: (i) violate the
Certificate of Incorporation or By-Laws of SDI or any of its Subsidiaries; (ii)
subject to (x) obtaining the Requisite SDI Stockholder Approval of this
Agreement and the Merger in accordance with the DGCL and the SDI Certificate of
Incorporation and By-Laws, (y) obtaining the consents, approvals, authorizations
and permits of, and making filings with or notifications to, any administrative
agency or commission or other governmental or regulatory authority, domestic or
foreign ("Governmental Entities"), pursuant to the applicable requirements, if
any, of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations thereunder (the "HSR Act"), and any applicable
provisions of all United States and Delaware laws, and the rules and regulations
thereunder, and the filing and recordation of appropriate Merger documents as
required by the DGCL, and (z) giving the notices to and obtaining the consents,
approvals, authorizations or permits from any private third parties as set forth
on Schedule 3.5, conflict with or violate any United States or state laws or
regulations applicable to SDI or any of its Subsidiaries, or by which any of
their respective properties is bound or affected; or (iii) except as set forth
on Schedule 3.5, result in any breach or violation of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of SDI or any of its Subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
order, decree, franchise or other instrument or obligation to which SDI or any
of its Subsidiaries is a party or by which SDI or any of its Subsidiaries or any
of their respective properties is bound, except for such violations, breaches or
defaults described in clause (iii) above as would not have a SDI Material
Adverse Effect.
(b) The execution and delivery of this Agreement by SDI does
not, and the performance of this Agreement by SDI shall not, require any
consent, approval, authorization
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or permit of, or filing or registration with or notification to, any
Governmental Entities or private third parties, except for applicable
requirements, if any, of (i) the consents, approvals, authorizations or permits
described on Schedule 3.5 and (ii) the filing and recordation of appropriate
Merger documents as required by the DGCL.
3.6. PERMITS; COMPLIANCE. Each of SDI and its Subsidiaries is in
possession of all franchises, authorizations, licenses, permits, consents,
certificates, approvals and orders necessary for SDI or any of its Subsidiaries
to own, lease and operate its properties or to carry on its business as it is
now being conducted (collectively, the "SDI Permits"), and Schedule 3.6 contains
a complete and correct list of all SDI Permits. All SDI Permits currently are
in effect, except for any SDI Permits the absence of which would not have a SDI
Material Adverse Effect. No suspension, revocation or cancellation of any of
the SDI Permits is pending or, to the knowledge of SDI, threatened in writing.
To the knowledge of SDI, neither SDI nor any of its Subsidiaries is operating in
default under or violation of (i) any law, rule or regulation, or any order or
decree, applicable to SDI or any of its Subsidiaries or by which any of their
respective properties is bound or (ii) any of the SDI Permits, except for any
such defaults or violations which would not have a SDI Material Adverse Effect.
3.7. FINANCIAL STATEMENTS.
(a) Attached hereto as a part of Schedule 3.7 are true, correct
and complete copies of (i) SDI's audited financial statements (including balance
sheets, income statements and statements of stockholders' equity and cash flows)
for the years ended as of December 31, 1994 and 1995 and (ii) Ohmicron's
audited, consolidated financial statements (including balance sheets, income
statements and statements of stockholders' equity and cash flows) for the years
ended as of September 30, 1994 and 1995 (such audited financial statements of
SDI and Ohmicron are hereinafter referred to collectively as the "SDI Financial
Statements"). The SDI Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
("GAAP") and fairly present in accordance with GAAP the financial position of
SDI and Ohmicron, as the case may be, as of the dates thereof and the results of
its operations for the periods covered thereby, subject only to the matters
described in the accountant's reports attached thereto. Also attached hereto as
a part of Schedule 3.7 are true, correct and complete copies of (iii) SDI's
unaudited, interim financial statements (including a balance sheet, income
statements and statements of cash flows) for the three (3) month and six (6)
month periods ended as of June 30, 1996, and (iv) Ohmicron's unaudited,
consolidated interim financial statements (including a balance sheet, income
statements and statements of cash flows) for the nine (9) month period ended as
of June 30, 1996 (such unaudited financial statements of SDI and Ohmicron are
hereinafter referred to collectively as the "SDI Interim Financial Statements").
The SDI Interim Financial Statements are in accordance with the books and
records of SDI or Ohmicron, as the case may be, were prepared in accordance with
GAAP, except as set forth on Schedule 3.7(a), and fairly present in accordance
with GAAP the financial position of SDI and Ohmicron, as the case may be, as of
the dates thereof and the results of their respective operations for the periods
covered thereby. Also
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attached hereto as a part of Schedule 3.7 is a true, correct and complete copy
of a proforma unaudited combined balance sheet of SDI and Ohmicron as of
June 30, 1996 (the "SDI-Ohmicron Balance Sheet"), which is in accordance with
the books and records of SDI and Ohmicron, as the case may be, was prepared in
accordance with GAAP, except as set forth on Schedule 3.7(a), and fairly
presents in accordance with GAAP the financial position of SDI (as the surviving
corporation of the Ohmicron Merger) as of the date thereof.
(b) Except as and to the extent reflected on, or reserved
against in, the SDI-Ohmicron Balance Sheet, neither SDI nor any of its
Subsidiaries has any liabilities or obligations (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, disclosed or
reserved against in, a balance sheet of SDI or in the notes thereto, prepared in
accordance with GAAP, except for liabilities or obligations incurred in the
ordinary course of business since the date of the SDI-Ohmicron Balance Sheet
that, individually or in the aggregate, would not have a SDI Material Adverse
Effect.
3.8. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth on
Schedule 3.8, since June 30, 1996
(a) each of SDI and its Subsidiaries has conducted its business
in the ordinary course and consistent with its past practice;
(b) there has not been any SDI Material Adverse Effect;
(c) neither SDI nor any Subsidiary has made any material
increase in compensation to officers or key employees or any material increase
in any or created any new bonus, insurance, pension or other employee benefit
plan, payment or arrangement (including, but not limited to, the granting of
stock options) other than in the ordinary course of business and consistent with
SDI's past practice;
(d) neither SDI nor any of its Subsidiaries has made any loans
or advances to any officer, director, shareholder or Affiliate of SDI or of any
Subsidiary (except for travel and business expenses payments);
(e) neither SDI nor any of its Subsidiaries has incurred any
debt, obligation or liability, absolute, accrued, contingent or otherwise,
whether due or to become due, except liabilities or obligations incurred in the
ordinary course of business and consistent with prior practice;
(f) neither SDI nor any of its Subsidiaries has mortgaged,
pledged or subjected to lien, restriction or any other encumbrance any of their
property, businesses or assets, tangible or intangible, except for purchase
money liens arising in the ordinary course of business consistent with prior
practice;
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(g) neither SDI nor any of its Subsidiaries has transferred,
leased or loaned to others or otherwise disposed of any of its assets (or
committed to do any of the foregoing), or canceled, waived, released or
otherwise compromised any debt or claim, or any right of significant value,
except in the ordinary course of business and consistent with prior practice;
(h) neither SDI nor any of its Subsidiaries has made or
committed to make any capital expenditures or capital additions or betterments
in excess of an aggregate of $25,000;
(i) neither SDI nor any of its Subsidiaries has encountered any
labor union organizing activity, had any actual or threatened employee strikes,
or any work stoppages, slow-downs or lock-outs related to any labor union
organizing activity or any actual or threatened employee strikes;
(j) neither SDI nor any of its Subsidiaries has (A) declared or
paid any dividend or made any other payment or distribution in respect of its
capital stock, (B) issued or sold (I) any of its capital stock, (II) any
warrant, option or other right to purchase or receive any of its capital stock,
(III) any security convertible into, or exchangeable for, its capital stock, or
(IV) any stock appreciation right or other security or other right or
contractual obligation, the value of which is related to, or determined or
determinable by reference to, the price or value of its capital stock, or (C)
directly or indirectly redeemed, purchased or otherwise acquired any of its
capital stock;
(k) neither SDI nor any of its Subsidiaries has acquired, or
agreed to acquire, any business or any corporation, partnership or other
business organization or division thereof, or otherwise acquired, or agreed to
acquire, any assets which are material, individually or in the aggregate, to SDI
and its Subsidiaries taken as a whole, or entered into any joint venture or
partnership agreement or made any other similar arrangement;
(l) neither SDI nor any of its Subsidiaries has made or changed
any election concerning taxes or tax returns, filed any amended tax return,
extended the applicable statute of limitations for any taxable period, received
notification of an examination, audit or pending assessment with respect to
taxes, entered into any closing agreement with respect to taxes, settled or
compromised any tax claim or assessment or surrendered any right to claim a
refund of taxes or obtained or entered into any tax ruling, agreement, contract,
understanding, arrangement or plan;
(m) there has not been any change in the accounting methods or
practices followed by SDI or any of its Subsidiaries, except as required by
GAAP; and
(n) neither SDI nor any of its Subsidiaries has entered into any
commitment or other agreement to do any of the foregoing.
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3.9. LITIGATION.
(a) Except as set forth on Schedule 3.9, there is no claim,
action, suit or proceeding at law or in equity, or arbitration or audit, review
or investigation by or before any Governmental Entity, pending or, to the
knowledge of SDI, threatened in writing against or affecting SDI, any of its
Subsidiaries or any of their properties or rights. There are no such claims,
actions, suits or proceedings pending or, to the knowledge of SDI, threatened
seeking to enjoin or restrain any of the transactions contemplated by this
Agreement, including the Merger.
(b) Neither SDI nor any of its Subsidiaries is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with or, to the knowledge of SDI, continuing investigation by,
any Governmental Entity.
(c) To the knowledge of SDI, there is no reasonable basis for
any such audit, investigation, review, action, arbitration, claim, suit or
proceeding which, if adversely determined, would have a Material Adverse Effect
on SDI or would restrict, prohibit or prevent the consummation of the
transactions contemplated hereby.
3.10. CONTRACTS; NO DEFAULT.
(a) Schedule 3.10 sets forth as of the date of this Agreement a
list (including the dates thereof and the names of all parties thereto) of each
contract or agreement of SDI or any of its Subsidiaries (other than SDI Employee
Benefit Plans or real property leases, which are listed on Schedules 3.11 and
3.15, respectively) which relates to:
(i) employment, consulting or severance arrangements;
(ii) joint venture or development arrangements;
(iii) any arrangement purporting to or with the effect of
limiting the right of SDI or any of its Subsidiaries prior to the Effective
Time, or the Surviving Corporation or any of its Subsidiaries at or after the
Effective Time, to engage in, or to compete with any person in, any business,
including each contract or agreement containing exclusivity provisions
restricting the geographical area in which, the products or services offered by
or the method by which, any business may be conducted by SDI or any of its
Subsidiaries prior to the Effective Time, or by the Surviving Corporation or any
of its Subsidiaries after the Effective Time;
(iv) all franchises, licenses, letters patent, patent
applications, registered copyrights, trademarks (whether registered or
unregistered), or proprietary rights presently owned or used by SDI or any of
its Subsidiaries, including, without limitation, any distribution, licensing or
royalty arrangement relating to any of the foregoing;
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(v) all agreements, contracts or commitments of SDI or
any of its Subsidiaries which involve future payments by or to SDI or any of its
Subsidiaries of more than $100,000, or which extend beyond one year from the
date hereof and involve more than $100,000, and all agreements, contracts or
commitments not made in the ordinary course of SDI's business consistent with
past practice which are to be performed at or after the date hereof;
(vi) each instrument defining the terms on which debt,
guarantees, pledges or other obligations of SDI or any of its Subsidiaries has
been or may be issued;
(vii) all licenses and permits issued to SDI or any of its
Subsidiaries by any Governmental Entity that is material to it or the conduct of
its business or operations; and
(viii) any other matters which are otherwise material to SDI
and its Subsidiaries.
(b) For purposes of this Agreement, the term "SDI Contract"
means all of the contracts and agreements referred to in Section 3.10(a).
Correct and complete copies of all written SDI Contracts have been provided to
EnSys.
(c) Each SDI Contract is in full force and effect, each is a
valid and binding contract or agreement enforceable against SDI or the
applicable Subsidiary in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws relating to or
affecting the rights and remedies of creditors generally and by general
principles of equity, and there is no default by SDI in the performance of any
obligation to be performed or paid under any such contract or agreement, except
for any default that would not have a SDI Material Adverse Effect.
3.11. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Schedule 3.11 lists or describes any pension, retirement,
savings, disability, medical, dental, health, life (including any individual
life insurance policy as to which SDI is the owner, beneficiary or both), death
benefit, group insurance, profit sharing, deferred compensation, stock option,
bonus incentive, vacation pay, severance pay, "cafeteria" or "flexible benefit"
plan under Section 125 of the Code, or other employee benefit plan, trust,
arrangement, contract, agreement, policy or commitment, under which employees of
SDI or its Subsidiaries are entitled to participate by reason of their, or
relating to, employment with SDI or its Subsidiaries (other than relating to
"at-will" employment), (i) to which SDI or a Subsidiary is a party or a sponsor
or a fiduciary thereof or (ii) with respect to which SDI or a Subsidiary has
made payments, contributions or commitments, or has any liability (collectively,
the "SDI
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Employee Benefit Plans"). With respect to each SDI Employee Benefit Plan listed
on Schedule 3.11, SDI has to the extent applicable provided to EnSys true and
complete copies of (A) the plan document, trust agreement and any other
contractual document governing such Plan, (B) the summary plan description, (C)
all Form 5500 annual reports and attachments, and (D) the most recent Internal
Revenue Service ("IRS") determination letter.
(b) SDI Employee Benefit Plans have been operated and
administered by SDI in compliance in all material respects with their respective
terms and all applicable United States and state laws relating to employment or
labor matters, including without limitation, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and the Code.
(c) Each SDI Employee Benefit Plan that is intended to be tax
qualified under Section 401(a) of the Code has received, or SDI has applied for,
a favorable determination letter from the IRS stating that the Plan meets the
requirements of the Code and that any trust or trusts associated with the plan
are tax exempt under Section 501(a) of the Code.
(d) SDI does not maintain any defined benefit plan covering
employees of SDI or its Subsidiaries within the meaning of Section 3(35) of
ERISA.
(e) Neither SDI nor any of its Subsidiaries is a party to any
collective bargaining or other labor union contract.
(f) All contributions and payments of insurance premiums
required to be made with respect to SDI Employee Benefit Plans have been made
when due.
(g) Except as set forth on Schedule 3.11, the reporting and
disclosure requirements of ERISA applicable to SDI Employee Benefit Plans, and
the continuation coverage requirements of Code Section 4980B and ERISA Sections
601-609 applicable to SDI Employee Benefit Plans, have been complied with in all
material respects.
(h) There have been no "prohibited transactions" within the
meaning of Code Section 4975 or ERISA Section 406 with respect to SDI Employee
Benefit Plans that could subject EnSys, the Surviving Corporation, SDI or any of
their respective Subsidiaries to any tax, penalty or other liability under Code
Section 4975 or under ERISA Sections 409 or 502(i).
(i) There are no actions, suits or claims with respect to SDI
Employee Benefit Plans (other than routine claims for benefits in the ordinary
course) pending or, to the knowledge of SDI, threatened, and to the knowledge of
SDI, there are no facts which could give rise to any such actions, suits or
claims (other than routine claims for benefits in the ordinary course).
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(j) Neither SDI nor any other entity included in the same
controlled group of organizations as SDI within the meaning of Code Sections
414(b), (c), (m) or (o) has ever sponsored, maintained or contributed to, or
been obligated to contribute to, any employee benefit plan subject to Title IV
of ERISA or the minimum funding requirements of Code Section 412.
(k) Except as set forth on Schedule 3.11, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereunder shall not result in any increase in or acceleration of any obligation
or liability (with respect to accrued benefits or otherwise) with respect to any
SDI Employee Benefit Plan or to any employee or former employee of SDI or any of
its Subsidiaries.
3.12. TAXES. Except as set forth on Schedule 3.12, SDI has filed or
caused to be filed with the appropriate Governmental Entities, all federal,
state, municipal, and local income, franchise, excise, real and personal
property, and other tax returns and reports that are required to be filed and
SDI is not delinquent in the payment of any taxes shown on such returns or
reports or on any assessments for any such taxes received by it and has
otherwise complied in all material respects with all legal requirements
applicable to SDI with respect to all income, sales, use, real or personal
property, excise or other taxes. The SDI-Ohmicron Balance Sheet includes
adequate reserves for the payment of all accrued but unpaid federal, state,
municipal and local taxes of SDI, including, without limitation, interest and
penalties, whether or not disputed, for the period ended June 30, 1996 and the
years ended September 30, 1995, and December 31, 1995, and for all fiscal years
prior thereto. SDI has not executed or filed with the Internal Revenue Service
any agreement extending the period for assessment and collection of any federal
tax. SDI is not a party to any pending action or proceeding, nor, to the
knowledge of SDI, has any action or proceeding been threatened, by any
Governmental Entity for assessment or collection of taxes, and no claim for
assessment or collection of taxes has been asserted against SDI. To the
knowledge of SDI, no claim for unpaid taxes has become a lien against any
property of SDI or any of its Subsidiaries or is being asserted against SDI or
any of its Subsidiaries, and no audit of any tax return of SDI has been, or, to
the knowledge of SDI, is being, conducted by a tax authority. To the knowledge
of SDI, SDI is not, and never has been a party to a tax indemnity, tax sharing
or tax allocation agreement with respect to a consolidated return or a
consolidated group.
3.13. INTELLECTUAL PROPERTY RIGHTS. SDI and each of its Subsidiaries
owns or possesses the right to use (in the manner and the geographic areas in
which they are currently used) all patents, patent applications pending,
trademarks, service marks, trade names, service names, slogans, copyrights,
trade secrets and other intellectual property rights (collectively, the "SDI
Intellectual Property") that are necessary to conduct the business of SDI as it
is currently conducted, without any conflict or alleged conflict with or
infringement of rights of others. A correct and complete list of all SDI
Intellectual Property is attached hereto as Schedule 3.13. Except as set forth
on Schedule 3.13, none of SDI or its Subsidiaries is a party to, or pays a
royalty to anyone under, any license or similar agreement, other than with
respect to software
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used in SDI's operations in the ordinary course of business. There is no
existing claim, or, to the knowledge of SDI, any reasonable basis for any claim,
asserted or to be asserted against SDI or any of its Subsidiaries that any of
its operations, activities or products or any of the SDI Intellectual Property
infringe the patents, trademarks, trade names, copyrights or other property
rights of others, or that SDI or any of its Subsidiaries is wrongfully or
otherwise using the property rights of others. To the knowledge of SDI, no
person uses, or has the right to use, the name "Strategic Diagnostics" or any
derivation thereof in connection with the manufacture, sale, marketing or
distribution of products or services commonly associated with SDI's and its
Subsidiaries businesses.
3.14. INSURANCE. A complete list of all policies and binders of
insurance and reinsurance for employee health, disability or life, products
liability, professional liability, directors and officers, property and
casualty, fire, liability, worker's compensation, errors and omissions, umbrella
coverage and other customary matters held by or on behalf of SDI or its
Subsidiaries (collectively, the "SDI Insurance Policies"), including total
coverage under, issuing insurance company, premium amounts and term of each
policy, is set forth on Schedule 3.14. The Insurance Policies are in full force
and effect. All premiums with respect to the Insurance Policies covering all
periods up to and including the date hereof have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
The Insurance Policies are sufficient for material compliance with all
requirements of law and all agreements to which SDI or any of its Subsidiaries
are a party; are valid, outstanding and enforceable policies; and provide
adequate insurance coverage for the assets and operations of SDI and its
Subsidiaries taken as a whole. SDI or its Subsidiaries have not failed to give
any notice of any claim under any Insurance Policy in due and timely fashion,
nor to the knowledge of SDI, has any coverage for claims been denied, which
failure or denial has had or would have a SDI Material Adverse Effect.
3.15. TITLE TO PROPERTIES.
(a) Neither SDI nor any Subsidiary owns any real property.
Leases for all of the material real property leased by SDI or any Subsidiary are
listed on Schedule 3.15 (the "SDI Real Property"), and SDI has provided a true,
correct and complete copy of each such lease to EnSys.
(b) SDI has good and marketable title to the tangible properties
and tangible assets reflected in the SDI Balance Sheet, free and clear of all
liens, claims, security interests and other encumbrances other than those listed
on Schedule 3.15, and, to the knowledge of SDI, the leases for SDI Real Property
described on Schedule 3.15 are in full force and effect and SDI holds a valid
and existing leasehold interest under each of the leases. SDI has made
available to EnSys complete and accurate copies of each of the leases described
on Schedule 3.15, and none of such leases has been modified in any respect,
except to the extent that such modifications are disclosed by the copies
delivered to EnSys. Neither SDI nor the applicable Subsidiary is in default,
and to the knowledge of SDI no circumstances exist which, if
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unremedied, would, either with or without notice or the passage of time or both,
result in SDI's or the applicable Subsidiary's default under any of such leases,
in each case, where such default would have a SDI Material Adverse Effect.
(c) Neither SDI nor any Subsidiary is in violation of any
applicable material zoning ordinance or other law, regulation or requirement
relating to the operation of any properties used in the operation of its
business, which violation has had or would have a SDI Material Adverse Effect,
and neither SDI nor any Subsidiary has received any notice of any such
violation, or the existence of any condemnation proceeding with respect to any
of SDI Real Property.
3.16. ACCOUNTS PAYABLE; ACCOUNTS RECEIVABLE. SDI's accounts payable
represent bona fide obligations of SDI incurred in the ordinary course of SDI's
business, consistent with past practice. Except as set forth on Schedule 3.16,
SDI's accounts receivable are valid receivables for sales actually made or
services actually rendered in the ordinary course of its business, and to SDI's
knowledge are collectible in accordance with their terms, subject to the reserve
for bad debts in the SDI-Ohmicron Balance Sheet.
3.17. HAZARDOUS SUBSTANCES.
(a) SDI has complied in all material respects with all
applicable United States, state and local environmental laws and regulations.
SDI holds and is and has been at all times in full compliance with all permits,
licenses and other authorizations required under applicable United States, state
and local environmental laws and regulations for the operation of the business.
None of such environmental permits, licenses and authorizations are subject to
any pending or, to SDI's knowledge, threatened in writing suspension,
termination or modification by any governmental authority.
(b) To SDI's knowledge, there has been no release into the
environment of any hazardous substance at, under, or from any of the real
property listed on Schedule 3.15 for which investigation, removal, remediation,
cleanup or other corrective action is or may be required under applicable
federal, state or local environmental laws and regulations.
(c) To SDI's knowledge, there are no active, inactive or
abandoned underground storage tanks at any of the real property listed on
Schedule 3.15.
(d) SDI has not received any notice that any aspect of its
business is in violation of any federal, state or local environmental laws or
regulations, including, without limitation, permits, licenses and authorizations
issued thereunder, or that it is or may be responsible for the investigation,
removal, remediation, or cleanup of or other corrective action \for any waste or
hazardous substance released at, under or from any of the real property listed
on Schedule 3.15 or any other real property or facility at which waste generated
through the operation of the business has come to be located.
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3.18. CUSTOMERS AND SUPPLIERS. SDI has made available to EnSys a list
of its customers. Except as set forth on Schedule 3.18, no customer which,
individually or in the aggregate, accounted for more than 5% of SDI's
consolidated revenues during the 12 month period preceding the date hereof, and
no supplier or service provider or group of suppliers or service providers
which, individually or in the aggregate, accounted for more than 5% of SDI's
consolidated expenses during the 12 month period preceding the date hereof, has
canceled or otherwise terminated, or made any written threat to SDI or any of
its Subsidiaries to cancel or otherwise terminate, for any reason, including,
without limitation, the consummation of the transactions contemplated hereby,
its relationship with SDI or any of its Subsidiaries, or has at any time on or
after December 31, 1995 decreased materially its services to SDI or any of its
Subsidiaries in the case of any such service provider, or its usage of the
services or products of SDI and its Subsidiaries. To SDI's knowledge, no such
customer or supplier or service provider intends to cancel or otherwise
terminate its relationship with SDI or any of its Subsidiaries or to decrease
materially its services to SDI or any of its Subsidiaries or its usage of the
services or products of SDI and its Subsidiaries, as the case may be.
3.19. EMPLOYEE RELATIONS. As of September 30, 1996, SDI and its
Subsidiaries employed a total of 63 employees and 19 temporary employees and, as
of the date hereof, except as set forth on Schedule 3.19: (a) neither SDI nor
any of its Subsidiaries is delinquent in the payment (i) to or on behalf of any
past or present employees of any wages, salaries, commissions, bonuses, benefit
plan contributions or other compensation for all periods prior to the date
hereof or the Effective Time, as the case may be, (ii) of any amount which is
due and payable to any state or state fund pursuant to any workers' compensation
statute, rule or regulation or any amount which is due and payable to any
workers' compensation claimant or any other party arising under or with respect
to a claim that has been filed under state statutes and approved in the ordinary
course in accordance with SDI's policies regarding workers' compensation and/or
any applicable statute or administrative procedure; (b) there is no unfair labor
practice charge or complaint against SDI or any of its Subsidiaries pending
before the National Labor Relations Board or other Governmental Entity, and, to
the knowledge of SDI, none is threatened; (c) there is no labor strike, dispute,
slowdown or stoppage actually in progress or, to the knowledge of SDI,
threatened against SDI or any of its Subsidiaries; (d) there are no union or
collective bargaining agreements in effect, and there are no union
organizational drives in progress and there has been no formal or informal
request to SDI or any of its Subsidiaries for collective bargaining or for an
employee election from any union or from the National Labor Relations Board; (e)
no union representation or jurisdictional dispute or question exists respecting
the employees of SDI or any of its Subsidiaries; and (f) no grievance or
arbitration proceedings are pending and no claim therefor has been asserted
against SDI or any of its Subsidiaries.
3.20. CERTAIN TRANSACTIONS. There are no transactions between SDI or
any of its Subsidiaries and any of SDI's stockholders (including such
stockholders' Affiliates), or SDI's or its stockholders' (including the
stockholders' Affiliates) directors, officers or salaried employees, or the
family members or Affiliates of any of the above (other than for services as
employees,
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officers and directors), including, without limitation, any contract, agreement
or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise
require payments to or from, any of the stockholders, or any such officer,
director or salaried employee, family member, or affiliate or any corporation,
partnership, trust or other entity in which such family member, affiliate,
officer, director or employee has a substantial interest or is a stockholder,
officer, director, trustee or partner.
3.21. DIRECTORS AND OFFICERS. Set forth on Schedule 3.21 is a true and
correct list of the names and titles of each director and elected officer of
SDI.
3.22. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by SDI for inclusion in the registration statement on Form
S-4 (the "Registration Statement") pursuant to which shares of EnSys Common
Stock issued in the Merger will be registered under the Securities Act of 1933,
as amended (the "1933 Act") with the Securities and Exchange Commission (the
"SEC"), shall not at the time the Registration Statement is declared effective
by the SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by SDI for inclusion in the joint proxy statement/prospectus to be sent
to the stockholders of EnSys and SDI in connection with the meeting of SDI's
stockholders to consider this Agreement and the Merger (the "SDI Stockholders'
Meeting") and in connection with the meeting of EnSys' stockholders (the "EnSys
Stockholders' Meeting") to consider this Agreement, the Merger and the issuance
of shares of EnSys Common Stock pursuant to the Merger (the "Joint Proxy
Statement") shall not, on the date the Joint Proxy Statement is first mailed to
stockholders of SDI or EnSys, at the time of the SDI Stockholders' Meeting and
the EnSys Stockholders' Meeting and at the Effective Time, contain any statement
which, at such times and in light of the circumstances under which it is made is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Joint Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the SDI Stockholders' Meeting or EnSys Stockholders'
Meeting which has become false or misleading. If at any time prior to the
Effective Time any event relating to SDI or any of its Affiliates, officers or
directors should be discovered by SDI which should be set forth in an amendment
to the Registration Statement or a supplement to the Joint Proxy Statement, SDI
shall promptly inform EnSys.
3.23. TSD BIOSERVICES. SDI has dissolved the TSD BioServices joint
venture ("BioServices") between SDI and Taconic Ventures, Inc. and acquired into
a subsidiary of SDI certain of the rights and assets held by BioServices, and
the results of such acquisition by SDI will be as reflected on the TSD financial
analysis using for models attached as Schedule 3.23 .
3.24. SECTION 203 OF THE DGCL NOT APPLICABLE. The Board of Directors
of SDI has taken all actions so that the restrictions contained in Section 203
of the DGCL applicable to a
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"business combination" (as defined in Section 203) will not apply to the
execution, delivery or performance of this Agreement or the consummation of the
Merger or the other transactions contemplated by this Agreement.
3.25. MISSTATEMENTS AND OMISSIONS. No representation or warranty made
by SDI in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by SDI pursuant hereto, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make such representation or warranty or such
statement not misleading.
3.26. NO EXISTING DISCUSSIONS. As of the date of this Agreement, SDI
is not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to an Alternative Transaction (as defined in
Section 6.9).
3.27. BROKERS. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of SDI.
3.28. CONTINUITY OF BUSINESS ENTERPRISE. SDI has, since its inception,
engaged in the business of developing, manufacturing and selling immunoassay
based diagnostic services, and such is a significant historic business line
within the meaning of Treas. Reg. Section 1.368-1(d), promulgated under Section
368(a) of the Code.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF ENSYS
Except as set forth in EnSys' Schedules attached to this Agreement and
made a part hereof, EnSys represents and warrants to SDI as follows
(notwithstanding anything in this Agreement to the contrary, (i) any matter
disclosed in any part of EnSys' Schedules shall be deemed to be disclosed in all
parts of such Schedules where such matter is required to be disclosed,
regardless of whether such matter is specifically cross-referenced, (ii) the
disclosure of any matter in such Schedules shall not necessarily be deemed an
indication that such matter is material or is required to be disclosed and (iii)
with respect to any representation, warranty or statement of EnSys in this
Agreement that is qualified by or to EnSys' knowledge, such knowledge shall be
deemed to exist only if any of the individuals listed on Schedule 4.0 has actual
knowledge, or that knowledge which a reasonably prudent person should have as a
result of such person's performance of his or her duties as an employee, officer
or director of EnSys or any of its Subsidiaries, or after making reasonable
inquiry and exercising due diligence with respect thereto, of the matter to
which such qualification applies):
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4.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of EnSys and
its Subsidiaries is a corporation, duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted and is duly qualified
and in good standing to do business in each jurisdiction (a true and complete
list of which jurisdictions is set forth on Schedule 4.1(a)) in which the nature
of the business conducted by it or the ownership or leasing of its properties
makes such qualification necessary, except such jurisdictions, if any, where the
failure to be so qualified would not have an EnSys Material Adverse Effect. A
true and complete list of all of EnSys' directly or indirectly owned
Subsidiaries, together with the jurisdiction of incorporation or organization of
each Subsidiary and the percentage of each Subsidiary's outstanding capital
stock or other equity interest owned by EnSys or another Subsidiary of EnSys, is
set forth on Schedule 4.1(b). EnSys has no direct or indirect ownership
interest in any subsidiary, partnership, joint venture or other entity except as
set forth on Schedule 4.1(b).
4.2. CERTIFICATE OF INCORPORATION; BY-LAWS. Attached hereto as
Schedule 4.2 are complete and correct copies of EnSys' Third Amended and
Restated Certificate of Incorporation (the "EnSys Certificate of Incorporation")
and By-Laws, as amended to date, and the Certificate of Incorporation and By-
Laws of each of its Subsidiaries. Neither EnSys nor any of its Subsidiaries is
in violation of any of the provisions of its respective Certificate of
Incorporation or By-Laws, as amended or restated.
4.3. CAPITALIZATION.
(a) The authorized and the issued and outstanding capital stock
of EnSys consists of:
(i) 25,000,000 shares of EnSys Common Stock of which (A)
7,171,127 shares are validly issued and outstanding, fully paid and
nonassessable, (B) 1,211,328 shares are duly reserved for issuance upon exercise
of EnSys Options granted or available for grant by the Board of Directors of
EnSys, (C) 872,487 shares are duly reserved for issuance upon exercise of EnSys
Warrants, and (D) 32,146 shares are reflected on the books and records of EnSys
as Treasury Shares; and
(ii) No other shares of capital stock of EnSys are
authorized or outstanding.
(b) Information as of the date of this Agreement relating to the
amounts of the authorized and issued and outstanding capital stock of each
Subsidiary is listed on Schedule 4.3(b).
(c) Except as described in this Section 4.3, no shares of EnSys
Common Stock are reserved for any other purpose. Except as set forth on
Schedule 4.3(c), since
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December 31, 1995, no shares of EnSys Common Stock have been issued by EnSys,
except pursuant to the exercise of outstanding EnSys Options in accordance with
their terms or in connection with the transfer of previously issued shares of
EnSys Common Stock. Except as contemplated by this Agreement or as described on
Schedule 4.3(c), there have been no changes in the terms of any outstanding
EnSys Options or EnSys Warrants or the grant of any additional EnSys Options or
EnSys Warrants since December 31, 1995, and neither EnSys nor any committee or
person administering any stock option plan of EnSys has taken any action under
or pursuant to such plan in respect of the Merger. All outstanding shares of
EnSys Common Stock have been duly authorized, are validly issued, fully paid and
nonassessable and, except as set forth on Schedule 4.3(c), are not subject to
preemptive rights under the DGCL, the EnSys Certificate of Incorporation or By-
Laws or any agreement to which EnSys is a party. Each of the outstanding shares
of capital stock of, or other equity interests in, each of EnSys' Subsidiaries
has been duly authorized and is validly issued, fully paid and nonassessable and
such shares or other equity interests are owned by EnSys free and clear of all
security interests, liens, claims, pledges, agreements, limitations on EnSys'
voting rights, charges or other encumbrances of any nature whatsoever, subject
to federal and state securities laws. Except as described in Schedule 4.3(a),
there are no options, warrants or other rights, agreements, arrangements or
commitments to which EnSys or any of its Subsidiaries is a party of any
character relating to the issued or unissued capital stock of, or other equity
interests in, EnSys or any of its Subsidiaries or obligating EnSys or any of the
Subsidiaries (either before or after the Effective Time) to grant, issue, sell
or register for sale any shares of the capital stock of, or other equity
interests in, EnSys or any of the Subsidiaries. There are no outstanding stock
appreciation rights or other similar rights, agreements or commitments of EnSys
or, except as described in Section 4.3(a), securities or obligations of EnSys
convertible into or exchangeable for any shares of capital stock of EnSys.
Except as set forth on Schedule 4.3(c), as of the date of this Agreement, there
are no obligations, contingent or otherwise, of EnSys or any of its Subsidiaries
to (x) repurchase, redeem or otherwise acquire any shares of EnSys Common Stock
or EnSys Preferred Stock, or the capital stock of, or other equity interests in,
any Subsidiary of EnSys, or (y) provide funds to, or make any investment in (in
the form of a loan, capital contribution or otherwise), or provide any guarantee
with respect to the obligations of, any Subsidiary of EnSys, except for the
provision of funds to, making an investment in (in the form of a loan, capital
contribution or otherwise) or provision of any guarantees of obligations of
Subsidiaries in the ordinary course of business. Except as set forth on
Schedule 4.3(c), there are no contracts, commitments or agreements relating to
the voting, purchase or sale of EnSys' capital stock (including, without
limitation, any redemption by EnSys thereof) (i) between or among EnSys and any
of its stockholders and (ii) to EnSys' knowledge, between or among any of EnSys'
stockholders. There are no accrued but unpaid dividends owed with respect to
any of EnSys's capital stock.
4.4. AUTHORITY; VOTE REQUIRED.
(a) EnSys has the requisite corporate power and authority to
execute and deliver this Agreement and all other agreements required to be
executed by it pursuant to the terms hereof, to perform its obligations
hereunder, and to consummate the transactions
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contemplated by this Agreement, subject to the Requisite EnSys Stockholder
Approval (as hereinafter defined). The execution and delivery of this Agreement
by EnSys, and the consummation by EnSys of the transactions contemplated hereby,
have been duly authorized by the necessary approval of EnSys' Board of
Directors, with no director voting against approval, and no other corporate
actions or proceedings on the part of EnSys are necessary to authorize this
Agreement or to consummate the transactions contemplated by this Agreement,
except for the Requisite EnSys Stockholder Approval, in accordance with the DGCL
and the EnSys Certificate of Incorporation and By-Laws. This Agreement has been
duly executed and delivered by EnSys and constitutes the legal, valid and
binding obligation of EnSys enforceable against EnSys in accordance with its
terms, except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws relating to or affecting the rights and remedies of creditors
generally and by general principles of equity.
(b) The affirmative vote of the holders of at least two-thirds
(2/3) of the outstanding shares of EnSys Common Stock is the only vote of the
holders of any class or series of capital stock of EnSys necessary to approve
this Agreement and the Merger (the "Requisite EnSys Stockholder Approval").
4.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by EnSys does
not, and the performance of this Agreement by EnSys will not: (i) violate the
Certificate of Incorporation or By-Laws of EnSys or any of its Subsidiaries;
(ii) subject to (x) obtaining the Requisite EnSys Stockholder Approval of this
Agreement and the Merger in accordance with the DGCL and the EnSys Certificate
of Incorporation and By-Laws, (y) obtaining the consents, approvals,
authorizations and permits of, and making filings with or notifications to, any
Governmental Entities pursuant to the applicable requirements, if any, of the
HSR Act , the 1933 Act, and any applicable provisions of all United States and
Delaware laws, and the rules and regulations thereunder, and the filing and
recordation of appropriate Merger documents as required by the DGCL, and (z)
giving the notices to and obtaining the consents, approvals, authorizations or
permits from any private third parties as set forth on Schedule 4.5., conflict
with or violate any United States or state laws or regulations applicable to
EnSys or any of its Subsidiaries, or by which any of their respective properties
is bound or affected; or (iii) except as set forth on Schedule 4.5, result in
any breach or violation of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the properties or assets of
EnSys or any of its Subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, order, decree, franchise
or other instrument or obligation to which EnSys or any of its Subsidiaries is a
party or by which EnSys or any of its Subsidiaries or any of their respective
properties is bound, except for such violations, breaches or defaults described
in clause (iii) above as would not have an EnSys Material Adverse Effect.
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(b) The execution and delivery of this Agreement by EnSys does
not, and the performance of this Agreement by EnSys shall not, require any
consent, approval, authorization or permit of, or filing or registration with or
notification to, any Governmental Entities or private third parties, except for
applicable requirements, if any, of (i) the consents, approvals, authorizations
or permits described on Schedule 4.5 and (ii) the filing and recordation of
appropriate Merger documents as required by the DGCL.
4.6. PERMITS; COMPLIANCE. Each of EnSys and its subsidiaries is in
possession of all franchises, authorizations, licenses, permits, consents,
certificates, approvals and orders necessary for EnSys or any of its
Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (collectively, the "EnSys Permits"), and
Schedule 4.6 contains a complete and correct list of all EnSys Permits. All
EnSys Permits currently are in effect, except for any EnSys Permits the absence
of which would not have an EnSys Material Adverse Effect. No suspension,
revocation or cancellation of any of the EnSys Permits is pending or, to the
knowledge of EnSys, threatened in writing. To the knowledge of EnSys, neither
EnSys nor any of its Subsidiaries is operating in default under or violation of
(i) any law, rule or regulation, or any order or decree, applicable to EnSys or
any of its Subsidiaries or by which any of their respective properties is bound
or (ii) any of the EnSys Permits, except for any such defaults or violations
which would not have an EnSys Material Adverse Effect.
4.7. REPORTS AND FINANCIAL STATEMENTS.
(a) Since January 1, 1994, or such earlier date as EnSys was
obligated to file such documents, EnSys has filed all forms, reports and
documents with the SEC required to be filed be it pursuant to the 1933 Act and
the Securities Exchange Act of 1934, as amended (the "1934 Act") and the SEC
rules and regulations thereunder, and all such forms, reports and documents
filed with the SEC have complied in all material respects with all applicable
requirements of the federal securities laws and the SEC rules and regulations
promulgated thereunder. Attached hereto as Schedule 4.7 are true, correct and
complete copies of all forms, reports, documents, and amendments thereto and
other filings filed by EnSys with the SEC for the periods covering from January
1, 1995 to the date hereof (such forms, reports, documents and other filings,
together with any amendments thereto, are collectively referred to herein as the
"SEC Filings"). The SEC Filings attached hereto include EnSys' audited
consolidated balance sheets as of December 31, 1994 and 1995 and the related
statements of operations, stockholders' equity and cash flows for the years then
ended (herein collectively referred to as the "EnSys Financial Statements"),
audited by KPMG Peat Marwick LLP, EnSys' independent certified public
accountants, each of which EnSys Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis and fairly present in
accordance with GAAP the financial position of EnSys as of the date of such
EnSys Financial Statements and the results of its operations for the periods
covered thereby, subject only to the matters described in the accountant's
report attached thereto. The SEC Filings attached hereto also include EnSys'
unaudited interim financial statements consisting of a consolidated balance
sheet as of June 30, 1996 and a consolidated income statement and statement of
cash flows for the six month period
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then ended (the "EnSys Interim Financial Statements"). The EnSys Interim
Financial Statements are in accordance with the books and records of EnSys, were
prepared in accordance with GAAP applied on a consistent basis, except as set
forth on Schedule 4.7(a), and fairly present in accordance with GAAP the
financial position of EnSys as of the date thereof and the results of its
operations for the periods covered thereby.
(b) Except as and to the extent reflected on, or reserved
against in, the consolidated, unaudited balance sheet of EnSys and its
Subsidiaries as of June 30, 1996 (the "EnSys Balance Sheet"), or as set forth on
Schedule 4.7(b), neither EnSys nor any of its Subsidiaries has any liabilities
or obligations (whether accrued, absolute, contingent or otherwise) that would
be required to be reflected on, disclosed or reserved against in, a balance
sheet of EnSys or in the notes thereto, prepared in accordance with GAAP, except
for liabilities or obligations incurred in the ordinary course of business since
June 30, 1996 that individually or in the aggregate, would not have an EnSys
Material Adverse Effect.
4.8. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth on
Schedule 4.8, since June 30, 1996.
(a) each of EnSys and its Subsidiaries has conducted its
business in the ordinary course and consistent with its past practice;
(b) there has not been any EnSys Material Adverse Effect;
(c) neither EnSys nor any Subsidiary has made any material
increase in compensation to officers or key employees or any material increase
in any or created any new bonus, insurance, pension or other employee benefit
plan, payment or arrangement (including, but not limited to, the granting of
stock options) other than in the ordinary course of business and consistent with
EnSys' past practice;
(d) neither EnSys nor any of its Subsidiaries has made any loans
or advances to any officer, director, shareholder or Affiliate of EnSys or of
any Subsidiary (except for travel and business expenses payments);
(e) neither EnSys nor any of its Subsidiaries has incurred any
debt. obligation or liability, absolute, accrued, contingent or otherwise,
whether due or to become due, except liabilities or obligations incurred in the
ordinary course of business and consistent with prior practice;
(f) neither EnSys nor any of its Subsidiaries has mortgaged,
pledged or subjected to lien, restriction or any other encumbrance any of their
property, businesses or assets, tangible or intangible, except for purchase
money liens arising in the ordinary course of business consistent with prior
practice;
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(g) neither EnSys nor any of its Subsidiaries has transferred,
leased or loaned to others or otherwise disposed of any of its assets (or
committed to do any of the foregoing), or canceled, waived, released or
otherwise compromised any debt or claim, or any right of significant value,
except in the ordinary course of business and consistent with prior practice;
(h) neither EnSys nor any of its Subsidiaries has made or
committed to make any capital expenditures or capital additions or betterments
in excess of an aggregate of $25,000;
(i) neither EnSys nor any of its Subsidiaries has encountered
any labor union organizing activity, had any actual or threatened employee
strikes, or any work stoppages, slow-downs or lock-outs related to any labor
union organizing activity or any actual or threatened employee strikes;
(j) neither EnSys nor any of its Subsidiaries has (A) declared
or paid any dividend or made any other payment or distribution in respect of its
capital stock, (B) issued or sold (I) any of its capital stock, (II) any
warrant, option or other right to purchase or receive any of its capital stock,
(III) any security convertible into, or exchangeable for, its capital stock, or
(IV) any stock appreciation right or other security or other right or
contractual obligation, the value of which is related to, or determined or
determinable by reference to, the price or value of its capital stock, or (C)
directly or indirectly redeemed, purchased or otherwise acquired any of its
capital stock;
(k) neither EnSys nor any of its Subsidiaries has acquired, or
agreed to acquire, any business or any corporation, partnership or other
business organization or division thereof, or otherwise acquired, or agreed to
acquire, any assets which are material, individually or in the aggregate, to
EnSys and its Subsidiaries taken as a whole, or entered into any joint venture
or partnership agreement or made any other similar arrangement;
(l) neither EnSys nor any of its Subsidiaries has made or
changed any election concerning taxes or tax returns, filed any amended tax
return, extended the applicable statute of limitations for any taxable period,
received notification of an examination, audit or pending assessment with
respect to taxes, entered into any closing agreement with respect to taxes,
settled or compromised any tax claim or assessment or surrendered any right to
claim a refund of taxes or obtained or entered into any tax ruling, agreement,
contract, understanding, arrangement or plan;
(m) there has not been any change in the accounting methods or
practices followed by EnSys or any of its Subsidiaries, except as required by
GAAP; and
(n) neither EnSys nor any of its Subsidiaries has entered into
any commitment or other agreement to do any of the foregoing.
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4.9. LITIGATION.
(a) There is no claim, action, suit or proceeding at law or in
equity, or arbitration or audit, review or investigation by or before any
Governmental Entity, pending or, to the knowledge of EnSys, threatened in
writing against or affecting EnSys, any of its Subsidiaries or any of their
properties or rights. There are no such claims, actions, suits or proceedings
pending or, to the knowledge of EnSys, threatened seeking to enjoin or restrain
any of the transactions contemplated by this Agreement, including the Merger.
(b) Neither EnSys nor any of its Subsidiaries is subject to
any continuing order of, consent decree, settlement agreement or other similar
written agreement with or, to the knowledge of EnSys, continuing investigation
by, any Governmental Entity.
(c) To the knowledge of EnSys, there is no reasonable basis for
any such audit, investigation, review, action, arbitration, claim, suit or
proceeding which, if adversely determined, would have a Material Adverse Effect
on EnSys or would restrict, prohibit or prevent the consummation of the
transactions contemplated hereby.
4.10. CONTRACTS; NO DEFAULT.
(a) Schedule 4.10 sets forth as of the date of this Agreement a
list (including the dates thereof and the names of all parties thereto) of each
contract or agreement of EnSys or any of its Subsidiaries (other than EnSys
Employee Benefit Plans or real property leases, which are listed on Schedules
4.11 and 4.15, respectively) which relates to:
(i) employment, consulting or severance arrangements;
(ii) joint venture or development arrangements;
(iii) any arrangement purporting to or with the effect of
limiting the right of EnSys or any of its Subsidiaries prior to the Effective
Time, or the Surviving Corporation or any of its Subsidiaries at or after the
Effective Time, to engage in, or to compete with any person in, any business,
including each contract or agreement containing exclusivity provisions
restricting the geographical area in which, the products or services offered by
or the method by which, any business may be conducted by EnSys or any of its
Subsidiaries prior to the Effective Time, or by the Surviving Corporation or any
of its Subsidiaries after the Effective Time;
(iv) all franchises, licenses, letters patent, patent
applications, registered copyrights, trademarks (whether registered or
unregistered), or proprietary rights presently owned or used by EnSys or any of
its Subsidiaries, including, without limitation, any distribution, licensing or
royalty arrangement relating to any of the foregoing;
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(v) all agreements, contracts or commitments of EnSys or
any of its Subsidiaries which involve future payments by or to EnSys or any of
its Subsidiaries of more than $100,000, or which extend beyond one year from the
date hereof and involve more than $100,000, and all agreements, contracts or
commitments not made in the ordinary course of business consistent with past
practice which are to be performed at or after the date hereof;
(vi) each instrument defining the terms on which debt,
guarantees, pledges or other obligations of EnSys or any of its Subsidiaries has
been or may be issued;
(vii) all licenses and permits issued to EnSys or any of
its Subsidiaries by any Governmental Entity that is material to it or the
conduct of its business or operations; and
(viii) any other matters which are otherwise material to
EnSys and its Subsidiaries.
(b) For purposes of this Agreement, the term "EnSys Contract"
means all of the contracts and agreements referred to in Section 4.10(a).
Correct and complete copies of all written EnSys Contracts have been provided to
SDI.
(c) Each EnSys Contract is in full force and effect, each is a
valid and binding contract or agreement enforceable against EnSys or the
applicable Subsidiary in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws relating to or
affecting the rights and remedies of creditors generally and by general
principles of equity, and there is no default by EnSys in the performance of any
obligation to be performed or paid under any such contract or agreement, except
for any default that would not have an EnSys Material Adverse Effect.
4.11. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Schedule 4.11 lists or describes any pension, retirement,
savings, disability, medical, dental, health, life (including any individual
life insurance policy as to which EnSys is the owner, beneficiary or both),
death benefit, group insurance, profit sharing, deferred compensation, stock
option, bonus incentive, vacation pay, severance pay, "cafeteria" or "flexible
benefit" plan under Section 125 of the Code, or other employee benefit plan,
trust, arrangement, contract, agreement, policy or commitment, under which
employees of EnSys or its Subsidiaries are entitled to participate by reason of
their, or relating to, employment with EnSys or its Subsidiaries (other than
relating to "at-will" employment), (i) to which EnSys or a Subsidiary is a party
or a sponsor or a fiduciary thereof or (ii) with respect to which EnSys or a
Subsidiary has made payments, contributions or commitments, or has any liability
(collectively,
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the "EnSys Employee Benefit Plans"). With respect to each EnSys Employee
Benefit Plan listed on Schedule 4.11, EnSys has to the extent applicable
provided to SDI true and complete copies of (A) the plan document, trust
agreement and any other contractual document governing such Plan, (B) the
summary plan description, (C) all Form 5500 annual reports and attachments, and
(D) the most recent IRS determination letter.
(b) EnSys Employee Benefit Plans have been operated and
administered by EnSys in compliance in all material respects with their
respective terms and all applicable United States and state laws relating to
employment or labor matters, including without limitation, ERISA and the Code.
(c) Each EnSys Employee Benefit Plan that is intended to be tax
qualified under Section 401(a) of the Code has received, or EnSys has applied
for, a favorable determination letter from the IRS stating that the Plan meets
the requirements of the Code and that any trust or trusts associated with the
plan are tax exempt under Section 501(a) of the Code.
(d) EnSys does not maintain any defined benefit plan covering
employees of EnSys or its Subsidiaries within the meaning of Section 3(35) of
ERISA.
(e) Neither EnSys nor any of its Subsidiaries is a party to any
collective bargaining or other labor union contract.
(f) All contributions and payments of insurance premiums
required to be made with respect to EnSys Employee Benefit Plans have been made
when due.
(g) Except as set forth on Schedule 4.11, the reporting and
disclosure requirements of ERISA applicable to EnSys Employee Benefit Plans, and
the continuation coverage requirements of Code Section 4980B and ERISA Sections
601-609 applicable to EnSys Employee Benefit Plans, have been complied with in
all material respects.
(h) There have been no "prohibited transactions" within the
meaning of Code Section 4975 or ERISA Section 406 with respect to EnSys Employee
Benefit Plans that could subject EnSys, the Surviving Corporation, SDI or any of
their respective Subsidiaries to any tax, penalty or other liability under Code
Section 4975 or under ERISA Sections 409 or 502(i).
(i) There are no actions, suits or claims with respect to EnSys
Employee Benefit Plans (other than routine claims for benefits in the ordinary
course) pending or, to the knowledge of EnSys, threatened, and to the knowledge
of EnSys, there are no facts which could give rise to any such actions, suits or
claims (other than routine claims for benefits in the ordinary course).
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(j) Neither EnSys nor any other entity included in the same
controlled group of organizations as EnSys within the meaning of Code Sections
414(b), (c), (m) or (o) has ever sponsored, maintained or contributed to, or
been obligated to contribute to, any employee benefit plan subject to Title IV
of ERISA or the minimum funding requirements of Code Section 412.
(k) Except as set forth on Schedule 4.11, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereunder shall not result in any increase in or acceleration of any obligation
or liability (with respect to accrued benefits or otherwise) with respect to any
EnSys Employee Benefit Plan or to any employee or former employee of EnSys or
any of its Subsidiaries.
4.12. TAXES. EnSys has filed or caused to be filed with the
appropriate Governmental Entities, all federal, state, municipal, and local
income, franchise, excise, real and personal property, and other tax returns and
reports that are required to be filed and EnSys is not delinquent in the payment
of any taxes shown on such returns or reports or on any assessments for any such
taxes received by it and has otherwise complied in all material respects with
all legal requirements applicable to EnSys with respect to all income, sales,
use, real or personal property, excise or other taxes. The EnSys Balance Sheet
includes adequate reserves for the payment of all accrued but unpaid federal,
state, municipal and local taxes of EnSys, including, without limitation,
interest and penalties, whether or not disputed, for the period ended June 30,
1996, and the year ended December 31, 1995, and for all fiscal years prior
thereto. EnSys has not executed or filed with the Internal Revenue Service any
agreement extending the period for assessment and collection of any federal tax.
EnSys is not a party to any pending action or proceeding, nor, to the knowledge
of EnSys, has any action or proceeding been threatened, by any Governmental
Entity for assessment or collection of taxes, and no claim for assessment or
collection of taxes has been asserted against EnSys. To the knowledge of EnSys,
no claim for unpaid taxes has become a lien against any property of EnSys or any
of its Subsidiaries or is being asserted against EnSys or any of its
Subsidiaries, and no audit of any tax return of EnSys has been, or, to the
knowledge of EnSys is being, conducted by a tax authority. To the knowledge of
EnSys, EnSys is not, and never has been a party to a tax indemnity, tax sharing
or tax allocation agreement with respect to a consolidated return or a
consolidated group.
4.13. INTELLECTUAL PROPERTY RIGHTS. EnSys and each of its Subsidiaries
owns or possesses the right to use (in the manner and the geographic areas in
which they are currently used) all patents, patent applications pending,
trademarks, service marks, trade names, service names, slogans, copyrights,
trade secrets and other intellectual property rights (collectively, the "EnSys
Intellectual Property") that are necessary to conduct the business of EnSys as
it is currently conducted, without any conflict or alleged conflict with or
infringement of rights of others. A correct and complete list of all EnSys
Intellectual Property is attached hereto as Schedule 4.13. Except as set forth
on Schedule 4.13, none of EnSys or its Subsidiaries is a party to, or pays a
royalty to anyone under, any license or similar agreement, other than with
respect to software used in EnSys' operations in the ordinary course of
business. There is no existing
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claim, or, to the knowledge of EnSys, any reasonable basis for any claim,
asserted or to be asserted against EnSys or any of its Subsidiaries that any of
its operations, activities or products or any of the EnSys Intellectual Property
infringe the patents, trademarks, trade names, copyrights or other property
rights of others, or that EnSys or any of its Subsidiaries is wrongfully or
otherwise using the property rights of others. To the knowledge of EnSys, no
person uses, or has the right to use, the name "EnSys Environmental Products" or
any derivation thereof in connection with the manufacture, sale, marketing or
distribution of products or services commonly associated with EnSys' and its
Subsidiaries businesses.
4.14. INSURANCE. A complete list of all policies and binders of
insurance and reinsurance for employee health, disability or life, products
liability, professional liability, directors and officers, property and
casualty, fire, liability, worker's compensation, errors and omissions, umbrella
coverage and other customary matters held by or on behalf of EnSys or its
Subsidiaries (collectively, the "EnSys Insurance Policies"), including total
coverage under, issuing insurance company, premium amounts and term of each
policy, is set forth on Schedule 4.14. The Insurance Policies are in full force
and effect. All premiums with respect to the Insurance Policies covering all
periods up to and including the date hereof have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
The Insurance Policies are sufficient for material compliance with all
requirements of law and all agreements to which EnSys or any of its Subsidiaries
are a party; are valid, outstanding and enforceable policies; and provide
adequate insurance coverage for the assets and operations of EnSys and its
Subsidiaries taken as a whole. EnSys or its Subsidiaries have not failed to
give any notice of any claim under any Insurance Policy in due and timely
fashion, nor to the knowledge of EnSys, has any coverage for claims been denied,
which failure or denial has had or would have an EnSys Material Adverse Effect.
4.15. TITLE TO PROPERTIES.
(a) Neither EnSys nor any Subsidiary owns any real property.
Leases for all of the material real property leased by EnSys or any Subsidiary
are listed on Schedule 4.15 (the "EnSys Real Property"), and EnSys has provided
a true, correct and complete copy of each such lease to SDI.
(b) EnSys has good and marketable title to the tangible
properties and tangible assets reflected in the EnSys Balance Sheet, free and
clear of all liens, claims, security interests and other encumbrances other than
those listed on Schedule 4.15, and, to the knowledge of EnSys, the leases for
EnSys Real Property described on Schedule 4.15 are in full force and effect and
EnSys holds a valid and existing leasehold interest under each of the leases.
EnSys has made available to SDI complete and accurate copies of each of the
leases described on Schedule 4.15, and none of such leases has been modified in
any respect, except to the extent that such modifications are disclosed by the
copies delivered to SDI. Neither EnSys nor the applicable Subsidiary is in
default, and to the knowledge of EnSys no circumstances exist which, if
unremedied, would, either with or without notice or the passage of time or both,
result in
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EnSys' or the applicable Subsidiary's default under any of such leases, in each
case, where such default would have an EnSys Material Adverse Effect.
(c) Neither EnSys nor any Subsidiary is in violation of any
applicable material zoning ordinance or other law, regulation or requirement
relating to the operation of any properties used in the operation of its
business, which violation has had or would have an EnSys Material Adverse
Effect, and neither EnSys nor any Subsidiary has received any notice of any such
violation, or the existence of any condemnation proceeding with respect to any
of EnSys Real Property.
4.16. ACCOUNTS PAYABLE; ACCOUNTS RECEIVABLE. EnSys' accounts payable
represent bona fide obligations of EnSys incurred in the ordinary course of
EnSys' business, consistent with past practice. EnSys' accounts receivable are
valid receivables for sales actually made or services actually rendered in the
ordinary course of its business, and to EnSys' knowledge are collectible in
accordance with their terms, subject to the reserve for bad debts in the EnSys
Balance Sheet.
4.17. HAZARDOUS SUBSTANCES.
(a) EnSys has complied in all material respects with all
applicable United States, state and local environmental laws and regulations.
EnSys holds and is and has been at all times in full compliance with all
permits, licenses and other authorizations required under applicable United
States, state and local environmental laws and regulations for the operation of
the business. None of such environmental permits, licenses and authorizations
are subject to any pending or, to EnSys' knowledge, threatened in writing
suspension, termination or modification by any governmental authority.
(b) To EnSys' knowledge, there has been no release into the
environment of any hazardous substance at, under, or from any of the real
property listed on Schedule 4.15 for which investigation, removal, remediation,
cleanup or other corrective action is or may be required under applicable
federal, state or local environmental laws and regulations.
(c) To EnSys' knowledge, there are no active, inactive or
abandoned underground storage tanks at any of the real property listed on
Schedule 4.15.
(d) EnSys has not received any notice that any aspect of its
business is in violation of any federal, state or local environmental laws or
regulations, including, without limitation, permits, licenses and authorizations
issued thereunder, or that it is or may be responsible for the investigation,
removal, remediation, or cleanup of or other corrective action for any waste or
hazardous substance released at, under or from any of the real property listed
on Schedule 4.15 or any other real property or facility at which waste generated
through the operation of the business has come to be located.
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4.18. CUSTOMERS AND SUPPLIERS. EnSys has made available to SDI a list
of its customers. No customer which, individually or in the aggregate,
accounted for more than 5% of EnSys' consolidated revenues during the 12 month
period preceding the date hereof, and no supplier or service provider or group
of suppliers or service providers which, individually or in the aggregate,
accounted for more than 5% of EnSys' consolidated expenses during the 12 month
period preceding the date hereof, has canceled or otherwise terminated, or made
any written threat to EnSys or any of its Subsidiaries to cancel or otherwise
terminate, for any reason, including, without limitation, the consummation of
the transactions contemplated hereby, its relationship with EnSys or any of its
Subsidiaries, or has at any time on or after December 31, 1995 decreased
materially its services to EnSys or any of its Subsidiaries in the case of any
such service provider, or its usage of the services or products of EnSys and its
Subsidiaries. To EnSys' knowledge, no such customer or supplier or service
provider intends to cancel or otherwise terminate its relationship with EnSys or
any of its Subsidiaries or to decrease materially its services to EnSys or any
of its Subsidiaries or its usage of the services or products of EnSys and its
Subsidiaries, as the case may be.
4.19. EMPLOYEE RELATIONS. As of September 30, 1996, EnSys and its
Subsidiaries employed a total of 43 employees and 3 temporary employees, as of
the date hereof: (a) neither EnSys nor any of its Subsidiaries is delinquent in
the payment (i) to or on behalf of any past or present employees of any wages,
salaries, commissions, bonuses, benefit plan contributions or other compensation
for all periods prior to the date hereof or the Effective Time, as the case may
be, (ii) of any amount which is due and payable to any state or state fund
pursuant to any workers' compensation statute, rule or regulation or any amount
which is due and payable to any workers' compensation claimant or any other
party arising under or with respect to a claim that has been filed under state
statutes and approved in the ordinary course in accordance with EnSys' policies
regarding workers' compensation and/or any applicable statute or administrative
procedure; (b) there is no unfair labor practice charge or complaint against
EnSys or any of its Subsidiaries pending before the National Labor Relations
Board or other Governmental Entity, and, to the knowledge of EnSys, none is
threatened; (c) there is no labor strike, dispute, slowdown or stoppage actually
in progress or, to the knowledge of EnSys, threatened against EnSys or any of
its Subsidiaries; (d) there are no union or collective bargaining agreements in
effect, and there are no union organizational drives in progress and there has
been no formal or informal request to EnSys or any of its Subsidiaries for
collective bargaining or for an employee election from any union or from the
National Labor Relations Board; (e) no union representation or jurisdictional
dispute or question exists respecting the employees of EnSys or any of its
Subsidiaries; and (f) no grievance or arbitration proceedings are pending and no
claim therefor has been asserted against EnSys or any of its Subsidiaries.
4.20. CERTAIN TRANSACTIONS. Except as set forth on Schedule 4.20,
there are no transactions between EnSys or any of its Subsidiaries and any of
EnSys' stockholders (including such stockholders' Affiliates), or EnSys' or its
stockholders' (including the stockholders' Affiliates) directors, officers or
salaried employees, or the family members or Affiliates of any of the above
(other than for services as employees, officers and directors), including,
without
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limitation, any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise require payments to or from, any of the
stockholders, or any such officer, director or salaried employee, family member,
or affiliate or any corporation, partnership, trust or other entity in which
such family member, affiliate, officer, director or employee has a substantial
interest or is a stockholder, officer, director, trustee or partner.
4.21. DIRECTORS AND OFFICERS. Set forth on Schedule 4.21 is a true and
correct list of the names and titles of each director and elected officer of
EnSys.
4.22. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by EnSys for inclusion in the Registration Statement shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by EnSys for inclusion in the Joint Proxy Statement shall not, on the
date the Joint Proxy Statement is first mailed to stockholders of EnSys or SDI,
at the time of the EnSys Stockholders' Meeting and SDI Stockholders' Meeting and
at the Effective Time, contain any statement which, at such times and in light
of the circumstances under which it is made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the EnSys
Stockholders' Meeting or SDI Stockholders' Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
EnSys or any of its Affiliates, officers or directors should be discovered by
EnSys which should be set forth in an amendment to the Registration Statement or
a supplement to the Joint Proxy Statement, EnSys shall promptly inform SDI.
4.23. SECTION 203 OF THE DGCL NOT APPLICABLE. The Board of Directors
of EnSys has taken all actions so that the restrictions contained in Section 203
of the DGCL applicable to a "business combination" (as defined in Section 203)
will not apply to the execution, delivery or performance of this Agreement or
the consummation of the Merger or the other transactions contemplated by this
Agreement.
4.24. MISSTATEMENTS AND OMISSIONS. No representation or warranty made
by EnSys in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by EnSys pursuant hereto, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make such representation or warranty or such
statement not misleading.
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4.25. NO EXISTING DISCUSSIONS. As of the date of this Agreement, EnSys
is not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to an Alternative Transaction (as defined in
Section 6.9).
4.26. BROKERS. Except for Raymond James & Associates, Inc., no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of EnSys.
4.27. CONTINUITY OF BUSINESS ENTERPRISE. After the Merger, EnSys
expects to continue at least one significant historic business line of SDI or
use at least a significant portion of SDI's historic business assets in a
business, in each case within the meaning of Treas. Reg. Section 1.368.1(d),
promulgated under Section 368(a) of the Code.
ARTICLE 5
COVENANTS
5.1. AFFIRMATIVE COVENANTS OF SDI AND ENSYS. SDI and EnSys each
covenants and agrees to the other that from the date of this Agreement until the
Effective Time, unless otherwise contemplated by this Agreement or consented to
in writing by the other party, it will and will cause each of its Subsidiaries
to:
(a) operate its business in the ordinary course of business and
consistent with its past practice;
(b) use its reasonable best efforts to preserve intact its
goodwill of customers, suppliers, service providers and others having business
relationships with it and/or its Subsidiaries and its business organization and
assets, maintain its rights and franchises and retain the services of its
respective officers and key employees;
(c) use reasonable efforts to keep in full force and effect SDI
Insurance Policies or EnSys Insurance Policies, as the case may be, and
liability insurance and bonds comparable in amount and scope of coverage to that
currently maintained; and
(d) subject to the terms of the Confidentiality Agreement
referenced in Section 6.4, afford to the other party and its officers,
employees, accountants, consultants, legal counsel and other representatives
(but only such employees and representatives as are necessary in order to effect
the transactions contemplated hereby) reasonable access upon reasonable notice
to all information concerning the business, properties, contracts, records and
personnel of it or its Subsidiaries' as the other party may reasonably request.
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5.2. NEGATIVE COVENANTS OF SDI AND ENSYS. Except as contemplated by
this Agreement or consented to in writing by EnSys or SDI, as the case may be,
from the date of this Agreement until the Effective Time, the other party shall
not do, and shall not permit any of its Subsidiaries to do, any of the
following:
(a) (i) increase the compensation payable to any director,
officer or employee of it or any of its Subsidiaries, except for increases in
salary or wages payable or to become payable in the ordinary course of business
and consistent with the policies currently in effect; provided, however, the
Boards of Directors of SDI and EnSys each may declare and pay bonuses to its
employees, up to an aggregate of $100,000 for SDI employees, which restriction
shall not apply to EnSys which shall pay its bonuses in the ordinary course of
its business and consistent with the policies currently in effect; (ii) grant
any severance or termination pay (other than pursuant to the terms of any
existing employment contract currently in effect that has been disclosed to the
other party) to, or enter into any severance agreement with, any director or
officer; (iii) subject to clause (i), enter into or amend any employment
agreement with any director or officer that would extend beyond the Effective
Time except on an at-will basis; or (iv) establish, adopt, enter into or amend
any SDI or EnSys Employee Benefit Plan, except as may be required to comply with
applicable law;
(b) declare or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of its
or any of its Subsidiaries' capital stock or any securities or obligations
convertible into or exchangeable for any shares of its or its Subsidiaries'
capital stock, or any options, warrants or conversion or other rights to acquire
any shares of its or its Subsidiaries' capital stock (except for or the
repurchase of shares from any terminated employee consistent with past practice
or as a result of the issuance of shares upon the exercise of options or
warrants as contemplated by this Agreement or in accordance with their terms);
(ii) effect any reorganization or recapitalization; or (iii) split, combine or
reclassify any of its or its Subsidiaries' capital stock;
(d) issue, deliver, award, grant or sell, or authorize the
issuance, delivery, award, grant or sale (including the grant of any security
interests, liens, claims, pledges, limitations on voting rights, charges or
other encumbrances) of, any shares of any class of its or its Subsidiaries'
capital stock, any securities convertible into or exercisable or exchangeable
for any such shares, or any rights, options or warrants to acquire any such
shares (except for the exercise of options or warrants as contemplated by this
Agreement or in accordance with their terms or to facilitate the transfer of any
publicly traded shares), or amend or otherwise modify the terms of any such
rights, options or warrants the effect of which shall be to make such terms more
favorable to the holders thereof, or take any other action in respect of any
such rights, option or warrants (except for any notices or other similar
communications to the holders thereof concerning the Merger);
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(e) to the extent material, acquire or agree to acquire, by
merging or consolidating with, by purchasing an equity interest in or a portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets of any other person (other than
the purchase of assets from suppliers or vendors in the ordinary course of
business and consistent with its past practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any material amount of any of its or its
Subsidiaries' assets, except for dispositions in the ordinary course of business
and consistent with its past practice;
(g) adopt any amendments to its Certificate of Incorporation or
By-Laws, except for, with respect to EnSys, the amended and restated Certificate
of Incorporation and amended and restated By-Laws for the Surviving Corporation
in the forms attached hereto as Exhibits 1.4(a) and 1.4(b);
(h) (A) change any of its methods of accounting in effect at
December 31, 1995 or (B) make or rescind any express or deemed election relating
to taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ended December 31, 1995, except in either case as
may be required by law, the IRS or GAAP, or in the ordinary course of business
consistent with past practice;
(i) other than in the ordinary course of business consistent
with past practice, incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument, except as mutually approved by EnSys and SDI in advance;
(j) not take any action of the nature referred to in Sections
3.8 or 4.8 hereof, except as permitted therein;
(k) not take any action that would or is reasonably likely to
result in any of its representations and warranties set forth in this Agreement
not to be true or in any of the conditions of the Merger set forth in Article 7
not being satisfied; or
(l) agree in writing or otherwise to do any of the foregoing.
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ARTICLE 6
ADDITIONAL AGREEMENTS
6.1. REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. EnSys and SDI
shall prepare as promptly as practicable and cause to be filed with the SEC the
Joint Proxy Statement in compliance with the 1934 Act. EnSys, in cooperation
with and with the assistance of SDI, shall prepare and cause to be filed with
the SEC the Registration Statement in compliance with the 1933 Act. The
Registration Statement shall register the issuance of the Merger Shares. EnSys
and SDI shall use all reasonable efforts to cause such Registration Statement to
be declared effective as promptly as practicable. EnSys shall take any action
required to be taken under any applicable state securities or "blue-sky" laws in
connection with the issuance of Merger Shares in the Merger. EnSys shall timely
file with respect to the Merger Shares the requisite Notification for Listing of
Additional Shares form with The Nasdaq Stock Market, Inc. pursuant to Rule 10b-
17 of the 1934 Act.
6.2. STOCKHOLDERS' MEETINGS. SDI and EnSys each shall take all action
necessary in accordance with the DGCL and its respective Certificate of
Incorporation and By-Laws to convene its respective Stockholders' Meeting at the
earliest practicable date after the date on which the Registration Statement
becomes effective, and each party shall consult with the other party in
connection therewith. Each party shall use all reasonable efforts to solicit
from its stockholders proxies in favor of this Agreement, the Merger and any
other action contemplated thereby to be voted upon at either of such
Stockholders' Meetings and shall take all other actions necessary to secure the
vote or consent of such stockholders as are necessary under the DGCL to approve
this Agreement and obtain the Requisite SDI Stockholder Approval and the
Requisite EnSys Stockholder Approval.
6.3. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) Subject to the terms and conditions herein provided, SDI and
EnSys shall use all reasonable best efforts to (i) take, or cause to be taken,
all appropriate action, and do or cause to be done, all things necessary, proper
or advisable under applicable law or otherwise to consummate and make effective
the transactions contemplated by this Agreement as promptly as practicable, (ii)
obtain from any Governmental Entities any consents, licenses or orders required
to be obtained by EnSys or SDI or any of their respective Subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement, including,
without limitation, the Merger, and (iii) make all necessary notifications and
filings and thereafter make any other required submissions with respect to this
Agreement and the Merger required under (A) any applicable federal or state
securities laws or the rules or regulations thereunder, and (B) any other
applicable law; provided that EnSys and SDI shall cooperate with each other in
connection with the making of all such filings. SDI and EnSys shall furnish to
each other all information required for any application or other filing to be
made pursuant to the rules and regulations of any applicable law in connection
with the transactions contemplated by this Agreement.
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(b) (i) SDI and EnSys shall give (or cause their respective
Subsidiaries to give) any notices to third parties, and use, and cause their
respective Subsidiaries to use, all reasonable best efforts to obtain any third-
party consents (i) necessary to consummate the transactions contemplated in this
Agreement, (ii) disclosed or required to be disclosed in the disclosure
schedules to this Agreement, or (iii) required to prevent a SDI Material Adverse
Effect or EnSys Material Adverse Effect, as the case may be, from occurring
prior to the Effective Time.
(ii) In the event that any party shall fail to obtain any
third-party consent described in subsection (b)(i) above, such party shall use
reasonable efforts, and shall take any such actions reasonably agreed upon by
both parties to minimize any Material Adverse Effect upon either of the parties,
their Subsidiaries and businesses resulting, or which could reasonably be
expected to result after the Effective Time, from the failure to obtain such
consent.
(c) From the date of this Agreement until the Effective Time,
SDI shall promptly notify EnSys in writing of any pending or, to the knowledge
of SDI, threatened action, proceeding or investigation by an Governmental Entity
or any other Person (i) challenging or seeking material damages in connection
with the Merger or (ii) seeking to restrain or prohibit the consummation of the
Merger or otherwise limit the right of EnSys or, to the knowledge of SDI, its
Subsidiaries, to own or operate all or any portion of the businesses or assets
of SDI or its Subsidiaries.
(d) From the date of this Agreement until the Effective Time,
EnSys shall promptly notify SDI in writing of any pending or, to the knowledge
of EnSys, threatened action, proceeding or investigation by any Governmental
Entity or any other Person (i) challenging or seeking material damages in
connection with the Merger or (ii) seeking to restrain or prohibit the
consummation of the Merger or otherwise limit the right of EnSys or its
Subsidiaries to own or operate all or any portion of the business or assets of
SDI or its Subsidiaries.
6.4. ACCESS TO INFORMATION. From the date of this Agreement to the
Closing Date, each party will give to the other party and its officers,
employees, counsel, accountants and other representatives free and full access
to and the right to inspect, during normal business hours, all of the assets,
records, Contracts and other documents relating to its business as the other
party may reasonably request. Neither party will use such information for
purposes other than in connection with the Merger and each party will otherwise
hold such information in confidence until such time as such information
otherwise becomes publicly available, and in the event of termination of this
Agreement for any reason will promptly return, or cause to be returned, to the
other party all nonpublic documents obtained from the other party, and any
copies made of such documents. The terms and conditions of this Section 6.4 are
further subject to the terms and conditions of the Confidentiality Agreement
dated as of May 2, 1996, by and between EnSys and SDI (the "Confidentiality
Agreement").
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6.5. UPDATE DISCLOSURE; BREACHES. From and after the date of this
Agreement until the Effective Time, each party shall promptly notify the other
parties hereto by written update to its representations and warranties,
including any Schedules related thereto ("Update Schedule") of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be reasonably likely to cause any condition to the obligations of
any party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied, (ii) the failure of SDI or EnSys, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it pursuant to this Agreement which would be
reasonably likely to result in any condition to the obligations of any party to
effect the Merger and the other transactions contemplated by this Agreement not
to be satisfied, or (iii) of any material changes to the information contained
in its Schedules (including any change to any representations or warranties
herein as to which no schedule has been created as of the date hereof but as to
which a schedule would have been required hereunder to have been created on or
before the date hereof if such change had existed on the date hereof).
6.6. PUBLIC ANNOUNCEMENTS. No public announcement shall be made with
regard to this Agreement, the Merger or the transactions contemplated thereby
without the agreement of SDI and EnSys; provided, however, that each party may
make such disclosure as deemed necessary if and to the extent it reasonably
believes, upon advice of counsel, that as a result of the securities laws of the
United States or of any state, or for any other reasons, it is legally required
to do so (a "Required Public Announcement"). To the extent possible, each party
will use all reasonable efforts under the circumstances to notify and discuss
with the other party (and to provide the other party an opportunity to comment
thereon) any public announcements or disclosures concerning the Merger prior to
making such announcement or disclosure. SDI and EnSys agree that, except for
any Required Public Announcement: (a) unless and until the Merger is
consummated, only those employees, agents, advisors, attorneys, accountants and
other representatives of the parties who have a need to know in connection with
the consummation of the Merger will be provided information concerning the terms
of the Merger; and (b) after consummation of the Merger, any confidential terms
thereof shall remain confidential to the extent permitted by applicable law.
SDI acknowledges and agrees that since EnSys is a public company, EnSys shall be
required to make a Required Public Announcement in connection with the execution
of this Agreement.
6.7. INDEMNIFICATION.
(a) INDEMNIFICATION FOR THIRD PARTY CLAIMS. In the event that
this Agreement is terminated pursuant to Section 8.1 hereof, each party (an
"Indemnifying Party") shall indemnify the other party and its respective
directors, officers, agents and employees (each, an "Indemnified Party") and
shall hold each Indemnified Party harmless from and against any and all losses,
claims, judgments, damages, liabilities, costs and expenses, including
reasonable attorneys' fees, (collectively, "Losses") to the extent any such
Losses are incurred or paid by an Indemnified Party to an unrelated third party
and such Losses relate to or arise from the Pre-
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Closing actions or omissions of the Indemnifying Party, whether arising out of
the operation of the Indemnifying Party's business or otherwise.
(b) PROCEDURES FOR INDEMNIFICATION. The following procedures
shall govern and be a condition to the indemnification obligations arising out
of this Section 6.7:
(i) Upon receipt by an Indemnified Party of notice of any
action, suit, proceeding, claim, demand or assessment from a third party which
may give rise to a claim for indemnification from the Indemnifying Party, the
Indemnified Party shall give prompt, written notice thereof to the Indemnifying
Party indicating in reasonable detail the nature of such claim and the basis
therefor, provided that the failure to give such notice shall not be a condition
to the indemnification obligations hereunder except to the extent that the
Indemnifying Party demonstrates actual damage caused by such failure. The
Indemnifying Party shall be entitled to assume and control such defense at its
expense with counsel selected by it and reasonably acceptable to the Indemnified
Party. The Indemnified Party shall be entitled to participate therein at its
own expense after such assumption.
(ii) With respect to third party claims or actions as to
which the Indemnifying Party shall not have exercised its right to assume the
defense thereof within a reasonable amount of time (but not more than thirty
(30) days after notice), the Indemnified Party shall assume and control the
defense of and contest such action with such counsel as the Indemnified Party
may choose that is reasonably acceptable to the Indemnifying Party. The
Indemnifying Party shall be entitled, at its own expense, to participate in the
defense of any such action or claim. In the event the Indemnifying Party elects
not to participate in the defense of such action or claim, the Indemnified Party
shall have full rights to dispose of such action and enter into any compromise
or settlement; provided that such compromise or settlement shall be reasonable
under the circumstances and in good faith.
(iii) Both the Indemnified Party and the Indemnifying Party
shall cooperate with one another in good faith in connection with the defense,
compromise or settlement of any third party claim or action. Neither shall
dispose of, compromise or settle any such claim or action in a manner without
the prior written consent of the other party, which consent shall not be
unreasonably withheld.
(iv) With respect to any claim, other than a third party
claim or action, for which indemnity may be sought hereunder, the Indemnified
Party shall give prompt, written notice thereof to the Indemnifying Party
indicating in reasonable detail the nature of such claim and the basis therefor.
(c) To the extent the indemnification provision contained in
this Agreement conflict with the indemnification provisions contained in the
Operating Agreement, the provisions of this Agreement shall control.
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6.8. TREATMENT OF SDI OPTIONS.
(a) As soon as practicable after the Effective Time, EnSys shall
file a registration statement on Form S-8 with the SEC with respect to the
shares of EnSys Common Stock issuable upon the exercise of the EnSys Options
being granted in replacement of SDI Options that are stock options under the
Strategic Diagnostics Industries, Inc. 1993 Employee Non-Qualified Stock Option
Plan (the "SDI Stock Option Plan") and shall deliver to the participants in the
SDI Stock Option Plan an appropriate prospectus setting forth such participant's
rights pursuant thereto, in each case as and to the extent such shares may be
registered by the Surviving Corporation on Form S-8 under applicable law.
(b) EnSys shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of EnSys Common Stock to be issued
upon the exercise of any SDI Options and SDI Warrants assumed in accordance with
Section 2.1 by EnSys and the conversion of such SDI Options and SDI Warrants
into EnSys Options and EnSys Warrants and shall include in the Notification for
Listing of Additional Shares form referenced in Section 6.1 the shares of EnSys
Common Stock issuable upon exercise of such EnSys Options and EnSys Warrants.
6.9. NO SOLICITATION OF OTHER OFFERS. Neither SDI nor EnSys shall,
nor shall either of them permit any of its Subsidiaries to, through any of their
respective officers, directors, employees, investment bankers, financial
advisors or other agents or otherwise (i) solicit, initiate or encourage, or
take any other action to facilitate, submission of any inquiry, proposal or
offer from any person or entity relating to any acquisition, purchase or sale of
all or a material amount of the assets of, or any securities of, or any merger,
consolidation or business combination, liquidation, reorganization or similar
transaction with, either of SDI or EnSys or any of its Subsidiaries, as the case
may be, (an "Alternative Transaction"), or (ii) participate in any discussion or
negotiations regarding, or furnish to any other person any information with
respect to, any effort or attempt by any other person to do or seek any of the
foregoing. Neither SDI nor EnSys shall, nor shall either of them permit any of
its Subsidiaries to furnish or cause to be furnished any confidential
information concerning their businesses, properties or assets to any person or
entity that is interested in any Alternative Transaction.
6.10. INTERIM FINANCIAL STATEMENTS. Within thirty (30) days after the
end of each calendar month that ends after the date of this Agreement and before
the Effective Time, SDI and EnSys will deliver to the other party unaudited
balance sheets, income statements and statements of cash flows for such calendar
month and the year to date. All such financial statements shall fairly present
in accordance with GAAP, except for the absence of notes thereto, in all
material respects, the financial position and results of operations at such
times of SDI or EnSys, as the case may be, including any of its Subsidiaries.
6.11. SATISFACTION OF CONDITIONS. Each of SDI and EnSys agrees that it
will take all actions reasonably within its power and authority duly and
promptly to carry out all of its
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obligations under this Agreement and to comply with all of the representations,
warranties and covenants hereunder applicable to it. In addition, SDI and EnSys
each covenants and agrees to use its reasonable best efforts to cause all of the
conditions to the obligations of the other to effect the Merger, including the
timely filing and processing of all required applications under applicable state
securities laws, to be satisfied as promptly as possible.
6.12. OPERATING AGREEMENT. Contemporaneously with the execution of
this Agreement, EnSys and SDI shall enter into the Operating Agreement set forth
on Exhibit 6.12, setting forth the terms under which the parties have agreed to
operate the combining companies during the interim period between the date
hereof and the Closing Date.
ARTICLE 7
CLOSING CONDITIONS
7.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT.
The respective obligations of each party to effect the Merger and the other
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Effective Time of the following conditions, any or all of
which may be waived, in whole or in part, to the extent permitted by applicable
law:
(a) REQUISITE SDI STOCKHOLDER APPROVAL AND REQUISITE ENSYS
STOCKHOLDER APPROVAL. This Agreement and the Merger shall have received the
Requisite SDI Stockholder Approval and the Requisite EnSys Stockholder Approval.
(b) NO ACTION OR PROCEEDING. There shall not have been
instituted and there shall not be pending any action or proceeding before any
court of competent jurisdiction or Governmental Entity, and no order or decree
shall have been entered in any action or proceeding before such court of
competent jurisdiction or Governmental Entity: (i) imposing limitations on the
ability of SDI and EnSys to combine and operate together their businesses,
operations and assets; (ii) imposing other sanctions, damages or liabilities
arising out of the Merger on EnSys, SDI or any of their officers or directors;
(iii) requiring divestiture by the Surviving Corporation of all or any material
portion of the business, assets or property of SDI or EnSys and their respective
Subsidiaries; or (iv) restraining, enjoining, prohibiting or materially delaying
the consummation of the Merger, in each case, with respect to clauses (i)
through (iv) above, which would or is reasonably likely to result in a SDI
Material Adverse Effect or EnSys Material Adverse Effect at or prior to or after
the Effective Time or which would or is reasonably likely to subject any of
their respective officers or directors to any penalty or criminal liability.
Notwithstanding the foregoing, prior to invoking the condition set forth in this
Section 7.1(b), the party seeking to invoke it shall have used its reasonable
best efforts to have such action or proceeding withdrawn or dismissed or such
order or decree vacated;
(c) OTHER APPROVALS OR NOTICES. All other consents, waivers,
approvals and authorizations required to be obtained from, and all filings or
notices required to be made with, any Governmental Entity or third party by
EnSys or SDI or any Subsidiary prior to consummation of the transactions
contemplated in this Agreement (other than the filing and
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recordation of Merger documents in accordance with the DGCL) shall have been
obtained from and made with all required Governmental Entities or third parties,
except to the extent that the failure to obtain or make any such consent or
filing with a person or entity other than a Governmental Entity will not cause a
SDI or an EnSys Material Adverse Effect, as the case may be;
(d) SECURITIES LAWS. The Registration Statement shall have been
declared effective by the SEC, the information contained therein shall be true
and correct in all material respects as of the date of the Requisite Stockholder
Approvals, no stop order shall have been issued or proceedings instituted or
threatened suspending the effectiveness of the Registration Statement, and all
approvals, consents, permits, licenses or qualifications from authorities
administering the securities or "blue-sky" laws of any state having jurisdiction
required for the consummation of the Merger shall have been obtained and shall
be effective.
(e) NASDAQ. The Merger Shares shall have been approved for
quotation on Nasdaq.
(f) BIRKMEYER EMPLOYMENT AGREEMENT. Richard C. Birkmeyer shall
have entered into an employment agreement with EnSys or the Surviving
Corporation in substantially the form attached hereto as Exhibit 7.1(f);
(g) REGISTRATION RIGHTS AGREEMENT. EnSys and the stockholders
of SDI listed on Exhibit 7.1(g) shall have executed and delivered a Registration
Rights Agreement substantially in the form attached hereto as Exhibit 7.1(g);
(h) LOCK-UP LETTERS. EnSys and each of the stockholders of SDI
listed on Exhibit 7.1(h) shall have executed and delivered Lock-up Letters
substantially in the form attached hereto as Exhibit 7.1(h), whereby such
stockholders agree not to sell the shares of EnSys Common Stock or EnSys
Preferred Stock they receive in the Merger for a period of six months from the
Closing Date; and
(i) WRENN EMPLOYMENT AGREEMENT. Grover C. Wrenn shall have
entered into a new employment agreement with EnSys or the Surviving Corporation
in substantially the form attached hereto as Exhibit 7.1(i).
7.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ENSYS. The obligations
of EnSys to effect the Merger and the other transactions contemplated in this
Agreement are also subject to the satisfaction at or prior to the Effective Time
of the following conditions, any or all of which may be waived by EnSys, in
whole or in part:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of SDI contained in this Agreement shall be true and correct in
all material respects as of the Effective Time, as though made on and as of the
Effective Time. EnSys shall have
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received a certificate of the Chief Executive Officer and Chief Financial
Officer of SDI to that effect;
(b) AGREEMENTS AND COVENANTS. SDI shall have performed or
complied with in all material respects all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, except to the extent failure to perform is caused by or is
consented to by EnSys. EnSys shall have received a certificate of the Chief
Executive Officer and Chief Financial Officer of SDI to that effect;
(c) LEGAL OPINION. EnSys shall have been furnished an opinion
of counsel to SDI, dated as of the Effective Time, in substantially the form
attached hereto as Exhibit 7.2(c);
(d) NO SDI MATERIAL ADVERSE EFFECT. From the date of this
Agreement through the Effective Time, there shall not have occurred any SDI
Material Adverse Effect other than any such SDI Material Adverse Effect that has
been disclosed in or authorized under or pursuant to this Agreement; and
(e) TERMINATION OF SDI WARRANTS. Each of the holders of
outstanding SDI Warrants shall have waived or relinquished all rights under the
terms of such SDI Warrants and shall have surrendered such SDI Warrants to SDI
for cancellation and conversion pursuant to Section 2.5 hereof, and each holder
of any registration rights granted by SDI shall have relinquished all such
rights and the agreements containing such registration rights shall have been
terminated.
7.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF SDI. The obligation of
SDI to effect the Merger and the other transactions contemplated in this
Agreement is also subject to the satisfaction at or prior to the Effective Time
of the following conditions, any or all of which may be waived by SDI, in whole
or in part:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of EnSys contained in this Agreement shall be true and correct in
all material respects as of the Effective Time, as though made on and as of the
Effective Time. SDI shall have received a certificate of the Chief Executive
Officer and Chief Accounting Officer of EnSys to that effect;
(b) AGREEMENTS AND COVENANTS. EnSys shall have performed or
complied with in all material respects all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, except to the extent failure to perform is caused by or is
consented to by SDI. SDI shall have received a certificate of the Chief
Executive Officer and Chief Accounting Officer of EnSys to that effect;
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(c) LEGAL OPINION. SDI shall have been furnished with an
opinion of counsel to EnSys, dated as of the Effective Time, in substantially
the form attached hereto as Exhibit 7.3(c); and
(d) NO ENSYS MATERIAL ADVERSE EFFECT. From the date of this
Agreement through the Effective Time, there shall not have occurred any EnSys
Material Adverse Effect other than any EnSys Material Adverse Effect that has
been disclosed in or authorized under or pursuant to this Agreement.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1. TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of this Agreement and
the Merger by the stockholders of SDI or EnSys:
(a) by mutual written consent of EnSys and SDI;
(b) by either EnSys or SDI in the event the conditions to such
party's obligations under Article 7 shall not have been met or waived by such
party on or prior to January 31, 1997, but only if the party terminating has not
caused the condition giving rise to termination to be not satisfied through its
own action or inaction or is not otherwise in material breach of its obligations
under this Agreement;
(c) by either EnSys or SDI if any decree, permanent injunction,
judgment, order or other action by any court of competent jurisdiction or any
Governmental Entity preventing or prohibiting consummation of the Merger shall
have become final and nonappealable;
(d) by either EnSys or SDI in the event the other party updates
its Schedules pursuant to the terms hereof as the result of a change which has a
Material Adverse Effect on such other party;
(e) by either EnSys or SDI as a result of a material breach by
the other party of any representation, warranty, covenant or agreement contained
herein; or
(f) by either EnSys or SDI upon any termination of the Operating
Agreement.
8.2. EFFECT OF TERMINATION. Subject to the remedies of the parties
set forth in Section 8.3(c), in the event of the termination of this Agreement
pursuant to Section 8.1, this Agreement shall forthwith become void, and,
subject to Section 8.3(c), there shall be no liability
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under this Agreement on the part of EnSys or SDI or any of their respective
officers or directors and all rights and obligations of each party hereto shall
cease; provided, however, that the Confidentiality Agreement shall survive any
termination of this Agreement.
8.3. EXPENSES.
(a) Except as provided in Section 8.3(c), if the Merger is
consummated, all Expenses (as hereinafter defined) shall be paid by the
Surviving Corporation, and if the Merger is not consummated, any such Expenses
shall be paid by the party incurring such Expenses.
(b) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants to
a party and its Affiliates) actually incurred by a party or on its behalf in
connection with or related to the transactions contemplated by this Agreement,
including without limitation, the authorization, preparation, negotiation,
execution and performance of this Agreement, the preparation and mailing of the
Proxy Statement, the solicitation of the Requisite SDI Stockholder Approval and
Requisite EnSys Stockholder Approval and all other matters related to the
Closing of the transactions contemplated by this Agreement.
(c) Each party (a "Breaching Party") shall promptly reimburse
the other party (a "Non-breaching Party") for all Expenses incurred by the Non-
breaching Party following (i) any termination of this Agreement by the Non-
breaching Party pursuant to Section 8.1(b) as a direct result of a material
breach of any of its covenants or agreements contained herein; or (ii) if all
conditions of the Breaching Party contained in Article 7 of this Agreement to
close the transactions contemplated hereby have been satisfied (or waived by the
party entitled to waive such conditions) and the Breaching Party does not
proceed with the Closing.
8.4. TERMINATION FEE. Notwithstanding anything else contained herein
to the contrary, if either party hereto unilaterally terminates this Agreement
in a manner not permitted under Article 8 hereof, or commits a material breach
hereof and the other party terminates this Agreement as a result thereof, then
such party shall promptly pay to the other party the sum of Five Hundred
Thousand Dollars ($500,000) as liquidated damages hereunder. Subject to
Sections 6.7 and 8.3(c) hereof, each party's exclusive remedy against the other
for any breach of this Agreement shall be this Section 8.4.
ARTICLE 9
GENERAL PROVISIONS
9.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of the parties in this Agreement shall expire
with, and be terminated and extinguished upon, consummation of the Merger or
termination of this
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Agreement, and thereafter neither SDI, EnSys nor any of their respective
officers, directors or employees shall have any liability whatsoever with
respect to any such representation or warranty, except to the extent that
Section 6.7, Section 8.3(c) or Section 8.4 is applicable upon a termination of
this Agreement. This Section 9.1 shall have no effect upon any other obligation
of the parties hereto, whether to be performed before or after consummation of
the Merger.
9.2. NOTICES. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made upon receipt, if delivered personally, on the first business
day following deposit with a nationally recognized overnight courier SDI, if
sent by such overnight courier, on the third business day following deposit in
the U.S. mail if mailed by registered or certified mail (postage prepaid, return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like changes of address) or when
sent by electronic facsimile transmission to the telecopier number specified
below with receipt acknowledged:
(a) If to SDI:
Strategic Diagnostics Inc.
128 Sandy Drive
Newark, DE 19713-1147
Telecopier No.: (302) 456-6770
Attn: Mr. Richard C. Birkmeyer
President and Chief Executive Officer
with a copy to:
William A Scari, Jr., Esq.
Pepper, Hamilton & Scheetz
1235 Westlakes Drive
Suite 400
Berwyn, PA 19312
Telecopier No.: (610) 640-7835
(b) If to EnSys:
EnSys Environmental Products, Inc.
4222 Emperor Boulevard
Durham, NC 27703
Telecopier No.: (919) 941-5519
Attn: Mr. Grover C. Wrenn
President and Chief Executive Officer
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<PAGE>
with a copy to:
William B. Marianes, Esq.
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, GA 30308-2216
Telecopier No.: (404) 885-3900
9.3. AMENDMENT. This Agreement may be amended by the parties by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that after approval of this
Agreement by the stockholders of SDI, or the stockholders of EnSys, no amendment
may be made without further approval of such stockholders, which amendment would
reduce, or increase, respectively, the amount or change the type of
consideration into which each share of SDI Common Stock or SDI Preferred Stock
shall be converted pursuant to this Agreement upon consummation of the Merger.
Except as expressly otherwise required by the previous sentence, or as required
by applicable law, no stockholder approval shall be required for any amendment.
This Agreement may not be amended except by an instrument in writing signed by
each of the parties hereto.
9.4. WAIVER. At any time prior to the Effective Time, any party may
(a) extend the time for the performance of any of the obligations or other acts
of any other party, (b) waive any inaccuracies in the representations and
warranties of any other party contained in this Agreement or in any document
delivered pursuant to this Agreement and (c) waive compliance by any other party
with any of the agreements or conditions contained in this Agreement. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by a party or parties to be bound thereby. No waiver of any nature, in
any one or more instances, shall be deemed to be or construed as a further or
continued waiver of any condition or any breach of any other term, covenant,
representation or warranty contained in this Agreement.
9.5. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.6. SEVERABILITY. If any term or other provision of this Agreement
is finally adjudicated by a court of competent jurisdiction to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are consummated to the extent possible.
-51-
<PAGE>
9.7. ENTIRE AGREEMENT. This Agreement (together with the Operating
Agreement, the Confidentiality Agreement, the Exhibits, the Schedules and the
other documents delivered pursuant hereto), constitutes the entire agreement of
the parties and supersedes all prior agreements and undertakings, both written
and oral, between the parties, or any of them, with respect to the subject
matter hereof.
9.8. ASSIGNMENT. Neither this Agreement, nor any right hereunder, may
be assigned by any party hereto without the prior written consent of the other
party hereto.
9.9. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of and be enforceable by each party and its
respective successors and permitted assigns, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
9.10. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
9.11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. Counterpart signatures of
this Agreement may also be exchanged via electronic facsimile transmission, and
any electronic facsimile transmission of any party's signature shall be deemed
to be an original signature for all purposes.
-52-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf by its officers or other persons
thereunto duly authorized, all as of the day and year first above written.
STRATEGIC DIAGNOSTICS INC.
By:/s/ Richard C. Birkmeyer
-----------------------------------------
Title: President and Chief Executive Officer
ENSYS ENVIRONMENTAL PRODUCTS, INC.
By:/s/ Grover C. Wrenn
-----------------------------------------
Title: President and Chief Executive Officer
-53-
<PAGE>
APPENDIX B
FAIRNESS OPINION OF RAYMOND JAMES & ASSOCIATES, INC.
<PAGE>
[LOGO]
October 8, 1996
The Board of Directors
EnSys Environmental Products, Inc.
P.O. Box 14063
Research Triangle Park, North Carolina 27709
Gentlemen:
Under the Agreement and Plan of Merger (the "Agreement") by and among EnSys
Environmental Products ("EnSys" or the "Company") and Strategic Diagnostics Inc.
("SDI"), EnSys is merging with SDI through the issuance of shares of Common
Stock, Convertible Preferred Stock, and options and warrants to purchase Common
Stock, to acquire all of the outstanding stock of SDI (the "Merger"). The
consideration offered by EnSys in the Merger (the "Consideration") will consist
of 5,780,207 shares of EnSys Common Stock; 2,164,362 shares of EnSys Series A
Convertible Preferred Stock; 391,658 options to purchase shares of EnSys Common
Stock; and 599,643 warrants to purchase shares of EnSys Common Stock. The
Agreement provides, among other things, that each outstanding share of SDI
Common Stock will receive 0.7392048 shares (the "Exchange Ratio") of EnSys
Common Stock at closing.
You have requested the opinion of Raymond James & Associates, Inc. ("Raymond
James") as to the fairness, from a financial point of view, to the shareholders
of the outstanding common stock of EnSys of the Consideration to be paid by
EnSys to SDI. Raymond James has served as financial advisor to EnSys in
connection with the Merger. In connection with our review of the Merger, and in
arriving at our opinion, we have among other things:
1. reviewed the Agreement and associated schedules;
2. reviewed SDI's audited financial statements as of and for the year
ended December 31, 1995 and the related opinion of SDI's independent
public accountants;
3. reviewed SDI's interim period financial statements for the six months
ended June 30, 1996, as well as other SDI financial and operating
information requested from and/or provided by SDI;
4. reviewed SDI's projected financial statements for the years ended
December 31, 1996 through 1998;
[LETTERHEAD]
<PAGE>
5. reviewed SDI's historical financial statements for the year ended
December 31, 1995 and June 30, 1996, pro forma for the acquisition of
Ohmicron Corporation, and the liquidation of TSD BioServices.
6. reviewed SDI's projected financial statements for the years ended
December 31, 1996, through December 31, 1998, pro forma for the
acquisition of Ohmicron Corporation, the liquidation of TSD
BioServices and the conversion of the E.M. Industries, Incorporation
("E.M.") distribution agreements;
7. discussed with management of SDI certain information relating to the
business, cash flow, earnings, assets, financial condition and
prospects of SDI, including management's forecasts for the years ended
December 31, 1996 through 1998, and the prospects of the EnSys-SDI
combined company after the Merger;
8. reviewed EnSys' audited financial statements as of and for the fiscal
year ended December 31, 1995 and the EnSys Quarterly Report filed on
Form 10Q for the quarters ended March 31, 1996 and June 30, 1996;
9. discussed with management of EnSys certain information relating to the
business, cash flow, earnings, assets, financial condition and
prospects of EnSys, including management's forecasts (including
forecasts pro forma for the EnSys acquisition of the EnviroGard
Division of Millipore.) for the years ended December 31, 1996 through
1998, and the prospects of the EnSys-SDI combined company after the
Merger;
10. reviewed publicly available information concerning companies in
industries considered by Raymond James to be most comparable to EnSys
and SDI;
11. reviewed financial and other information concerning selected completed
business combinations deemed to be generally comparable to the Merger,
or otherwise relevant to this opinion, in whole or in part, involving
EnSys and SDI;
12. reviewed the pro forma effect of the Merger on the projected results
of EnSys;
13. reviewed the reports of consultants hired by EnSys to assess the
products, technologies and markets of SDI;
14. conducted other such financial studies and analyses, including a
relative contribution analysis, as Raymond James deemed relevant and
necessary for the purposes of this opinion.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
EnSys, SDI or any other third party and have not independently verified any such
information. With regard to the information provided to us by EnSys or SDI, we
have been assured by management of EnSys and SDI,
[LOGO]
<PAGE>
respectively, that all such information is complete and accurate in all material
respects and that they are unaware of any facts of circumstances that would make
such information incomplete or misleading. We have not made an independent
evaluation or appraisal of the assets or liabilities of either EnSys or SDI, and
we have not been furnished with any such evaluation or appraisal.
With respect to the financial projections provided to us by EnSys and SDI
(including, without limitation, cost savings and synergies projected to result
from, and pro forma financial statements with respect to, the Merger, the
Ohmicron acquisition, the liquidation of TSD BioServices and the conversion of
the E.M. distribution agreement), we have assumed that such projections
(including the aforementioned pro forma projections) were prepared in good faith
on reasonable bases reflecting management's current best estimates and judgments
of EnSys' and SDI's future financial performance as independent companies and as
a combined company. Without limiting the foregoing, we have relied, without
independent verification, upon estimates by the management of EnSys and SDI of
the synergies, including the amount and timing of cost savings, that will be
achieved by the combined company if the Merger is consummated. This opinion is
based substantially upon the aforedescribed financial projections and estimates.
Further, without limiting the foregoing, we have assumed, without independent
verification, that the unconsolidated historical, projected and pro forma
historical and projected financial information provided to us by EnSys and SDI
accurately reflects the independent historical and projected operations, as the
case may be, of the respective operations of EnSys and SDI. We have made no
independent investigation of any legal matters involving EnSys or SDI, and we
have assumed the correctness of all legal advice given to you and us by your, or
SDI's counsel.
Our opinion is based on market, economic, financial and other circumstances and
conditions as they exist and can be evaluated as of the date of this letter, and
any material change in such circumstances and conditions would require a
reevaluation of this opinion, which we are under no obligation to undertake.
Further, we express no opinion as to the value of EnSys Common Stock upon the
consummation of the Merger or the price at which EnSys Common Stock will trade
at any time.
We have acted as financial advisor to EnSys in connection with the Merger, and,
for our services, including the rendering of this opinion, EnSys will pay us a
fee, which fee is substantially contingent upon the consummation of the Merger.
Additionally, we acted as financial advisor to EnSys in connection with EnSys'
acquisition of certain assets of Millipore Corporation in March of 1996 for
which we were paid a fee. In addition, EnSys has agreed to indemnify us against
certain liabilities arising out of our engagement, including the rendering of
this opinion and other matters, all as more fully described in the engagement
and indemnity agreement dated February 13, 1995. In the ordinary course of
business, Raymond James may trade the common stock of EnSys for its own accounts
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.
It is inderstood that this letter is for the information of the Board of the
Company in evaluating the proposed Merger and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote on the proposed Merger. This opinion is not to be quoted or
referred to, in whole or in part, without our prior written consent, other
than as required by law. We have consented to the inclusion of this letter in
the Proxy Statement/Prospectus filed by EnSys Environmental Products, Inc.
with the Securities and Exchange Commission.
[LOGO]
<PAGE>
Based on and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Consideration offered to SDI in connection with the Merger is
fair to the shareholders of EnSys from a financial point of view.
Very truly yours,
/s/ Raymond James & Associates, Inc.
RAYMOND JAMES & ASSOCIATES, INC.
[LOGO]
<PAGE>
APPENDIX C
FAIRNESS OPINION OF OPPENHEIMER & CO., INC.
<PAGE>
[LETTERHEAD]
October 8, 1996
The Board of Directors
Strategic Diagnostics Inc.
128 Sandy Drive
Newark, DE 19713-1147
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point
of view, to the current holders of common and preferred stock of Strategic
Diagnostics Inc. ("SDI"), of the conversion ratios provided in the Agreement and
Plan of Merger prepared as of October 7, 1996 (the "Merger Agreement"), by and
among Strategic Diagnostics Inc. and EnSys Environmental Products, Inc.
("EnSys"). The Merger Agreement provides that, among other things, (i) SDI will
be merged with and into EnSys which will be renamed Strategic Diagnostics Inc.
(the "Surviving Corporation"), (ii) each issued and outstanding share of SDI
common stock shall be converted into the right to receive 0.7392048 share of
Surviving Corporation common stock and each issued and outstanding share of SDI
Preferred Stock shall be converted into the right to receive 0.7392048 share of
Surviving Corporation Series A preferred stock, and (iii) current holders of
issued and outstanding SDI options and warrants to purchase SDI common stock
will have the right to convert such options or warrants for options or warrants,
as the case may be, to purchase Surviving Corporation common stock covering that
number of shares of Surviving Corporation common stock equal to 0.7818026
multiplied by the number of shares of SDI common stock to which such option or
warrant currently relates.
In arriving at our opinion, we have (i) reviewed the Merger Agreement, (ii)
reviewed the historical financial statements and the financial projections and
other information prepared by representatives of SDI and EnSys, (iii) reviewed
publicly available information for SDI and EnSys, including, with respect to
EnSys, periodic and other reports filed with the Securities and Exchange
Commission; (iv) reviewed the reported market prices and trading volumes for
EnSys' common stock; (v) held discussions with representatives of SDI and EnSys
concerning SDI's and EnSys' historical and current operations, financial
condition and prospects, and (vi) reviewed such other documents and financial,
economic and market criteria and made such other investigations as we deemed
appropriate for the purposes of such opinion.
We also considered certain stock market data of EnSys and compared that
data with similar data for other publicly held companies in businesses
similar to those of SDI and EnSys. We
<PAGE>
The Board of Directors
Strategic Diagnostics Inc. - October 8, 1996
Page 2
considered, to the extent publicly available, the financial terms of certain
other business combinations which have recently been effected.
In connection with our review, we have not assumed responsibility for
independent verification of any of the foregoing information and have relied
upon its being complete and accurate in all respects. With respect to the
financial forecasts and other data concerning SDI and EnSys reviewed by us, the
managements of SDI and EnSys advised us that such forecasts and other data have
been reasonably prepared on bases reflecting their best currently available
estimates and judgments as to their future financial performance. In addition,
we have not made an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of SDI or EnSys, nor have we been
furnished with any such evaluations or appraisals. We have assumed, without
independent verification, the accuracy of the advice and conclusions of the
parties' legal counsel and accountants with respect to accounting and tax
matters, including without limitation, the treatment of the Merger as a tax-free
reorganization for federal income tax purposes and the accounting of the merger
as a purchase. We express no opinion as to what the value of the EnSys common
stock or preferred stock actually will be when issued to holders of SDI common
stock or preferred stock pursuant to the Merger or the price at which the
Surviving Corporation common stock will trade subsequent to the Merger. Our
opinion is necessarily based on information available to us and general
economic, financial and stock market conditions and circumstances as they exist
and can be evaluated by us on the date hereof.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We acted as financial advisor to the Board of Directors of SDI in rendering
this opinion and will receive a fee for our services. In the ordinary course of
its business, Oppenheimer & Co., Inc. and its affiliates may actively trade
securities of EnSys for their own accounts and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is for the information of SDI's Board
of Directors in evaluating the proposed Merger and does not constitute a
recommendation to any stockholder of SDI as to how such stockholder should
vote on the proposed Merger. This opinion is not to be quoted or referred to,
in whole or in part, without our prior written consent other than as
required by law. We have consented to the inclusion of this letter in the
Proxy Statement/Prospectus filed by EnSys with the Security Exchange
Commission.
Based upon and subject to the foregoing and such other factors as we deem
relevant, we are of the opinion that the conversion ratios for the SDI common
stock and preferred stock provided in the Merger Agreement are fair, from a
financial point of view, to the current holders of common and preferred stock of
SDI.
Very truly yours,
/s/ Oppenheimer & Co., Inc.
Oppenheimer & Co., Inc.
<PAGE>
APPENDIX D
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ENSYS ENVIRONMENTAL PRODUCTS, INC.
<PAGE>
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STRATEGIC DIAGNOSTICS INC.
ARTICLE I.
NAME
The name of the Corporation is Strategic Diagnostics Inc.
ARTICLE II.
REGISTERED OFFICE
The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
<PAGE>
ARTICLE III.
PURPOSES
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV.
CAPITAL STOCK
The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is 54,664,362 shares, divided into
classes as follows:
2,164,362 shares shall be shares of Series A Convertible
Preferred Stock, with a par value of $.01 per share (the "Series
A Convertible Preferred Stock");
17,500,000 shares shall be shares of Preferred Stock, with a par
value of $.01 per share (the "Blank Check Preferred Stock"); and
35,000,000 shares shall be shares of Common Stock, with a par
value of $.01 per share (the "Common Stock");
The following is a statement of the powers, preferences, rights, qualifications,
limitations and restrictions of the Series A Convertible Preferred Stock, the
Blank Check Preferred Stock and the Common Stock:
PART A. SERIES A CONVERTIBLE PREFERRED STOCK
1. NUMBER OF SHARES. The series of Preferred Stock designated and
known as "Series A Convertible Preferred Stock" shall consist of 2,164,347
shares.
2. VOTING. Except as otherwise may be provided in these terms of
the Series A Convertible Preferred Stock or by law, the Series A Convertible
Preferred Stock and all other classes and series of stock of the Corporation
otherwise entitled to vote shall vote together as a single class on all actions
to be taken by the stockholders of the Corporation. Each share of Series A
Convertible Preferred Stock shall entitle the holder thereof to such number of
votes per share on each such action as shall equal the nearest whole number of
shares of Common Stock into which each share of Series A Convertible Preferred
Stock is then convertible.
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<PAGE>
3. DIVIDENDS. The holders of the Series A Convertible Preferred
Stock shall be entitled to receive, out of funds legally available therefor,
when and if declared by the Board of Directors, any dividend on or with respect
to Common Stock (other than a dividend payable solely in shares of Common Stock)
in an amount equal to the product obtained by multiplying the dividend declared
or payable on each share of Common Stock times the nearest whole number of
shares of Common Stock into which each share of Series A Convertible Preferred
Stock is then convertible.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of
the Corporation (other than in connection with a reorganization of the
Corporation in which the rights and preferences of the Series A Convertible
Preferred Stock are not adversely affected), whether voluntary or involuntary,
the holders of Series A Convertible Preferred Stock shall be entitled, before
any distribution or payment is made upon any stock ranking on liquidation junior
to the Series A Convertible Preferred Stock, to be paid an amount equal to
$2.9466849 per share of Series A Convertible Preferred Stock up to an aggregate
maximum of $6,377,693 (in the aggregate, the "Liquidation Preference") (such
amount payable with respect to one share of Series A Convertible Preferred Stock
sometimes shall be referred to as the "Liquidation Payment"); PROVIDED, HOWEVER,
that the Liquidation Preference shall be automatically reduced in an aggregate
amount equal to any dividends paid to the holders of Series A Convertible
Preferred Stock and the Liquidation Payment shall be reduced on a per share
basis for such payment of dividends. If upon such liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the assets to
be distributed among the holders of Series A Convertible Preferred Stock shall
be insufficient to permit payment to the holders of the Series A Convertible
Preferred Stock of the full Liquidation Preference, then the entire assets of
the Corporation legally available for distribution shall be distributed ratably
among the holders of Series A Convertible Preferred Stock. Upon any such
liquidation, dissolution or winding up of the Corporation, after the holders of
Series A Convertible Preferred Stock shall have been paid the full Liquidation
Preference, the remaining net assets of the Corporation may be distributed to
the holders of stock ranking on liquidation junior to the Series A Convertible
Preferred Stock. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Payment and the place
where said Liquidation Payment shall be payable, shall be given by mail, postage
prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the
payment date stated therein, to the holders of record of Series A Convertible
Preferred Stock, such notice to be addressed to each such holder at its address
as shown by the records of the Corporation.
5. RESTRICTIONS. At any time when shares of Series A Convertible
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law or
by the Certificate of Incorporation, and in addition to any other vote required
by law or the Certificate of Incorporation, without the approval of the holders
of at least two-thirds of the then outstanding shares of Series A Convertible
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a series, the Corporation will not:
-3-
<PAGE>
5A. Create or authorize the creation of any additional
class or series of shares of stock unless the same ranks junior to the Series A
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Series A Convertible Preferred Stock or increase the authorized amount of
any additional class or series of shares of stock unless the same ranks junior
to the Series A Convertible Preferred Stock as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into shares of Series A
Convertible Preferred Stock or into shares of any other class or series of stock
unless the same ranks junior to the Series A Convertible Preferred Stock as to
the distribution of assets on the liquidation, dissolution or winding up of the
Corporation; or
5B. Redeem or otherwise acquire any shares of Series A
Convertible Preferred Stock, except as expressly authorized in paragraph 7
hereof or pursuant to a purchase offer made pro rata to all holders of the
shares of Series A Convertible Preferred Stock on the basis of the aggregate
number of outstanding shares of Series A Convertible Preferred Stock then held
by each such holder.
6. CONVERSIONS. The holders of shares of Series A Convertible
Preferred Stock shall have the following conversion rights:
6A. RIGHT TO CONVERT. Subject to the terms and conditions
of this paragraph 6, the holder of any share or shares of Series A Convertible
Preferred Stock shall have the right, at its option at any time, to convert any
such shares of Series A Convertible Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the Liquidation
Payment) into an equal number of fully paid and nonassessable shares of Common
Stock, subject to adjustment as provided in subparagraphs 6D and 6E. Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Series A
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series A
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.
6B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Series A Convertible Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such share or shares of Series A Convertible Preferred Stock. To
the extent permitted by law, such conversion shall be deemed to have been
effected as of the close of business on the date on which such written notice
shall have been received by the Corporation and the certificate or certificates
for such share or shares shall
-4-
<PAGE>
have been surrendered as aforesaid, and at such time the rights of the holder
of such share or shares of Series A Convertible Preferred Stock shall cease,
and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of
the shares represented thereby.
6C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series A Convertible
Preferred Stock into Common Stock and no payment or adjustment shall be made
upon any conversion on account of any cash dividends on the Common Stock issued
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends accrued and unpaid on the shares of
Series A Convertible Preferred Stock surrendered for conversion to the date upon
which such conversion is deemed to take place as provided in subparagraph 6B.
In case the number of shares of Series A Convertible Preferred Stock represented
by the certificate or certificates surrendered pursuant to subparagraph 6A
exceeds the number of shares converted, the Corporation shall, upon such
conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series A Convertible Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any fractional share
of Common Stock would, except for the provisions of the first sentence of this
subparagraph 6C, be delivered upon such conversion, the Corporation, in lieu of
delivering such fractional share, shall pay to the holder surrendering the
Series A Convertible Preferred Stock for conversion an amount in cash equal to
the current market price of such fractional share as determined in good faith by
the Board of Directors of the Corporation.
6D. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case
the Corporation shall at any time subdivide (by any stock split, stock dividend
or otherwise) its outstanding shares of Common Stock into a greater number of
shares, the number of shares of Common Stock issuable upon conversion of each
share of Series A Convertible Preferred Stock shall be increased in proportion
to such increase in outstanding shares, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
number of shares of Common Stock issuable upon conversion of each share of
Series A Convertible Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares.
6E. REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series A Convertible Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of Series A Convertible Preferred Stock,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the
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number of shares of such Common Stock immediately theretofore receivable upon
such conversion had such reorganization or reclassification not taken place,
and in any such case appropriate provisions shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of such conversion rights.
6F. CERTAIN NOTICES. In case at any time:
(1) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(2) the Corporation shall offer for subscription PRO RATA
to the holders of its Common Stock any additional shares of stock of any class
or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex to non U.S. residents, addressed to
each holder of any shares of Series A Convertible Preferred Stock at the address
of such holder as shown on the books of the corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6G. STOCK TO BE RESERVED. The Corporation will at all
times reserve and keep available out of its authorized Common Stock, solely for
the purpose of issuance upon the conversion of Series A Convertible Preferred
Stock as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series A Convertible
Preferred Stock. The Corporation covenants that, assuming the receipt
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by the Corporation of the consideration therefor, all shares of Common Stock
which shall be so issued shall be duly and validly issued and fully paid and
nonassessable.
6H. NO REISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK.
Shares of Series A Convertible Preferred Stock which are converted into shares
of Common Stock as provided herein shall be canceled and shall not be reissued.
6I. CLOSING OF BOOKS. The Corporation will at no time
close its transfer books against the transfer of any Series A Convertible
Preferred Stock or of any shares of Common Stock issued or issuable upon the
conversion of any shares of Series A Convertible Preferred Stock in any manner
which interferes with the timely conversion of such Series A Convertible
Preferred Stock, except as may otherwise be required to comply with applicable
securities laws.
6J. MANDATORY CONVERSION. If the closing share price of
Common Stock listed on the NASDAQ National Market System equals or exceeds $4.50
per share for a period of forty-five (45) consecutive business days, all
outstanding shares of Series A Convertible Preferred Stock shall automatically
convert to shares of Common Stock.
7. REDEMPTION. The shares of Series A Convertible Preferred Stock
shall be redeemed as follows:
7A. REDEMPTION AT HOLDERS' OPTION. In the event the
Corporation enters into a merger, consolidation, recapitalization,
reorganization or any other transaction pursuant to which the Series A
Convertible Preferred Stock would be converted into or exchanged for: (i)
preferred stock with lesser rights or a lesser Liquidation Preference; or (ii)
for common stock that in the aggregate has a lesser aggregate fair market value
than the Liquidation Preference; or (iii) for an aggregate amount of cash that
is less than the Liquidation Preference; then on the written request (the
"Holder Redemption Request") of the holders of at least 66 2/3% of the
outstanding shares of Series A Convertible Preferred Stock, then at or before
the closing of such transaction, the Corporation shall redeem from each holder
of shares of Series A Convertible Preferred Stock all of the shares of Series A
Convertible Preferred Stock held by such holder for an aggregate amount equal to
the Liquidation Preference.
7B. REDEMPTION AT CORPORATION'S OPTION. Upon at least
sixty (60) days' prior written notice, the Corporation may redeem effective at
any time on or after June 23, 2001, from each holder of shares of Series A
Convertible Preferred Stock all of the shares of Series A Convertible Preferred
Stock held by such holder.
7C. REDEMPTION PRICE AND PAYMENT. The Series A Convertible
Preferred Stock to be redeemed pursuant to Subparagraph 7B shall be redeemed by
paying for each share in cash an amount equal to the Liquidation Payment, such
amount also being referred to as the "Redemption Price". Such payment shall be
made in full to the holders entitled thereto.
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7D. REDEMPTION MECHANICS. At least 20 but not more than 30
days prior to the date of any redemption (the "Redemption Date"), written notice
(the "Redemption Notice") shall be given by the Corporation by mail, postage
prepaid, or by telex to non-U.S. residents for which telex instructions shall
have been provided to the Corporation for such purpose, to each holder of record
(at the close of business on the business day next preceding the day on which
the Redemption Notice is given) of shares of Series A Convertible Preferred
Stock notifying such holder of the redemption and specifying the Redemption
Price, the Redemption Date and the place where said Redemption Price shall be
payable. The holders of at least 66-2/3% of the Series A Convertible Preferred
Stock may rescind any Holder Redemption Request at any time prior to the close
of business on the 10th day after receipt of the Redemption Notice by giving
written notice of rescission to the Corporation; provided, that the holders of
Series A Convertible Preferred Stock may not thereafter submit a subsequent
Holder Redemption Request in respect of the same transaction. The Redemption
Notice shall be addressed to each holder at his address as shown by the records
of the Corporation. From and after the close of business on the Redemption
Date, unless there shall have been a default in the payment of the Redemption
Price, all rights of holders of shares of Series A Convertible Preferred Stock
(except the right to receive the Redemption Price) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever. If
the funds of the Corporation legally available for redemption of shares of
Series A Convertible Preferred Stock on the Redemption Date are insufficient to
redeem the total number of outstanding shares of Series A Convertible Preferred
Stock, the holders of shares of Series A Convertible Preferred Stock shall share
ratably in any funds legally available for redemption of such shares according
to the respective amounts which would be payable with respect to the full number
of shares owned by them if all such outstanding shares were redeemed in full.
The shares of Series A Convertible Preferred Stock not redeemed shall remain
outstanding and entitled to all rights and preferences provided herein. At any
time thereafter when additional funds of the Corporation are legally available
for the redemption of such shares of Series A Convertible Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above.
7E. REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED.
Any shares of Series A Convertible Preferred Stock redeemed pursuant to this
paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever
shall be canceled and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce accordingly the number of authorized shares of Series A
Convertible Preferred Stock.
PART B. BLANK CHECK PREFERRED STOCK
1. DESIGNATION AND AMOUNT. The designation of this class of capital
stock shall be "Blank Check Preferred Stock," par value $.01 per share. Subject
to the provisions of this Article IV and the express provisions of each series
of Blank Check Preferred Stock, the
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Board of Directors is hereby empowered to cause the Corporation to issue from
time to time, in one or more series, up to 17,500,000 shares of Blank Check
Preferred Stock.
2. RIGHTS. The powers, designations, preferences, terms,
conditions, privileges and other rights of each series of Blank Check Preferred
Stock shall be determined by the Board of Directors in accordance with Section
151 of the Delaware General Corporation Law, subject to the provisions of Part
A, Paragraph 5A of this Article IV. Except in respect of the particulars fixed
by the Board of Directors for each such series, all Blank Check Preferred Stock
shall be of equal rank and identical.
PART C. COMMON STOCK
1. DESIGNATION AND AMOUNT. The designation of this class of capital
stock shall be "Common Stock," par value $.01 per share ("Common Stock"). The
number of authorized shares of Common Stock may be increased or decreased (but
not below the number of shares thereof then outstanding) by the affirmative vote
of the holders of the majority of the stock of the Corporation entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the Delaware General
Corporation Law.
2. VOTING. Each share of Common Stock shall have one vote upon all
matters to be voted on by the holders of Common Stock, which voting rights shall
not be cumulative.
3. OTHER RIGHTS. Each share of Common Stock shall be entitled to
participate equally in all dividends payable with respect to the Common Stock
and to share ratably, subject to the rights and preferences of the Series A
Convertible Preferred Stock and/or any series of the Blank Check Preferred
Stock, in all assets of the Corporation in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, or upon any distribution of the assets of the Corporation.
ARTICLE V.
CERTAIN BUSINESS COMBINATIONS
PART A. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS.
1. REQUIRED VOTE FOR CERTAIN BUSINESS COMBINATIONS. In addition to
any affirmative vote required by law or by this Certificate of Incorporation,
and except as otherwise expressly provided in Paragraph 2 of this Article V,
Part A:
1A. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as
hereinafter defined) or (b) any other corporation or entity (whether or not
itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of any Interested
Stockholder; or
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1B. any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) of $5,000,000 or more; or
1C. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate
of any Interested Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value of $5,000,000
or more; or
1D. the adoption of any plan or proposal for the
liquidation, dissolution or winding up of the Corporation proposed by or on
behalf of any Interested Stockholder or any Affiliate of any Interested
Stockholder; or
1E. any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving any Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require, subject to Paragraph 2 of this Article V, Part A, the affirmative
vote of the holders of at least two-thirds of the voting power of the then
outstanding Voting Stock (as hereinafter defined), voting together as a single
class at a duly constituted meeting of stockholders called expressly for such
purpose. Such affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that a lesser percentage may be specified, by law.
2. DEFINITION OF "BUSINESS COMBINATION. The term "Business
Combination" as used in this Article V shall mean any transaction which is
referred to in any one or more of Subparagraphs (1A) through (1E) of this
Paragraph 1 of Article V, Part A.
PART B. WHEN HIGHER VOTE IS NOT REQUIRED.
The provisions of Paragraph 1 of this Article V, Part A, shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law and any
other provision of this Certificate of Incorporation, if all of the conditions
specified in either of the following Paragraph 1 or 2 or this Part B are met:
1. APPROVAL BY CONTINUING DIRECTORS. The Business Combination shall
have been approved by the affirmative vote of a majority of the Continuing
Directors (as herein defined) then in office.
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2. PRICE AND PROCEDURE REQUIREMENTS. All of the following
conditions shall have been met:
2A. The aggregate amount of the cash and the Fair Market
Value, as of the date of the consummation of the Business Combination, of
consideration other than cash to be received per share by holders of common
stock in such Business Combination shall be at least equal to the highest of the
following:
(1) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by
the Interested Stockholder for any shares of common stock acquired by it (1)
within the two-year period immediately prior to and including the first public
announcement of the proposal of the Business Combination (the "Announcement
Date") or (2) in the transaction in which it became an Interested Stockholder,
whichever is higher; and
(2) the Fair Market Value per share of common stock on the
Announcement Date or on the date on which the Interested Stockholder became an
Interested Stockholder (such latter date is referred to in this Article V as the
"Determination Date"), whichever is higher.
2B. The aggregate amount of the cash and the Fair Market
Value, as of the date of the date of the consummation of the Business
Combination, of consideration other than cash to be received per share by
holders of shares of any other class of outstanding Voting Stock in such
Business Combination shall be at least equal to the highest of the following (it
being intended that the requirements of this Subparagraph 2B shall be required
to be met with respect to every other class of outstanding Voting Stock, whether
or not the Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(1) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by
the Interested Stockholder for any shares of such class of Voting Stock acquired
by it (1) within the two-year period immediately prior to and including the
Announcement Date or (2) in the transaction in which it became an Interested
Stockholder, whichever is higher;
(2) (if applicable) the highest preferential amount per
share which the holders of shares of such class of Voting Stock are entitled to
receive from the Corporation in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
(3) the Fair Market Value per share of such class of voting
Stock on the Announcement Date or on the Determination Date, whichever is
higher.
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2C. The consideration to be received by holders of a
particular class of outstanding Voting Stock shall be in cash or in the same
form as the Interested Stockholder has previously paid for shares of such class
of Voting Stock. If the Interested Stockholder has paid for shares of any class
of Voting Stock with varying forms of consideration, the form of consideration
for such class of Voting Stock shall be either cash or the form used to acquire
the largest number of shares of such class of Voting Stock previously acquired
by such Interested Stockholder.
2D. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such Business
Combination: (a) there shall have been (1) no failure to declare and pay at
regular dates therefor the full amount of any dividends (whether or not
cumulative) payable on any class or series of preferred stock, except as
approved by the affirmative vote of a majority of the Continuing Directors; (2)
no reduction in the annual rate of dividends paid on the common stock (except as
necessary to reflect any subdivision of the common stock), except as approved by
the affirmative vote of a majority of the Continuing Directors; and (3) an
increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing the
number of outstanding shares of the common stock, unless the failure so to
increase such annual rate is approved by the affirmative vote of a majority of
the Continuing Directors; and (b) such Interested Stockholder shall not have
become the beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested Stockholder becoming an
Interested Stockholder.
2E. After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a stockholder), of
any loans, advances, guarantees, pledges or other financial assistance or any
tax credits or other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or otherwise,
unless such transaction shall have been approved or ratified by the affirmative
vote of a majority of the Continuing Directors after such person shall have
become an Interested Stockholder.
2F. A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules and regulations) shall be mailed
to public stockholders of the Corporation at least 20 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act, rules or
regulations or subsequent provisions thereof).
PART C. CERTAIN DEFINITIONS.
For the purposes of this Article V:
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1. A "person" shall mean an individual, a Group Acting in Concert, a
corporation, a partnership, an association, a joint stock company, a trust, a
business trust, a government or political subdivision, any unincorporated
organization, or any other association or entity.
2. "Interested Stockholder" shall mean any person who or which:
2A. is the beneficial owner, directly or indirectly, of 15%
or more of the voting power of the then outstanding shares of Voting Stock; or
2B. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to and including the date in
question was the beneficial owner, directly or indirectly, of 15% or more of the
voting power of the then outstanding shares of Voting Stock; or
2C. is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock which were at any time within
the two-year period immediately prior to and including the date in question
beneficially owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933 (or any subsequent provisions replacing such Act or the
rules and regulations promulgated thereunder) and such assignment or succession
was not approved by a majority of the Continuing Directors;
provided, however, that the term "Interested Stockholder" shall not include (a)
the Corporation; (b) any Subsidiary of the Corporation; (c) any person, directly
or indirectly, owning of record or beneficially 100% of the issued and
outstanding capital stock of the Corporation (other than directors' qualifying
shares, if any); (d) any employee benefit plan or compensation arrangement of
the Corporation or any Subsidiary of the Corporation; (e) any person holding
shares of voting Stock organized, appointed or established by the Corporation or
any Subsidiary for or pursuant to the terms of any such employee benefit plan or
compensation arrangement; or (f) any Grandfathered Person unless such
Grandfathered Person becomes, after the closing of the initial public offering
of shares of common stock of the Corporation, the beneficial owner of more than
the Grandfathered Percentage of the Voting Stock then outstanding. Any
Grandfathered Person who becomes, after the close of business on the date of the
closing of the initial public offering of shares of common stock of the
Corporation, the beneficial owner of less than 15% of the voting power of the
then outstanding shares of Voting Stock shall cease to be a Grandfathered
Person.
Notwithstanding the foregoing, no person shall become an "Interested
Stockholder" as the result of an acquisition of Voting Stock by the
Corporation which, by reducing the number of shares outstanding, increases
the proportionate number of shares beneficially owned by such person to 15%
(or, if applicable, the Grandfathered Percentage with respect to such person)
or more of the voting power of the then outstanding shares of Voting Stock;
PROVIDED, HOWEVER, that if a person shall become the beneficial owner of 15%
(or, if applicable, the Grandfathered Percentage with
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respect to such person) or more of the voting power of the then outstanding
shares of Voting Stock by reason of share purchases by the Corporation and
shall, after such share purchases by the Corporation, become the beneficial
owner of any additional shares of Voting Stock of the Corporation (other than
any shares of Voting Stock issued to such person as a result of a stock
dividend, stock split, reclassification, recapitalization, or other similar
transaction involving the issuance of shares of Voting Stock on a pro rata
basis to all holders of voting Stock), then such person shall be deemed to be
an "Interested Stockholder" if immediately thereafter the voting power of the
shares of Voting Stock beneficially owned by such person equals or exceeds
15% (or in the case of a Grandfathered Person, the Grandfathered Percentage
with respect to such person) or more of the voting power of all of the shares
of Voting Stock then outstanding.
3. A person shall be deemed the "beneficial owner" of, and shall be
deemed to beneficially own, any Voting Stock:
3A. which such person or any of such person's Affiliates or
Associates, directly or indirectly, beneficially owns (as determined pursuant to
Rule 13d-3 of the Rules and Regulations promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"1934 Act")); or
3B. which such person or any of its Affiliates or
Associates, directly or indirectly, has or shares with respect to the Voting
Stock (a) the right to acquire, or direct the acquisition of (whether such right
is exercisable immediately, or only after the passage of time or upon the
satisfaction of any conditions, or both), such Voting Stock pursuant to any
agreement, arrangement, understanding or otherwise (whether or not in writing)
(other than customary arrangements with and between underwriters and selling
group members with respect to a bona fide public offering of securities) or upon
the exercise of conversion rights, exchange rights, warrants or options, or
otherwise; PROVIDED, HOWEVER, that a person shall not be deemed the "beneficial
owner" of, or to "beneficially own," securities tendered pursuant to a tender or
exchange offer made by or on behalf of such person or any of such person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange, (b) the right to vote, or to direct the voting of, such
Voting Stock pursuant to any agreement, arrangement, understanding or otherwise
(whether or not in writing) (provided that a person shall not be deemed to be
the beneficial owner of any securities if the agreement, arrangement or
understanding to vote such security arises solely from a revocable proxy given
in response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the Rules and Regulations promulgated under the 1934 Act and is
not also then reportable by such person on Schedule 13D under the 1934 Act (or
any comparable or successor report)), or (c) the right to dispose of, or to
direct the disposition of, such Voting Stock pursuant to any agreement,
arrangement, understanding or otherwise (whether or not in writing) (other than
customary arrangement with and between underwriters and selling group members
with respect to a bona fide public offering of securities ); or
3C. which is 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
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Affiliates or Associates has any agreement, arrangement, understanding or
otherwise (whether or not in writing) (other than customary arrangements with
and between underwriters and selling group members with respect to a bona
fide public offering of securities) for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy described in Subparagraph 3B
above) or disposing of any shares of Voting Stock.
PROVIDED, HOWEVER, that (1) no person engaged in business as an underwriter of
securities shall be deemed the beneficial owner of any securities acquired
through such person's participation as an underwriter in good faith in a firm
commitment underwriting until the expiration of 40 days after the date of such
acquisition and (2) no person who is a director or an officer of the Corporation
shall be deemed, solely as a result of his or her participation as director or
officer of the Corporation, the beneficial owner of any securities of the
Corporation that are beneficially owned by any other director or officer of the
Corporation.
3D. Notwithstanding anything in the definition of
beneficial owner to the contrary, the phrase "then outstanding," when used with
reference to a person's beneficial ownership of securities of the Corporation,
shall mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and outstanding
which such person would be deemed to own beneficially hereunder.
3E. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 f the General Rules and
Regulations under the 1934 Act (or any subsequent provisions replacing the 1934
Act or the rules and regulations promulgated thereunder); PROVIDED, HOWEVER,
that no person who is a director or officer of the Corporation shall be deemed
an Affiliate or Associate of any other director or officer of the Corporation
solely as a result of his or her position as a director or officer of the
Corporation.
3F. "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in Paragraph 2 of this Part C, the term
"Subsidiary" shall mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the Corporation.
3G. "Continuing Director" means (i) any member of the Board
of Directors of the Corporation who is not an Interested Stockholder of an
Affiliate or Associate of an Interested Stockholder and was a member of the
Board of Directors prior to the time that the interested Stockholder became an
Interested Stockholder, and (ii) any person who subsequently becomes a member of
the Corporation's Board of Directors who is not an Associate or Affiliate of an
Interested Stockholder and is recommended or approved by the affirmative vote of
a majority of the Continuing Directors.
3H. "Fair Market Value" means:
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(1) in the case of stock, the highest closing sale price
during the 30-day period immediately prior to and including the date in question
of a share of such stock on the principal United States securities exchange
registered under the 1934 Act (or any subsequent provisions replacing such Act
or rules or regulations promulgated thereunder) on which such stock is listed,
or, if such stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock during the 30-day period
immediately prior to and including the date in question on the National
Association of Securities Dealers Automated Quotation System or any comparable
value system then in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by
the affirmative vote of a majority of the Continuing Directors of the Board of
Directors in good faith; and
(2) in the case of property other than cash or stock, the
fair market value of such property on the date in question is determined by an
affirmative vote of a majority of the Continuing Directors of the Board of
Directors in good faith.
3I. "Group Acting in Concert" shall mean persons seeking to
combine or pool their voting or other interests in the securities of the
Corporation for a common purpose, pursuant to any contract, understanding or
relationship, agreement or other arrangement, whether written, oral or
otherwise, or any "group of persons" as defined under Section 13(d) of the 1934
Act (or any subsequent provisions replacing such Act or rules or regulations
promulgated thereunder). When persons act together for any such purpose, their
group is deemed to have acquired their stock.
3J. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in this Article V shall include the shares of common stock and/or the
shares of any other class of outstanding Voting Stock retained by the holders of
such shares.
3K. "Voting Stock" shall mean the outstanding shares of
capital stock of the Corporation entitled, at the time, to vote generally in the
election of Directors.
3L. "Grandfathered Percentage" shall mean , with respect to
any Grandfathered Person, the percentage of the voting power of the then
outstanding shares of Voting Stock that such Grandfathered Person beneficially
owns as of the close business on the date of the closing of the initial public
offering of shares of common stock of the Corporation in the fall of 1993 plus
an additional two (2) percentage points; provided, however, that in the event
the underwriters exercise their over-allotment option in connection with this
initial public offering of shares of common stock, the Grandfathered Percentage
shall, from and after the closing of such over-allotment option, mean, with
respect to any Grandfathered Person, the percentage of the voting power of the
then outstanding shares of Voting Stock that such Grandfathered Person
beneficially owns as of the close of business on the date of the closing of the
over-allotment option plus an additional two (2) percentage points; and
provided, further, that, in the event of any Grandfathered Person shall sell,
transfer or otherwise dispose of any
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outstanding shares of Voting Stock after the close of business on the date of
the closing of the initial public offering of the Corporation's common stock
in the fall of 1993, the Grandfathered Percentage shall, subsequent to such
sale, transfer or disposition, mean, with respect to such Grandfathered
Person, the lesser of (i) the Grandfathered Percentage as in effect
immediately prior to such sale, transfer, or disposition or (ii) the
percentage of the voting power of the then outstanding shares of Voting Stock
that such Grandfathered Person beneficially owns immediately following such
sale, transfer or disposition plus an additional two (2) percentage points.
3M. "Grandfathered Person" shall mean any Person who or
which, together with all Affiliates and Associates of such Person, is, as of the
close of business on the date of the closing of the initial public offering of
shares of common stock of the Corporation in the fall of 1993, the beneficial
owner of 15% or more of the voting power of the then outstanding Voting Stock at
such time.
3N. The term "voting power" shall mean, with respect to
each outstanding share of capital stock of the Corporation, the number of votes
of which a holder of such share shall be entitled, at the time, to vote
generally in the election of the Directors.
PART D. POWERS OF THE BOARD OF DIRECTORS.
A majority of the Directors of the Corporation, unless there is an
Interested Stockholder, in which case a majority of the Continuing Directors
then in office, shall have the power to determine for the purposes of this
Article V, on the basis of information known to them after reasonable inquiry,
(i) whether a person is an Interested Stockholder, (ii) the number or percentage
of shares of Voting Stock or other equity securities beneficially owned by any
person, (iii) whether a person is an Affiliate or Associate of, or is affiliated
or associated with, another person, (iv) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination, has, an aggregate Fair Market Value of $5,000,000
or more, (v) whether the requirements of Part B of this Article V have been met
with respect to any Business Combination, and (vi) any other matters of
interpretation arising under this Article V. The good faith determination by
the affirmative vote of a majority of the Directors, or, if there is an
Interested Stockholder, by the affirmative vote of a majority of the Continuing
Directors then in office, on such matters shall be conclusive and binding for
all purposes of this Article V.
PART E. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED STOCKHOLDERS.
Nothing contained in this Article V shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
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ARTICLE VI.
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders or by a consent in writing signed by the holders of all of the
outstanding shares authorized to vote at such meeting. Except as otherwise
required by law, special meetings of the stockholders of the Corporation may be
called only by (i) the Board of Directors pursuant to a resolution approved by
the affirmative vote of a majority of the Directors then in office, (ii) the
Chairman of the Board, if one is elected, or (iii) the President; provided,
however, that, if at the time of any such call there is an Interested
Stockholder, such call shall also require the affirmative vote of a majority of
the Continuing Directors then in office. Only those matters set forth in the
notice of the special meeting may be considered or acted upon at a special
meeting of stockholders of the Corporation, unless otherwise provided by law.
Advance notice of any matters which stockholders intend to propose for action at
an annual meeting shall be given in the manner provided in the By-Laws.
ARTICLE VII.
DIRECTORS
1. GENERAL. All power of the Corporation shall be exercised by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. ELECTION OF DIRECTORS. Election of Directors need not be by
written ballot unless the By-Laws of the Corporation shall so provide.
3. NUMBER, ELECTION AND TERMS.
3A. Except as otherwise fixed pursuant to the provisions of
Article IV hereof relating to the rights of the holders of any class or series
of preferred stock to elect Directors, the number of Directors of the
Corporation shall be fixed exclusively by resolution duly adopted from time to
time by the affirmative vote of at least two-thirds of the Board of Directors.
The Directors, other than those who may be elected by the holders of any class
or series of preferred stock, shall be classified, with respect to the time for
which they severally hold office, into two classes, as nearly equal in number as
possible as determined by the Board of Directors, with one class to be elected
annually.
3B. Commencing at the effective time of the merger of
Strategic Diagnostics Inc. ("SDI") and EnSys Environmental Products, Inc.
("EnSys"), with the Corporation as the surviving corporation, and continuing
through the 1998 annual meeting of stockholders of the Corporation, the Board of
Directors shall consist of seven (7) members. The
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initial Board of Directors shall be elected as follows: EnSys and SDI will
each select three (3) members of the Board of Directors and the remaining
member of the Board of Directors will be selected by The Perkin-Elmer
Corporation (the "Perkin-Elmer Corporation"). The Directors of the
Corporation shall hold office as follows: the Class I Directors shall hold
office for a term expiring at the 1997 annual meeting of the stockholders and
the Class II Directors shall hold office for a term expiring at the 1998
annual meeting of stockholders, with the members of each class to hold office
until their respective successors are duly elected and qualified. At each
annual meeting of the stockholders of the Corporation, Directors elected to
succeed those whose terms are expiring at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the second year following the year of their election and until their
respective successors are duly elected and qualified. No decrease in the
number of directors shall shorten the term of any incumbent director.
4. STOCKHOLDER NOMINATIONS OF DIRECTOR CANDIDATES. Except as
otherwise fixed pursuant to the provisions of Article IV hereof relating to the
rights of the holders of any class of series of preferred stock to elect
Directors, advance notice of nominations for the election of Directors, other
than by the Board of Directors or a committee thereof, shall be given in the
manner provided in the By-Laws. Notwithstanding the foregoing, all Class I
Directors holding office at the time of the 1997 annual meeting shall
automatically be nominated, subject to such director's consent, to serve an
additional two (2) year term expiring at the 1999 annual meeting of the
stockholders of the Corporation and all Class II Directors holding office at the
time of the 1998 annual meeting shall automatically be nominated, subject to
such director's consent, to serve an additional two (2) year term expiring at
the 2000 annual meeting of the stockholders of the Corporation.
5. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Except as otherwise
fixed pursuant to the provisions of Article IV hereof relating to the rights of
the holders of any class or series of preferred stock to elect Directors, any
vacancy occurring in the Board of Directors, including any vacancy created by
reason of a newly created directorship resulting in an increase in the number of
directors or any vacancy resulting from death, resignation, disqualification,
removal or other causes, shall be filled solely by the affirmative vote of a
majority of the remaining Directors then in office, if a quorum is present;
provided, however, that, if there is an Interested Stockholder at the time of
such vote, the filling of such vacancy shall also require the affirmative vote
of a majority of the Continuing Directors then in office. Notwithstanding
anything contained herein to the contrary, any Director that voluntarily leaves
office may vote on his or her replacement. Any Director appointed in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of Directors in which the new directorship was created or the
vacancy occurred and until such Director's successor shall have been duly
elected and qualified. When the number of Directors is increase or decreased,
the Board of Directors shall determine the class or classes to which the
increased or decreased number of Directors shall be apportioned. In the event
of a vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled.
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6. REMOVAL. Except as otherwise fixed pursuant to the provisions of
Article IV hereof relating to the rights of the holders of any class or series
of preferred stock to elect Directors, any Director (including persons elected
by Directors to fill vacancies in the Board of Directors) may be removed from
office only with cause and by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by stockholders in the election
of such Director at a duly constituted meeting of stockholders called expressly
for such purpose. A Director may not be removed from office without cause. At
least 30 days prior to any meeting of stockholders at which it is proposed that
any Director be removed from office, written notice shall be sent to the
Director whose removal will be considered at the meeting.
ARTICLE VIII.
LIMITATION OF LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which the Director derived an
improper personal benefit. If the General Corporation Law of Delaware is
amended after the effective date of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended.
Any repeal or modification of this Article VIII (i) by the
stockholders of the Corporation, or (ii) by an amendment to the General
Corporation Law of Delaware shall not adversely affect any right or protection
existing at the time of such repeal or modification with respect to any acts or
omissions occurring either before or after such repeal or modification of a
person serving as a Director at the time of such repeal or modification.
ARTICLE IX.
STANDARDS FOR BOARD OF DIRECTORS' EVALUATION
OF OFFERS OR PROPOSALS
The Board of Directors of the Corporation, when evaluating any offer
or proposal of any person to (i) make a tender or exchange offer for any equity
security of the Corporation or any subsidiary, (ii) merge or consolidate the
Corporation or any subsidiary with another person, or (iii) purchase or
otherwise acquire all or substantially all of the properties and assets of the
Corporation or any subsidiary, may, in connection with the exercise of its
judgment in determining what is in the best interests of the Corporation and its
stockholders, give due consideration to all relevant factors, including without
limitation, (a) the social and economic effects of acceptance of such offer or
proposal on the employees of the Corporation and its
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subsidiaries, the suppliers, creditors, and customers of the Corporation and
its subsidiaries, and the state, region, and communities in which the
Corporation and its subsidiaries operate and are located, and (b) the
long-term and short-term interests of the Corporation and its stockholders,
including the possibility that these interests may be best served by the
continued independence of the Corporation.
ARTICLE X.
AMENDMENT OF BY-LAWS
The Board of Directors shall have the power to adopt, alter, amend and
repeal the By-Laws of the Corporation. Any By-Laws of the Corporation adopted
by the Directors under the powers conferred hereby may be altered, amended or
repealed by the Directors or the stockholders. Notwithstanding the foregoing or
any other provisions of this Certificate of Incorporation or the By-Laws of the
Corporation to the contrary, such action by the Board of Directors shall require
the affirmative vote of at least two-thirds of the Directors then in office.
Notwithstanding the foregoing or any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation to the contrary, any action by
the stockholders to alter, amend or repeal the By-Laws of the Corporation shall
require the affirmative vote of at least two-thirds of the total votes eligible
to be cast by stockholders with respect to such alteration, amendment or repeal,
voting together as a single class, at a duly constituted meeting of stockholders
called expressly for such purpose.
ARTICLE XI.
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to repeal, alter or amend this
Certificate of Incorporation in the manner now or hereafter prescribed by
statute and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation. No repeal,
alteration or amendment of this Certificate of Incorporation shall be made
unless the same is first approved by the Board of Directors of the Corporation
pursuant to a resolution adopted by the affirmative vote of a majority of the
Directors then in office, and thereafter approved by the stockholders.
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APPENDIX E
AMENDED AND RESTATED BYLAWS
OF STRATEGIC DIAGNOSTICS INC.
(FORMERLY KNOWN AS ENSYS ENVIRONMENTAL PRODUCTS, INC.)
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
STRATEGIC DIAGNOSTICS, INC.
(formerly known as
ENSYS ENVIRONMENTAL PRODUCTS, INC.)
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting stockholders shall
be held at the hour, date and place within or without the United States which is
fixed by the Board of Directors, the Chairman of the Board, if one is elected,
or the President which, time, date and place may subsequently be changed at any
time by vote of the Board of Directors. If no annual meeting has been held for
a period of thirteen months after the Corporation's last annual meeting of
stockholders, a special meeting in lieu thereof may be held, and such special
meeting shall have, for the purposes of these By-Laws or otherwise, all the
force and effect of an annual meeting. Any and all references hereafter in
these By-Laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. MATTERS TO BE CONSIDERED AT ANNUAL MEETING. At an
annual meeting of stockholders, only such business shall be conducted, and only
such proposals shall be acted upon, as shall have been properly brought before
the annual meeting (a) by, or at the direction of, the Board of Directors or a
designated committee thereof or (b) by any holder of record (both as of the time
notice of such proposal is given by the stockholder as set forth below and as of
the record date for the annual meeting in question) of any shares of capital
stock of the Corporation entitled to vote at such annual meeting who complies
with the procedures set forth in this Section. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a holder of record of any shares of capital stock entitled to vote at
such annual meeting, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation as set forth in this Section and
such stockholder or his or her representative must be present at the annual
meeting. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, the principal executive offices of the Corporation (a) not less
than 75 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders (the "Anniversary Date") or
(b) in the event that the annual meeting of stockholders is called for a date
more than seven days prior to the Anniversary Date, not later than the close of
business on (i) the 20th day (or if that day is not a business day of the
Corporation, on the next succeeding business day) following the first date on
which the date of such meeting was publicly disclosed or (ii) if such date of
public disclosure occurs more than 75 days prior to such scheduled date of such
meeting, then the later of (1) the 20th day (or if that day is not a business
day for the Corporation, on the next succeeding business day) following the
first date of public disclosure or (2) the 75th day prior to such scheduled date
of such meeting (or if that day is not a business day for the Corporation, on
the next succeeding business day). Any public disclosure of the scheduled date
of the meeting made by the Corporation by means of a
<PAGE>
press release, a report or other document filed with the Securities and Exchange
Commission, or a letter or report sent to stockholders of record of the
Corporation, shall be deemed to be sufficient public disclosure of the date of
such meeting for purposes of these By-Laws. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's stock transfer books, of the stockholder proposing such business
and of the beneficial owners (if any) of the stock registered in such
stockholder's name and the name and address of other stockholders known by such
stockholder to be supporting such proposal on the date of the stockholder
notice, (c) the class and number of shares of the Corporation's capital stock
which are held of record, beneficially owned or represented by proxy by the
stockholder and by any other stockholders known by such stockholder to be
supporting such proposal on the record date for the annual meeting in question
(if such date shall then have been made publicly available) and on the date of
such stockholder's notice, and (d) any material interest of the stockholder in
such proposal.
If the Board of Directors, or a designated committee thereof, determines
that any stockholder proposal was not timely made in accordance with the
provisions of this Section, or that the information provided in a stockholder's
notice does not satisfy the informational requirements of this Section in any
material respect, then such proposal shall not be presented for action at the
annual meeting in question. If neither the Board of Directors nor such
committee makes a determination as to the validity of any stockholder proposal,
the presiding officer of the annual meeting shall determine and declare at the
annual meeting whether the stockholder proposal was made in accordance with the
terms of this Section. If the presiding officer determines that a stockholder
proposal was made in accordance with the terms of this Section, he shall so
declare at the annual meeting and ballots shall be provided for use at the
meeting with respect to any such proposal. If the presiding officer determines
that a stockholder proposal was not made in accordance with the terms of this
Section, he shall so declare at the annual meeting and any such proposal shall
not be acted upon at the annual meeting.
The provisions of this Bylaw shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, Directors
and committees of the Board of Directors, but in connection with such reports,
no new business shall be acted upon at such annual meeting unless stated, filed
and received as herein provided or properly brought before such annual meeting
by, or at the direction of, the Board of Directors or a designated committee
thereof.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the rules and regulations
thereunder with respect to the matters set forth in this By-Law. Nothing in
this By-Law shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
SECTION 3. SPECIAL MEETINGS. Except as otherwise required by law
and subject to the rights of the holders of any class or series of preferred
stock, special meetings of the stockholders of the Corporation may be called
only by (i) the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the Directors then in office, (ii) the
Chairman of the Board, if one is elected, or (iii) the President [; provided,
however,
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that if at the time of such call there is an Interested Stockholder, any such
call shall also require the affirmative vote of a majority of the Continuing
Directors then in office].
SECTION 4. MATTERS TO BE CONSIDERED AT SPECIAL MEETINGS. Only
those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. NOTICE OF MEETINGS; ADJOURNMENTS. A written notice of
all annual meetings of stockholders stating the hour, date and place of such
annual meetings shall be given by the Secretary or an Assistant Secretary (or
other person authorized by these By-Laws or by law) not less than 10 days nor
more than 60 days before the meeting, to each stockholder entitled to vote
thereat and to each stockholder who, by law or under the Certificate of
Incorporation or under these By-Laws, is entitled to such notice, by delivering
such notice to him or by mailing it, postage prepaid, addressed to such
stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings of the stockholders, except that the
written notice of all special meetings shall state the purpose or purposes for
which the meeting has been called.
Notice of an annual or special meeting of stockholders need not be given to
a stockholder if a written waiver of notice is executed before, or after such
meeting by such stockholder or such stockholder's authorized attorney, if
communication with such stockholder is unlawful, or if such stockholder attends
such meeting, unless such attendance was for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of stockholders
need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
annual or special meeting of stockholders and any record date with respect
thereto, regardless of whether any notice or public disclosure with respect to
any such meeting has been sent or made pursuant to Section 2 of this Article I
or Section 3 of Article II hereof or otherwise. When any meeting is convened,
the presiding officer may adjourn the meeting if (a) no quorum is present for
the transaction of business, (b) the Board of Directors determines that
adjournment is necessary or appropriate to enable the stockholders to consider
fully information which the Board of Directors determines has not been made
sufficiently or timely available to stockholders, or (c) the Board of Directors
determines that adjournment is otherwise in the best interests of the
Corporation. When any annual or special meeting of stockholders is adjourned to
another hour, date or place, notice need not be given of the adjourned meeting
other than an announcement at the meeting at which the adjournment is taken of
the hour, date and place to which the meeting is adjourned; provided, however,
that if the adjournment is for more than 30 days, or if after the adjournment a
new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat
and each stockholder who, by law or under the Certificate of Incorporation or
these By-Laws, is entitled to such notice.
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SECTION 6. QUORUM. The holders of a majority in interest of all
stock issued, outstanding and entitled to vote, represented in person or by
proxy, shall constitute a quorum at any annual or special meeting of
stockholders; but if less than a quorum is present at a meeting, a majority in
interest of the stockholders present or the presiding officer may adjourn the
meeting from time to time, and the meeting may be held as adjourned without
further notice, except as provided in Section 5 of this Article I. At such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally noticed. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 7. VOTING AND PROXIES. Stockholders shall have one vote
for each share of stock entitled to vote owned by them of record according to
the books of the Corporation, unless otherwise provided by law or by the
Certificate of Incorporation. Stockholders may vote either in person or by
written proxy, but no proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. Proxies shall be filed
with the Secretary of the meeting before being voted. Except as otherwise
limited therein or as otherwise provided by law, proxies shall entitle the
persons authorized thereby to vote at any adjournment of such meeting, but they
shall not be valid after final adjournment of such meeting. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by or on behalf of any one of them unless at or prior to the exercise
of the proxy the Corporation receives a specific written notice to the contrary
from any one of them. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid, and the burden of proving invalidity shall
rest on the challenger.
SECTION 8. ACTION AT MEETING. When a quorum is present, any
matter before any annual or special meeting of stockholders shall be decided by
vote of the holders of a majority of the shares of stock voting on such matter,
except where a larger vote is required by law, by the Certificate of
Incorporation or by these By-Laws. Any election by stockholders shall be
determined by a plurality of the votes cast, except where a larger vote is
required by law, by the Certificate of Incorporation or by these By-Laws. The
Corporation shall not directly or indirectly vote any shares of its own stock;
provided, however, that the Corporation may vote shares which it holds in a
fiduciary capacity to the extent permitted by law.
SECTION 9. ACTION BY CONSENT. Any action required or permitted to
be taken by the stockholders of the Corporation must be effected at a duly
constituted annual or special meeting of such holders or by a consent in writing
signed by the holders of all of the outstanding shares authorized to vote at
such meeting.
SECTION 10. STOCKHOLDER LISTS. The Secretary or an Assistant
Secretary (or the Corporation's transfer agent or other person authorized by
these By-Laws or by law) shall prepare and make, at least 10 days before every
annual or special meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the hour,
date and
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place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 11. PRESIDING OFFICER. The Chairman of the Board, if one
is elected, or if not elected or in his absence, the President, shall preside at
all annual or special meetings of stockholders and shall have the power, among
other things, to adjourn such meeting at any time and from time to time, subject
to Sections 5 and 6 of this Article I. The order of business and all other
matters of procedure at any meeting of the stockholders shall be determined by
the presiding officer.
SECTION 12. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
a meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his ability. The inspectors shall perform such duties as are required
by the Delaware General Corporation Law, as amended from time to time, including
the counting of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist the inspectors in the performance of the
duties of the inspectors. The presiding officer may review all determinations
made by the inspector(s), and in so doing the presiding officer shall be
entitled to exercise his sole judgment and discretion and he shall not be bound
by any determinations made by the inspector(s). All determinations by the
inspectors and, if applicable, the presiding officer shall be subject to further
review by any court of competent jurisdiction.
ARTICLE II
DIRECTORS
SECTION 1. POWERS. All the power of the Corporation shall be
exercised by or under the direction of the Board of Directors except as
otherwise provided by the Certificate of Incorporation or required by law. In
the event of a vacancy in the Board of Directors, the remaining Directors,
except as otherwise provided by law, may exercise the powers of the full Board
until the vacancy is filled.
SECTION 2. NUMBER, ELECTION AND TERMS. Except as otherwise fixed
pursuant to the provisions of Article IV of the Certificate of Incorporation
relating to the rights of the holders of any class or series of preferred stock
to elect Directors, the number of Directors of the Corporation shall be fixed
exclusively by resolution duly adopted from time to time by the affirmative vote
of at least two-thirds of the Board of Directors. The Directors, other than
those who may be elected by the holders of any class or series of preferred
stock, shall be classified, with respect to the time for which they severally
hold office, into two classes, as nearly equal in number as possible as
determined by the Board of Directors, with one class to be elected annually.
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Commencing at the Effective Time of the merger of Strategic Diagnostics
Inc. ("SDI") with and into EnSys Environmental Products, Inc. ("EnSys"), with
the Corporation as the surviving corporation, the Board shall consist of seven
(7) members. The initial Board of Directors shall be elected as follows: EnSys
and SDI will each select three (3) members of the Board of Directors, and the
remaining member of the Board of Directors will be selected by The Perkin-Elmer
Corporation. The Directors of the Corporation shall hold office as follows: the
Class I Directors shall hold office for a term expiring at the 1997 annual
meeting of stockholders and the Class II Directors shall hold office for a term
expiring at the 1998 annual meeting of stockholders with the members of each
class to hold office until their respective successors are duly elected and
qualified. At each annual meeting of the stockholders of the Corporation,
Directors elected to succeed those whose terms are expiring at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
stockholders held in the second year following the year of their election and
until their respective successors are duly elected and qualified. No decrease
in the number of directors shall shorten the term of any incumbent director.
SECTION 3. DIRECTOR NOMINATIONS. Except as otherwise fixed
pursuant to the provisions of Article IV of the Certificate of Incorporation
relating to the rights of the holders of any class or series of preferred stock
to elect Directors, nominations of candidates for election as Directors of the
Corporation at any annual meeting of stockholders may be made (a) by, or at the
direction of, a majority of the Board of Directors or a designated committee
thereof, or (b) by any holder of record (both as of the time notice of such
nomination is given by the stockholder as set forth below and as of the record
date for the annual meeting in question) of any shares of the capital stock of
the Corporation entitled to vote at such annual meeting who complies with the
procedures set forth in this Section. Any stockholder who seeks to make such a
nomination, or his representative, must be present in person at the annual
meeting. Only persons nominated in accordance with the procedures set forth in
this Section shall be eligible for election as Directors at an annual meeting of
stockholders.
Nominations, other than those made by, or at the direction of, the Board of
Directors or a designated committee thereof, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation as set forth in this
Section. To be timely, a stockholder's notice shall be delivered to, or mailed
and received, at the principal executive offices of the Corporation (a) not less
than 75 days nor more than 120 days prior to the Anniversary Date or (b) in the
event that the annual meeting of stockholders is called for a date more than
seven days prior to the Anniversary Date, not later than the close of business
on (i) the 20th day (or if that day is not a business day for the Corporation,
on the next succeeding business day) following the first date on which the date
of such meeting was publicly disclosed or (ii) if such date of public disclosure
occurs more than 75 days prior to such scheduled date of such meeting, then the
later of (1) the 20th day (or if that day is not a business day for the
Corporation, on the next succeeding business day) following the first date of
public disclosure of the date of such meeting or (2) the 75th day prior to such
scheduled date of such meeting (or if that day is not a business day for the
Corporation, on the next succeeding business day). Any public disclosure of the
scheduled date of the meeting made by the Corporation by means of a press
release, a report or other document filed with the Securities and Exchange
Commission, or a letter or report sent to stockholders of record of the
Corporation, shall be deemed to be sufficient public disclosure of the date of
such meeting for purposes of these By-Laws. Such stockholder's notice shall set
forth (a) as to each- person whom the stockholder proposes to nominate for
election or re-election as a director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment of
such person during the past five years, (iii) the class and number of shares of
the Corporation's
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capital stock which are beneficially owned by such person on the date of such
stockholder notice, (iv) a description of any of the following events that has
occurred within the last five years and that is material to the evaluation of
the ability or integrity of such proposed nominee: (1) a petition under Federal
bankruptcy laws or any state insolvency laws was filed by or against such
person, (2) such person was convicted in a criminal proceeding or was a named
subject of a criminal proceeding (excluding traffic violations and other minor
offenses), (3) such person was found by any court of competent jurisdiction to
have violated any Federal or state securities law or Federal commodities law,
which judgment or finding has not been subsequently reversed, suspended or
vacated, or (4) such person was the subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction or of any Federal or state governmental or quasi-governmental
agency, authority or commission enjoining him or otherwise limiting him from
engaging in any type of business practice or in any activity in connection with
the purchase or sale of any security or commodity, and (v) the consent of each
nominee to serve as a Director if so elected and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the Corporation's
stock transfer books, of such stockholder and of the beneficial owners (if any)
of the stock registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominees,
(ii) the class and number of shares of the Corporation's capital stock which are
beneficially owned by such stockholder and such beneficial owners (if any) on
the date of such stockholder notice and by any other stockholders known by such
stockholder to be supporting such nominees on the date of such stockholder
notice, (iii) a representation that the stockholder or his representative
intends to appear in person at the meeting to nominate the person or persons
specified in the notice, (iv) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholders; provided, however, that nothing
in subsection (a) or (b) of this Section shall require the stockholder giving
such notice to provide to the Corporation copies of such stockholder's
preliminary or definitive proxy, proxy statement, or other soliciting material
filed with the Securities and Exchange Commission. At the request of the Board
of Directors, any person nominated by, or at the direction of, the Board of
Directors for election as a Director at an annual meeting shall furnish to the
Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to such nominee.
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of Directors at the annual meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such annual meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the annual meeting in accordance with the procedures set forth in this Section
shall be provided for use at the annual meeting.
If the Board of Directors, or a designated committee thereof, determines
that any stockholder nomination was not timely made in accordance with the terms
of this Section or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to the validity of any nominations by a stockholder as set
forth above, the presiding officer of the annual meeting shall determine and
declare at the annual meeting whether a nomination was made in accordance with
the terms of this Section. If the presiding officer determines that a
nomination was made in accordance with the terms of
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this Section, he shall so declare at the annual meeting and ballots shall be
provided for use at the meeting with respect to such nomination. If the
presiding officer determines that a nomination was not made in accordance with
the terms of this Section, he shall so declare at the annual meeting and such
nomination shall be disregarded.
Notwithstanding anything contained in this Section 3 to the contrary, all
Class I Directors holding office at the time of the 1997 annual meeting shall
automatically be nominated, subject to such director's consent, to serve an
additional two (2) year term expiring at the 1999 annual meeting of the
stockholders of the Corporation, and all Class II Directors holding office at
the time of the 1998 annual meeting shall automatically be nominated, subject to
such director's consent, to serve an additional two (2) year term expiring at
the 2000 annual meeting of the stockholders of the Corporation.
SECTION 4. QUALIFICATION. No Director need be a stockholder of
the Corporation.
SECTION 5. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Except as
otherwise fixed pursuant to the provision of Article IV of the Certificate of
Incorporation relating to the rights of the holders of any class or series of
preferred stock to elect Directors, any vacancy occurring on the Board of
Directors, including any vacancy created by reason of a newly created
directorship resulting in an increase in the number of Directors or any vacancy
resulting from death, resignation, disqualification, removal or other causes,
shall be filled solely by the affirmative vote of a majority of the remaining
Directors then in office, if a quorum is present; provided, however, that, if
there is an Interested Stockholder at the time of such vote, the filling of such
vacancy shall also require the affirmative vote of a majority of the Continuing
Directors then in office. Notwithstanding anything contained herein to the
contrary, any Director that voluntarily leaves office may vote on his or her
replacement. Any Director appointed in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of Directors
in which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been duly elected and qualified. When the
number of Directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
Directors shall be apportioned. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.
SECTION 6. REMOVAL. Subject to the rights, if any, of any class
or series of preferred stock to elect Directors and to remove any Director whom
the holders of any such stock had the right to elect, any Director (including
persons elected by Directors to fill vacancies in the Board of Directors) may be
removed from office only with cause and by the affirmative vote of at least
two-thirds of the total votes which would be eligible to be cast by stockholders
in the election of such Director at a duly constituted meeting of stockholders
called expressly for such purpose. A Director may not be removed from office
without cause. At least 30 days prior to any meeting of stockholders at which
it is proposed that any Director be removed from office, written notice shall be
sent to the Director whose removal will be considered at the meeting.
SECTION 7. RESIGNATION. A Director may resign at any time by
giving written notice to the Chairman of the Board, if one is elected, the
President or the Secretary. A resignation shall be effective upon receipt,
unless the resignation otherwise provides.
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SECTION 8. REGULAR MEETINGS. The regular annual meeting of the
Board of Directors shall be held, without other notice than this Bylaw, on the
same date and at the same place as the annual meeting of stockholders following
the close of such meeting of stockholders. Other regular meetings of the Board
of Directors may be held at such hour, date and place as the Board of Directors
may by resolution from time to time determine without other notice than such
resolution.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called, orally or in writing, by or at the request of a
majority of the Directors, the Chairman of the Board, if one is elected, or the
President. The person calling any such special meeting of the Board of
Directors may fix the hour, date and place thereof.
SECTION 10. NOTICE OF MEETINGS. Notice of the hour, date and place
of all special meetings of the Board of Directors shall be given to each
Director of the Secretary or an Assistant Secretary, or in case of death,
absence, incapacity or refusal of such persons, by the Chairman of the Board, if
one is elected, or the President or such other officer designated by the
Chairman of the Board, if one is elected, or the President. Notice of any
special meeting of the Board of Directors shall be given to each Director in
person or by telephone, telex, telecopy or other written form of electronic
communication, or by telegram sent to his business or home address at least 24
hours in advance of the meeting, or by written notice mailed to his business or
home address at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
Director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any
notice of the hour, date or place of any meeting adjourned for less than 30 days
or of the business to be transacted thereat, other than an announcement at the
meeting at which such adjournment is taken of the hour, date and place to which
the meeting is adjourned.
A written waiver of notice executed before or after a meeting by a Director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because such meeting is not lawfully called or convened. Except as otherwise
required by law, by the Certificate of Incorporation or by these By-Laws,
neither the business to be transacted at, nor the purpose of, any meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 11. QUORUM. At any meeting of the Board of Directors, a
majority of the Directors then in office shall constitute a quorum for the
transaction of business, but if less than a quorum is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 10 of this Article II. Any business which might have been
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transacted at the meeting as originally noticed may be transacted at such
adjourned meeting at which a quorum is present.
SECTION 12. ACTION AT MEETING. At any meeting of the Board of
Directors at which a quorum is present, a majority of the Directors present may
take any action on behalf of the Board of Directors, unless otherwise required
by law, by the Certificate of Incorporation or by these By-Laws.
SECTION 13. ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if all members of the Board of Directors consent thereto in writing. Such
written consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. MANNER OF PARTICIPATION. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-Laws.
SECTION 15. COMMITTEES. The Board of Directors, by vote of a
majority of the Directors then in office, may elect from its number one or more
committees, including a Compensation Committee and an Audit Committee, and may
delegate thereto some or all of its powers except those which by law, by the
Certificate of Incorporation or by these By-Laws may not be delegated. Except
as the Board of Directors may otherwise determine, any such committee may make
rules for the conduct of its business, but unless otherwise provided by the
Board of Directors or in such rules, its business shall be conducted so far as
possible in the same manner as is provided by these By-Laws for the Board of
Directors. All members of such committees shall hold such offices at the
pleasure of the Board of Directors. The Board of Directors may abolish any such
committee at any time. Any committee to which the Board of Directors delegates
any of its powers or duties shall keep records of its meetings and shall report
its action to the Board of Directors. The Board of Directors shall have power
to rescind any action of any committee, but no such rescission shall have
retroactive effect. With approval of the Board of Directors, the Chief
Executive Officer may appoint such other committees consisting of such Directors
as the Chief Executive officer shall select. Any recommendations of such
committees appointed by the Chief Executive Officer shall be submitted to the
Board of Directors.
SECTION 16 COMMITTEES AFTER THE EFFECTIVE TIME. Commencing at the
Effective Time of the merger of EnSys and SDI, the Corporation shall have two
(2) committees of the Board of Directors, which committees shall consist of an
audit committee (the "Audit Committee") and a compensation and stock option
committee (the "Compensation Committee").
(a) The Audit Committee shall consist initially of three (3) members.
In addition to such powers as may be delegated to it from time to time by
the Corporation's Board of Directors, the Audit Committee shall: recommend
outside accountants for approval by the full Board of Directors and the
stockholders of the Corporation; meet with the Corporation's outside
auditors and the Corporation's Chief Financial Officer and their respective
staffs to review and evaluate accounting and
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control systems, issues and related matters; meet independently with the
Corporation's auditors and Chief Financial Officer to discuss the accuracy
and integrity of the Corporation's financial reporting, management
information and control systems, and any other appropriate issues; and
address any other matters which are appropriate for the Audit Committee's
review or involvement. The Audit Committee shall meet no less frequently
than twice per year, with special meetings to be called at the direction of
the Chairman of the Board, President/CEO, Chief Financial Officer, outside
auditors, any member of the Audit Committee or any member of the
Corporation's Board of Directors. The initial members of the Audit
Committee shall be Steven ___. Jaeger, Kathleen E. Lamb and Curtis Lee
Smith, Jr. The Chairman of the Audit Committee shall be selected by a
majority vote of the Committee.
(b) The Compensation Committee shall consist initially of three (3)
members. In addition to such powers as may be delegated to it from time to
time by the Corporation's Board of Directors, the Compensation Committee
shall: review and approve salaries for all corporate officers, review and
approve all incentive and special compensation plans and programs,
including stock options and related longer term incentive compensation
programs; review and approve management succession planning; conduct
special competitive compensation studies and retain compensation
consultants as deemed necessary and appropriate; and recommend appropriate
programs and action on any of the above matters to the full Board of
Directors of the Corporation for their review and approval. The
Compensation Committee shall meet no less frequently than twice per year,
with special meetings to be called at the direction of the Chairman of the
Board, President/CEO, or any member of the Compensation Committee. The
initial members of the Compensation Committee shall be Grover C. Wrenn,
Richard J. Defieux and Robert E. Finnigan. The Chairman of the
Compensation Committee shall be selected by a majority vote of the
Committee.
SECTION 17. COMPENSATION OF DIRECTORS. Directors shall receive
such compensation for their services as shall be determined by a majority of the
Board of Directors provided that Directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as Directors of the
Corporation.
ARTICLE III
OFFICERS
SECTION 1. ENUMERATION. The officers of the Corporation
shall consist of a President, a Treasurer, a Secretary and such other
officers, including without limitation a Chairman of the Board and one or
more Vice-Presidents (including Executive Vice Presidents or Senior Vice
Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant
Secretaries, as the Board of Directors may determine.
SECTION 2. ELECTION. At the regular annual meeting of the Board
following the annual meeting of stockholders, the Board of Directors shall elect
the President, the Treasurer and the Secretary. Other officers may be elected
by the Board of Directors at such regular annual meeting of the Board of
Directors or at any other regular or special meeting.
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SECTION 3. QUALIFICATION. No officer need be a stockholder or a
Director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for
the faithful performance of his duties in such amount and with such sureties as
the Board of Directors may determine.
SECTION 4. TENURE. Except as otherwise provided by the
Certificate of Incorporation or by these By-Laws, each of the officers of the
Corporation shall hold office until the regular annual meeting of the Board of
Directors following the next annual meeting of stockholders and until his
successor is elected and qualified or until his earlier resignation or removal.
SECTION 5. RESIGNATION. Any officer may resign by delivering his
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. REMOVAL. Except as otherwise provided by law, the
Board of Directors may remove any officer with or without cause by the
affirmative vote of a majority of the Directors then in office; provided,
however, that if any officer is to be removed for cause, he may only be removed
after reasonable notice and an opportunity to be heard by the Board of
Directors.
SECTION 7. ABSENCE OR DISABILITY. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. VACANCIES. Any vacancy in any office may be filled for
the unexpired portion of the term by the Board of Directors.
SECTION 9. PRESIDENT. Unless otherwise provided by the Board of
Directors or the Certificate of Incorporation, the President shall be the Chief
Executive Officer of the Corporation and shall, subject to the direction of the
Board of Directors, have general supervision and control of the Corporation's
business. If there is no Chairman of the Board or if he is absent, the
President shall preside, when present, at all meetings of stockholders and of
the Board of Directors. The President shall have such other powers and perform
such other duties as the Board of Directors may from time to time designate.
SECTION 10. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one is elected, shall preside, when present, at all meetings of the stockholders
and of the Board of Directors. The Chairman of the Board shall have such other
powers and shall perform such other duties as the Board of Directors may from
time to time designate.
SECTION 11. VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS. Any
Vice President (including any Executive Vice President or Senior Vice President)
and any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 12. TREASURER AND ASSISTANT TREASURERS. The Treasurer
shall, subject to the direction of the Board of Directors and except as the
Board of Directors or the Chief
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Executive Officer may otherwise provide, have general charge of the financial
affairs of the Corporation and shall cause to be kept accurate books of account.
The Treasurer shall have custody of all funds, securities, and valuable
documents of the Corporation. He or she shall have such other duties and powers
as may be designated from time to time by the Board of Directors or the Chief
Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive officer may from time to time
designate.
SECTION 13. SECRETARY AND ASSISTANT SECRETARIES. The Secretary
shall record all the proceedings of the meetings of the stockholders and the
Board of Directors (including committees of the Board) in books kept for that
purpose. In his absence from any such meeting, a temporary secretary chosen at
the meeting shall record the proceedings thereof. The Secretary shall have
charge of the stock ledger (which may, however, be kept by any transfer or other
agent of the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the
absence of the Secretary, any Assistant Secretary may perform his or her duties
and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive officer may from time to time
designate.
SECTION 14. OTHER POWERS AND DUTIES. Subject to these By-Laws and
to such limitations as the Board of Directors may from time to time prescribe,
the officers of the Corporation shall each have such powers and duties as
generally pertain to their respective offices, as well as such powers and duties
as from time to time may be conferred by the Board of Directors or the Chief
Executive officer.
ARTICLE IV
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be
entitled to a certificate of the capital stock of the Corporation in such form
as may from time to time be prescribed by the Board of Directors. Such
certificate shall bear the Corporation seal and shall be signed by the President
or a Vice President and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary. The Corporation seal and the signatures by
Corporation officers, the transfer agent or the registrar may be facsimiles. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the time of its issue. Every certificate for
shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
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SECTION 2. TRANSFERS. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. RECORD HOLDERS. Except as may otherwise be required by
law, by the Certificate of Incorporation or by these By-Laws, the Corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect thereto, regardless of any transfer, pledge or
other disposition of such stock, until the shares have been transferred on the
books of the Corporation in accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the Corporation of his
post office address and any changes thereto.
SECTION 4. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to receive notice of or to vote at any
meeting of stockholders or any adjournments thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than 60 days nor
less than 10 days before the date of such meeting, nor more than 60 days prior
to any other action. In such case, only stockholders of record on such record
date shall be so entitled, notwithstanding any transfer of stock on the stock
transfer books of the Corporation after the record date.
If no record date is fixed: (a) the record date for determining
stockholders entitled to receive notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; and (b) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 5. REPLACEMENT OF CERTIFICATES. In case of the alleged
loss, destruction or mutilation of a certificate of stock, a duplicate
certificate may be issued in place thereof, upon such terms as the Board of
Directors may prescribe.
ARTICLE V
INDEMNIFICATION
SECTION 1. DEFINITIONS. For purposes of this Article: (a)
"Officer" means any person who serves or has served as a Director of the
Corporation or in any other office filled by election or appointment by the
stockholders or the Board of Directors and any heirs or personal representatives
of such person; (b) "Non-Officer Employee" means any person who serves or has
served as an employee of the Corporation, but who is not or was not an Officer,
and any heirs or personal representatives of such person; (c) "Proceeding" means
any action,
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suit or proceeding, civil or criminal, administrative or investigative, brought
or threatened in or before any court, tribunal, administrative or legislative
body or agency and any claim which could be the subject of a Proceeding; and (d)
"Expenses" means any liability fixed by a judgment, order, decree or award in a
Proceeding, any amount reasonably paid in settlement of a Proceeding and any
professional fees or other disbursements reasonably incurred in a Proceeding or
in settlement of a Proceeding, including fines, ERISA excise taxes or penalties.
SECTION 2. OFFICERS. Except as provided in Section 4 of this
Article V, each Officer of the Corporation shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the General
Corporation Law of Delaware, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses incurred by such Officer in connection with any Proceeding in which
such Officer is involved as a result of serving or having served (a) as an
Officer or employee of the Corporation, (b) as a director, officer or employee
of any wholly-owned subsidiary of the Corporation, or (c) in any capacity with
any other corporation, organization, partnership, joint venture, trust or other
entity at the request or direction of the Corporation, including service with
respect to employee or other benefit plans, and shall continue as to an officer
who has ceased to be an Officer and shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that the Corporation
shall indemnify any such officer seeking indemnification in connection with a
Proceeding initiated by such Officer only if such Proceeding was authorized by
the Board of Directors of the Corporation.
SECTION 3. NON-OFFICER EMPLOYEES. Except as provided in Section 4
of this Article V, each Non-Officer Employee of the Corporation may, in the
discretion of the Board of Directors, be indemnified by the Corporation to the
fullest extent authorized by the General Corporation Law of Delaware, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment) against any or all Expenses incurred by such
Non-Officer Employee in connection with any Proceeding in which such Non-Officer
Employee is involved as a result of serving or having served (a) as a
Non-Officer Employee of the Corporation, (b) as a director, officer or employee
of any wholly-owned subsidiary of the Corporation, or (c) in any capacity with
any other corporation, organization, partnership, joint venture, trust or other
entity at the request or direction of the Corporation, including service with
respect to employee or other benefit plans, and shall continue as to a
Non-Officer Employee who has ceased to be a Non-Officer Employee and shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, that the Corporation shall indemnify any such Non-Officer Employee
seeking indemnification in connection with a Proceeding initiated by such
Non-Officer Employee only if such Proceeding was authorized by the Board of
Directors of the Corporation.
SECTION 4. GOOD FAITH. No indemnification shall be provided to an
Officer or to a Non-Officer Employee with respect to a matter as to which such
Person shall have been adjudicated in any Proceeding not to have acted in good
faith in the reasonable belief that the action of such person was in, or not
opposed to, the best interests of the Corporation. In the event that a
Proceeding is compromised or settled so as to impose any liability or obligation
upon an Officer or Non-Officer Employee, no indemnification shall be provided to
said Officer or Non-Officer Employee with respect to a matter if there be a
determination that with respect
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to such matter such person did not act in good faith in the reasonable belief
that the action of such person was in, or not opposed to, the best interests of
the Corporation. The determination shall be made by a majority vote of those
Directors who are not involved in such Proceeding. However, if more than half
of the Directors are involved in such Proceeding, the determination shall be
made by a majority vote of a committee of one or more disinterested Director(s)
chosen by the disinterested Director at a regular or special meeting.
SECTION 5. PRIOR TO FINAL DISPOSITION. Unless otherwise provided
by the Board of Directors or by the committee pursuant to the procedure
specified in Section 4 of this Article V, any indemnification extended to an
Officer or Non-Officer Employee pursuant to this Article V shall include payment
by the Corporation of Expenses incurred in defending a Proceeding in advance of
the final disposition of such Proceeding upon receipt of an undertaking by the
Officer or Non-Officer Employee seeking indemnification to repay such payment if
such officer or Non-Officer Employee shall be adjudicated or determined not to
be entitled to indemnification under this Article V.
SECTION 6. CONTRACTUAL NATURE OF RIGHTS. The foregoing provisions
of this Article V shall be deemed to be a contract between the Corporation and
each Officer and Non-Officer Employee who serves in such capacity at any time
while this Article V is in effect, and any repeal or modification thereof shall
not affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any action, suit or proceeding theretofore
or thereafter brought based in whole or in part upon any such state of facts.
SECTION 7. NON-EXCLUSIVITY OF RIGHTS. The right to
indemnification and the payment of expenses incurred in defending a Proceeding
in advance of its final disposition conferred in this Article V shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation or these
By-Laws, agreement, vote of stockholders or disinterested directors or
otherwise.
SECTION 8. INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any Officer or Non-Officer Employee against
any liability of any character asserted against or incurred by the Corporation
or any such Officer or Non-Officer Employee, or arising out of any such status,
whether or not the Corporation would have the power to identify such person
against such liability under the General Corporation Law of Delaware or the
provisions of this Article V.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall
end on the last day of December of each year.
SECTION 2. SEAL. The Board of Directors shall have power to adopt
and alter the seal of the Corporation.
SECTION 3. EXECUTION OF INSTRUMENTS. All deeds, leases,
transfers, contracts, bonds, notes and other obligations to be entered into by
the Corporation in the ordinary course
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of its business without Director action may be executed on behalf of the
Corporation by the Chairman of the Board, if one is elected, the President or
the Treasurer or any other officer, employee or agent of the Corporation as the
Board of Directors or Executive Committee may authorize.
SECTION 4. VOTING OF SECURITIES. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the President
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. RESIDENT AGENT. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
SECTION 6. CORPORATE RECORDS. The original or attested copies of
the Certificate of Incorporation, By-Laws and records of all meetings of the
incorporators, stockholders and the Board of Directors and the stock transfer
books, which shall contain the names of all stockholders, their record addresses
and the amount of stock held by each, may be kept outside the State of Delaware
and shall be kept at the principal office of the Corporation, at the office of
its counsel or at an office of its transfer agent or at such other place or
places as may be designated from time to time by the Board of Directors.
SECTION 7. DEFINITIONS. As used in these By-Laws, the terms
"Interested Stockholder" and "Continuing Director" shall have the same
respective meanings assigned to them in the Certificate of Incorporation. Any
determination of beneficial ownership of securities under these By-Laws shall be
made in the manner specified in the Certificate of Incorporation.
SECTION 8. CERTIFICATE OF INCORPORATION. All references in these
By-Laws to the Certificate of Incorporation shall be deemed to refer to the
Third Amended and Restated Certificate of Incorporation of the Corporation, as
amended and in effect from time to time.
SECTION 9. AMENDMENTS. The Board of Directors shall have the
power to adopt, alter, amend and repeal these By-Laws. Any By-Laws adopted by
the Directors under the powers conferred hereby may be altered, amended or
repealed by the Directors or by the stockholders. Notwithstanding the foregoing
or any other provisions of the Certificate of Incorporation or these By-Laws to
the contrary, such action by the Board of Directors shall require the
affirmative vote of at least two-thirds of the Directors then in office.
Notwithstanding the foregoing or any other provisions of the Certificate of
Incorporation or these By-Laws to the contrary, any action by the stockholders
to alter, amend or repeal these By-Laws of the Corporation shall require the
affirmative vote of at least two-thirds of the total votes eligible to be cast
by stockholders with respect to such alteration, amendment or repeal, voting
together as a single class, at a duly constituted meeting of stockholders called
expressly for such purpose.
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APPENDIX F
AMENDED AND RESTATED ENSYS ENVIRONMENTAL
PRODUCTS, INC. 1995 STOCK INCENTIVE PLAN
<PAGE>
AMENDED AND RESTATED
ENSYS ENVIRONMENTAL PRODUCTS, INC.
1995 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS.
The name of the plan is the Amended and Restated EnSys Environmental
Products, Inc. 1995 Stock Incentive Plan (the "Plan"). The purpose of the Plan
is to encourage and enable the officers, employees, directors, consultants and
advisors of EnSys Environmental Products, Inc. (the "Company") and its
Subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards", except where referring to a particular category
of grant under the Plan, shall include Incentive Stock Options,
Non-Qualified Stock Options, Stock Awards and Performance Share Awards.
"Board" means the Board of Directors of the Company.
"Cause" means and shall be limited to a vote of the Board resolving
that the participant should be dismissed as a result of (i) any material
breach by the participant of any agreement to which the participant and the
Company are parties, (ii) any act (other than retirement) or omission to
act by the participant which may have a material and adverse effect on the
business of the Company or any Subsidiary or on the participant's ability
to perform services for the Company or any Subsidiary, including, without
limitation, the commission of any crime (other than ordinary traffic
violations), or (iii) any material misconduct or neglect of duties by the
participant in connection with the business or affairs of the Company or
any Subsidiary.
"Change of Control" is defined in Section 12 hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Disability" means disability as set forth in Section 22(e)(3) of the
Code.
"Effective Date" means the date on which the Plan is approved by
shareholders as set forth in Section 14.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related rules, regulations and interpretations.
<PAGE>
"Fair Market Value" on any given date means the last reported sale
price at which Stock is traded on such date or, if no Stock is traded on
such date, the most recent date on which Stock was traded.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the
Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5.
"Performance Share Award" means any Award granted pursuant to Section
7.
"Stock" means the Common Stock, $.01 par value per share, of the
Company, subject to adjustments pursuant to Section 3.
"Stock Award" means any Award granted pursuant to Section 6.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning
with the Company if each of the corporations or entities (other than the
last corporation or entity in the unbroken chain) owns stock or other
interests possessing 50% or more of the total combined voting power of all
classes of stock or other interests in one of the other corporations or
entities in the chain.
"Substitute Award" means any Award granted pursuant to Section 3(d).
SECTION 2. ADMINISTRATION OF PLAN; BOARD AUTHORITY TO SELECT PARTICIPANTS
AND DETERMINE AWARDS.
(a) ADMINISTRATION. The Plan shall be administered by the Board. The
Board is authorized to establish such rules and to appoint such agents as it
deems appropriate for the proper administration of the Plan, and to make such
determinations (which shall be sufficiently evidenced if set forth in any
written action of the Board or in any written stock option agreement) and to
take such steps in connection with the Plan or the benefits provided hereunder
as it deems necessary or advisable. The Board also is authorized to delegate to
a committee of its members or to any officer of the Company any or all of its
authority under this Plan, including any or all of its rights or obligations
hereunder, in which event references hereunder to the Board shall include such
committee; provided, however, that any grant to a covered employee within the
meaning of Code Section 162(m) that is intended to be performance-based
compensation shall be made by a Committee of the Board each member of which is
an "outside director" within the meaning of Code Section 162(m) and the
regulations thereunder.
(b) POWERS OF THE BOARD. The Board shall have the power and authority to
grant
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Awards consistent with the terms of the Plan, including the power and authority:
(i) to select the officers, other employees, directors,
consultants and advisors of the Company and its Subsidiaries to whom Awards
may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Awards
and Performance Share Awards, or any combination of the foregoing, granted
to any one or more participants;
(iii) to determine the number of shares to be covered by any
Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any Award,
which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards;
(v) to accelerate the exercisability or vesting of all or any
portion of any Stock Option;
(vi) subject to the provisions of Section 5(a)(ii), to extend the
period in which Stock Options may be exercised;
(vii) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts equal to interest (at rates determined by the Board) or dividends
or deemed dividends on such deferrals; and
(viii) to adopt, alter and repeal such rules, guidelines and
practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Board shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION.
(a) SHARES ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 1,700,000. For purposes of this
limitation, the shares of Stock underlying any Awards which are forfeited,
canceled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan so long as the participants to
whom such Awards had been previously granted received no benefits of ownership
of the underlying shares of Stock to which the Award related. Subject to such
overall limitation, shares may be issued up to such maximum number pursuant to
any type or types of Award, including Incentive Stock Options. Shares issued
under the Plan may be authorized but unissued shares or shares reacquired by the
Company.
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(b) SECTION 162(M) LIMIT ON SHARES ISSUABLE. The maximum aggregate number
of shares of Stock that may be subject to Awards granted within any fiscal year
of the Company to any "covered employee" as defined in Section 162(m) of the
Code is 150,000.
(c) STOCK DIVIDENDS, MERGERS, ETC. In the event of a stock dividend,
stock split or similar change in capitalization affecting the Stock, the Board
shall make appropriate adjustments in (i) the number and kind of shares of stock
or securities on which Awards may thereafter be granted, (ii) the number and
kind of shares remaining subject to outstanding Awards, and (iii) the option or
purchase price in respect of such shares. In the event of any merger,
consolidation, dissolution or liquidation of the Company, the Board in its sole
discretion may, as to any outstanding Awards, make such substitution or
adjustment in the aggregate number of shares reserved for issuance under the
Plan and in the number and purchase price (if any) of shares subject to such
Awards as it may determine and as may be permitted by the terms of such
transaction, or accelerate, amend or terminate such Awards upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of any Award, shall require payment or other consideration which
the Board deems equitable in the circumstances).
(d) SUBSTITUTE AWARDS. The Board may grant Substitute Awards under the
Plan in substitution for stock and stock based awards held by persons who are or
were directors, officers or employees of another corporation which merges or
consolidates with, or the stock or property of which other corporation is
acquired by the Company or a Subsidiary. The Board may direct that the
Substitute Awards be granted on such terms and conditions as the Board considers
appropriate in the circumstances.
SECTION 4. ELIGIBILITY.
Participants in the Plan will be such full or part-time officers and other
employees of the Company and its Subsidiaries who are responsible for or
contribute to the management, growth or profitability of the Company and its
Subsidiaries and who are selected from time to time by the Board, in its sole
discretion. Independent Directors, consultants and advisors are also eligible
to participate in the Plan to the extent provided in Sections 5(c) and (d)
below.
SECTION 5. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the Board
may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. To the extent that any option does not qualify
as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after ten years
from the Effective Date.
(a) STOCK OPTIONS GRANTED TO EMPLOYEES. The Board in its discretion may
grant Stock Options to employees of the Company or any Subsidiary. Stock
Options granted to employees pursuant to this Section 5(a) shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Board shall deem
desirable:
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(i) EXERCISE PRICE. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Board at the time of grant but shall be, in the case of
Incentive Stock Options, not less than 100% of Fair Market Value on the
date of grant and, in the case of Non-Qualified Stock Options, not less
than 85% of Fair Market Value on the date of grant. If an employee owns or
is deemed to own (by reason of the attribution rules applicable under
Section 424(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Company or any Subsidiary or parent corporation
and an Incentive Stock Option is granted to such employee, the option price
shall be not less than 110% of Fair Market Value on the grant date.
(ii) OPTION TERM. The term of each Stock Option shall be fixed by
the Board, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock of
the Company or any Subsidiary or parent corporation and an Incentive Stock
Option is granted to such employee, the term of such option shall be no
more than five years from the date of grant.
(iii) EXERCISABILITY; RIGHTS OF A SHAREHOLDER. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Board at or after the grant
date. The Board may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of a
shareholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(iv) METHOD OF EXERCISE. Stock Options may be exercised in
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the purchase
price may be made by one or more of the following methods:
(A) In cash, by certified or bank check or other instrument
acceptable to the Board;
(B) In the form of shares of Stock that are not then
subject to restrictions under any Company plan, if permitted by the
Board in its discretion, and only to the extent that such an exercise
of the Option would not result in an accounting compensation charge
with respect to the shares used to pay the purchase price. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date; or
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(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the purchase price; provided that in
the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Board shall prescribe as a condition of such payment
procedure, and such an exercise of the Option would not result in an
accounting compensation charge with respect to the shares used to pay
the purchase price. Payment instruments will be received subject to
collection.
The delivery of certificates representing shares of Stock to be purchased
pursuant to the exercise of a Stock Option will be contingent upon receipt from
the optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price for
such shares and the fulfillment of any other requirements contained in the Stock
Option or applicable provisions of laws.
(v) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution and all Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee.
(vi) TERMINATION BY DEATH. If any optionee's employment by the
Company and its Subsidiaries terminates by reason of death, any Stock
Option granted pursuant to this Section 5(a) may thereafter be exercised,
to the extent exercisable at the date of death, by the legal representative
or legatee of the optionee, for a period of 180 days (or such longer period
as the Board shall specify at any time) from the date of death, or until
the expiration of the stated term of the Option, if earlier.
(vii) TERMINATION BY REASON OF DISABILITY.
(A) Any Stock Option held by an optionee whose employment
by the Company and its Subsidiaries has terminated by reason of
Disability may thereafter be exercised, to the extent it was
exercisable at the time of such termination, for a period of twelve
months (or such longer period as the Board shall specify at any time)
from the date of such termination of employment, or until the
expiration of the stated term of the Option, if earlier.
(B) The Board shall have sole authority and discretion to
determine whether a participant's employment has been terminated by
reason of Disability.
(C) Except as otherwise provided by the Board at the time
of grant, the death of an optionee during a period provided in this
Section 5(a)(vii) for the exercise of a Non-Qualified Stock Option,
shall extend such period for 180 days from the date of death, subject
to termination on the expiration of the stated term of the Option, if
earlier.
(viii) TERMINATION FOR CAUSE. If any optionee's employment by the
Company and its Subsidiaries has been terminated for Cause, any Stock
Option held by such optionee shall immediately terminate and be of no
further force and effect; provided, however, that the Board may, in its
sole discretion, provide that such stock option can be exercised for a
period of up to 30 days from the date of termination of employment or
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<PAGE>
until the expiration of the stated term of the Option, if earlier.
(ix) OTHER TERMINATION. Unless otherwise determined by the Board,
if an optionee's employment by the Company and its Subsidiaries terminates
for any reason other than death, Disability, or for Cause, any Stock Option
held by such optionee may thereafter be exercised, to the extent it was
exercisable on the date of termination of employment, for three months (or
such longer period as the Board shall specify at any time) from the date of
termination of employment or until the expiration of the stated term of the
Option, if earlier.
(x) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent
required for "incentive stock option" treatment under Section 422 of the
Code, the aggregate Fair Market Value (determined as of the time of grant)
of the Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its Subsidiaries become
exercisable for the first time by an optionee during any calendar year
shall not exceed $100,000. To the extent that all of any Stock Option
exceeds this limit, it shall constitute a Non-Qualified Stock Option.
(xi) FORM OF SETTLEMENT. Shares of Stock issued upon exercise of a
Stock Option shall be free of all restrictions under the Plan, except as
otherwise provided in this Plan.
(b) RELOAD OPTIONS. At the discretion of the Board, Options granted under
Section 5(a) may include a so-called "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Board may provide) to purchase that number of shares of Stock equal to the
number delivered to exercise the original Option.
(c) STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS. The Board in its
discretion may grant Non-Qualified Stock Options to Independent Directors of the
Company. Stock Options granted to Independent Directors pursuant to this
Section 5(c) shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Board shall deem desirable:
(i) EXERCISE PRICE. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(c) shall be
determined by the Board at the time of grant but shall be not less than 85%
of Fair Market Value on the date of grant.
(ii) OPTION TERM. The term of each Stock Option shall be fixed by
the Board.
(iii) EXERCISABILITY; RIGHTS OF A SHAREHOLDER. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Board at or after the grant
date. The Board may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of a
shareholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
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(iv) METHOD OF EXERCISE. Stock Options may be exercised in
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the purchase
price may be made by one or more of the following methods:
(A) In cash, by certified or bank check or other instrument
acceptable to the Board;
(B) In the form of shares of Stock that are not then
subject to restrictions under any Company plan, if permitted by the
Board in its discretion, and only to the extent that such an exercise
of the Option would not result in an accounting compensation charge
with respect to the shares used to pay the purchase price. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date; or
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the purchase price; provided that in
the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Board shall prescribe as a condition of such payment
procedure, and such an exercise of the Option would not result in an
accounting compensation charge with respect to the shares used to pay
the purchase price. Payment instruments will be received subject to
collection.
The delivery of certificates representing shares of Stock to be purchased
pursuant to the exercise of a Stock Option will be contingent upon receipt
from the optionee (or a purchaser acting in his stead in accordance with
the provisions of the Stock Option) by the Company of the full purchase
price for such shares and the fulfillment of any other requirements
contained in the Stock Option or applicable provisions of laws.
(v) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution and all Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee.
(vi) TERMINATION BY DEATH. If any optionee's service as a member
of the board of directors to the Company or its Subsidiaries terminates by
reason of death, any Stock Option granted pursuant to this Section 5(c) may
thereafter be exercised, to the extent exercisable at the date of death, by
the legal representative or legatee of the optionee, for a period of 180
days (or such longer period as the Board shall specify at any time) from
the date of death, or until the expiration of the stated term of the
Option, if earlier.
(vii) TERMINATION BY REASON OF DISABILITY.
(A) Any Stock Option held by an optionee whose service as a
member of the board of directors to the Company or its Subsidiaries
has terminated by reason of Disability may thereafter be exercised, to
the extent it was exercisable at the time of such termination, for a
period of twelve months (or such longer period as the Board shall
specify at any time) from the date of such termination of service, or
until the expiration of the stated term of the Option, if earlier.
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(B) The Board shall have sole authority and discretion to
determine whether a participant's service has been terminated by
reason of Disability.
(C) Except as otherwise provided by the Board at the time
of grant, the death of an optionee during a period provided in this
Section 5(a)(vii) for the exercise of a Non-Qualified Stock Option,
shall extend such period for 180 days from the date of death, subject
to termination on the expiration of the stated term of the Option, if
earlier.
(viii) TERMINATION FOR CAUSE. If any optionee's service as a member
of the board of directors to the Company or its Subsidiaries has been
terminated for Cause, any Stock Option held by such optionee shall
immediately terminate and be of no further force and effect; provided,
however, that the Board may, in its sole discretion, provide that such
stock option can be exercised for a period of up to 30 days from the date
of termination of service or until the expiration of the stated term of the
Option, if earlier.
(ix) OTHER TERMINATION. Unless otherwise determined by the Board,
if an optionee's service as a member of the board of directors to the
Company or its Subsidiaries terminates for any reason other than death,
Disability, or for Cause, any Stock Option held by such optionee may
thereafter be exercised, to the extent it was exercisable on the date of
termination of service, for three months (or such longer period as the
Board shall specify at any time) from the date of termination of service or
until the expiration of the stated term of the Option, if earlier.
(xi) FORM OF SETTLEMENT. Shares of Stock issued upon exercise of a
Stock Option shall be free of all restrictions under the Plan, except as
otherwise provided in this Plan.
(d) STOCK OPTIONS GRANTED TO CONSULTANTS AND ADVISORS.
(i) GRANT OF OPTIONS. The Board in its discretion may grant
Non-Qualified Stock Options to any individual who is rendering services as
a consultant, advisor or other independent contractor to the Company.
(ii) EXERCISE PRICE. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(d) shall be
not less than 85% of the Fair Market Value of the Stock on the date the
Stock Option is granted.
(iii) EXERCISE; TERMINATION; NON-TRANSFERABILITY.
(A) No Option granted under this Section 5(d) may be
exercised before the first anniversary of the date upon which it was
granted; provided, however, that any Option so granted shall become
exercisable upon the termination of service of the consultant or
advisor because of Disability or death. No Option issued under this
Section 5(d) shall be exercisable after the expiration of ten years
from the date upon which such Option is granted.
(B) The rights of a consultant or advisor in an Option
granted under Section 5(d) shall terminate three months after such
consultant or advisor ceases to
9
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act as such on the behalf of the Company or the specified expiration
date, if earlier; provided, however, that if the consultant or advisor
ceases to serve as such on behalf of the Company for Cause, the rights
shall terminate immediately on the date on which he ceases to be a
consultant or advisor.
(C) No Stock Option granted under this Section 5(d) shall
be transferable by the optionee otherwise than by will or by the laws
of descent and distribution, and such Options shall be exercisable,
during the optionee's lifetime only by the optionee. Any Option
granted to a consultant or advisor and outstanding on the date of his
death may be exercised by the legal representative or legatee of the
optionee for a period of 180 days from the date of death or until the
expiration of the stated term of the option, if earlier.
(D) Options granted under this Section 5(d) may be
exercised only by written notice to the Company specifying the number
of shares to be purchased. Payment of the full purchase price of the
shares to be purchased may be made by one or more of the methods
specified in Section 5(a)(iv). An optionee shall have the rights of a
shareholder only as to shares acquired upon the exercise of a Stock
Option and not as to unexercised Stock Options.
(iv) LIMITED TO CONSULTANTS OR ADVISORS. The provisions of this
Section 5(d) shall apply only to Options granted or to be granted pursuant
to this Section 5(d) to consultants or advisors, and shall not be deemed to
modify, limit or otherwise apply to any other provision of this Plan or to
any Option issued under Sections 5(a), (b) or (c) of this Plan. To the
extent inconsistent with the provisions of any other Section of this Plan,
the provisions of this Section 5(d) shall govern the rights and obligations
of the Company and consultants or advisors respecting Options granted or to
be granted to consultants or advisors pursuant to this Section 5(d).
SECTION 6. STOCK AWARDS.
(a) NATURE OF STOCK AWARD. The Board may grant Stock Awards to any
employees of the Company or any Subsidiary. A Stock Award is an Award entitling
the recipient to acquire, at no cost or for a purchase price determined by the
Board, shares of Stock subject to such restrictions and conditions, if any, as
the Board may determine at the time of grant. Conditions may be based on
continuing employment and/or achievement of pre-established performance goals
and objectives. In addition, a Stock Award may be granted to an employee by the
Board in lieu of a cash bonus due to such employee pursuant to any other plan of
the Company.
(b) ACCEPTANCE OF AWARD. A participant who is granted a Stock Award shall
have no rights with respect to such Award unless the participant shall have
accepted the Award within 60 days (or such shorter date as the Board may
specify) following the award date by making payment to the Company, if required,
by certified or bank check or other instrument or form of payment acceptable to
the Board in an amount equal to the specified purchase price, if any, of the
shares covered by the Award and by executing and delivering to the Company a
written instrument that sets forth the terms and conditions of the Stock Award
in such form as the Board shall determine.
10
<PAGE>
(c) RIGHTS AS A SHAREHOLDER. Upon complying with Section 6(b) above, a
participant shall have all the rights of a shareholder with respect to the Stock
including voting and dividend rights, subject to any non-transferability
restrictions and Company repurchase or forfeiture rights described in this
Section 6 and subject to such other conditions contained in the written
instrument evidencing the Stock Award. Unless the Board shall otherwise
determine, certificates evidencing shares of Stock subject to restrictions shall
remain in the possession of the Company until such shares are vested as provided
in Section 6(e) below.
(d) RESTRICTIONS. Shares of Stock which are issued under restrictions
established by the Board may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of except as specifically provided herein or in
the written instrument evidencing the Stock Award. In the event of termination
of employment by the Company and its Subsidiaries for any reason (including
death, Disability, and for Cause), the Company shall have the right, at the
discretion of the Board, to repurchase shares of the Stock with respect to which
conditions have not lapsed at their purchase price, or to require forfeiture of
such shares to the Company if acquired at no cost, from the participant or the
participant's legal representative. The Company must exercise such right of
repurchase or forfeiture not later than the 90th day following such termination
of employment (unless otherwise specified in the written instrument evidencing
the Stock Award).
(e) VESTING OF STOCK. The Board at the time of grant may specify the date
or dates and/or the attainment of pre-established performance goals, objectives
and other conditions on which the non-transferability of the Stock and the
Company's right of repurchase or forfeiture shall lapse. Subsequent to such
date or dates and/or the attainment of such pre-established performance goals,
objectives and other conditions, the shares on which all restrictions have
lapsed shall no longer be restricted and shall be deemed "vested."
(f) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The written
instrument evidencing the Stock Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Stock.
SECTION 7. PERFORMANCE SHARE AWARDS.
(a) NATURE OF PERFORMANCE SHARES. A Performance Share Award is an award
entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Board may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. Performance Share Awards may be granted under the Plan to any employees
of the Company or any Subsidiary, including those who qualify for awards under
other performance plans of the Company. The Board in its sole discretion shall
determine whether and to whom Performance Share Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Shares; provided, however, that the Board
may rely on the performance goals and other standards applicable to other
performance unit plans of the Company in setting the standards for Performance
Share Awards under the Plan.
(b) RESTRICTIONS ON TRANSFER. Performance Share Awards and all rights
with respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
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(c) RIGHTS AS A SHAREHOLDER. A participant receiving a Performance Share
Award shall have the rights of a shareholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance Share Award (or
in a performance plan adopted by the Board).
(d) TERMINATION. Except as may otherwise be provided by the Board at any
time prior to termination of employment, a participant's rights in all
Performance Share Awards shall automatically terminate upon the participant's
termination of employment by the Company and its Subsidiaries for any reason
(including death, Disability and for Cause).
(e) ACCELERATION, WAIVER, ETC. At any time prior to the participant's
termination of employment by the Company and its Subsidiaries, the Board may in
its sole discretion accelerate, waive or, subject to Section 10, amend any or
all of the goals, restrictions or conditions imposed under any Performance Share
Award.
SECTION 8. TAX WITHHOLDING.
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the
date as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Board regarding payment of any Federal, state, or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(b) PAYMENT IN SHARES. A participant may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing
the Company to withhold from shares of Stock to be issued pursuant to any
Award a number of shares with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount
due, or (ii) transferring to the Company shares of Stock owned by the
participant with an aggregate Fair Market Value (as of the date the
withholding is effected) that would satisfy the withholding amount due.
SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to re-
employment is guaranteed either
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<PAGE>
by a statute or by contract or under the policy pursuant to which the leave of
absence was granted or if the Board otherwise so provides in writing.
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may at any time amend or discontinue the Plan and the Board may
at any time amend or cancel any outstanding Award (or provide substitute awards
at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan, subject to the right of the Board to grant Substitute Awards as
set forth in Section 3(d)) for the purpose of satisfying changes in law or for
any other lawful purpose, but no such action shall adversely affect rights under
any outstanding Award without the holder's consent.
SECTION 11. STATUS OF PLAN.
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Board shall otherwise expressly determine in
connection with any Award or Awards. In its sole discretion, the Board may
authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
SECTION 12. CHANGE OF CONTROL PROVISIONS.
Upon the occurrence of a Change of Control as defined in this Section 12
then, notwithstanding any provision to the contrary in this Plan, (i) each Award
shall continue in full force and effect in accordance with its terms except that
if the Company is not the surviving corporation in connection with such Change
in Control, the surviving corporation shall issue a new award (a "New Award")
providing that the holder of an Award shall have the right to receive under the
New Award, in lieu of each share of Common Stock theretofore issued under the
Award, the kind and amount of shares of stock, other securities, money and
property receivable in connection with such Change in Control by a holder of one
share of Common Stock and (ii) in the event of termination of employment of a
holder of any Award or New Award for any reason within one year after the
occurrence of such Change in Control, such holder shall automatically have the
right to exercise all of the Options which are not then exercisable and any
restrictions or conditions on all Stock Awards and Performance Share Awards held
by such holder shall automatically be deemed waived.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Act) becomes a "beneficial owner" (as such term is defined in Rule
13d-3 promulgated under the Act) (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as
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their ownership of stock of the Company), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting
power of the Company's then outstanding securities; or
(ii) persons who, as of the Effective Date, constituted the
Company's Board (the "Incumbent Board") cease for any reason, including
without limitation as a result of a tender offer, proxy contest, merger or
similar transaction, to constitute at least a majority of the Board,
provided that any person becoming a director of the Company subsequent to
the Effective Date whose election was approved by at least a majority of
the directors then comprising the Incumbent Board shall, for purposes of
this Plan, be considered a member of the Incumbent Board; or
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity,
other than (a) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (b) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as hereinabove
defined) acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Stock or other voting securities outstanding, increases (x) the
proportionate number of shares of Stock beneficially owned by any person to 50%
or more of the shares of Stock then outstanding or (y) the proportionate voting
power represented by the voting securities beneficially owned by any person to
50% or more of the combined voting power of all then outstanding Voting
Securities; PROVIDED, HOWEVER, that if any person referred to in clause (x) or
(y) of this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other voting securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "Change of Control"
shall be deemed to have occurred for purposes of the foregoing clause (i).
SECTION 13. GENERAL PROVISIONS.
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Board may
require each person acquiring shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange requirements have
been satisfied. The Board may require the placing of such stop-orders and
restrictive legends on certificates for Stock and Awards as it deems
appropriate.
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(b) DELIVERY OF STOCK CERTIFICATES. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to shareholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan and
the grant of Awards do not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon approval by the holders of a majority
of the shares of capital stock of the Company present or represented and
entitled to vote at a meeting of shareholders. Subject to such approval by the
shareholders, and to the requirement that no Stock may be issued hereunder prior
to such approval, Stock Options and other Awards may be granted hereunder on and
after adoption of the Plan by the Board.
SECTION 15. GOVERNING LAW.
This Plan shall be governed by Delaware law except to the extent such law
is preempted by federal law.
DATE APPROVED BY THE BOARD OF DIRECTORS: September ___, 1996
DATE APPROVED BY THE SHAREHOLDERS: _______________
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APPENDIX G
SECTION 262 OF THE DELAWARE GENERAL CORPORATE LAW
<PAGE>
SECTION 262
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of the section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of
<PAGE>
the constituent corporation surviving a merger if the merger did not require for
its approval the vote of the holders of the surviving corporation as provided in
SUBSECTIONS (f) OR (g) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251,
252, 254, 257, 258, 263, and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
<PAGE>
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the taking of the vote on
the merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has not voted
in favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands or appraisal have been received
and the aggregate number of holders of such shares. Such written statement
shall be mailed to the stockholder within 10 days after his written request for
such a statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City
<PAGE>
of Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate fully
in all proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertain stock
<PAGE>
forthwith, and the case of holders of shares represented by certificates upon
the surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of Chancery may
be enforced, whether such surviving or resulting corporation be a corporation of
this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 79, L.
'95, eff. 7-1-95.)
<PAGE>
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
STATUTORY PROVISIONS
Section 102(b)(7) of the Delaware General Corporate Law ("DGCL") permits a
corporation in its certificate of incorporation to eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for violations of a director's fiduciary duty as a director.
Registrant's Certificate of Incorporation includes such a provision. Such a
provision would have no effect on the availability of equitable remedies, such
as an injunction or rescission, for breach of fiduciary duty. In addition, no
such provision may eliminate or limit the liability of a director for: (i) any
breach of a director's duty of loyalty to the registrant or its stockholders;
(ii) acts and omissions not in good faith or acts which involve intentional
misconduct or knowing violations of law; (iii) liability for unlawful payment of
dividends or unlawful stock purchase or redemption under Section 174 of the
DGCL; or (iv) any transaction from which a director derives an improper personal
benefit.
Section 145 of the DGCL provides that a corporation may indemnify any person
who is or was a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of the corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. No indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the court in which such action was brought shall determine upon
application that, despite the adjudication of liability but in view if all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Additionally, a
corporation is required to indemnify its directors and officers against expenses
to the extent that such directors or officers have been successful on the merits
or otherwise in any action, suit or proceeding or in defense of any claim, issue
or matter therein.
Indemnification can be made by the corporation only upon a determination
that indemnification is proper in the circumstances because the party seeking
indemnification had met the applicable standard of conduct as set forth in the
DGCL. The indemnification provided by the DGCL shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. A corporation also has the power to purchase and maintain insurance
on behalf of any person, whether or not the corporation would have the power to
indemnify him or her against such liability. The indemnification provided by the
DGCL shall, unless otherwise provided when authorized or ratified, continue as
to a person who ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
CERTIFICATE OF INCORPORATION AND BYLAWS
The registrant's Certificate of Incorporation limits registrant's directors'
liability for monetary damages to registrant and its stockholders for breaches
of fiduciary duty to the fullest extent permitted under the DGCL. In the event
of any amendment to the DGCL at a later date to authorize corporate action
further limiting the personal liability of corporate directors, the registrant's
Certificate of Incorporation authorizes the registrant to limit liability of the
registrant's directors to the fullest extent permitted under the DGCL at such
later date. In addition, the registrant's Certificate of Incorporation provides
that any
II-1
<PAGE>
repeal or modification of the provisions relating to indemnification by the
stockholders of the registrant or by an amendment to the DGCL will not affect
any right or protection existing at the time of such repeal or amendment with
respect to any acts or omissions occurring either before or after such repeal or
amendment.
The registrant's Bylaws provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is a
director, officer, employee or agent of registrant, or is or was serving at the
request of the registrant as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee or other benefit plans, will be
indemnified by the registrant to the fullest extent permitted by the DGCL, as
the same exists or may hereafter be amended, against any and all expenses
incurred in connection therewith, and such indemnification will continue as to a
person who has ceased to be a director, officer, employee or agent and will
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that registrant will indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by registrant's Board of Directors. The right to
indemnification will be a contractual right and will include the right to be
paid by the registrant the expenses incurred in defending any such proceeding in
advance of its final disposition upon receipt of an undertaking by the person
seeking indemnification to repay such payment if such person shall be
adjudicated or determined not to be entitled to indemnification. No
indemnification shall be provided to a person with respect to a matter as to
which such person shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that the action of such person was
in or not opposed to the best interests of the registrant. In the event that a
proceeding is settled or compromised, no indemnification shall be provided to
such person if there be a determination by a majority vote of the Board of
Directors of the registrant that, with respect to such matter, such person did
not act in good faith in the reasonable belief that his or her action was in or
not opposed to the best interests of the registrant. If more than half of the
members of the registrant's Board of Directors are involved in such proceeding,
the determination shall be made by a majority vote of a committee of one or more
disinterested director(s) chosen at a regular or special meeting.
The indemnification rights conferred by the registrant's Bylaws are not
exclusive of any other right to which a person seeking indemnification may be
entitled under law, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. Registrant may maintain insurance at its expense on
behalf of its directors, officers, employees and agents.
CONTRACTUAL AND OTHER PROVISIONS
Under the terms of the Merger Agreement, in the event the Merger Agreement
is terminated, each party shall indemnify and hold harmless the other party and
its respective directors, officers, agents and employees from and against any
and all losses, claims, judgments, damages, liabilities, costs and expenses,
including reasonable attorneys' fees, (collectively, "Losses") to the extent
that such Losses are incurred by an indemnified party or are paid to an
unrelated third party; provided that, such Losses must relate to or arise from
any actions or omissions of the indemnifying party prior to closing.
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<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger by and between the Registrant and Strategic Diagnostics
Inc., dated as of October 11, 1996 (included as Appendix A to the Joint Proxy
Statement/ Prospectus which is a part of this Registration Statement)
3.1 Amended and Restated Articles of Organization of the Registrant (previously filed as
Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 No. 33-68440
filed on September 3, 1993 ("Registration Statement No. 33-68440") and incorporated
herein by this reference)
3.2 Amended and Restated By-Laws of the Registrant (previously filed as Exhibit 3.1 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
4.1 Fourth Amended and Restated Certificate of Incorporation of the Registrant (included
as Appendix D to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement)
4.2 Amended and Restated Bylaws of the Registrant (included as Appendix E to the Joint
Proxy Statement/Prospectus which is a part of this Registration Statement)
4.3 Amended and Restated EnSys Environmental Products, Inc. 1995 Stock Incentive Plan
(included as Appendix F to the Joint Proxy Statement/Prospectus which is a part of
this Registration Statement)
4.4 Forms of Warrants to Purchase Common Stock of the Registrant
5.1 Opinion of Troutman Sanders LLP
8.1 Opinion of Pepper, Hamilton & Scheetz as to certain tax matters
8.2 Opinion of Troutman Sanders LLP as to certain tax matters
10.1 Supply Agreement by and between the Registrant and Hach Company dated November 9,
1992 (previously filed as Exhibit 10.2 to Amendment No. 3 to the Registration
Statement on Form S-1 No. 33-68440 filed on October 8, 1993 ("Amendment No. 3 to
Registration Statement No. 33-68440") and incorporated herein by this reference)
10.2 Warrant Agreement dated June 1, 1991 between John Hancock Leasing Corporation and
the Registrant, as amended December 19, 1991 (previously filed as Exhibit 10.4 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
10.3 Form of Common Stock Warrant dated July 1, 1991 issued to eight investors
(previously filed as Exhibit 10.5 to Registration Statement No. 33-68440 and
incorporated herein by this reference)
10.4 Common Stock Warrant dated October 20, 1992 issued to Environmental Allies
Management, Inc. (previously filed as Exhibit 10.6 to Registration Statement No.
33-68440 and incorporated herein by this reference)
10.5 Purchase Agreement dated December 19, 1991 and amended February 24, 1992 and March
16, 1992, by and among the Registrant and certain purchasers listed therein
(previously filed as Exhibit 10.10 to Registration Statement No. 33-68440 and
incorporated herein by this reference)
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.6 Purchase Agreement dated December 24, 1992, by and among the Registrant and certain
purchasers listed therein (previously filed as Exhibit 10.11 to Registration
Statement No. 33-68440 and incorporated herein by this reference)
10.7 Stockholders Agreement dated December 24, 1992 by and among the Registrant,
Environmental Testing and Certification Corp. and existing stockholders (previously
filed as Exhibit 10.13 to Registration Statement No. 33-68440 and incorporated
herein by this reference)
10.8 Form of Agreement dated September 2, 1993, by and among the Registrant, Applied
Bioscience International Inc. and APBI Environmental Sciences Group, Inc.
(previously filed as Exhibit 10.15 to Registration Statement No. 33-68440 and
incorporated herein by this reference)
10.9 EnSys Environmental Products, Inc. 1990 Stock Option Plan (previously filed as
Exhibit 10.16 to Registration Statement No. 33-68440 and incorporated herein by this
reference)
10.10 EnSys Environmental Products, Inc. 1993 Stock Incentive Plan (previously filed as
Exhibit 10.17 to Registration Statement No. 33-68440 and incorporated herein by this
reference)
10.11 EnSys Environmental Products, Inc. 1995 Stock Incentive Plan (previously filed as
Exhibit 10.11 to the Registrant's Form 10-K for the year ended December 31, 1995
filed on March 29, 1996 ("1995 10-K") and incorporated herein by this reference)
10.12 EnSys Environmental Products, Inc. 401(k) Plan Adoption Agreement (previously filed
as Exhibit 10.18 to Registration Statement No. 33-68440 and incorporated herein by
this reference)
10.13 Consulting Contracts, effective as of September, 1991 and March 31, 1992, between
the Registrant and Robert E. Finnigan, Ph.D. (previously filed as Exhibit 10.19 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
10.14 Lease Agreement dated June 1, 1989, between the Registrant and Imperial Center
Partnership and Petula Associates, Ltd. for premises at 4222 Emperor Boulevard,
Morrisville, North Carolina, as amended December 22, 1991 and April 7, 1993
(previously filed as Exhibit 10.20 to Registration Statement No. 33-68440 and
incorporated herein by this reference)
10.15 Master Lease Agreement by and between the Registrant and John Hancock Leasing
Corporation dated April 8, 1991 (previously filed as Exhibit 10.22 to Registration
Statement No. 33-68440 and incorporated herein by this reference)
10.16 Master Equipment Lease Agreement by and between the Registrant and Ally Capital
Corporation dated October 20, 1992 (previously filed as Exhibit 10.23 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
10.17 Stockholder Voting Agreement dated as of September 15, 1993 by and among the
Registrant and certain investors named therein (previously filed as Exhibit 10.27 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
10.18 Amendment Agreement dated as of September 2, 1993 by and among the Registrant and
certain investors named therein (previously filed as Exhibit 10.28 to Registration
Statement No. 33-68440 and incorporated herein by this reference)
10.19 Severance Agreement by and between Alan H. Staple and the Registrant dated as of
April 11, 1995 (previously filed as Exhibit 10.19 to the Registrant's 1995 10-K and
incorporated herein by this reference)
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.20 Employment Agreement by and between Grover C. Wrenn and the Registrant dated as of
April 11, 1995 (previously filed as Exhibit 10.20 to the Registrant's 1995 10-K and
incorporated herein by this reference)
10.21 Agreement for Purchase and Sale of Assets by and between the Registrant and Air
Quality Research International, Inc. dated June 10, 1994 (previously filed as
Exhibit 10.21 to the Registrant's Form 10-K for the year ended December 31, 1994
filed on March 28, 1995 ("1994 10-K") and incorporated herein by this reference)
10.22 License Agreement by and between the Registrant and Meridian Diagnostics, Inc. dated
July 24, 1994 (previously filed as Exhibit 10.22 to the Registrant's 1994 10-K and
incorporated herein by this reference)
10.23 Sales and Distribution Agreement by and between the Registrant and BioNebraska, Inc.
dated November 29, 1994 (previously filed as Exhibit 10.23 to the Registrant's 1994
10-K and incorporated herein by this reference)
10.24 Asset Purchase Agreement among the Registrant, Millipore Corporation, and
ImmunoSystems, Inc. (previously filed as Exhibit 2.1 to the Registrant's Form 10-Q
for the quarter ended March 31, 1996 filed on May 13, 1996 ("March 31, 1996 10-Q")
and incorporated herein by this reference)
10.25 Operating Agreement between the Registrant and Strategic Diagnostics Inc. dated as
of October 1, 1996
10.26 Form of Employment Agreement by and between Richard C. Birkmeyer and the Registrant
10.27 Form of Employment Agreement by and between Grover C. Wrenn and the Registrant
10.28 Form of Registration Rights Agreement
10.29 Form of Lock-Up Letter Agreement
10.30 Form of Stockholder Voting Agreement
21.1 Subsidiaries of the Registrant
23.1 Consent of Troutman Sanders LLP (included in Exhibits 5.1 and 8.2)
23.2 Consent of Pepper, Hamilton & Scheetz (included in Exhibit 8.1)
23.3 Consent of Arthur Andersen LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Ernst & Young LLP
23.6 Consent of Raymond James & Associates, Inc.
23.7 Consent of Oppenheimer & Co. Inc.
23.8 Consent of Donald T. Aiello
23.9 Consent of Lundy Associates, Inc.
24.1 Powers of Attorney (included in the signature page to the Registration Statement)
99.1 Form of Proxy for the Special Meeting of Stockholders of Registrant
99.2 Form of Proxy for the Special Meeting of Stockholders of Strategic Diagnostics Inc.
99.3 Consents of Persons Named to Become Directors of the Surviving Corporation who have
not signed the Registration Statement
</TABLE>
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<PAGE>
(b) Financial Statement Schedules.
Not applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or event arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from the registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use
of a prospectus which is part of this registration statement, by any
person or any party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used in determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification of liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provision, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE>
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail
or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Durham, state of North
Carolina, on December 6, 1996.
ENSYS ENVIRONMENTAL PRODUCTS, INC.
By: /s/ GROVER C. WRENN
-----------------------------------------
Grover C. Wrenn
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Grover C.
Wrenn and James M. Terrell, III, each of them acting individually, his/her true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him/her and in his/her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
acting individually, full power and authority to do and perform each and every
act and thing necessary or advisable to be done in and about the premises, as
fully to all intents and purposes as he/she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his/her substitute or substitutes, may lawfully do or cause to
be done by virtue hereof. Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE SIGNED
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ GROVER C. WRENN Officer and Director
- ------------------------------ (Principal Executive December 6, 1996
Grover C. Wrenn Officer)
Chief Accounting Officer,
/s/ JAMES M. TERRELL, III Treasurer and Secretary
- ------------------------------ (Principal Financial and December 6, 1996
James M. Terrell, III Accounting Officer)
/s/ WILLIAM F. EARTHMAN III
- ------------------------------ Director December 6, 1996
William F. Earthman III
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<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE SIGNED
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ ANDREW MIDDLETON
- ------------------------------ Director December 6, 1996
Andrew Middleton
/s/ ROBERT FINNIGAN
- ------------------------------ Director December 6, 1996
Robert Finnigan
/s/ CURTIS LEE SMITH, JR.
- ------------------------------ Director December 6, 1996
Curtis Lee Smith, Jr.
/s/ JOHN H. TIMONEY
- ------------------------------ Director December 6, 1996
John H. Timoney
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger by and between the Registrant and Strategic Diagnostics
Inc., dated as of October 11, 1996 (included as Appendix A to the Joint Proxy
Statement/ Prospectus which is a part of this Registration Statement)
3.1 Amended and Restated Articles of Organization of the Registrant (previously filed as
Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 No. 33-68440
filed on September 3, 1993 ("Registration Statement No. 33-68440") and incorporated
herein by this reference)
3.2 Amended and Restated By-Laws of the Registrant (previously filed as Exhibit 3.1 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
4.1 Fourth Amended and Restated Certificate of Incorporation of the Registrant (included
as Appendix D to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement)
4.2 Amended and Restated Bylaws of the Registrant (included as Appendix E to the Joint
Proxy Statement/Prospectus which is a part of this Registration Statement)
4.3 Amended and Restated EnSys Environmental Products, Inc. 1995 Stock Incentive Plan
(included as Appendix F to the Joint Proxy Statement/Prospectus which is a part of
this Registration Statement)
4.4 Forms of Warrants to Purchase Common Stock of the Registrant
5.1 Opinion of Troutman Sanders LLP
8.1 Opinion of Pepper, Hamilton & Scheetz as to certain tax matters
8.2 Opinion of Troutman Sanders LLP as to certain tax matters
10.1 Supply Agreement by and between the Registrant and Hach Company dated November 9,
1992 (previously filed as Exhibit 10.2 to Amendment No. 3 to the Registration
Statement on Form S-1 No. 33-68440 filed on October 8, 1993 ("Amendment No. 3 to
Registration Statement No. 33-68440") and incorporated herein by this reference)
10.2 Warrant Agreement dated June 1, 1991 between John Hancock Leasing Corporation and
the Registrant, as amended December 19, 1991 (previously filed as Exhibit 10.4 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
10.3 Form of Common Stock Warrant dated July 1, 1991 issued to eight investors
(previously filed as Exhibit 10.5 to Registration Statement No. 33-68440 and
incorporated herein by this reference)
10.4 Common Stock Warrant dated October 20, 1992 issued to Environmental Allies
Management, Inc. (previously filed as Exhibit 10.6 to Registration Statement No.
33-68440 and incorporated herein by this reference)
10.5 Purchase Agreement dated December 19, 1991 and amended February 24, 1992 and March
16, 1992, by and among the Registrant and certain purchasers listed therein
(previously filed as Exhibit 10.10 to Registration Statement No. 33-68440 and
incorporated herein by this reference)
10.6 Purchase Agreement dated December 24, 1992, by and among the Registrant and certain
purchasers listed therein (previously filed as Exhibit 10.11 to Registration
Statement No. 33-68440 and incorporated herein by this reference)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.7 Stockholders Agreement dated December 24, 1992 by and among the Registrant,
Environmental Testing and Certification Corp. and existing stockholders (previously
filed as Exhibit 10.13 to Registration Statement No. 33-68440 and incorporated
herein by this reference)
10.8 Form of Agreement dated September 2, 1993, by and among the Registrant, Applied
Bioscience International Inc. and APBI Environmental Sciences Group, Inc.
(previously filed as Exhibit 10.15 to Registration Statement No. 33-68440 and
incorporated herein by this reference)
10.9 EnSys Environmental Products, Inc. 1990 Stock Option Plan (previously filed as
Exhibit 10.16 to Registration Statement No. 33-68440 and incorporated herein by this
reference)
10.10 EnSys Environmental Products, Inc. 1993 Stock Incentive Plan (previously filed as
Exhibit 10.17 to Registration Statement No. 33-68440 and incorporated herein by this
reference)
10.11 EnSys Environmental Products, Inc. 1995 Stock Incentive Plan (previously filed as
Exhibit 10.11 to the Registrant's Form 10-K for the year ended December 31, 1995
filed on March 29, 1996 ("1995 10-K") and incorporated herein by this reference)
10.12 EnSys Environmental Products, Inc. 401(k) Plan Adoption Agreement (previously filed
as Exhibit 10.18 to Registration Statement No. 33-68440 and incorporated herein by
this reference)
10.13 Consulting Contracts, effective as of September, 1991 and March 31, 1992, between
the Registrant and Robert E. Finnigan, Ph.D. (previously filed as Exhibit 10.19 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
10.14 Lease Agreement dated June 1, 1989, between the Registrant and Imperial Center
Partnership and Petula Associates, Ltd. for premises at 4222 Emperor Boulevard,
Morrisville, North Carolina, as amended December 22, 1991 and April 7, 1993
(previously filed as Exhibit 10.20 to Registration Statement No. 33-68440 and
incorporated herein by this reference)
10.15 Master Lease Agreement by and between the Registrant and John Hancock Leasing
Corporation dated April 8, 1991 (previously filed as Exhibit 10.22 to Registration
Statement No. 33-68440 and incorporated herein by this reference)
10.16 Master Equipment Lease Agreement by and between the Registrant and Ally Capital
Corporation dated October 20, 1992 (previously filed as Exhibit 10.23 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
10.17 Stockholder Voting Agreement dated as of September 15, 1993 by and among the
Registrant and certain investors named therein (previously filed as Exhibit 10.27 to
Registration Statement No. 33-68440 and incorporated herein by this reference)
10.18 Amendment Agreement dated as of September 2, 1993 by and among the Registrant and
certain investors named therein (previously filed as Exhibit 10.28 to Registration
Statement No. 33-68440 and incorporated herein by this reference)
10.19 Severance Agreement by and between Alan H. Staple and the Registrant dated as of
April 11, 1995 (previously filed as Exhibit 10.19 to the Registrant's 1995 10-K and
incorporated herein by this reference)
10.20 Employment Agreement by and between Grover C. Wrenn and the Registrant dated as of
April 11, 1995 (previously filed as Exhibit 10.20 to the Registrant's 1995 10-K and
incorporated herein by this reference)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.21 Agreement for Purchase and Sale of Assets by and between the Registrant and Air
Quality Research International, Inc. dated June 10, 1994 (previously filed as
Exhibit 10.21 to the Registrant's Form 10-K for the year ended December 31, 1994
filed on March 28, 1995 ("1994 10-K") and incorporated herein by this reference)
10.22 License Agreement by and between the Registrant and Meridian Diagnostics, Inc. dated
July 24, 1994 (previously filed as Exhibit 10.22 to the Registrant's 1994 10-K and
incorporated herein by this reference)
10.23 Sales and Distribution Agreement by and between the Registrant and BioNebraska, Inc.
dated November 29, 1994 (previously filed as Exhibit 10.23 to the Registrant's 1994
10-K and incorporated herein by this reference)
10.24 Asset Purchase Agreement among the Registrant, Millipore Corporation, and
ImmunoSystems, Inc. (previously filed as Exhibit 2.1 to the Registrant's Form 10-Q
for the quarter ended March 31, 1996 filed on May 13, 1996 ("March 31, 1996 10-Q")
and incorporated herein by this reference)
10.25 Operating Agreement between the Registrant and Strategic Diagnostics Inc. dated as
of October 1, 1996
10.26 Form of Employment Agreement by and between Richard C. Birkmeyer and the Registrant
10.27 Form of Employment Agreement by and between Grover C. Wrenn and the Registrant
10.28 Form of Registration Rights Agreement
10.29 Form of Lock-Up Letter Agreement
10.30 Form of Stockholder Voting Agreement
21.1 Subsidiaries of the Registrant
23.1 Consent of Troutman Sanders LLP (included in Exhibits 5.1 and 8.2)
23.2 Consent of Pepper, Hamilton & Scheetz (included in Exhibit 8.1)
23.3 Consent of Arthur Andersen LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Ernst & Young LLP
23.6 Consent of Raymond James & Associates, Inc.
23.7 Consent of Oppenheimer & Co. Inc.
23.8 Consent of Donald T. Aiello
23.9 Consent of Lundy Associates, Inc.
24.1 Powers of Attorney (included in the signature page to the Registration Statement)
99.1 Form of Proxy for the Special Meeting of Stockholders of Registrant
99.2 Form of Proxy for the Special Meeting of Stockholders of Strategic Diagnostics Inc.
99.3 Consents of Persons Named to Become Directors of the Surviving Corporation who have
not signed the Registration Statement
</TABLE>
<PAGE>
Exhibit 4.4
Common Stock Warrant No. __________
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
ENSYS ENVIRONMENTAL PRODUCTS, INC.
WARRANT TO PURCHASE
COMMON STOCK
1. ISSUANCE. This Warrant is issued to ________________________________
by EnSys Environmental Products, Inc., a Delaware corporation (referred to
hereinafter, with its successors, as the "Company"), on this __________ day of
____________, 1996 (the "Warrant Issuance Date"), in consideration of the
surrender to the Company for cancellation of certain warrants to purchase common
stock of Strategic Diagnostics Inc. ("SDI"), which warrants were issued on
____________________ and [EXCHANGED_____________________].
2. PURCHASE PRICE; NUMBER OF SHARES. Subject to the terms and conditions
hereinafter set forth, the registered holder of this Warrant (the "Holder) is
entitled upon surrender of this Warrant with the subscription form annexed
hereto, duly executed, at the office of the Company, to purchase __________
shares of common stock of the Company, par value $.01 per share (the "Common
Stock"), at the per share exercise price of $___________ (the "Purchase Price").
3. PAYMENT OF PURCHASE PRICE. Payment of the Purchase Price shall be
made in cash or by wire transfer or certified check or bank draft, payable to
the order of the Company, in lawful money of the United States.
4. PARTIAL EXERCISE. This Warrant may be exercised in part, and the
Holder shall be entitled to receive a new warrant, which shall be dated as of
the date of this Warrant, covering the number of shares in respect of which this
Warrant shall not have been exercised.
5. ISSUANCE DATE. The person or persons in whose name or names any
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
6. EXPIRATION DATE. This Warrant shall expire at the close of business
on ____________________, and shall be void thereafter.
7. RESERVED SHARES; VALID ISSUANCE. The Company covenants that it will
at all times from and after the date hereof reserve and keep available such
number of its authorized shares of Common Stock, free from all preemptive or
similar rights therein, as will be sufficient to permit the exercise of this
Warrant in full. The Company further covenants that, assuming the receipt by
the Company of the consideration therefor, such shares as may be issued pursuant
to the exercise
<PAGE>
of this Warrant will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
8. DIVIDENDS. If at any time after the Warrant Issuance Date, the
Company subdivides the Common Stock, by split-up or otherwise, or combines the
Common Stock, or issues additional shares of Common Stock in payment of a stock
dividend on the Common Stock, the number of shares issuable on the exercise of
this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination, and the Purchase Price shall forthwith be proportionately decreased
in the case of a subdivision or stock dividend, or proportionately increased in
the case of a combination. Whenever the Purchase Price is adjusted, as herein
provided, the Company shall promptly deliver to the Holder a certificate of an
officer of the Company setting forth the Purchase Price after such adjustment
and setting forth a brief statement on the facts requiring such adjustment.
9. MERGERS AND RECLASSIFICATIONS. If at any time after the Warrant
Issuance Date there shall be any reclassification, capital reorganization or
change of the Common Stock (other than as a result of a subdivision, combination
or stock dividend provided for in Section 8 hereof), or any consolidation of the
Company with, or merger of the Company into, another corporation or other
business organization (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification
or change of the outstanding Common Stock), or any sale or conveyance to another
corporation or other business organization of all or substantially all of the
assets of the Company, then, as a condition of such reclassification,
reorganization, change, consolidation, merger, sale or conveyance, lawful
provisions shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the Holder, so that the
Holder shall thereafter have the right to purchase, at a total price not to
exceed that payable upon the exercise of this Warrant in full, the kind and
amount of shares of stock and other securities and property receivable upon such
reclassification, reorganization, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock which might have
been purchased by the Holder immediately prior to such reclassification,
reorganization, change, consolidation, merger, sale or conveyance, and in any
such case appropriate provisions shall be made with respect to the rights and
interest of the Holder to the end that the provisions hereof (including without
limitation, provisions for the adjustment of the Purchase Price and the number
of shares issuable hereunder) shall thereafter be applicable in relation to any
shares of stock or other securities and property thereafter deliverable upon
exercise hereof.
10. FRACTIONAL SHARES. In no event shall any fractional share of Common
Stock be issued upon any exercise of this Warrant.
11. NOTICES OF RECORD DATE, ETC. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the
Company, or sale or conveyance of all or substantially all of its assets,
or
2
<PAGE>
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.
12. AMENDMENT. The terms of this Warrant may be amended, modified or
waived only by written agreement of the Company and the Holder.
13. WARRANT REGISTER; TRANSFER, ETC.
A. The Company will maintain a register containing the names and
addresses of the registered holders of outstanding Warrants. The Holder may
change its address as shown on the warrant register by written notice to the
Company requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be given by certified mail or delivered
to the Holder at its address as shown on the warrant register.
B. This Warrant may not be transferred or assigned in whole or in
part by the Holder without the prior written consent of the Company, which
consent shall not be unreasonably withheld (it being understood that the Company
may withhold consent to any transfer of the Warrant to any person seeking to
obtain control of the Company), except that prior written consent of the Company
will not be required for a transfer of the Warrant in whole by the Holder to an
"affiliate" of the Holder. An "affiliate" of the Holder shall mean any other
person or entity directly or indirectly controlling, controlled by or under
direct or indirect common control with the Holder. Prior to and as a condition
to effecting any such transfer the Holder shall deliver to the Company an
opinion of counsel reasonably satisfactory to the Company to the effect that
such transfer will comply with all applicable securities laws.
C. In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and denomination
and deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the Company.
14. NO IMPAIRMENT. The Company will not, by amendment of its Certificate
of Incorporation or through any reclassification, capital reorganization,
consolidation, merger, sale or conveyance of assets, dissolution, liquidation,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder.
15. GOVERNING LAW. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State of
Delaware.
3
<PAGE>
16. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon the
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
17. BUSINESS DAYS. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in Delaware, then such action may be taken
or right may be exercised on the next succeeding day which is not a Saturday or
Sunday or such a legal holiday.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer, under seal, as of the date above written.
ENSYS ENVIRONMENTAL PRODUCTS, INC.
By:___________________________________
Title:__________________________________
4
<PAGE>
SUBSCRIPTION
To: ____________________________ Date: _________________________________
The undersigned hereby subscribes for __________ shares of Common Stock
covered by this Warrant. The certificate(s) for such shares shall be issued in
the name of the undersigned or as otherwise indicated below:
Signature_______________________________
Name for Registration_____________________
Mailing Address_________________________
5
<PAGE>
Common Stock Warrant No. __________
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
ENSYS ENVIRONMENTAL PRODUCTS, INC.
WARRANT TO PURCHASE
COMMON STOCK
1. ISSUANCE. This Warrant is issued to ___________________ by EnSys
Environmental Products, Inc., a Delaware corporation (referred to
hereinafter, with its successors, as the "Company"), on this __________ day
of ____________________, 1996 (the "Warrant Issuance Date"), in consideration
of the surrender to the Company for cancellation of certain warrants to
purchase common stock of Strategic Diagnostics Inc., which warrants were
issued on __________ ___, 199_.
2. PURCHASE PRICE; NUMBER OF SHARES. Subject to the terms and conditions
hereinafter set forth, the registered holder of this Warrant (the "Holder) is
entitled upon surrender of this Warrant with the subscription form annexed
hereto, duly executed, at the office of the Company, to purchase __________
shares of common stock of the Company, par value $.01 per share (the "Common
Stock"), at the per share exercise price of $__________ (the "Purchase Price").
3. PAYMENT OF PURCHASE PRICE. The Purchase Price may be paid (i) in cash
or by check, (ii) by the surrender by the Holder to the Company of any
promissory notes or other obligations issued by the Company, with all such notes
and obligations so surrendered being credited against the Purchase Price in an
amount equal to the principal amount thereof plus accrued interest to the date
of surrender, (iii) through delivery by the Holder to the Company of other
securities issued by the Company, with such securities being credited against
the Purchase Price in an amount equal to the fair market value thereof, as
determined in good faith by the Board of Directors of the Company (the "Board"),
or (iv) by any combination of the foregoing. The Board shall promptly respond
in writing to an inquiry by the Holder as to the fair market value of any
securities the Holder may wish to deliver to the Company pursuant to clause
(iii) above.
4. NET ISSUE ELECTION. The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the value
of this Warrant or any portion hereof by the surrender of this Warrant or such
portion to the Company, with the net issue election notice annexed hereto duly
executed, at the office of the Company; PROVIDED, that the Holder may not make
such an election unless (i) the Company has registered its securities pursuant
to the Securities Act of 1933, as amended, (the "Act") or in connection with
such registration or (ii) upon the expiration of this Warrant. Thereupon, the
Company shall issue to the Holder such number of fully paid and nonassessable
shares of Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
<PAGE>
where X = the number of shares to be issued to the Holder pursuant to this
Section 4.
Y = the number of shares covered by this Warrant in respect of which the
net issue election is made pursuant to this Section 4.
A = the fair market value of one share of Common Stock. If the Company's
securities are registered pursuant to the Act, the fair market value shall mean
the average high and low prices of the Common Stock on the day prior to the
exercise of this Warrant, if the Common Stock is being traded on a national
exchange; or the last reported sale price on the day prior to exercise of this
Warrant, if the Common Stock is traded on the Nasdaq National Market, and if the
Common Stock is not traded on a national exchange; or the closing bid price (or
average of bid prices) last quoted on the day prior to the exercise of this
Warrant by an established quotation service for over-the-counter securities, if
the Common Stock is not reported on the Nasdaq National Market or a national
exchange. If the election occurs in connection with the registration of
securities, then the fair market value shall be the price offered to the public.
Otherwise, the fair market value shall be as determined in good faith by the
Board, at the time the net issue election is made pursuant to this Section 4.
B = the Purchase Price in effect under this Warrant at the time the net
issue election is made pursuant to this Section 4.
The Board shall promptly respond in writing to an inquiry by the Holder as to
the fair market value of one share of Common Stock.
5. PARTIAL EXERCISE. This Warrant may be exercised in part, and the
Holder shall be entitled to receive a new warrant, which shall be dated as of
the date of this Warrant, covering the number of shares in respect of which this
Warrant shall not have been exercised.
6. ISSUANCE DATE. The person or persons in whose name or names any
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
7. EXPIRATION DATE. This Warrant shall expire at the close of business
[on the expiration date of the original warrants] and shall be void thereafter.
8. RESERVED SHARES; VALID ISSUANCE. The Company covenants that it will
at all times from and after the date hereof reserve and keep available such
number of its authorized shares of Common Stock, free from all preemptive or
similar rights therein, as will be sufficient to permit the exercise of this
Warrant in full. The Company further covenants that, assuming the receipt by
the Company of the consideration therefor, such shares as may be issued pursuant
to the exercise of this Warrant will, upon issuance, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof.
9. DIVIDENDS. If at any time after the Warrant Issuance Date, the
Company subdivides the Common Stock, by split-up or otherwise, or combines the
Common Stock, or issues additional shares of Common Stock in payment of a stock
dividend on the Common Stock, the number of shares issuable on the exercise of
this Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination, and the Purchase Price shall forthwith be proportionately decreased
in the case of a subdivision or stock dividend, or proportionately increased in
the case of a combination. Whenever the Purchase
2
<PAGE>
Price is adjusted, as herein provided, the Company shall promptly deliver to the
Holder a certificate of an officer of the Company setting forth the Purchase
Price after such adjustment and setting forth a brief statement on the facts
requiring such adjustment.
10. MERGERS AND RECLASSIFICATIONS. If at any time after the Warrant
Issuance Date there shall be any reclassification, capital reorganization or
change of the Common Stock (other than as a result of a subdivision, combination
or stock dividend provided for in Section 9 hereof), or any consolidation of the
Company with, or merger of the Company into, another corporation or other
business organization (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification
or change of the outstanding Common Stock), or any sale or conveyance to another
corporation or other business organization of all or substantially all of the
assets of the Company, then, as a condition of such reclassification,
reorganization, change, consolidation, merger, sale or conveyance, lawful
provisions shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the Holder, so that the
Holder shall thereafter have the right to purchase, at a total price not to
exceed that payable upon the exercise of this Warrant in full, the kind and
amount of shares of stock and other securities and property receivable upon such
reclassification, reorganization, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock which might have
been purchased by the Holder immediately prior to such reclassification,
reorganization, change, consolidation, merger, sale or conveyance, and in any
such case appropriate provisions shall be made with respect to the rights and
interest of the Holder to the end that the provisions hereof (including without
limitation, provisions for the adjustment of the Purchase Price and the number
of shares issuable hereunder) shall thereafter be applicable in relation to any
shares of stock or other securities and property thereafter deliverable upon
exercise hereof.
11. FRACTIONAL SHARES. In no event shall any fractional share of Common
Stock be issued upon any exercise of this Warrant.
12. NOTICES OF RECORD DATE, ETC. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the
Company, or sale or conveyance of all or substantially all of its assets,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.
3
<PAGE>
13. AMENDMENT. The terms of this Warrant may be amended, modified or
waived only by written agreement of the Company and the Holder.
14. WARRANT REGISTER; TRANSFER, ETC.
A. The Company will maintain a register containing the names and
addresses of the registered holders of outstanding Warrants. The Holder may
change its address as shown on the warrant register by written notice to the
Company requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be given by certified mail or delivered
to the Holder at its address as shown on the warrant register.
B. This Warrant may not be transferred or assigned in whole or in
part by the Holder without the prior written consent of the Company, which
consent shall not be unreasonably withheld (it being understood that the Company
may withhold consent to any transfer of the Warrant to any person seeking to
obtain control of the Company), except that prior written consent of the Company
will not be required for a transfer of the Warrant in whole by the Holder to an
"affiliate" of the Holder. An "affiliate" of the Holder shall mean any other
person or entity directly or indirectly controlling, controlled by or under
direct or indirect common control with the Holder. Prior to and as a condition
to effecting any such transfer the Holder shall deliver to the Company an
opinion of counsel reasonably satisfactory to the Company to the effect that
such transfer will comply with all applicable securities laws.
C. In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and denomination
and deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the Company.
15. NO IMPAIRMENT. The Company will not, by amendment of its Certificate
of Incorporation or through any reclassification, capital reorganization,
consolidation, merger, sale or conveyance of assets, dissolution, liquidation,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder.
16. GOVERNING LAW. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State of
Delaware.
17. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon the
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
18. BUSINESS DAYS. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in Delaware, then such action may be taken
or right may be exercised on the next succeeding day which is not a Saturday or
Sunday or such a legal holiday.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer, under seal, as of the date above written.
ENSYS ENVIRONMENTAL PRODUCTS, INC.
By:___________________________________
Title:__________________________________
5
<PAGE>
SUBSCRIPTION
To: ____________________________ Date: _________________________________
The undersigned hereby subscribes for __________ shares of Common Stock
covered by this Warrant. The certificate(s) for such shares shall be issued in
the name of the undersigned or as otherwise indicated below:
Signature_______________________________
Name for Registration_____________________
Mailing Address_________________________
6
<PAGE>
NET ISSUE ELECTION NOTICE
To: ____________________________ Date: _________________________________
The undersigned hereby elects under Section 4 to surrender the right to
purchase __________ shares of Common Stock Pursuant to this Warrant. The
certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.
Signature_______________________________
Name for Registration_____________________
Mailing Address_________________________
7
<PAGE>
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
December 9, 1996
EnSys Environmental Products, Inc.
4222 Emperor Boulevard
Durham, North Carolina 27703
Ladies and Gentlemen:
We have examined a copy of the registration statement on Form S-4 (the
"Registration Statement") filed by EnSys Environmental Products, Inc., a
Delaware corporation (the "Company"), with the Securities and Exchange
Commission on December 9, 1996, relating to the registration pursuant to the
provisions of the Securities Act of 1933, as amended (the "Act"), of 6,715,721
shares of common stock, par value $0.01 per share, of the Company (the "Common
Stock"), and 2,164,362 shares of Series A Convertible Preferred Stock, par
value $0.01 per share, of the Company (the "Preferred Stock") (the shares of
Common Stock and the shares of Preferred Stock are collectively referred to
herein as the "Shares"). The Shares are to be issued in connection with the
proposed merger of Strategic Diagnostics Inc., a Delaware corporation ("SDI"),
with and into the Company (the "Merger") pursuant to the terms of the Agreement
and Plan of Merger, dated as of October 11, 1996 (the "Merger Agreement"), by
and between SDI and the Company.
This opinion letter is limited by, and is in accordance with, the January
1, 1992 edition of the Interpretive Standards applicable to Legal Opinions to
Third Parties in Corporate Transactions adopted by the Legal Opinion Committee
of the Corporate and Banking Law Section of the State Bar of Georgia, which
Interpretive Standards are incorporated in this opinion letter by this
reference. Capitalized terms used in this opinion letter and not otherwise
defined herein shall have the meanings assigned to such terms in the
Interpretive Standards.
We have examined originals (or copies certified or otherwise identified to
our satisfaction) of the Registration Statement, the Merger Agreement, the
Certificate of Incorporation and Bylaws of the Company as in effect on the date
hereof, corporate and other documents, records and papers and certificates of
public officials. In giving this opinion, we assume that the certificates
representing the Shares will conform to the General Corporation Law of
Delaware and the Bylaws of the Company. In such examination we have also
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us and the genuineness and conformity to original documents of
documents submitted to us as certified or photostatic copies.
<PAGE>
On the basis of such examination, it is our opinion that, assuming (i) the
Merger shall have been consummated in accordance with the Merger Agreement and
the applicable provisions of the General Corporation Law of the State of
Delaware; (ii) the pertinent provisions of the Act and the Securities Exchange
Act of 1934, as amended, shall have been complied with; and (iii) the applicable
provisions of the securities or "blue sky" laws of various states shall have
been complied with:
When certificates evidencing the Shares have been duly executed,
countersigned, registered, issued and delivered by the proper officers
of the Company in compliance with the Merger Agreement, the Shares
will be duly and validly issued and outstanding, fully paid and
non-assessable shares of Common Stock and Preferred Stock of the
Company as the case may be.
We are members of the Bar of the State of Georgia. In expressing the
opinions set forth above, we are not passing on the laws of any jurisdiction
other than the General Corporation Law of the State of Delaware and the Federal
law of the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the related prospectus.
Very truly yours,
/s/ TROUTMAN SANDERS LLP
<PAGE>
EXHIBIT 8.1
December 9, 1996
Strategic Diagnostics Inc.
128 Sandy Drive
Newark, Delaware 19713
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of Strategic Diagnostics
Inc. ("SDI"), a Delaware corporation with and into EnSys Environmental
Products, Inc. ("EnSys"), a Delaware corporation, under the circumstances
and on the terms and conditions more fully described herein.
The terms of the Merger are contained in the Agreement and Plan of
Merger dated as of October 11, 1996 (the "Plan of Merger"). Terms not
otherwise defined in this letter shall have the meanings assigned to them in
the Plan of Merger.
You have directed us to assume in preparing this opinion that
(1) the Merger will be consummated in accordance with the terms,
conditions and other provisions of the Plan of Merger, and (2) all of
the factual information, descriptions, representations and assumptions
set forth in this letter (an advance copy of which has been provided to
you), in the Plan of Merger, in the letters to us from certain SDI
shareholders dated December 2, 1996, from SDI dated December 2, 1996 and
from EnSys dated December 2, 1996 (collectively, the "Letters," copies
of which are attached hereto), and in the Joint Proxy Statement/Prospectus
pertaining to the Merger (the "Prospectus") as filed with the Securities
and Exchange Commission, are accurate and complete and will be accurate
and complete at the time the Merger becomes effective (the "Effective
Time"). We have not independently verified any factual matters relating
to the Merger in connection with our preparation of this opinion and,
accordingly, our
<PAGE>
Strategic Diagnostics Inc.
Page 2
December 9, 1996
opinion does not take into account any other matters not set forth herein
which might have been disclosed by independent verification.
I. PARTIES TO THE MERGER
1. STRATEGIC DIAGNOSTICS INC.
SDI was incorporated in 1990 as a Delaware corporation, and its
principal executive offices are located at 128 Sandy Drive, Newark, Delaware
19713. SDI develops, manufactures and markets immunoassay-based kits which
serve a wide variety of markets including agriculture and food processing,
industrial pollution, medical and water treatment. In addition to providing
tests in a variety of formats for field and laboratory use, SDI provides
antibody and immunoreagent research and development services. Many of SDI's
products are developed in collaboration with large chemical and
pharmaceutical firms. A leading SDI product is the one step
GeneCheck-Trademark- B.t.k. test which is used to determine the presence of a
gene which provides a plant with a beneficial attribute such as natural
insect resistance. In August 1996, SDI acquired Ohmicron Corporation
("Ohmicron"), a provider of immunoassay tests for pesticide and industrial
pollution applications. In October 1996, SDI entered into an agreement with
Taconic Farms, Inc. ("Taconic") to dissolve TSD BioServices ("TSD"), a
partnership between SDI and Taconic and to liquidate its assets, in
connection with which certain of the rights and assets of TSD will be
distributed to SDI.
2. ENSYS ENVIRONMENTAL PRODUCTS, INC.
EnSys was incorporated in 1987 as a Delaware corporation. EnSys'
principal executive offices are located at 4222 Emperor Boulevard, Durham,
North Carolina 27703. EnSys develops and sells on-site test systems, based
primarily on immunoassy technology, for detection of contaminants in soil and
water and other media samples. Ensys' disposable test systems use proprietary
immunoassay reagents and other chemical reagents that allow environmental
scientists and engineers, waste managers and waste generators to accurately
test soil and water samples for environmental remediation and environmental
monitoring purposes. In addition, on-site testing facilitates more effective
management of the overall remediation project, and helps reduce
<PAGE>
Strategic Diagnostics Inc.
Page 3
December 9, 1996
costs associated with site investigation and clean-up. EnSys was the first
company to have immunoassay test methods accepted by the United States
Environmental Protection Agency (the "EPA") under draft methods that are used
for regulatory compliance purposes under the Resource Conservation and
Recovery Act ("RCRA") and the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA" or "Superfund").
II. THE MERGER
Pursuant to the Plan of Merger, SDI will be merged, in accordance
with the applicable provisions of the Delaware General Corporation Law (the
"DGCL"), with and into EnSys, with EnSys as the surviving corporation. EnSys,
which is also referred to as the Surviving Corporation, will amend its
Certificate of Incorporation to, among other things, (i) change the corporate
name of the Surviving Corporation to Strategic Diagnostics Inc.; (ii)
increase the number of authorized shares of common stock, authorize the
issuance of the Surviving Corporation Series A Preferred Stock to be issued
in the Merger and the issuance of additional shares of "blank check"
Preferred Stock which may be issued from time to time by the Surviving
Corporation's Board of Directors with such rights, preferences and other
designations as the Board of Directors shall determine; and (iii) reclassify
the Board of Directors.
The affirmative vote of the holders of a majority of the
outstanding shares of SDI Common Stock and SDI Preferred Stock, voting
together (sometimes referred to collectively herein as the "SDI Shares"), is
required to approve and adopt the Merger Agreement. Approval and adoption of
the Merger Agreement also requires the affirmative vote of the holders of
two-thirds of the outstanding shares of SDI Preferred Stock, voting as a
class, pursuant to the terms of the SDI Certificate of Incorporation. As of
the Record Date, 7,819,493 shares of SDI Common Stock and 2,927,960 shares of
SDI Preferred Stock were issued and outstanding, and approximately 91% of the
SDI Shares were beneficially owned by directors, executive officers and
affiliates of SDI (excluding 869,564 shares which may be acquired by such
persons upon exercise of options, warrants or other rights which are
exercisable within 60 days of the Record Date). Holders of 83% of the
currently outstanding shares of SDI Common Stock and all of the currently
outstanding SDI Preferred Stock
<PAGE>
Strategic Diagnostics, Inc.
Page 4
December 9, 1996
(representing 88% of the currently outstanding SDI Shares) have entered into
Stockholder Voting Agreements with EnSys pursuant to which such holders (all
of whom are directors, executive officers or affiliates of SDI) have agreed
to vote such SDI Shares in favor of the approval and adoption of the Merger
Agreement at the SDI Meeting.
The affirmative vote of holders of two-thirds of the outstanding shares
of EnSys Common Stock is required to approve the Merger and related
proposals, defined in the Prospectus as the Merger Proposals. As of the
Record Date, 7,217,794 shares of EnSys Common Stock were issued and
outstanding, of which approximately 60% were beneficially owned by directors,
executive officers and affiliates of EnSyS (excluding 386,585 shares which
may be acquired by such persons upon exercise of options and other rights
which are exercisable within 60 days of the Record Date). Holders of 32% of
the currently outstanding shares of EnSys Common Stock have entered into the
Stockholder Voting Agreements with SDI pursuant to which such holders (all of
whom are directors, executive officers or affiliates of EnSys) have agreed to
vote such shares of EnSys Common Stock in favor of the approval and adoption
of the Merger Agreement at the Ensys Meeting.
At the Effective Time:
1. All assets and liabilities of SDI will be transferred by operation of
law to Surviving Corporation.
2. The separate corporate existence of SDI will cease.
3. Each outstanding share of SDI Common Stock for which dissenters
rights under DGCL Section 262 are not exercised will be converted into
.7392048 share(s) of the Surviving Corporation, and each outstanding share of
SDI Preferred Stock for which dissenters rights under DGCL Section 262 are
not exercised will be converted into .7392048 share(s) of Surviving
Corporation Series A Preferred Stock (the Surviving Corporation Common Stock
and Series A Preferred Stock sometimes jointly referred to herein jointly as
Surviving Corporation Stock).
4. Based upon the number of outstanding shares of EnSys Common Stock and
SDI Common Stock as of the Record Date,
<PAGE>
Strategic Diagnostics, Inc.
Page 5
December 9, 1996
assuming that all outstanding options and warrants to purchase EnSys Common
Stock and SDI Common Stock are exercised, approximately 16,769,782 shares of
the Surviving Corporation Common Stock will be outstanding upon consummation
of the Merger, (i) of which approximately 7,835,789 shares, representing
approximately 47% of the total will be held by pre-Merger EnSys stockholders
and (ii) of which approximately 8,933,993 shares, representing approximately
53% of the total, will be held by former SDI stockholders.
5. Shares of SDI Common held by persons who perfect their appraisal rights
shall become the right to receive from Surviving Corporation cash in an amount
equal to the fair value of their shares as determined in accordance with
Delaware law.
6. A non-qualified stock option to purchase .7818 shares of EnSys Common
Stock issued under the EnSys Environmental Products, Inc. 1995 Stock
Incentive Plan ("EnSys Option") will be substituted for each non-qualified
stock option to purchase one share of SDI Common Stock issued under the
Strategic Diagnostics Industries, Inc. 1993 Employee Non-Qualified Stock
Option Plan (an "SDI Option").
No fractional shares of Surviving Corporation Common or Preferred Stock
will be issued in the Merger. Each SDI Stockholder who otherwise would be
entitled to receive a fraction of a share of Surviving Corporation Stock,
instead, will receive from Surviving Corporation an amount of cash equal to
the Fair Market Value (as defined in the Plan of Merger) of one share of
Surviving Corporation Common Stock multiplied by the fractional share in
question.
Except for cash paid to dissenters and cash exchanged in lieu of issuing
fractional shares of Surviving Corporation Stock, no cash will be exchanged
for shares of SDI Stock pursuant to the Merger.
<PAGE>
Strategic Diagnostics, Inc.
Page 6
December 9, 1996
III. REPRESENTATIONS AND ASSUMPTIONS
We also have relied with your permission on the following additional
representations and/or assumptions:
1. The Merger will be effected for bona fide business reasons.
2. To the best of the knowledge of stockholders of SDI owning a
number of SDI Shares having a vlue in the aggregate of more than 50% of the
total value of the SDI Shares outstanding on the date of the Merger, and SDI,
there is no plan or intention by the SDI stockholders to sell, exchange, or
otherwise dispose of a number of shares of Surviving Corporation Stock
received in the Merger that would reduce the SDI stockholders' ownership of
the Surviving Corporation Stock to a number of shares having a value, as of
the date of the Merger, of less than 50% of the value of all of the
formerly outstanding SDI Shares held by SDI stockholders as of the same date.
3. To the best of the knowledge of the management of SDI, the fair
market value of the Surviving Corporation Common Stock received in the Merger
by holders of SDI Common Stock will be approximately equal to the fair market
value of the SDI Common Stock exchanged pursuant to the Merger, and the fair
market value of the Surviving Corporation Series A Preferred Stock received
in the Merger by holders of SDI Preferred Stock will be approximately equal
to the fair market value of the SDI Preferred Stock exchanged pursuant to the
Merger.
4. EnSys has no plan or intention to reacquire any of the Surviving
Corporation Stock issued in the Merger.
5. EnSys has no plan or intention to sell or dispose of any of the
assets of SDI received in the Merger, except for dispositions made in the
ordinary course of business and transfers described in the Code Section
368(a)(2)(C).
6. Following the Merger, EnSys will continue an historic business of SDI
or will use a significant portion of SDI's historic business assets in a
business.
7. All of the SDI liabilities at the Effective Date will have been
incurred in the ordinary course of business.
<PAGE>
Strategic Diagnostics, Inc.
Page 7
December 9, 1996
8. SDI and EnSys and the SDI stockholders will pay their respective
expenses, if any, incurred in connection with the Merger.
9. There is no intercorporate indebtedness existing between SDI and
EnSys that was issued or acquired, or will be settled, at a discount.
10. No two parties to the Merger are investment companies as defined in
Code Sections 368(a)(2)(F)(iii) and (iv).
11. SDI is not under the jurisdiction of a court in a Title 11
(bankruptcy) proceeding.
12. At the Effective Time, the fair market value of the assets of SDI
will exceed the sum of its liabilities (including, without limitation, any
liabilities to which its assets are subject).
13. The payment of cash in lieu of fractional shares of SDI Stock is
solely for the purpose of avoiding the expense and inconvenience to Surviving
Corporation of issuing fractional shares and does not represent separately
bargained-for consideration.
14. At the Effective Time, the aggregate fair market value of SDI Common
Stock subject to SDI Options will be approximately equal to the aggregate
fair market value of EnSys Common Stock subject to the EnSys Options
substituted for those SDI Options.
15. Neither SDI Options nor EnSys Options is actively traded on any
established market.
16. Neither SDI Options or EnSys Options are transferable other than by
will or the laws of descent and distribution.
17. The material terms of EnSys Options substituted for SDI Options
(including, without limitation, terms related to vesting and exercisability)
are substantially similar to the terms of those SDI Options.
<PAGE>
Strategic Diagnostics Inc.
Page 8
December 9, 1996
IV. OPINION
Assuming that the Merger is consummated in accordance with the terms and
conditions set forth in the Plan of Merger and based on the facts set forth in
the Letters and this letter (including all assumptions and representations) and
subject to the qualifications and other matters set forth herein, it is our
opinion that for federal income tax purposes the Merger will be treated as a
reorganization within the meaning of Code Section 368(a), and therefore, will
have the following material federal income tax consequences:
1. No gain or loss would be recognized by SDI as a result of the Merger.
Code Section 361.
2. No gain or loss would be recognized by a SDI stockholder upon the
receipt of Surviving Corporation Stock in exchange solely for SDI Stock. Code
Section 354.
3. The aggregate adjusted tax basis of the shares of Surviving
Corporation Stock to be received by a SDI Stockholder in the Merger would be the
same as the aggregate adjusted tax basis in the shares of SDI Stock surrendered
in exchange therefor. Code Section 358.
4. The holding period under the Code of the shares of Surviving
Corporation Stock to be received by the Investors in the Merger would include
the holding period of the shares of SDI Stock surrendered in exchange therefor,
provided that such shares of SDI Stock are held as capital assets at the
Effective Time. Code Section 1223.
5. As SDI stockholder who receives cash in lieu of a fractional share
interest in Surviving Corporation Common Stock or Surviving Corporation Series A
Preferred Stock will be treated for federal income tax purposes as having
received cash in redemption of such fractional share interest. The receipt of
such cash should result in capital gain or loss in am amount equal to the
difference between the amount of cash received and the portion of such
shareholder's adjusted tax basis in the shares of SDI allocable to the
fractional share interest. Such capital gain or loss will be long-term gain or
loss if the SDI stock is held as a capital asset and the SDI stock is held for
more than one year.
<PAGE>
Strategic Diagnostics Inc.
Page 9
December 9, 1996
6. An SDI stockholder who perfects dissenter's rights and who receives
a cash payment of the fair market value of his stock will be treated as
having received such payment in redemption of such shares. Such redemption
will be subject to the conditions and limitations of Code Section 302
including the attribution rules of code Section 318. In general, if
immediately after the Effective Time, a dissenting shareholder owns, actually
and constructively, no Surviving Corporation Common or Series A Preferred
Stock, and the SDI stock was owned as a capital asset, the dissenting
stockholder should recognize capital gain or loss measured by the difference
between the amount of cash received by such stockholder and the basis for
amount of cash received by such stockholder and the basis for such shares.
In general, under the constructive ownership rules of the Code, a holder may
be considered to own stock that is owned, and in some cases constructively
owned, by certain related individuals or entities, as well as stock that such
holder (or related individuals or entities) has the right to acquire by
exercising an option or converting a convertible security.
In addition, based on the foregoing, it is our opinion that no gain or loss
would be recognized by the holders of SDI Options upon the conversion of such
options into EnSys Options at the Effective Time. Code Section 83.
Our opinion is limited to the foregoing federal income tax consequences of
the Merger, which are the only matters as to which you have requested our
opinion. We have not addressed any other federal income tax consequences of the
Merger other than those specifically set forth herein and we have not considered
any matters (including state or local tax consequences) arising under the laws
of any jurisdiction other than matters of federal law arising under the laws of
the United States as expressly set forth herein.
Our opinion is based on the understanding that the relevant facts are, and
will be at the Effective Time, as set forth or referred to in this letter. If
this understanding is incorrect or incomplete in any respect, our opinion could
be affected. Our opinion is based on the facts and representations as expressed
herein.
Our opinion is based upon existing law as of the date of this letter,
including the provisions of the Code, Treasury Regulations promulgated
thereunder, current administrative
<PAGE>
Strategic Diagnostics Inc.
Page 10
December 9, 1996
rulings and practices of the Internal Revenue Service, case law, and judicial
decisions interpreting the same, none of which squarely addresses every
precise factual circumstance present in the connection with the Merger but
all of which, taken together, in our opinion provide a sufficient legal basis
for our opinions set forth herein. The possibility exists, however, that our
opinion as to the proper application of the law to the facts of the Merger
would not be accepted by the Internal Revenue Service or would not prevail in
court.
In addition, the authorities upon which we have relied are all subject
to change and such change may be made with retroactive effect. No assurances
can be provided as to future judicial interpretations of these laws or their
effect on this opinion. We are not hereby undertaking to advise you as to any
changes in the law, facts, or circumstances which may hereafter occur or come
to our attention. No assurance can be provided that after any such change our
opinion would not be different. Further, we undertake no responsibility and
are under no obligation to update or supplement our opinion at any future
time nor render any further opinion to you.
Only SDI and the SDI stockholders may rely on this opinion, and only
with respect to the Merger.
We hereby consent to the filing with the Securities and Exchange
Commission of this opinion as an exhibit to the Prospectus and to the
reference to our firm under the headings "Summary -- Certain Federal Income
Tax Consequences" and "Certain Federal Income Tax Consequences of the Merger"
in the Prospectus. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933.
V. OTHER TAX CONSIDERATIONS
As described in the Joint Proxy/Prospectus, holders of SDI Warrants
outstanding as of the Effective Time will have their SDI Warrants converted
into Surviving Corporation Warrants. Such conversion may be a taxable event.
However, in 1994 the Internal Revenue Service ruled privately that the
assumption in a merger of options of the target company by the surviving
company, on identical terms, was not a taxable event. No such private ruling
<PAGE>
Strategic Diagnostics Inc.
Page 11
December 9, 1996
has been sought in this transaction. Taxpayers may not use private letter
rulings to which they are not parties as precedent. Section 6110(j)(3). WE
EXPRESS NO OPINION AS TO THE TAX CONSEQUENCES OF THE WARRANT CONVERSION.
Warrant holders should consult their own tax advisors with respect to the
specific tax consequences of the warrant conversion to them.
Very truly yours,
PEPPER, HAMILTON & SCHEETZ
/s/ Joan C. Arnold
----------------------------------
Joan C. Arnold, a Partner
<PAGE>
December 2, 1996
Pepper, Hamilton & Scheetz Troutman Sanders LLP
3000 Two Logan Square 600 Peachtree Street
18th and Arch Streets and N.E. - Suite 5200
Philadelphia, PA 19103 Atlanta, GA 30338
Dear Ladies and Gentlemen:
Strategic Diagnostics Inc., a Delaware corporation ("SDI"), and EnSys
Environmental Products, Inc., a Delaware corporation ("EnSys") have entered
into an Agreement and Plan of Merger dated as of October 11, 1996 (the "Plan
of Merger"). Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Plan of Merger.
In accordance with the Plan of Merger, you are each being requested to
provide your opinion that the Merger, when consummated in accordance with the
terms of the Plan of Merger and subject to the representations set forth
herein, will constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended, and that the certain
federal income tax consequences to the SDI stockholders will be as described
in the opinion letter, an advance copy of which has been provided to us.
In preparing your opinions, you may each assume and rely upon the
following: (i) that the persons who have signed below each own SDI Shares
that represent one percent (1%) of the value of the outstanding SDI Shares
and, in the aggregate, own stock of SDI that has a value of more than fifty
percent (50%) of the total value of the SDI Shares outstanding as of the date
of this letter and there is no present plan or intention and will be no plan
or intention as of the Effective Time by such SDI stockholders to sell,
exchange or otherwise dispose of a number of shares of Surviving Corporation
stock received in the Merger that will reduce such SDI stockholders'
ownership of the Surviving Corporation Stock to a number of shares having a
value, as of the date of the Merger, of less than fifty percent (50%) of the
value of all of the outstanding SDI shares held by SDI stockholders as of the
same date, (ii) that to the best of the knowledge of each of the undersigned
SDI stockholders, the fair market value of the Surviving Corporation Common
Stock to be received in the Merger by holders of SDI common stock will be
approximately equal to the fair market value of the SDI common stock that
such SDI
<PAGE>
stockholder exchanges pursuant to the Merger, and the fair market value of
the Surviving Corporation's Series A Preferred Stock received in the Merger
by holders of SDI Preferred Stock will be approximately equal to the fair
market value of the SDI Preferred Stock exchanged by holders of such pursuant
to the Merger, (iii) that the facts and representations in the preceding
clauses (i) and (ii) will be true, accurate and correct as of the Effective
Time, and (iv) that all of the factual information, representations and
assumptions set forth in this letter, in the Plan of Merger, in the letter to
you from EnSys dated December 2, 1996, in the letter from SDI dated
December 2, 1996, and in the Joint Proxy/Prospectus filed by EnSys with the
Securities and Exchange Commission (the "SEC") on November 22, 1996 are true
accurate and complete and will be true accurate and complete as of the
Effective Time, and (v) there will not be any material change to the factual
information as it is contained in the Prospectus as and when it is declared
effective by the SEC.
We also acknowledge and understand that your opinion will be limited to
the federal income tax consequences of the Merger specifically set forth in
the opinion, which are the only matters as to which we have requested your
opinion. We acknowledge and understand that your opinion will only address
such matters and will not address any other federal income tax consequences
of the Merger or other matters of federal laws and will not address other
matters (including foreign tax consequences or state and local tax
consequences) arising under the laws of any jurisdiction other than the
matters of federal law arising under the laws of the United States.
We further acknowledge and understand that your opinion is based on the
laws, facts, circumstances, representation and assumptions as they exist as
of the date of the opinion and that these matters are all subject to change,
which change may be retroactive. We have not requested you, nor will you
undertake the responsibility, to advise us of any such change or to
supplement or update your opinion in light of any changes after the date of
the Opinion.
Very truly yours,
DSV PARTNERS IV
By: DSV Management, Ltd.,
its general partner
By: /s/ Morton Collins
------------------------------
General Partner
<PAGE>
EDISON VENTURE FUND II, L.P.
By: Edison Partners II, L.P.,
General Partner
By: /s/ Richard Defieux
------------------------------
General Partner
EDISON VENTURE FUND II-PA, L.P.
By: Edison Partners II, L.P.,
General Partner
By: /s/ Richard Defieux
------------------------------
General Partner
EM INDUSTRIES, INCORPORATED
By: /s/ Tom Colclough
------------------------------
Name: Tom Colclough
Title: Group Vice President
/s/ Richard C. Birkmeyer
----------------------------------
Dr. Richard C. Birkmeyer
/s/ Anne F. Cavanaugh
----------------------------------
Anne F. Cavanaugh
/s/ Martha C. Reider
----------------------------------
Martha C. Reider
<PAGE>
STRATEGIC DIAGNOSTICS INC.
128 Sandy Drive
Newark, Delaware 19713
December 2, 1996
Pepper, Hamilton & Scheetz
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
Dear Ladies and Gentlemen:
Strategic Diagnostics Inc., a Delaware corporation ("SDI"), and EnSys
Environmental Products, Inc., a Delaware corporation ("EnSys") have entered
into an Agreement and Plan of Merger dated as of October 11, 1996 (the "Plan
of Merger"). Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Plan of Merger.
In accordance with the Plan of Merger, we are requesting your opinion that
the Merger, when consummated in accordance with the terms of the Plan of Merger
and subject to the representations set forth herein, will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and that the certain federal income tax consequences
to the SDI stockholders will be as described in the opinion letter, an advance
copy of which has been provided to us.
In preparing your opinions, you may each assume and rely upon the
following: (i) that the Merger will be consummated in accordance with the
terms, conditions and other provisions of the Plan of Merger; and (ii) that all
of the factual information, descriptions, representations and assumptions set
forth in this letter, in the Plan of Merger, in your opinion letter, in the
letter to you from certain SDI shareholders dated December 2, 1996, in the
letter from EnSys dated December 2, 1996, and in the Joint Proxy Statement/
Prospectus filed by EnSys with the Securities and Exchange Commission (the
"SEC") on November 22, 1996 are true, accurate and complete and will be true,
accurate and complete at the Effective Time; and (iii) that there will not be
any material change to the factual information as it is contained in the
Prospectus as and when it is declared effective by the SEC.
<PAGE>
Pepper, Hamilton & Scheetz
December 2, 1996
Page 2
The foregoing is provided to you in connection with the preparation of
your opinion. We understand and acknowledge that your opinion will be
premised on the basis that all of the facts, representations and assumptions
on which you are relying, whether contained herein or in the other documents
identified in this letter, are true, accurate and complete and will be true,
accurate and complete at the Effective Time. We further understand that your
opinion will be subject to the qualifications and limitations set forth in
your opinion letter.
We also acknowledge and understand that your Opinion will be limited to
the federal income tax consequences of the Merger specifically set forth in
the Opinion, which are the only matters as to which we have requested your
Opinion. We acknowledge and understand that your Opinion will only address
such matters and will not address any other federal income tax consequences
of the Merger or other matters of federal laws and will not address other
matters (including foreign tax consequences or state and local tax
consequences) arising under the laws of any jurisdiction other than the
matters of federal law arising under the laws of the United States.
We further acknowledge and understand that your opinion is based on the
laws, facts, circumstances, representation and assumptions as they exist as
of the date of the opinion and that these matters are all subject to change,
which change may be retroactive. We have not requested you, nor will you
undertake the responsibility, to advise us of any such change or to
supplement or update your opinion in light of any changes after the date of
the Opinion.
Very truly yours,
STRATEGIC DIAGNOSTICS INC.
By: /s/ Richard C. Birkmeyer
------------------------------
President
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
4222 Emperor Boulevard
Durham, North Carolina 27703
December 2, 1996
Pepper, Hamilton & Scheetz
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
Dear Ladies and Gentlemen:
Strategic Diagnostics Inc., a Delaware corporation ("SDI"), and EnSys
Environmental Products, Inc., a Delaware corporation ("EnSys") have entered
into an Agreement and Plan of Merger dated as of October 11, 1996 (the "Plan
of Merger"). Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Plan of Merger.
As part of the Plan you have been requested to opine tht the Merger,
when consummated in accordance with the terms of the Plan of Merger
and subject to the representations set forth herein, will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and that the certain federal income tax consequences
to the SDI stockholders will be as described in the opinion letter, an advance
copy of which has been provided to us.
In preparing your opinion, you may rely upon and assume that all factual
information, descriptions and representations relating to EnSys or the
Surviving Corporation, to the extent within the knowledge of EnSys, set forth
in (i) your opinion letter (an advance copy of which has been provided to us)
and (ii) the Joint Proxy Statement/Prospectus filed November 22, 1996 are
true, accurate and complete and will be true, accurate complete at the
Effective Time.
Very truly yours,
ENSYS ENVIRONMENTAL PRODUCTS INC.
By: /s/ JAMES M. TERRELL, III
-------------------------------------
Name: James M. Terrell, III
Title: Chief Accounting Officer
<PAGE>
EXHIBIT 8.2
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
December 9, 1996
EnSys Environmental Products, Inc.
4222 Emperor Boulevard
Durham, North Carolina 27703
Ladies and Gentlemen:
We have acted as counsel to EnSys Environmental Products, Inc., a
corporation organized under the laws of Delaware ("EnSys"), in connection
with the planned merger (the "Merger") of Strategic Diagnostics, Inc., a
corporation organized under the laws of Delaware ("SDI"), with and into
EnSys, pursuant to the Agreement and Plan of Merger, dated as of October 11,
1996, by and among EnSys and SDI (the "Agreement"). Terms used by not defined
herein shall have the meanings specified in the Agreement.
The Agreement and certain proposed transactions incident thereto are
described in the Registration Statement on Form S-4 filed by EnSys with the
Securities and Exchange Commission (the "Registration Statement"). This
opinion is being rendered pursuant to the requirements of Item 21(a) of Form
S-4 under the Securities Act of 1993, as amended.
In connection with this opinion, we have examined and are familiar with
the Agreement, the Registration Statement, and other such presently existing
documents, records and matters of law as we have deemed necessary and
appropriate in connection with the rendering of this opinion.
In rendering this opinion, we have assumed, with our consent, the
following:
1. The authenticity of original documents submitted to us, the
conformity to original documents of all documents submitted to us as
photostatic copies, the authenticity of the originals of such copies, the
genuineness of all signatures, and the due execution and delivery of all
documents;
2. The Merger will be effected in accordance with the Agreement; and
3. The truth and accuracy of the representations, warranties and
statements of fact,
<PAGE>
Ensys Environmental Products, Inc.
December 9, 1996
Page 2
made or to be made, by EnSys and SDI in connection with the Merger,
including, without limitation, those set forth in the Agreement, those
contained in the Officers' Certificate from EnSys dated December 9, 1996 and
the letter to us from certain SDI shareholders dated December 2, 1996, and
those contained in the Registration Statement on Form S-4 and related
Prospectus filed by EnSys with the Securities and Exchange Commission on
December 9, 1996 and that such representations, warranties and statements of
fact are, and will be at the Effective Time, as set forth or as referred to
in this opinion.
On the basis of, and subject to, the foregoing and our consideration of
such other matters of fact and law as we deemed necessary or appropriate, it
is our opinion that, under presently applicable Federal income tax law:
!. The Merger will be treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
2. EnSys and SDI each will be a party to the reorganization within the
meaning of Section 368(b) of the Code.
Our opinion is based on existing law, including provisions of the Code,
Treasury Regulations promulgated thereunder, current administrative rulings
and practices of the Internal Revenue Service, case law and judicial
decisions interpreting the same. In addition, the authorities upon which we
have relied are all subject to change and such change may have a retroactive
effect. There can be no assurance as to changes in the law which could effect
the Federal tax consequences of the Merger, future judicial interpretation of
these laws which could effect this opinion or that a contrary position may
not be taken by the Internal Revenue Service.
This opinion is furnished to you solely for use in connection with the
filing of the Registration Statement. We hereby consent to the filing of this
opinion with the Securities and Exchange Commission as an exhibit to the
Registration Statement. We also consent to the references to our firm name
wherever appearing in the Registration Statement with respect to the
discussion of the Federal income tax consequences of the Merger.
Very truly yours,
TROUTMAN SANDERS, LLP
<PAGE>
EXHIBIT 10.25
AGREEMENT
THIS AGREEMENT is made effective as of the 1st day of October, 1996,
by and between Strategic Diagnostics Inc., a Delaware corporation ("SDI") and
EnSys Environmental Products, Inc., a Delaware corporation ("EnSys").
BACKGROUND
SDI and EnSys expect to enter into an Agreement and Plan of Merger
dated as of October __, 1996 (the "Merger Agreement") and for that reason, in
anticipation of the closing of the merger contemplated therein, SDI and EnSys
desire to enter into the agreements contained herein.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, SDI and EnSys agree as follows:
1. LICENSE.
(a) Subject to the terms and conditions of this Agreement, SDI
hereby grants to EnSys an exclusive, worldwide right and license to market,
distribute and sell the products described on Schedule A attached hereto (the
"Licensed Products") for the Term, subject only to the existing rights and
licenses of SDI's distributors as of the date hereof as described on Schedule B
attached hereto.
(b) EnSys shall sell the Licensed Products under the existing
names, in accordance with current product information and specifications, and
shall use all reasonable efforts to market, promote and sell the Licensed
Products in the ordinary course of business; provided, however, that EnSys shall
be entitled to set the price and payment terms for the Licensed Products in its
discretion, and all invoices for such Licensed Products shall be in EnSys' name.
2. ROYALTY FEES.
(a) Subject to Section 2(b), EnSys agrees to pay to SDI for the
license of the Licensed Products a one time license fee of Three Hundred
Thousand Dollars ($300,000), payable upon the execution of this Agreement, plus
for each month during
<PAGE>
the Term, commencing the next month after cumulative Net Revenues (as
hereinafter defined) of EnSys derived from the sale of Licensed Products
exceed $2,000,000 (each month of which is referred to herein as an "Accrual
Period"), EnSys shall pay to SDI royalty fees ("Royalty Fees") in the amount
of 15% of Net Revenues of EnSys derived from the sale of Licensed Products.
The term "Net Revenues" shall mean sales at the invoiced price of Licensed
Products after deduction of all trade and quantity discounts actually
allowed; freight; allowance for credit or returns; sales commissions actually
paid to third parties who are not affiliates; value-added taxes, sales taxes,
customer duties or purchase taxes borne by EnSys.
(b) In the event of a termination of this Agreement under
Section 10(a)(i) due to a default by SDI, then SDI shall promptly refund to
EnSys as the full and complete liquidated damages for its default hereunder (but
subject to Section 16(a) hereof), an amount equal to: (i) $300,000; LESS (ii)
15% of the Net Revenues of EnSys derived from the sale of Licensed Products
between the date hereof and the effective date of such termination.
3. VERIFICATION BY SDI. For the purpose of verifying the accuracy
of the Royalty Fees payable to SDI, EnSys shall produce and forward to SDI a
monthly invoicing report that is certified by a financial officer of EnSys
within 20 days after the close of each Accrual Period, together with the payment
for the Royalty Fees for such Accrual Period. SDI has the right to appoint a
certified public accountant to audit EnSys' books and records at any time upon
three (3) days' prior written notice to EnSys and during customary business
hours. Such audit shall be at the expense of SDI, unless the audit reveals an
underpayment by EnSys of 10% or more of Royalty Fees payable to SDI pursuant
hereto.
4. INDEPENDENT CONTRACTOR. Each of SDI and EnSys, in the
performance of this Agreement, will be acting in its own separate capacity and
not as an agent, partner, joint venturer or associate of the other. It is
expressly understood and agreed that the relationship between the parties hereto
is that of an independent contractor in all manners and respects and that
neither party is authorized to bind the other to any liability or obligation or
to represent that it has any such authority. Each party hereto shall pay all
salaries, benefits and expenses of, and shall be responsible solely for its
employees and shall have no obligation or liability of any kind with respect to
the
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<PAGE>
employees of the other party, subject to SDI being reimbursed by EnSys in
accordance with Section 8 hereof.
5. SERVICES OF ENSYS. Subject to all of the terms and conditions
contained in this Agreement, EnSys hereby agrees, during the Term, to provide
the following (collectively, the "EnSys Services"):
(a) management services reasonably necessary to manage and
operate the day-to-day business at SDI's facility located at 375 Pheasant Run,
Newtown, Pennsylvania (the "Newtown Facility") solely with respect to the
Licensed Products, but with no obligation or responsibility to make strategic
decisions regarding the future of the business or the product line, all of which
shall remain with SDI;
(b) from the Newtown Facility: (i) the services necessary to
sell, market and distribute the Licensed Products; and (ii) the services
necessary for all final assembly, packaging and shipping of all Licensed
Products;
(c) at the Newtown Facility, any EnSys personnel reasonably
necessary to perform the EnSys Services and manage those employees of SDI that
are working at the Newtown Facility to assist EnSys in the performance of the
EnSys Services;
(d) customer information services regarding the Licensed
Products; and
(e) accounting and cash management services, including
installing and operating the Impact Financial Management computer system.
6. SERVICES OF SDI. Subject to all of the terms and conditions
contained in this Agreement, SDI hereby agrees, during the Term, to provide to
EnSys the following (collectively, the "SDI Services"):
(a) at the Newtown Facility, the SDI personnel described on
Schedule C attached hereto to assist EnSys in the performance of the EnSys
Services;
(b) at the Newtown Facility, at a price equal to SDI's cost, for
which SDI shall be paid by EnSys in accordance with Section 8, all of SDI's
inventory of Licensed Products as of the date hereof (including all work in
process) and, all raw materials and supplies, plus the fully manufactured and
processed
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critical reagents, necessary for final assembly of the Licensed Products;
(c) full and unrestricted access to the Newtown Facility and
access to all office space, equipment and utilities necessary to operate the
Newtown Facility in substantially the same manner as operated by SDI prior to
the date hereof;
(d) all product literature, customer lists, trade secrets and
other intellectual property rights necessary to assemble and sell the Licensed
Products in accordance herewith; and
(e) manufacturing services at SDI's facility at 128 Sandy Drive,
Newark, Delaware (the "Delaware Facility") necessary to manufacture and produce
the critical reagents necessary for the Licensed Products.
7. TRANSITION PERIOD AND SCHEDULE FOR SERVICES. It is agreed by the
parties that the nature of this Agreement requires a transition period during
which activities previously performed by each party at other locations will be
transferred to and become part of the Services to be performed hereunder. It
is anticipated by the parties that the transition will begin immediately upon
execution of this Agreement, and as soon as possible:
(a) EnSys will perform assembly and shipment of all Licensed
Products from the Newtown Facility;
(b) To the extent the parties mutually agree that it is
economically feasible, EnSys will perform assembly and shipment of all of its
environmental products from the Newtown Facility; and
(c) To the extent the parties mutually agree that it is
economically feasible, EnSys will use all reasonable efforts to transfer to and
make SDI knowledgeable enough with its know-how so that SDI is able to
manufacture the critical reagents for EnSys' environmental products from the
Delaware Facility.
8. PAYMENTS. In consideration of the performance of the SDI
Services, EnSys hereby agrees to pay to SDI an amount equal to SDI's full
direct: (i) costs for the use, occupancy and operation of the Newtown Facility,
including but without limitation all costs owed by SDI under its lease for the
Newtown Facility, all insurance, taxes, and utility costs, all costs
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<PAGE>
associated with maintenance, trash and waste removal, and security costs,
incurred during the Term in connection with the performance of the SDI
Services and the EnSys Services; (ii) labor costs for SDI employees incurred
during the Term in connection with the performance of EnSys Services and SDI
Services, regardless of their location; and (iii) costs of materials,
supplies, inventory, and critical reagents transferred by SDI to EnSys
pursuant to Section 7(b) (collectively, the "SDI Service Fee"). SDI shall
bill EnSys monthly for the SDI Service Fee and EnSys shall pay the SDI
Service Fee within 10 days of receipt of the invoice.
9. TERM. Unless sooner terminated in accordance with Section 10
hereof, the term of this Agreement (the "Term") shall continue until the
earlier of the Effective Time (as defined in the Merger Agreement) or upon
the termination of the Merger Agreement for any reason.
10. TERMINATION.
(a) This Agreement will immediately and automatically terminate
on and as of the date any of the following occur:
(i) failure of either party to comply with any of the
material terms of this Agreement after twenty (20) days written notice of
such failure or violation by the other party giving notice of such default or
non-compliance and written notice of its intention to so terminate, unless
within such twenty (20) day period the defaulting party has cured such
default; or
(ii) the filing of a petition in bankruptcy by either party
or the making by either party of any assignment for the benefit of creditors; or
if any involuntary petition in bankruptcy or petition for an arrangement
pursuant to the Bankruptcy Code is filed against either of the parties and is
not dismissed within thirty (30) days; or if a receiver is appointed for the
business of either party, or any part thereof.
(b) In addition to the provisions of Section 2(b), in the event
of termination for any reason, all sums incurred but not yet paid by EnSys to
SDI as Royalty Fees or SDI Service Fees shall immediately become due and
payable.
(c) Upon termination of this Agreement, each party shall return
to the other all copies of all trade secrets
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<PAGE>
and confidential information of such party, including, but without
limitation, all customer information and commercially sensitive information,
and shall take all other actions required under the Confidentiality Agreement
(as defined in the Merger Agreement).
11. TITLE.
(a) Title to all SDI property used by EnSys under this Agreement
shall remain with SDI and, upon the termination of this Agreement, EnSys shall
make available such property to SDI and EnSys shall vacate the Newtown Facility
as promptly as reasonably practicable. If either party is required to pay
liquidated damages pursuant to Section 8.4 of the Merger Agreement in connection
with such termination, such party shall also pay all of the costs of EnSys
vacating the Newtown Facility. Otherwise, such costs shall be borne equally by
SDI and EnSys.
(b) Title to all EnSys property used by SDI under this Agreement
shall remain with EnSys and, upon the termination of this Agreement, SDI shall
promptly make available such property to EnSys at the Newtown Facility.
12. LICENSES, CONSENTS AND APPROVALS. EnSys and SDI shall each grant
or use all reasonable efforts to cause to be granted to the other on a royalty
free basis, for the term of this Agreement or any extension hereof, all licenses
and sublicenses and shall use all reasonable efforts to obtain all consents and
approvals necessary to carry out the intent of this Agreement.
13. REPRESENTATIONS AND WARRANTIES OF ENSYS. EnSys represents and
warrants that:
(a) EnSys is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware, is duly qualified and
in good standing to conduct business in those jurisdictions in which its
ownership of property or the conduct of its business requires such
qualification, and has the requisite power and authority to make and perform its
obligations under this Agreement, and under all other documents delivered to SDI
pursuant hereto and to carry out the transaction contemplated hereby and
thereby.
(b) The execution, delivery and performance of this Agreement
and the execution and delivery of all other documents delivered to SDI pursuant
hereto have been duly
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<PAGE>
authorized by all requisite corporate action of EnSys and will not violate
any provision of law or any judgment, order or regulation of any court or of
any public or governmental agency or authority applicable to EnSys or any
certificate of incorporation, by law or capital stock provision of EnSys or
conflict with or result in a breach of any of the terms, conditions or
provisions of or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties or
assets of EnSys pursuant to the terms of any Agreement, indenture or
instrument to which it is a party or by which either it or any of its
properties are bound.
(c) This Agreement, and all other documents delivered to SDI
pursuant hereto when executed and delivered by EnSys will be legal, valid and
binding obligations of EnSys in accordance with their respective terms.
(d) There is no claim, litigation or governmental proceeding
against EnSys or any of its subsidiaries now pending or, to the knowledge of
EnSys, threatened, which is substantial in amount or which, if adversely
determined would have a material adverse effect on the financial condition or
business of EnSys or any of its subsidiaries, or would adversely affect the
ability of EnSys or any of its subsidiaries or SDI to perform their respective
obligations under this Agreement, or under any other document delivered to SDI
pursuant hereto.
(e) No approval, consent or authorization of, or registration,
declaration or filing with, any governmental or public body or authority of any
third party is required in connection with the valid execution, delivery and
performance of this Agreement, or any other document delivered to SDI pursuant
hereto, except such as have been obtained.
14. REPRESENTATIONS AND WARRANTIES OF SDI. SDI represents and
warrants that:
(a) SDI is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware, is duly qualified and in
good standing to conduct business in those jurisdictions in which its ownership
of property or the conduct of its business requires such qualification, and has
the requisite power and authority to make and perform its obligations under this
Agreement, and under all other documents delivered to EnSys pursuant hereto and
to carry out the transaction contemplated hereby and thereby.
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<PAGE>
(b) The execution, delivery and performance of this Agreement
and the execution and delivery of all other documents delivered to EnSys
pursuant hereto have been duly authorized by all requisite corporate action of
SDI and will not violate any provision of law or any judgment, order or
regulation of any court or of any public or governmental agency or authority
applicable to SDI or any certificate of incorporation, bylaw or capital stock
provision of SDI or conflict with or result in a breach of any of the terms,
conditions or provisions of or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
properties or assets of SDI pursuant to the terms of any Agreement, indenture or
instrument to which it is a party or by which either it or any of its properties
are bound.
(c) This Agreement, and all other documents delivered to EnSys
pursuant hereto when executed and delivered by SDI will be legal, valid and
binding obligations of SDI in accordance with their respective terms.
(d) There is no claim, litigation or governmental proceeding
against SDI or any of its subsidiaries now pending or, to the knowledge of SDI,
threatened, which is substantial in amount or which, if adversely determined
would have a material adverse effect on the financial condition or business of
SDI or any of its subsidiaries, or would adversely affect the ability of SDI or
any of its subsidiaries or EnSys to perform their respective obligations under
this Agreement, or under any other document delivered to EnSys pursuant hereto.
(e) No approval, consent or authorization of, or registration,
declaration or filing with, any governmental or public body or authority or any
third party is required in connection with the valid execution, delivery and
performance of this Agreement, or any other document delivered to EnSys pursuant
hereto, except such as have been obtained.
(f) SDI has all rights, including, without limitation, all
intellectual property rights, necessary to enter into and perform its
obligations under this Agreement and to grant to EnSys all of the rights herein
granted.
(g) There is no claim, litigation or governmental proceeding
against SDI or any of its subsidiaries now pending or, to the knowledge of SDI,
threatened in writing relating to the Licensed Products or any components
thereof or uses therefor.
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<PAGE>
15. RESTRICTIVE COVENANTS. Each party covenants and agrees that
during the Term, unless the other party, in its reasonable discretion, shall
consent in writing, it shall not (and shall not permit any of its subsidiaries
to) hire any employee of the other party; provided, however that both parties
and their respective employees shall be entitled to engage in discussions and
negotiations concerning such employees' roles in the Surviving Corporation (as
defined in the Merger Agreement).
16. INDEMNIFICATION.
(a) INDEMNIFICATION BY SDI. SDI hereby indemnifies and holds
EnSys harmless from and against any and all liability, losses, damages, claims
or causes of action, and expenses connected therewith, including reasonable
attorney's fees, caused directly or indirectly, by or as a result of, any
negligence, gross negligence or willful misconduct by SDI or any of its
employees, any material breach of this Agreement by SDI, or anything arising in
connection with the products or facilities of SDI occurring prior to the date of
this Agreement.
(b) INDEMNIFICATION BY ENSYS. EnSys hereby indemnifies and
holds SDI harmless from and against any and all liability, losses, damages,
claims or causes of action, and expenses connected therewith, including
reasonable attorneys fees, caused directly or indirectly, by or as a result of,
any negligence, gross negligence or willful misconduct of EnSys or any of its
employees, or of any material breach of this Agreement by EnSys, or anything
arising in connection with the products or facilities of EnSys occurring prior
to the date of this Agreement.
(c) NOTICES. The party seeking indemnification shall promptly
notify in writing the other party of any claim asserted against it for which
such indemnification is sought, and shall promptly deliver to the party from
whom indemnification is sought a true copy of any summons or other process,
pleading or notice issued in any lawsuit or other proceeding to assert or
enforce such claim. Where acceptance of its obligation to indemnify is deemed
proper by the indemnifying party, the indemnifying party shall control the
investigation, trial and defense of such lawsuit or action (including all
negotiations to effect settlement) and any appeal arising therefrom and shall
employ or engage attorneys of its own choice. The party seeking indemnification
may, at its own cost, participate in such investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. The party seeking
indemnification,
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<PAGE>
its employees, agents, servants and representatives shall provide full
cooperation to the indemnifying party at all times during the pendency of the
claim or lawsuit, including, without limitation, providing them with all
available information concerning the claim.
17. MISCELLANEOUS.
(a) This Agreement, together with the Merger Agreement, contains
the entire understanding between the parties and supersedes all prior agreements
between them relating to the subject matter hereof, except that any and all
Confidentiality Agreements, and any amendments thereto between the parties and
their subsidiaries shall remain in full force and effect. No amendment or
modification shall be binding unless evidenced by a writing signed by all
parties.
(b) The failure of any party to exercise or enforce any right
conferred upon it hereunder shall not be deemed to be a waiver of such right nor
operate to bar the exercise or performance thereof at any time or times
thereafter, nor shall a waiver of any right hereunder at any given time,
including rights to any payments, be deemed a waiver thereof for any other time.
(c) No party to this Agreement shall be liable for failure to
perform any duty or obligation that said party may have under the Agreement
where such failure has been occasioned by any act of God, fire, strike,
inevitable accident, war or any cause outside the reasonable control of the
party who had the duty to perform.
(d) If any provision of this Agreement is held to be illegal,
invalid, or unenforceable by a court of competent jurisdiction, the parties
shall, if possible, agree on a legal, valid and enforceable substitute provision
which is as similar in effect to the deleted provision as possible. The
remaining portion of the Agreement not declared illegal, invalid or
unenforceable shall, in any event, remain valid and effective for the term
remaining unless the provision found illegal, invalid or unenforceable goes to
the essence of this Agreement.
(e) This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
(f) Section headings contained in this Agreement are for
reference purposes only and shall not affect, in any way, the meaning and
interpretation of this Agreement.
(g) This Agreement and the rights and obligations of the parties
hereunder shall in all respects be governed by the law of the State of Delaware.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this Agreement as of the date first above written.
STRATEGIC DIAGNOSTICS INC.
By: /s/ Richard C. Birkmeyer
-------------------------------------
Title: President and Chief
Executive Officer
ENSYS ENVIRONMENTAL PRODUCTS, INC.
By: /s/ Grover C. Wrenn
-------------------------------------
Title: President and Chief
Executive Officer
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<PAGE>
LICENSED PRODUCTS
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<PAGE>
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of the ____ day of ____________ 1996, by
and between ENSYS ENVIRONMENTAL PRODUCTS, INC., a Delaware corporation whose
name is being changed to STRATEGIC DIAGNOSTICS INC. as of the date hereof (the
"Company," which is also hereinafter referred to as the "Employer"), and RICHARD
C. BIRKMEYER (the "Executive").
W I T N E S S E T H:
WHEREAS, Employer agrees to retain the services of Executive, and Executive
agrees to work for Employer, all pursuant to the terms and conditions
hereinafter set forth;
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premise, the mutual
promises, covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. EMPLOYMENT. The Employer agrees to employ the Executive and the
Executive agrees to be employed by the Employer on the terms and conditions
hereinafter set forth.
2. CAPACITY. The Executive shall serve as the Chief Executive Officer of
Employer. The Executive shall render such services to the Company as are
customary for such position and perform all other services incident thereto.
3. EFFECTIVE DATE AND TERM. Subject to the provisions of Section 6, the
Executive's employment under this Agreement shall remain in effect for the
period commencing on the date hereof and terminating on December 31, 1997
("Initial Term") and shall be automatically extended for periods of one year
commencing on December 31, 1997 and on each December 31 thereafter, unless
either the Executive or the Employer gives written notice to the other not less
than sixty (60) days prior to the date of any such anniversary, of such party's
election not to extend the term of the Executive's employment hereunder.
4. COMPENSATION AND BENEFITS. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) SALARY. For all services rendered by the Executive under this
Agreement, the Employer shall pay the Executive a salary at the rate, of
$164,000 per year, subject to an annual increase of not less than five percent
(5%) of the then current annual salary, as determined by the Board of Directors
or the Compensation Committee in accordance with the usual practice of the
Employer with respect to review of compensation for its senior executives. The
Executive's salary shall be payable in periodic installments in accordance with
the Employer's usual practice for its senior executives.
(b) BONUS. In addition to salary under Section 4(a), the Executive
shall be entitled to participate in a bonus plan under which he may be entitled
to receive an annual bonus in an amount, up to 75% of such salary, as shall be
determined by the Compensation Committee of the Employer's Board of Directors in
the beginning of each of the Employer's fiscal years under this Agreement
commencing with fiscal 1997. The Compensation
<PAGE>
Committee and the Executive shall establish reasonable performance goals and
targets for such bonus. Upon completion of each year, the Compensation
Committee shall review the actual performance against such performance targets
and goals and notify the Executive of the amount of the award. Initially, the
target annual bonus will be 30% of Executive's salary. The Executive's bonus
shall be paid to him within ninety (90) days after the end of the fiscal year to
which it relates, whether he remains an employee of the Employer at the date of
payment or not.
(c) REGULAR BENEFITS. The Executive shall also be entitled to
participate in any and all employee benefit plans, medical insurance plans, life
insurance plans, disability income plans, retirement plans and other benefit
plans from time to time in effect for senior executives of the Employer. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Employer and (iii) the
discretion of the Board of Directors of the Employer or any administrative or
other committee provided for in or contemplated by such plan, except that all
waiting periods for eligibility to participate in employee benefit plans shall
be waived by the Employer to the extent permissible. The Employer shall also
pay the premiums that come due under Paul Revere Life Insurance Company
Disability Income Policies 01024761080 and 01026933250.
(d) PERQUISITES. The Executive shall be entitled to receive fringe
benefits ordinarily and customarily provided by the Employer to its senior
officers during the term of his employment hereunder. In any event, the
Employer shall provide the Executive with fringe benefits no less favorable to
the Executive than those provided by the Employer to any other employee.
(e) BUSINESS EXPENSES. The Employer shall promptly reimburse the
Executive for all travel and other business expenses, including, without
limitation, cellular phone expenses, incurred by him in the performance of his
duties and responsibilities, subject to such reasonable requirements with
respect to substantiation and documentation as may be specified by the Employer.
(f) EQUITY AWARD. The Executive is hereby granted options to
purchase 100,000 shares of the Employer's common stock under the Employer's 1995
Stock Incentive Plan at an exercise price of [MARKET PRICE] per share (the
"Option"). The Option will be granted pursuant to an Incentive Stock Option
Agreement to be executed contemporaneously herewith in substantially the form of
EXHIBIT A attached hereto and incorporated herein by this reference. The grant
of options pursuant to this Section 4(e) shall be without prejudice to further
grants to the Executive in the future under any plan adopted by the Employer.
5. EXTENT OF SERVICE. During his employment hereunder, the Executive
shall, subject to the direction and supervision of the Board of Directors of the
Employer, devote his full business time, all reasonable efforts and business
judgment, skill and knowledge to the advancement of the Employer's interests and
to the discharge of his duties and responsibilities hereunder, except for
reasonable time spent for service on the boards of directors of other
corporations, vacations, civic and charitable activities, and management of
personal investments.
6. TERMINATION AND TERMINATION BENEFITS. Notwithstanding the provisions
of Section 3, the Executive's employment hereunder shall terminate under the
following circumstances:
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(a) DEATH. In the event of the Executive's death during the
Executive's employment hereunder, the Executive's employment shall terminate on
the date of his death; provided, however, that the Employer shall continue to
pay an amount equal to the Executive's salary to the Executive's beneficiary
designated in writing to the Employer prior to his death (or to his estate, if
he fails to make such designation or such beneficiary predeceases him) for a
period of twelve months after the date of the Executive's death, at the salary
rate in effect on the date of his death, without an increase for any portion of
such twelve (12) month period, said payments to be made on the same periodic
dates as salary payments have been made to the Executive had he not died.
(b) TERMINATION BY THE EMPLOYER FOR CAUSE. The Executive's
employment hereunder may be terminated without further liability on the part of
the Employer effective immediately by a majority vote of all of the members of
the Board of Directors of the Employer (excluding the Executive) for cause by
written notice to the Executive setting forth in reasonable detail the nature of
such cause. Only the following shall constitute "cause" for such termination:
(i) The Executive commits an act constituting fraud or
material misrepresentation with respect to the
Employer;
(ii) The Executive embezzles funds or assets from the
Employer;
(iii) Conviction of the Executive of a felony involving moral
turpitude (excluding motor vehicle violations); or
(iv) Gross and willful failure to perform a substantial
portion of his duties and responsibilities hereunder,
which failure continues for more than thirty (30) days
after written notice given to the Executive pursuant to
a majority vote of all of the members of the Board of
Directors of the Employer, such vote to set forth in
reasonable detail the nature of such failure.
(c) TERMINATION BY THE EXECUTIVE. The Executive's employment
hereunder may be terminated effective immediately by the Executive by written
notice to the Board of Directors of the Employer, provided that the Executive
shall receive the benefits specified in Section 6(e) if he terminates his
employment in the event of the following (any of which being referred to herein
as "Good Reason"):
(i) Failure of such Board of Directors to elect the
Executive to the office of Chief Executive Officer of
the Employer or to continue the Executive in such
office;
(ii) Failure by the Employer to comply with the provisions
of Section 4(a) or 4(c) or any other material breach by
the Employer of any other provision of this Agreement;
or
(iii) Election by the Employer not to extend the term of the
Executive's employment hereunder in accordance with the
provisions of Section 3.
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(d) TERMINATION BY THE EMPLOYER WITHOUT CAUSE. The Executive's
employment with the Employer may be terminated without cause by a majority of
all of the members of the Board of Directors of the Employer (excluding the
Executive) on written notice to the Executive.
(e) CERTAIN TERMINATION BENEFITS. Unless otherwise specifically
provided in this Agreement or otherwise required by law or by the terms of any
employee benefit plan and other compensation plans, programs and structures, or
fringe benefit programs in which the Executive is a participant at the time of
the termination of his employment with the Company, all compensation and
benefits payable to the Executive under this Agreement shall terminate on the
date of termination of Executive's employment hereunder. Notwithstanding the
foregoing, in the event of termination by the Executive for Good Reason pursuant
to Section 6(c) or by the Employer pursuant to Section 6(d), the Executive shall
be entitled to the following benefits:
(i) The Employer shall continue to pay an amount equal to the
Executive's salary to the Executive (or the Executive's beneficiary designated
in writing to the Employer prior to his death or to his estate, if he fails to
make such designation or such beneficiary predeceases him) during a period (the
"Severance Period") which shall extend for a period of twelve (12) months after
the date of the Executive's termination, at the salary rate in effect on the
date of his termination, said payments to be made on the same periodic dates as
salary payments would have been made to the Executive had his employment not
been terminated; provided that in the event that the Employer shall default in
the timely payment of any amount due to the Executive under this Section 6(e) or
in the performance of any of its other obligations under this Section 6(e), the
Executive, at his option, may accelerate the remaining payments that would
become due to him hereunder and such amounts thereupon shall be due and payable
forthwith.
(ii) During the Severance Period, the Executive shall continue to
receive all benefits described in Sections 4(c) existing on the date of
termination (except for any cash bonus plans which shall be prorated through the
date of termination). For purposes of application of such benefits the
Executive shall be treated as if he had remained in the employ of the Employer,
with a total annual salary at the rate in effect on the date of termination.
(iii) In addition to, but not in limitation of, the rights
which the Executive otherwise may have and except as expressly provided in any
award subsequent to the grant of the stock options contemplated by Section 4(f),
any restrictions remaining on any restricted shares issued to the Executive
under the Employer's restricted plans shall immediately lapse, any performance
shares issued to the Executive under the Employer's incentive stock plans shall
immediately vest, and any stock options and stock appreciation rights granted to
the Executive shall become exercisable immediately, and the Executive may
exercise all such options or stock appreciation rights within the later of the
remainder of their term or one year after the expiration of the Severance
Period.
(iv) If, in spite of the provisions of Section 6(e)(ii) above,
benefits or service credits under any benefit plan shall not be payable or
provided under any such plan to the Executive, or to the Executive's dependents,
beneficiaries or estate, because the Executive is no longer deemed to be an
employee of the Employer, the Employer shall pay or provide for
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payment of such benefits and service credits for such benefits to the Executive,
or to the Executive's dependents, beneficiaries or estate; provided, however,
that the Employer shall have no obligations with respect to the federal or state
income tax treatment of the exercise of any stock options or other stock rights
held by the Executive under any of the Employer's stock incentive plans.
(f) NO SET-OFF. The amounts payable to Executive under Section 6(e)
shall not be treated as damages but as severance compensation to which the
Executive is entitled by reason of termination of his employment, and the
Employer shall not be entitled to any set-off against, or reduction of, such
amounts for any reason whatsoever. Notwithstanding any other provision of this
Agreement, the Executive shall be under no obligation to seek or accept any
employment after termination of employment with the Employer for any reason.
7. DISABILITY. If, due to physical or mental illness, the Executive
shall be disabled so as to be unable to perform substantially all of his duties
and responsibilities hereunder, the Employer, acting through its Board of
Directors, may designate another executive to act in his place during the period
of such disability. Notwithstanding any such designation, the Executive shall
continue to receive his full salary and benefits under Section 4 of this
Agreement for a minimum of nine (9) months (net of any amounts paid to the
Executive during such nine (9) month period pursuant to Employer's disability
income plan, if any), and shall continue to participate in the Employer's
benefit plans and to receive other benefits as specified in Section 4 until the
expiration of his term of employment hereunder. If any questions shall arise as
to whether during any period the Executive was disabled so as to be unable to
perform substantially all of his duties and responsibilities hereunder due to
physical or mental illness, the Executive may, and at the request of the
Employer will, submit to the Employer a certification in reasonable detail by a
physician selected by the Executive or his guardian to whom the Employer has no
reasonable objection as to whether the Executive was so disabled and such
certification shall for the purposes of this Agreement be conclusive of the
issue. If such question shall arise and the Executive shall fail to submit such
certification, the Employer's determination of such issue shall be binding on
the Executive.
8. WITHHOLDING. All payments made by the Employer under this Agreement
shall be net of any tax or other amounts required to be withheld by the Employer
under applicable law.
9. NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION COVENANTS.
(a) DEFINITIONS. For purposes of this Section 9, the following terms
shall have the following respective meanings:
(i) "COMPETITIVE POSITION" shall mean (i) the direct or
indirect equity ownership or control of all or any portion of a "Competitor" (as
hereinafter defined), or (ii) any employment, consulting, partnership, advisory,
directorship, agency, promotional or independent contractor arrangement between
Executive and any Competitor whereby Executive is required to perform services
substantially similar to those that he is to perform for Employer hereunder.
(ii) "COMPETITOR" shall refer to any person or entity
engaged, wholly or partly, in the business of distributing, manufacturing,
marketing, selling, servicing, repairing environmental testing devices.
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<PAGE>
(iii) "CONFIDENTIAL INFORMATION" shall mean any and all
proprietary and confidential data or information of Employer or any of its
affiliates, other than "Trade Secrets" (as hereinafter defined), which is of
tangible or intangible value to Employer or any of its affiliates and is not
public information or is not generally known or available to Employer's
competitors but is known only to Employer or its affiliates and their employees,
independent contractors or agents to whom it must be confided in order to apply
it to the uses intended.
(iv) "RESTRICTED TERRITORY" shall mean the United States of
America.
(v) "TRADE SECRETS" shall mean all knowledge, data and
information of Employer or any of its affiliates which is defined as a "trade
secret" under applicable law.
(vi) "WORK PRODUCT" shall mean all work product, property,
data, documentation, "know-how", concepts, plans, inventions, improvements,
techniques, processes or information of any kind, prepared, conceived,
discovered, developed or created by Executive in connection with the performance
of his services hereunder.
(b) ACKNOWLEDGMENTS. Executive hereby acknowledges and agrees that
during the term of this Agreement (i) Executive will frequently be exposed to
certain Trade Secrets and Confidential Information; (ii) Executive's
responsibilities on behalf of Employer will extend to all geographical areas of
the Restricted Territory; and (iii) any competitive activity on Executive's part
during the term of this Agreement, or any competitive activity on Executive's
part in the Restricted Territory for a reasonable period thereafter, would
necessarily involve Executive's use of Employer's Trade Secrets and Confidential
Information and would unfairly threaten Employer's legitimate business
interests, including its substantial investment in the proprietary aspects of
its business and the goodwill associated with its customer base. Moreover,
Executive acknowledges that, in the event of the termination of this Agreement,
Executive would have sufficient skills to find alternative, commensurate work in
his field of expertise that would not involve a violation of any of the
provisions of this Section 9. Therefore, Executive acknowledges and agrees that
it is reasonable for Employer to require Executive to abide by the covenants set
forth in this Section 9. The parties acknowledge and agree that if the nature
of Executive's responsibilities for or on behalf of Employer or the geographical
areas in which Executive must fulfill such responsibilities materially change,
the parties will execute appropriate amendments to the scope of the covenants in
this Section 9.
(c) NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY.
(i) In recognition of Employer's need to protect its legitimate
business interests, Executive hereby covenants and agrees that: (A) with regard
to each item constituting a Trade Secret, at all times during which such item
shall constitute a Trade Secret (before or after termination of this Agreement);
and (B) with regard to any Confidential Information, at all times during the
term of this Agreement and for a period of three (3) years following the
expiration or termination of this Agreement for any reason, Executive shall
regard and treat each item constituting a Trade Secret and all Confidential
Information as strictly confidential and wholly owned by Employer and will not,
for any reason, in any fashion, either directly or indirectly, use, sell, lend,
lease, distribute, license, give, transfer, assign, show, disclose, disseminate,
reproduce, copy, misappropriate or otherwise
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<PAGE>
communicate any such item or information to any third party for any purpose
other than in accordance with this Agreement or as required by applicable law.
(ii) Executive shall immediately notify Employer of any
intended or unintended, unauthorized disclosure or use of any Trade Secrets or
Confidential Information by Executive or any other person or entity of which
Executive becomes aware. Executive shall cooperate fully with Employer in the
procurement of any protection of Employer's rights to or in any of the Trade
Secrets or Confidential Information.
(iii) Immediately upon expiration or termination of this
Agreement for any reason, or if notice of termination is required hereunder,
upon receipt of such notice, or at any time after such termination or notice
upon the specific request of Employer, Executive shall return to Employer all
written or descriptive materials of any kind in Executive's possession or to
which Executive has access that constitute or contain any Confidential
Information or Trade Secrets, and the confidentiality obligations described in
this Agreement shall continue until their expiration under the terms of this
Agreement.
(iv) To the greatest extent possible, any Work Product shall
be deemed to be "work made for hire" (as defined in the Copyright Act, 17
U.S.C.A. Section 101 ET SEQ., as amended) and owned exclusively by Employer.
Executive hereby unconditionally and irrevocably transfers and assigns to
Employer all rights, title and interest Executive currently has or in the future
may have, by operation of law or otherwise, in or to any Work Product,
including, without limitation, all patents, copyrights, trademarks, service
marks and other intellectual property rights. Executive agrees to execute and
deliver to Employer any transfers, assignments, documents or other instruments
which Employer may deem necessary or appropriate to vest complete title and
ownership of any Work Product, and all rights therein, exclusively in Employer.
(d) NON-COMPETITION. In recognition of Employer's need to protect
its legitimate business interests, Executive hereby covenants and agrees
that during the term of this Agreement, Executive will not, either directly or
indirectly, alone or in conjunction with any other party, accept, enter into or
take any action in furtherance of a Competitive Position. Executive further
agrees that for three (3) years following expiration or termination of this
Agreement for any reason, Executive will not, either directly or indirectly,
alone or in conjunction with any other party, accept, enter into or take any
action in furtherance of a Competitive Position within the Restricted Territory
(other than action to reject an offer of a Competitive Position or to notify
Employer of the offer pursuant to the requirements of the next sentence of this
Section 9(d)).
(e) NON-SOLICITATION OF CUSTOMERS. Executive hereby covenants and
agrees that (i) during the term of this Agreement, Executive will not, either
directly or indirectly, alone or in conjunction with any other party, solicit,
divert or appropriate or attempt to solicit, divert or appropriate any customer
or actively sought prospective customer of Employer for the purpose of providing
such customer or actively sought prospective customer with services or products
competitive with those offered by Employer during the term of this Agreement;
and (ii) for a period of three (3) years following expiration or termination of
the term of this Agreement for any reason, Executive will not, either directly
or indirectly, alone or in conjunction with any other party, solicit, divert or
appropriate, or attempt to solicit, divert or appropriate any customer or
actively sought prospective customer of Employer for the purpose
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of providing such customer or actively sought prospective customer with services
or products competitive with those offered by Employer during the term of this
Agreement.
(f) NONSOLICITATION OF EMPLOYER PERSONNEL. Executive hereby agrees
that during the term of this Agreement, except to the extent that he is required
to do so in connection with his responsibilities hereunder, Executive will not,
either directly or indirectly, alone or in conjunction with any other party,
solicit or attempt to solicit any employee, consultant, contractor or other
personnel of Employer to terminate, alter or lessen such party's affiliation
with Employer or to violate the terms of any agreement or understanding between
such party and Employer. Executive further agrees that during the three (3)
year period following expiration or termination of this Agreement for any
reason, Executive will not, either directly or indirectly, alone or in
conjunction with any other party, solicit or attempt to solicit any "key" (as
that term is hereinafter defined) employee, consultant, contractor or other
personnel of Employer to terminate, alter or lessen that party's affiliation
with Employer or to violate the terms of any agreement or understanding between
such party and Employer. For purposes of the preceding sentence "key"
employees, consultants, contractors or other personnel of Employer are those
with knowledge of or access to Employer's Trade Secrets or Confidential
Information.
(g) REMEDIES. Executive agrees that damages at law for Executive's
violation of any of the covenants in this Section 9 would not be an adequate or
proper remedy and that, should Executive violate or threaten to violate any of
the provisions of such covenants, Employer or its successors or assigns shall be
entitled to seek a temporary or permanent injunction against Executive in any
court having jurisdiction prohibiting any further violation of any such
covenants, in addition to any award or damages (compensatory, exemplary or
otherwise) for such violation. The Executive agrees not to raise as a defense
to such action that Employer has an adequate remedy at law.
(h) PARTIAL ENFORCEMENT. Employer has attempted to limit the rights
of Executive to compete only to the extent necessary to protect Employer from
unfair competition. Employer, however, agrees that, if the scope of
enforceability of any of these restrictive covenants is in any way disputed at
any time, a court or other trier of fact may modify and enforce such covenant to
the extent that it believes to be reasonable under the circumstances existing at
the time.
(i) SURVIVAL. Notwithstanding any expiration or termination of this
Agreement, the provisions of this Section 9 shall survive and remain in full
force and effect, as shall any other provision hereof that, by its terms or
reasonable interpretation thereof, sets forth obligations that extend beyond the
termination of this Agreement.
10. ASSIGNMENT; SUCCESSORS AND ASSIGNS, ETC. Neither the Employer nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent or the other
party and without such consent any attempted transfer or assignment shall be
null and of no effect; provided, however, that the Employer may assign its
rights under this Agreement without the consent of the Executive in the event
the Employer shall hereafter effect a reorganization, consolidate with or merge
into any other Person, or transfer all or substantially all of its properties or
assets to any other Person. This Agreement shall inure to the benefit of and be
binding upon the Employer and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns. In the event of the
Executive's death prior to the completion by the Employer of all
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payments due him under this Agreement, the Employer shall continue such payments
to the Executive's beneficiary designated in writing to the Employer prior to
his death (or to his estate, if he fails to make such designation or such
beneficiary predeceases him).
11. PAYMENTS TO THE EXECUTIVE. The Employer shall pay the reasonable
attorneys' fees and disbursements incurred by the Executive in connection with
the preparation and negotiation of this Agreement. If litigation shall be
instituted to enforce or interpret any provision hereof and the Executive shall
prevail, the Employer will reimburse the Executive for his reasonable attorneys'
fees and disbursements incurred in such proceeding and will pay prejudgment
interest at the legal rate then in effect on any money judgment or award
obtained by the Executive in such proceeding.
12. ENFORCEABILITY. The unenforceability or invalidity of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions hereof, but such remaining provisions shall be construed
and interpreted in such a manner as to carry out fully the intent of the parties
hereto; PROVIDED, HOWEVER, that should any judicial body interpreting this
Agreement deem any provision hereof to be unreasonably broad in time, territory,
scope or otherwise, it is the intent and desire of the parties hereto that such
judicial body, to the greatest extent possible, reduce the breadth of such
provision to the maximum legally allowable parameters rather than deeming such
provision totally unenforceable or invalid.
13. WAIVER. No waiver, termination or discharge of this Agreement, or any
of the terms or provisions hereof, shall be binding upon either party hereto
unless confirmed in writing. No waiver by either party hereto of any term or
provision of this Agreement or of any default hereunder shall affect such
party's right thereafter to enforce such term or provision or to exercise any
right or remedy in the event of any other default, whether or not similar.
14. NOTICES.
(a) All notices, consents, requests and other communications
hereunder shall be in writing and shall be sent by hand delivery, by certified
or registered mail (return-receipt requested), by facsimile or by a recognized
national overnight courier service as set forth below:
If to Employer: Strategic Diagnostics Inc.
128 Sandy Drive
Newark, Delaware 19713-1147
Attn: Chairman of the Board
with a copy to: William B. Marianes, Esq.
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
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If to Executive: Richard C. Birkmeyer
c/o Strategic Diagnostics Inc.
128 Sandy Drive
Newark, Delaware 19713-1147
(b) Notices delivered pursuant to this Section 14 hereof shall be
deemed given: at the time delivered, if personally delivered, three (3)
business days after being deposited in the mail, if mailed; and one (1) business
day after timely delivery to the courier, if by overnight courier service.
(c) Either party hereto may change the address to which notice is to
be sent by written notice to the other party hereto in accordance with this
Section 14.
15. HEADINGS. The titles, captions and headings contained in this
Agreement are inserted by convenience of reference only and are not intended to
be part of or to affect in any way the meaning or interpretation of this
Agreement.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
18. GOVERNING LAW. This is a Delaware contract and shall be construed
under and be governed in all respects by the laws of the State of Delaware.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first written above.
"Employer"
ATTEST: ENSYS ENVIRONMENTAL PRODUCTS, INC.
__________________________ By:________________________________
Title:_____________________________
"Executive"
WITNESS: RICHARD C. BIRKMEYER
__________________________ __________________________________
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EXHIBIT A
Form of Incentive Stock Option Agreement
<PAGE>
STRATEGIC DIAGNOSTICS INC.
128 SANDY DRIVE
NEWARK, DELAWARE 19173-1147
[Date]
Mr. Grover C. Wrenn
c/o Strategic Diagnostics Inc.
128 Sandy Drive
Newark, Delaware 19173-1147
Dear Mr. Wrenn:
This letter sets forth the agreement between you and Strategic
Diagnostics Inc. (formerly named EnSys Environmental Products, Inc.
("Company")) regarding your continued role in the Company following today's
consummation of the Company's merger with Strategic Diagnostics Inc.
We have agreed that, effective today, you will cease serving the Company
as President and Chief Executive Officer and that, pursuant to action
previously taken by the Company's Board of Directors, you will become
Chairman of the Company's Board of Directors to serve at the will of the
Board in accordance with the Bylaws. In addition to the duties set forth in
the Bylaws, you will assist the Company in investor relations matters,
including providing counsel as to public statements, relationships with the
investment community and presentations to analysts, and as to such other
matters as you agree to undertake at the request of the Board. While you will
remain an employee of the Company, this position will not require your full
working time and attention, and you will be free to pursue other employment
if you wish.
As compensation for the services described above, you will receive
salary at the rate of $200,000 per year, subject to an annual increase as
determined by the Compensation Committee of the Board of Directors. Forty
percent (40%) of your salary shall be payable in periodic installments in
accordance with the Company's usual practice for its senior executives. Each
month, you will provide the Board with a written summary of your activities
as Chairman. To the extent that the services described in your summary
occupied more than eight days during the month (representing an average of
two days out of each of four five-day work weeks), you will be entitled to an
additional pro rata portion of your salary.
<PAGE>
As Chairman, you also will be entitled (i) to continue to participate in
any and all employee benefit plans, medical insurance plans, life insurance
plans, disability income plans, retirement plans and other benefit plans from
time to time in effect for senior executives of the Company, (ii) to receive
fringe benefits ordinarily and customarily provided by the Company to its
senior officers, and (iii) to receive prompt reimbursement for all travel and
other business expenses incurred by you in the performance of your duties and
responsibilities.
As further compensation, you have been granted, effective today, an
option in the form attached to purchase 100,000 shares of the Company's
common stock under the Company's 1995 Stock Incentive Plan at an exercise
price equal to today's fair market value. The grant of an option pursuant to
this paragraph shall be without prejudice to further grants to you in the
future under any plan adopted by the Company.
We also have agreed that the Employment Agreement between you and the
Company dated April 11, 1995 will terminate today and that you will be
entitled to receive the benefits described in Section 5(a)(i)-(iv) of that
Agreement in addition to the compensation and benefits described above. The
Company shall not be entitled to any set-off against, or reduction of, such
amounts for any reason whatsoever.
The Company shall reimburse up to $5,000 of documented attorneys' fees
and disbursements incurred by you in connection with the preparation and
negotiation of this Agreement. This paragraph does not extend to
reimbursement of attorneys' fees and disbursements associated with any
amendment or termination of this Agreement or any other matter.
Very truly yours,
STRATEGIC DIAGNOSTICS INC.
(formerly named ENSYS
ENVIRONMENTAL PRODUCTS,
INC.)
By:__________________________________
Title:_______________________________
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Agreed and accepted as of
the date first above written:
_____________________________________
Grover C. Wrenn
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AMENDED AND RESTATED
ENSYS ENVIRONMENTAL PRODUCTS, INC.
1995 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
100,000 ,1996
- --------------- -------------------
NO. OF SHARES DATE OF GRANT
Pursuant to the Amended and Restated EnSys Environmental Products, Inc.
1995 Stock Incentive Plan (the "Plan"), EnSys Environmental Products, Inc.
(the "Company") hereby grants to Grover C. Wrenn (the "Optionee") an option
(the "Option") to purchases on or prior to __________________, 2006 (the
"Expiration Date") all or any part of One Hundred Thousand (100,000) shares
(the "Option Shares") of "Stock" (as defined in Section 2 of the Plan) at a
price of $[fair market value on the date of grant] per share of Stock in
accordance with the schedule set forth in Section 1 hereof and subject to the
terms and conditions set forth hereinafter and in the Plan. This Option shall
be construed in a manner to qualify it as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
the maximum extent permitted.
1. VESTING OF OPTION. Subject to the provisions of Sections 4 and 5
hereof and the discretion of the "Board" (as defined in Section 1 of the
Plan) to accelerate the vesting schedule hereunder, this Option shall become
vested and exercisable with respect to the following number of Option Shares
according to the timetable set forth below:
Number of Shares of Stock Cumulative Number of
Vested and Becoming Shares of Stock
Date Available for Exercise Available for Exercise
------------ ------------------------ ----------------------
[closing date], 1996 25,000 25,000
[1st anniversary of
closing date], 1997 25,000 50,000
[2nd anniversary of
closing date], 1998 25,000 75,000
[3rd anniversary of
closing date], 1999 25,000 100,000
2. MANNER OF EXERCISE. The Optionee may exercise this Option only in
the following manner: from time to time on or prior to the Expiration Date of
this Option,
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the Optionee may give written notice to the Board of his election to purchase
some or all of the vested Option Shares purchasable at the time of such
notice as determined in accordance with the cumulative number of shares of
Stock available for exercise specified in the third column of the schedule
set forth in Section 1 hereof. Said notice shall specify the number of shares
of Stock to be purchased.
(a) Payment of the purchase price for the Option Shares may be made by
one or more of the following methods: (i) in cash, by certified or bank check
or other instrument acceptable to the Board; or (ii) in the form of shares of
Stock that are not then subject to restrictions under any Company plan
(subject to the Board's discretion); or (iii) by the Optionee delivering to
the Company a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company to pay the option purchase price;
provided that in the event the Optionee chooses to pay the option purchase
price as so provided, the Optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other agreements
as the Board shall prescribe as a condition of such payment procedure.
Payment instruments will be received subject to collection.
(b) The delivery of certificates representing the Option Shares will
be contingent upon the Company's receipt from the Optionee of full payment
therefor, as set forth above, and any agreement, statement or other evidence
as the Company may require to satisfy itself that the issuance of Option
Shares to be purchased pursuant to the exercise of Options under this
Agreement and any subsequent resale of the shares of Stock will be in
compliance with applicable laws and regulations.
(c) If requested upon the exercise of this Option, certificates for
shares may be issued in the name of the Optionee jointly with another person
or in the name of the executor or administrator of the Optionee's estate.
(d) Notwithstanding any other provision hereof or of the Plan, no
portion of this Option shall be exercisable after the Expiration Date hereof.
3. NON-TRANSFERABILITY OF OPTION. This Option shall not be
transferable by the Optionee otherwise than by will or by the laws of descent
and distribution and this Option shall be exercisable, during the Optionee's
lifetime, only by the Optionee or his legal representative.
4. TERMINATION OF EMPLOYMENT. If the Optionee's employment as Chairman
of the Board ("the Chairman") by the Company or a Subsidiary (as defined in
Section 1 of the Plan) is terminated, the period within which to exercise the
Option shall be subject to the provisions set forth below. For this purpose,
a leave of absence approved by the Board shall not be deemed a "termination
of Optionee's employment."
(a) TERMINATION DUE TO DEATH. If the Optionee's employment as the
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Chairman terminates by reason of death, any Option held by the Optionee may
be exercised, to the extent exercisable at the date of death, by the
Optionee's legal representative or legatee for a period of 180 days from the
date of death or until the Expiration Date, if earlier.
(b) TERMINATION DUE TO DISABILITY. If the Optionee's employment as the
Chairman terminates by reason of Disability (as defined in Section 1 of the
Plan), any Option held by the Optionee may be exercised, to the extent
exercisable on the date of termination, for a period of twelve months from
the date of termination or until the Expiration Date, if earlier.
(c) TERMINATION FOR CAUSE. If the Optionee's employment as the
Chairman terminates for Cause (as defined in Section 1 of the
Plan), any Option held by the Optionee shall terminate immediately and be of
no further force and effect.
(d) OTHER TERMINATION. If the Optionee's employment as the Chairman
terminates for any reason other than death, Disability or Cause, any Option
held by the Optionee may be exercised, to the extent exercisable on the date
of termination of employment as the Chairman for a period of one year from
the date of termination or until the Expiration Date, if earlier, or such
longer period as may be determined by the Board.
5. CHANGE OF CONTROL. In the event of a "Change of Control" (as
defined in Section 12 of the Plan), each Option will automatically become
exercisable to the extent provided in Section 12 of the Plan, as in effect on
the date of grant of this Option.
6. OPTION SHARES. The Option Shares are shares of Stock of the Company
as constituted on the date of this Option, which are subject to adjustment
as provided in Section 3(b) of the Plan.
7. NO SPECIAL EMPLOYMENT RIGHTS. This Option will not confer upon the
Optionee any right with respect to continuance of employment by the Company
or a Subsidiary, nor will it interfere in any way with right of the
Optionee's employer to terminate the Optionee's employment at any time.
8. RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any shares of Stock which may be purchased by
exercise of this Option unless and until a certificate or certificates
representing such shares are duly issued and delivered to the Optionee.
Except as otherwise expressly provided in the Plan, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
9. QUALIFICATION UNDER SECTION 422. It is understood and intended that
the Option granted hereunder shall qualify as an "incentive stock option" as
defined in Section 422 of the Code to the maximum extent permitted by law.
Accordingly, the
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Employee understands that the loss of the benefits of an incentive stock
option under Section 422 of the Code may result from a sale or other
disposition of any shares of Stock acquired upon exercise of the Option
within the one-year period beginning on the day after the day of the transfer
of such shares of Stock to him, nor within the two-year period beginning on
the day after the grant of the Option. If the Employee intends to dispose or
does dispose (whether by sale, gift, transfer or otherwise) of any such
shares of Stock within said periods, he will notify the Company within thirty
(30) days after such disposition, in addition, no more than $100,000 of the
aggregate fair market value (as defined in the Plan) of Stock Options (as
defined in Section 1 of the Plan) granted under the Plan or any other stock
option plan of the Company or any Subsidiary may become exercisable for the
first time by the Optionee during any calendar year and be treated as
incentive stock options under Section 422 of the Code.
10. TAX WITHHOLDING. No later than the date as of which part or all of
the value of any of the Option Shares first becomes includable in the
Optionee's gross income for Federal tax purposes, the Optionee shall make
arrangements with the Company in accordance with Section 8 of the Plan
regarding the payment of any federal, state or local taxes required to be
withheld with respect to the income.
11. THE PLAN. In the event of any discrepancy or inconsistency between
this Agreement and the Plan, the terms and conditions of the Plan shall
control.
12. MISCELLANEOUS. Notices hereunder shall be mailed or delivered to the
Company at its principal place of business and shall be mailed or delivered
to Optionee at the address set forth below or, in either case, at such other
address as on party may subsequently furnish to the other party in writing.
ENSYS ENVIRONMENTAL PRODUCTS, INC.
By:
------------------------------------
Member of the Compensation Committee
of the Board of Directors of EnSys
Environmental Products, Inc.
Receipt of the foregoing Option is acknowledged and its terms and
conditions are hereby agreed to:
------------------------------------
Grover C. Wrenn (Optionee)
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Date: Address:
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EXHIBIT 10.28
FORM OF REGISTRATION RIGHTS AGREEMENT
____________, 1996
To each of the Original Holders
listed on the signature
pages hereto
Dear Sirs:
This agreement is made in connection with the Agreement and Plan of
Merger, dated as of October __, 1996 (the "Merger Agreement") by and between
Strategic Diagnostics Inc., a Delaware corporation ("SDI") and EnSys
Environmental Products, Inc., a Delaware corporation (the "Company"), pursuant
to which SDI shall be merged with and into the Company in accordance with the
applicable provisions of the Delaware General Corporation Law and the terms of
the Merger Agreement. The merger consideration received by the Original Holders
(as hereinafter defined) includes, common stock, par value $.01, of the Company
(the "Common Stock"), Series A Convertible Preferred Stock (the "Preferred
Stock"), par value $.01, of the Company that is convertible into shares of
Common Stock, and warrants (the "Warrants") to purchase shares of Common Stock.
The Company covenants and agrees with each of you (the "Original Holders") as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the Common Stock, $0.01 par value, of
the Company, as constituted as of the date of this Agreement.
"CONVERSION SHARES" shall mean shares of Common Stock issued upon
conversion of the Preferred Shares, together with any shares of Common Stock
issued on or with respect to other Conversion Shares by way of a stock split,
stock dividend or the like.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the
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rules and regulations of the Commission thereunder, all as the same shall be
in effect at the time.
"PERKIN-ELMER SHARES" shall mean [__] shares of Common Stock
issued pursuant to the Merger Agreement to The Perkin-Elmer Corporation.
"PREFERRED SHARES" shall mean an aggregate of [_____] shares of
Preferred Stock issued pursuant to the Merger Agreement to DSV Partners IV,
Edison Venture Fund II, L.P. and Edison Venture Fund II-Pa, L.P.
"REGISTRATION EXPENSES" shall mean the expenses so described in
Section 8.
"RESTRICTED STOCK" shall mean the Conversion Shares, Perkin-Elmer
Shares, and Warrant Shares, excluding Conversion Shares, Perkin-Elmer Shares,
and Warrant Shares which (a) have been registered under the Securities Act
pursuant to an effective registration statement filed thereunder and disposed of
in accordance with the registration statement covering them or (b) are eligible
for public sale without limitation as to amount pursuant to Rule 144 or Rule 145
under the Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean the expenses so described in
Section 8.
"TRANSFER" shall include any disposition of any Preferred Shares,
Perkin-Elmer Shares, Conversion Shares and Warrant Shares or of any interest
therein which would constitute a sale thereof within the meaning of the
Securities Act.
"WARRANT SHARES" shall mean shares of Common Stock issued upon
exercise of the Warrants, together with any shares of Common Stock issued on or
with respect to other Warrant Shares by way of stock split, stock dividend or
the like.
2. RESTRICTIVE LEGEND. The Preferred Shares, Perkin-Elmer Shares,
Conversion Shares and Warrant Shares shall not be transferable, except upon the
conditions specified in Sections 2 and 3 hereof, which conditions are intended
to ensure compliance with the provisions of the Securities Act in respect of the
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Transfer thereof. Each certificate representing Preferred Shares, Perkin-Elmer
Shares, Conversion Shares or Warrant Shares shall, except as otherwise provided
in this Section 2 or in Section 3, be stamped or otherwise imprinted with a
legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED FOR SALE UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THAT CERTAIN
REGISTRATION RIGHTS AGREEMENT, DATED ____ AMONG THE COMPANY
AND THE SIGNATORIES THERETO AND THE SECURITIES ACT OF 1933,
AS AMENDED."
3. NOTICE OF PROPOSED TRANSFER. Prior to any proposed Transfer of
any Preferred Shares, Perkin-Elmer Shares, Conversion Shares or Warrant Shares
(other than under the circumstances described in Sections 4 or 5), the holder
thereof shall give written notice to the Company of its intention to effect such
Transfer. Each such notice shall describe the manner of the proposed Transfer
and, if requested by the Company, shall be accompanied by an opinion of counsel
satisfactory to the Company to the effect that the proposed Transfer may be
effected without registration under the Securities Act, whereupon the holder of
such stock shall be entitled to Transfer such stock in accordance with the terms
of its notice; provided, however, that no such opinion of counsel shall be
required for a Transfer to one or more partners of an Original Holder (in the
case of an Original Holder that is a partnership) or to an affiliated
corporation of an Original Holder (in the case of an Original Holder that is a
corporation), if, with respect to such Transfer, the transferee agrees in
writing to be subject to the terms of Sections 2, 3 and 10 hereof, to the same
extent as if such transferee were originally a signatory to this Agreement.
Each certificate for Preferred Shares, Perkin-Elmer Shares, Conversion Shares or
Warrant Shares transferred as above provided shall bear the legend set forth in
Section 2, except that such certificate shall not bear such legend if (i) such
Transfer is in accordance with the provisions of Rule 144 (or any other rule
permitting public sale without registration under the Securities Act) or (ii)
the opinion of counsel referred to above is to the further effect that the
transferee and any subsequent transferee (other than an affiliate of the
Company) would be entitled to Transfer such securities in a public sale without
registration under the Securities Act. The restrictions provided for in this
Section 3 shall not apply to securities which are not required to bear the
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legend prescribed by Section 2 in accordance with the provisions of that
Section.
4. REQUIRED REGISTRATION. (a) At any time after the date which is
six (6) months from the date of this Agreement, any two (2) of the three (3)
holders of Restricted Stock acting together as a group may request on two (2)
separate occasions the Company to register under the Securities Act all or any
portion of the shares of Restricted Stock held by such requesting holders for
sale in the manner specified in such notice, PROVIDED that the shares of
Restricted Stock for which registration has been requested shall constitute at
least the lesser of (i) 50% of the total shares of Restricted Stock originally
issued to such holders, or (ii) the remaining shares of Restricted Stock held by
such holders, but in any event not less than 1,500,000 shares of Restricted
Stock. For purposes of this Section 4 and Sections 5, 12(a) and 12(d), the term
"Restricted Stock" shall be deemed to include the number of shares of Restricted
Stock which would be issuable to a holder of Preferred Shares upon conversion of
all shares of Preferred Stock held by such holder at such time and the number of
shares of Restricted Stock which would be issuable to a holder of Warrants upon
exercise of all Warrants held by such holder at such time, PROVIDED, however,
that the only securities which the Company shall be required to register
pursuant hereto shall be shares of Common Stock, and PROVIDED, FURTHER, HOWEVER,
that, in any underwritten public offering contemplated by this Section 4 or
Section 5, the holders of Preferred Shares and Warrants shall be entitled to
sell such Preferred Shares and Warrants to the underwriters for conversion or
exercise, respectively, and sale of the shares of Common Stock issued upon
conversion thereof. Notwithstanding anything to the contrary contained herein,
no request may be made under this Section 4 within 180 days after the effective
date of a registration statement filed by the Company covering a firm commitment
underwritten public offering in which the holders of Restricted Stock shall have
been entitled to join pursuant to Section 5 and in which there shall have been
effectively registered at least fifty percent (50%) of the shares of Restricted
Stock as to which registration shall have been requested.
(b) Following receipt of any notice under this Section 4, the
Company shall immediately notify all holders of Restricted Stock from whom
notice has not been received and shall use all reasonable efforts to register
under the Securities Act, for public sale in accordance with the method of
disposition specified in such notice from requesting holders, the number of
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shares of Restricted Stock specified in such notice (and in all notices received
by the Company from other holders within 30 days after the giving of such notice
by the Company). If such method of disposition shall be an underwritten public
offering, the Company may designate the managing underwriter of such offering,
subject to the approval of the holders of a majority of the shares of Restricted
Stock to be sold in such offering, which approval shall not be unreasonably
withheld, conditioned or delayed. The Company shall be obligated to register
Restricted Stock pursuant to this Section 4 on two occasions only, PROVIDED,
HOWEVER, that such obligation shall be deemed satisfied only when a registration
statement covering at least the lesser of (i) 50% of the total shares of
Restricted Stock originally issued or (ii) 75% of the shares of Restricted Stock
specified in notices received as aforesaid, for sale in accordance with the
method of disposition specified by the requesting holders, shall have become
effective; PROVIDED, FURTHER, HOWEVER, that any registration proceeding begun
pursuant to this Section 4 which is subsequently withdrawn at the request of the
holders of a majority of the shares of Restricted Stock requested to be
registered shall count toward such two registration statements which the holders
of the shares of Restricted Stock have the right to cause the Company to effect
pursuant to this Section 4.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, or any issued and outstanding shares of
Common Stock to be sold by others except as and to the extent that, in the
opinion of the managing underwriter (if such method of disposition shall be an
underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold.
5. INCIDENTAL REGISTRATION. If the Company at any time (other than
pursuant to Section 4) proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to registration
statements on Forms S-4 or another form not available for registering the
Restricted Stock for sale to the public), each such time it will give written
notice to all holders of outstanding Restricted Stock of its intention so to do.
Upon the written request of any such holder received by the Company within 30
days after the giving of any such notice by the Company, to register any of its
Restricted Stock (which request shall state
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the intended method of disposition thereof), the Company will use all
commercially reasonable efforts (subject to the rights of any holders of
securities of the Company, other than the Company, included in such
registration) to cause the Restricted Stock as to which registration shall
have been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by the holder (in
accordance with its written request) of such Restricted Stock so registered.
In the event that any registration pursuant to this Section 5 shall be, in
whole or in part, an underwritten public offering of Common Stock, the number
of shares of Restricted Stock as a group to be included in such an
underwriting may be reduced (pro rata among the holders of Restricted Stock
based upon the number of shares of Restricted Stock owned by such holders) if
and to the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold by the Company or other holder of securities of the Company.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 5 without thereby
incurring any liability to the holders of Restricted Stock.
6. HOLDBACK AGREEMENT. If the Company at any time shall register
shares of Common Stock under the Securities Act (including any registration
pursuant to Sections 4 and 5) for sale to the public, the Original Holders shall
not sell publicly, make any short sale of, grant an option for the purchase of,
or otherwise dispose of, any shares of Restricted Stock (other than those shares
of Common Stock included in such registration pursuant to Sections 4 or 5)
without the prior written consent of the Company for a period designated by the
Company in writing to the holders of shares of Restricted Stock, which period
shall not begin more than 10 days prior to the effectiveness of the registration
statement pursuant to which such public offer will be made and shall not last
more than 180 days after the effective date of such registration statement.
7. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of Sections 4 or 5 to use all reasonable efforts or all
commercially reasonable efforts to effect the registration of any shares of
Restricted Stock under the Securities Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a registration
statement on Form S-1 or Form S-3 if available with
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respect to such securities and use all reasonable efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided)
(subject, in the case of any Incidental Registration, to the rights of the
Company to abandon any such registration as set forth in Section 5);
(b) with respect to any registration pursuant to Section 4,
prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period specified
above and comply with the provisions of the Securities Act with respect to the
disposition of all Restricted Stock covered by such registration statement in
accordance with the sellers' intended method of disposition set forth in such
registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use all reasonable efforts to register or qualify the
Restricted Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall request, PROVIDED, HOWEVER, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified, to consent to
general service of process in any such jurisdiction or submit to liability for
state or local taxes where it is not otherwise liable for such taxes;
(e) use all reasonable efforts to list the Restricted Stock
covered by such registration statement with any securities exchange on which the
Common Stock of the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the
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prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any
seller of Restricted Stock, use all reasonable efforts to furnish on the date
that Restricted Stock is delivered to the underwriters for sale pursuant to such
registration: (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the seller or sellers making such request;
and (ii) at the request of either the underwriters or sellers of Restricted
Stock, a letter dated such date from the independent public accountants retained
by the Company, addressed to the underwriters and to such seller, stating that
they are independent public accountants within the meaning of the Securities Act
and that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five business days prior to the date of such
letter) with respect to such registration as such underwriters reasonably may
request; and
(h) make reasonably available for inspection by each seller of
Restricted Stock, any underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and use all
reasonable efforts to cause the Company's officers, directors and employees to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement, in
each case as and to the extent necessary to permit the sellers to conduct a
reasonable investigation within the meaning of the Securities Act. To minimize
disruption and expense to the Company during the course of the registration
process, the sellers will act through a single law firm and a single accounting
firm and will enter into confidentiality agreements with the Company in form and
substance
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reasonably satisfactory to the Company and the sellers prior to receiving any
confidential or proprietary information of the Company.
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby, or nine (9)
months after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 4 or 5
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. EXPENSES. All expenses (both third party and internal) incurred
by the Company in complying with Sections 4 and 5, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company,
fees and expenses (including counsel fees) incurred in connection with complying
with state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, costs of insurance, but excluding any Selling Expenses, are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock, and all fees and disbursements of
legal counsel for the sellers of Restricted Stock, are called "Selling
Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4 or
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5. All Selling Expenses in connection with each registration statement under
Sections 4 or 5 shall be borne by the participating sellers in proportion to
the number of shares sold by each, or by such participating sellers other
than the Company (except to the extent the Company shall be a seller) as they
may agree.
9. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of a
registration of any of the Restricted Stock under the Securities Act pursuant to
Sections 4 or 5, the Company will indemnify and hold harmless each seller of
such Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4 or 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, PROVIDED, HOWEVER, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such seller, any such underwriter or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Sections 4 or 5, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within
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the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Restricted Stock was
registered under the Securities Act pursuant to Sections 4 or 5, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action, PROVIDED, HOWEVER, that such seller will be
liable hereunder in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to such seller,
as such, furnished in writing to the Company by such seller specifically for
use in such registration statement or prospectus, and PROVIDED, FURTHER,
HOWEVER, that the liability of each seller hereunder shall not in any event
exceed the proceeds received by such seller from the sale of Restricted Stock
covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from
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the indemnifying party to such indemnified party of its election so to assume
and undertake the defense thereof, the indemnifying party shall not be liable
to such indemnified party under this Section 9 for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, PROVIDED, HOWEVER, that, if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Restricted Stock exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 9 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 9 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 9; then, and in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) as is appropriate
to reflect the relative fault of the Company and such holder in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as the relative benefit received by the Company and such
holder as a result of the offering in question, it being understood that the
parties acknowledge that the overriding equitable consideration to be given
effect in connection with this provision is the ability of one party or the
other to correct the statement or omission which resulted in such losses,
claims, damages or liabilities, and that it would not be just and
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equitable if contribution pursuant hereto were to be determined by pro rata
allocation or by any other method of allocation which does not take into
consideration the foregoing equitable considerations; PROVIDED, HOWEVER,
that, in any such case, (A) no such holder will be required to contribute any
amount in excess of the public offering price of all such Restricted Stock
offered by it pursuant to such registration statement; and (B) no person or
entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
10. REMOVAL OF LEGENDS, ETC. Notwithstanding the foregoing
provisions of Sections 2 through 9 hereof, the restrictions imposed by Sections
2 through 9 on the transferability of any Preferred Shares, Conversion Shares,
Warrant Shares and Perkin-Elmer Shares shall cease and terminate when (a) any
such Preferred Shares, Perkin-Elmer Shares, Conversion Shares or Warrant Shares
are sold or otherwise disposed of in accordance with the intended method of
disposition by the seller or sellers thereof set forth in a registration
statement or such other method contemplated by Section 3 hereof that does not
require that the securities transferred bear the legend set forth in Section 2
hereof, or (b) the holder of such Preferred Shares, Perkin-Elmer Shares,
Conversion Shares or Warrant Shares has met the requirements for transfer
pursuant to subparagraph (k) of Rule 144 (as amended from time to time)
promulgated by the Commission under the Securities Act. Whenever the
restrictions imposed by Sections 2 through 9 hereof have terminated, a holder of
a certificate for such Preferred Shares, Perkin-Elmer Shares, Conversion Shares
or Warrant Shares as to which such restrictions have terminated shall be
entitled to receive from the Company, without expense, a new certificate not
bearing the restrictive legend set forth in Section 2 hereof and not containing
any other reference to the restrictions imposed by this Agreement.
11. CHANGES IN COMMON STOCK OR PREFERRED STOCK. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
-13-
<PAGE>
12. RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Stock to the public without registration, at all
times the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use all reasonable efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration.
13. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each of the Original Holders as follows:
(a) The execution, delivery and performance of this Agreement by
the Company have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Charter or By-laws of the Company or its subsidiaries or any
provision of any indenture, agreement or other instrument to which it or its
subsidiaries or any or their properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or its
subsidiaries.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
-14-
<PAGE>
14. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including without
limitation transferees of any Preferred Shares or Restricted Stock), whether so
expressed or not, PROVIDED, HOWEVER, that registration rights conferred herein
on the holders of Preferred Shares, Perkin-Elmer Shares, Warrants, or Restricted
Stock, shall only inure to the benefit of a transferee of Preferred Shares,
Perkin-Elmer Shares, Warrants, or Restricted Stock, if (i) there is transferred
to such transferee at least 20% of the total shares of Restricted Stock
originally issued pursuant to the Merger Agreement to the direct or indirect
transferor of such transferee or (ii) such transferee is a partner, shareholder
or affiliate of a party hereto.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by certified or registered
mail, return receipt requested, postage prepaid, or telexed, in the case of
non-U.S. residents, addressed as follows:
if to the Company, at:
Strategic Diagnostics Inc.
128 Sandy Drive
Newark, DE 19713-1147
Attn: President
if to any Original Holder, at the most recent address given
by such party to the Company;
if to any subsequent holder of Preferred Shares,
Perkin-Elmer Shares, Warrants, or Restricted Stock, to it at such address as
may have been furnished to the Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of Preferred
Shares, Perkin-Elmer Shares or Restricted Stock) or to the holders of
Preferred Shares, Perkin-Elmer Shares or Restricted Stock (in the case of the
Company) in accordance with the provisions of this paragraph.
-15-
<PAGE>
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
the holders of at least two-thirds of the outstanding shares of Restricted
Stock. In addition, the Agreement may not be amended in a manner that is
materially adverse to the rights of the parties hereunder without the written
consent of the holders of at least a majority of the outstanding shares of
Restricted Stock.
(e) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) The obligations of the Company to register shares of
Restricted Stock under Sections 4 or 5 shall terminate on the fifth anniversary
of the date of this Agreement.
(g) Notwithstanding the provisions of Section 6(a), the
Company's obligation to file a registration statement, or cause such
registration statement to become and remain effective, shall be suspended for a
period not to exceed 90 days in any 12-month period if there exists at the time
material non-public information relating to the Company which, in the reasonable
opinion of the Company, should not be disclosed.
(h) From the date of this Agreement, the Company shall not grant
to any third party any registration rights more favorable than any of those
contained herein, so long as any of the registration rights under this Agreement
remains in effect.
(i) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-16-
<PAGE>
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
ENSYS ENVIRONMENTAL
PRODUCTS, INC.
By:_________________________
Title:______________________
AGREED TO AND ACCEPTED as of
the date first above written.
DSV PARTNERS IV
By: DSV Management, Ltd.,
its general partner
By:_________________________
General Partner
EDISON VENTURE FUND II, L.P.
By: Edison Partners II, L.P.,
General Partner
By:_________________________
General Partner
EDISON VENTURE FUND II-PA, L.P.
By: Edison Partners II, L.P.,
General Partner
By:_________________________
General Partner
The Perkin-Elmer Corporation
By:_________________________
-17-
<PAGE>
EXHIBIT 10.29
December ___, 1996
EnSys Environmental Products, Inc.
4222 Emperor Boulevard
Durham, North Carolina 27703
Dear Ladies and Gentlemen:
In consideration of the benefit to the stockholders of Strategic
Diagnostics Inc. ("Company") of the merger of the Company with and into EnSys
Environmental Products, Inc. ("EnSys"), pursuant to the Agreement and Plan of
Merger between the Company and EnSys dated as of October 11, 1996, and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the undersigned hereby agrees that, without the prior written consent of EnSys,
he or she will not sell, contract to sell, or otherwise dispose of for value,
any of the EnSys Preferred Stock, Common Stock or any security exchangeable or
exercisable for or convertible into EnSys Common Stock, beneficially owned by
the undersigned until the date which is six (6) months from the date hereof;
provided that the undersigned may pledge or cause to be pledged any or all of
such shares or other securities in bona fide loan transactions with established
financial lending institutions.
____________________________
Name of stockholder
<PAGE>
EXHIBIT 10.30
STOCKHOLDER VOTING AGREEMENT
THIS STOCKHOLDER VOTING AGREEMENT (the "Agreement") is made and entered
into this _____ day of September, 1996, by and between ENSYS ENVIRONMENTAL
PRODUCTS, INC., a Delaware corporation ("EnSys"), and the undersigned
("Stockholder").
RECITALS:
A. Stockholder is the record and beneficial owner of the number and
class of shares of stock of Strategic Diagnostics, Inc., a Delaware corporation
("SDI") set forth opposite its signature below (the "Shares").
B. On July 26, 1996, EnSys and SDI executed a non-binding letter of
intent (the "Letter of Intent") outlining a transaction in which SDI would be
merged with and into EnSys (the "Merger").
C. On the date hereof, EnSys and SDI are entering into a definitive
agreement to effect the Merger (the "Merger Agreement").
D. To induce EnSys to enter into the Merger Agreement with SDI and
proceed with the Merger, Stockholder has agreed to be bound by the terms and
conditions contained herein.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual
promises, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder hereby
represents and warrants to EnSys that: (a) it is the sole holder and
beneficial owner of the Shares; and (b) it has full power and authority to
execute, deliver and perform its obligations under this Agreement.
2. AGREEMENT TO VOTE SHARES. Stockholder hereby agrees to vote the
Shares in favor of the Merger and the approval of the Merger Agreement (and any
subsequent changes thereto) recommended by the Board of Directors of SDI at
every meeting of the shareholders of SDI called therefor and at every
adjournment thereof.
3. NO VOTING TRUSTS. Stockholder hereby agrees not to deposit any of
the Shares in a voting trust or subject any of the Shares to any arrangement or
agreement with respect to the voting of the Shares.
<PAGE>
4. NO PROXY SOLICITATIONS. Stockholder hereby agrees not to: (a)
solicit any proxy or become a "participant" in a "solicitation" (as such terms
are defined in Regulation 14A under the Securities Exchange Act of 1934 (the
"1934 Act")), in opposition to or competition with the consummation of the
Merger or otherwise encourage or assist any party in taking or planning any
action which would compete with, restrain or otherwise serve to interfere with
or inhibit the timely consummation of the Merger in accordance with the terms
of the Letter of Intent or the Merger Agreement; (b) initiate a shareholder
vote or other action by any shareholders of SDI in opposition to or in
competition with the consummation of the Merger; or (c) become a member of a
"group" (as such term is used in Section 13(d) of the 1934 Act) with respect to
any voting securities of SDI for the purpose of opposing or competing with the
consummation of the Merger.
5. TRANSFER AND ENCUMBRANCE. Stockholder hereby agrees not to transfer,
sell, offer or otherwise dispose of or encumber any of the Shares during the
term of this Agreement; provided, however, that Stockholder may transfer or
sell all or any portion of the Shares to any person or entity who executes a
copy of and agrees to be bound by a new agreement substantially the same as
this Agreement.
6. ADDITIONAL PURCHASES. Stockholder hereby agrees that any additional
shares of SDI stock purchased or acquired by it during the term of this
Agreement shall also constitute "Shares" for purposes hereof.
7. REMEDIES. Stockholder expressly understands and agrees that the
covenants and agreements to be rendered and performed by it pursuant to this
Agreement are special, unique, and of an extraordinary character, and, in the
event of any default, breach or threatened breach by Stockholder of any
provision hereof, EnSys shall be entitled, if it so elects, to institute and
prosecute proceedings in any court of competent jurisdiction, either at law or
in equity, and shall be entitled to such relief as may be available to it
pursuant hereto, at law or in equity, including, without limitation, specific
performance.
8. TERM. The term of this Agreement shall commence as of the date
hereof and shall continue until the earlier to occur of: (a) the closing of
the Merger; or (b) any termination of the Merger Agreement.
9. MISCELLANEOUS.
(a) This Agreement contains the entire agreement and understanding
concerning the subject matter hereof between the parties hereto. No waiver,
termination or discharge of this Agreement, or any of the terms or provisions
hereof, shall be binding upon either party hereto unless confirmed in writing.
This Agreement may not be modified or amended, except by a writing executed by
both parties hereto. No waiver by either party hereto of any term or provision
of this Agreement or of any default hereunder shall affect such party's rights
thereafter to enforce such term or provision or to exercise any right or remedy
in the event of any other default, whether or not similar.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
(c) Stockholder may not assign this Agreement, in whole or in part,
without
-2-
<PAGE>
the prior written consent of EnSys, and any attempted assignment not in
accordance herewith shall be null and void and of no force or effect.
(d) This Agreement shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
(e) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute the same agreement. Any signature page of any such counterpart, or
any electronic facsimile thereof, may be attached or appended to any other
counterpart to complete a fully executed counterpart of this Agreement, and any
telecopy or other facsimile transmission of any signature shall be deemed an
original and shall bind such party.
(f) If any provision of this Agreement shall be held void, voidable,
invalid or inoperative, no other provision of this Agreement shall be affected
as a result thereof, and accordingly, the remaining provisions of this
Agreement shall remain in full force and effect as though such void, voidable,
invalid or inoperative provision had not been contained herein.
(g) Upon the reasonable request of the other party, each party
hereto agrees to take any and all actions, including, without limitation, the
execution of certificates, documents or instruments, necessary or appropriate
to give effect to the terms and conditions set forth in this Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
` "EnSys"
ENSYS ENVIRONMENTAL PRODUCTS, INC.
By: ____________________________________
Grover C. Wrenn, President
and Chief Executive Officer
"Stockholder"
_________________________________________
By:______________________________________
Number of Shares Class of SDI
of SDI Stock Stock
________________ ____________
-4-
<PAGE>
EXHIBIT 21.1
State or other Jurisdiction Name(s) Under Which Such
Subsidiary of Incorporation or Organization Subsidiary Does Business
- ---------- -------------------------------- ------------------------
EnSys Europe Ltd. United Kingdom EnSys Europe Ltd.
<PAGE>
EXHIBIT 23.3
CONSENT OF ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement on Form S-4 of EnSys Environmental Products, Inc.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
December 6, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
EnSys Environmental Products, Inc.
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
---------------------------------
KPMG Peat Marwick LLP
Raleigh, North Carolina
December 6, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated October 27, 1995, included in the Joint Proxy
Statement of Ensys Environmental Products, Inc. and Strategic Diagnostics Inc.
that is made a part of the Registration Statement (Form S-4 No. 333-00000)
and related Prospectus of Ensys Environmental Products, Inc. dated December 9,
1996.
/s/ ERNST & YOUNG LLP
-----------------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
December 9, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF FINANCIAL ADVISORS
RAYMOND JAMES & ASSOCIATES, INC.
Board of Directors
EnSys Environmental Products, Inc.
We hereby consent to the inclusion of our opinion as Appendix B to the
Joint Proxy Statement/Prospectus filed as part of the Registration Statement on
Form S-4 of EnSys Environmental Products, Inc. and to the references to our
firm as financial advisor of EnSys Environmental Products, Inc. and to the
summary of our opinion contained in said Joint Proxy Statement/Prospectus. In
giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations of the Securities and Exchange Commission.
RAYMOND JAMES & ASSOCIATES, INC.
By: /s/ David E. Thomas, Jr.
--------------------------------
Title: Senior Managing Director
-----------------------------
December 6, 1996
<PAGE>
EXHIBIT 23.7
CONSENT OF FINANCIAL ADVISORS
OPPENHEIMER & CO., INC.
Board of Directors
Strategic Diagnostics Inc.
We hereby consent to the inclusion of our opinion as
Appendix C to the Joint Proxy Statement/Prospectus filed as part
of the Registration Statement on Form S-4 of EnSys Environmental
Products, Inc. and to the references to our firm as financial
advisor of Strategic Diagnostics Inc. and to the summary of our
opinion contained in said Joint Proxy Statement/Prospectus. In
giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7
of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission.
OPPENHEIMER & CO., INC.
By: /s/ Steve McGrath
---------------------------------
Title: Executive Vice-President
------------------------------
December 6, 1996
<PAGE>
EXHIBIT 23.8
CONSENT OF
DONALD T. AIELLO
Board of Directors
EnSys Environmental Products, Inc.
I hereby consent to the inclusion of the summary of my
report in the Joint Proxy Statement/Prospectus filed as part of
the Registration Statement on Form S-4 of EnSys Environmental
Products, Inc. and to the references to me as a consultant to
EnSys Environmental Products, Inc. In giving such consent, I do
not thereby admit that I come within the category of persons
whose consent is required under Section 7 of the Securities Act
of 1933 or the rules and regulations of the Securities and
Exchange Commission.
/s/ DONALD T. AIELLO
____________________________________
Donald T. Aiello
December 6, 1996
<PAGE>
EXHIBIT 23.9
CONSENT OF
LUNDY ASSOCIATES, INC.
Board of Directors
EnSys Environmental Products, Inc.
We hereby consent to the inclusion of the summary of our report in the
Joint Proxy Statement/Prospectus filed as part of the Registration Statement on
Form S-4 of EnSys Environmental Products, Inc. and to the references to our
firm as a consultant to EnSys Environmental Products, Inc. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission.
LUNDY ASSOCIATES, INC.
By: /s/ Michael A. Lundy
------------------------------------
Title: President
---------------------------------
December 6, 1996
<PAGE>
ENSYS ENVIRONMENTAL PRODUCTS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 30, 1996
The undersigned hereby revokes all previous proxies, acknowledges receipt of
the notice of special stockholders meeting to be held on December 30, 1996 and
appoints Grover C. Wrenn and James M. Terrell, Ill, as proxies, each with the
power to appoint his substitute, and hereby authorizes either of them to act and
vote at the special meeting of stockholders of EnSys Environmental Products,
Inc. ("EnSys") to be held on December 30, 1996, and at any adjournments or
postponements thereof, as indicated upon all matters referred to on this proxy
card and described in the Joint Proxy Statement/ Prospectus for the meeting,
and, in their discretion, upon any other matters which may properly come before
the meeting.
THE APPROVAL OF EACH OF PROPOSALS 1, 2, 3 AND 4 (THE "MERGER PROPOSALS") IS
CONDITIONED UPON THE APPROVAL OF ALL OF THE MERGER PROPOSALS. ACCORDINGLY, A
VOTE AGAINST ANY OF THE MERGER PROPOSALS WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST ALL OF THE MERGER PROPOSALS. THE APPROVAL OF THE AMENDED AND RESTATED
ENSYS 1995 STOCK INCENTIVE PLAN IS NOT CONDITIONED ON THE APPROVAL OF THE MERGER
PROPOSALS.
1. Approval and adoption of the Agreement and Plan of Merger dated as of
October 11, 1996 (the "Agreement and Plan of Merger") between EnSys and
Strategic Diagnostics Inc., a Delaware corporation ("SDI"), providing for the
merger (the "Merger") of SDI with and into EnSys, with EnSys continuing as the
surviving corporation (the "Surviving Corporation"), and the transactions
contemplated thereby.
FOR / / AGAINST / / ABSTAIN / /
2. Approval and adoption of the amendment and restatement of EnSys'
Certificate of Incorporation to change the corporate name of the Surviving
Corporation to "Strategic Diagnostics Inc."
FOR / / AGAINST / / ABSTAIN / /
(CONTINUED ON REVERSE SIDE)
<PAGE>
3. Approval and adoption of the amendment and restatement of EnSys'
Certificate of Incorporation to increase the number of authorized shares of
EnSys capital stock from 25,000,000 shares of common stock to: (i) 35,000,000
shares of Surviving Corporation common stock (ii) 2,164,362 shares of Surviving
Corporation Series A convertible preferred stock; (iii) 17,500,000 shares of
"blank check" preferred stock which may be issued from time to time by the Board
of Directors of the Surviving Corporation with such rights, preferences and
other designations as the Board of Directors shall determine.
FOR / / AGAINST / / ABSTAIN / /
4. Approval and adoption of the amendment and restatement of EnSys'
Certificate of Incorporation to reclassify the Board of Directors.
FOR / / AGAINST / / ABSTAIN / /
5. Approval and adoption of the Amended and Restated EnSys 1995 Stock
Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
The Board of Directors recommends a vote FOR each of Proposals 1,2,3,4 and
5. This proxy, when properly executed, will be voted as specified above, and in
the discretion of the proxy holders as to any other matter that may properly
come before the meeting. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL
BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5.
Dated: _________________________ 1996
______________________________ (SEAL)
(SIGNATURE)
______________________________ (SEAL)
(SIGNATURE)
NOTE: Please sign above exactly as
name appears on the Stock
Certificate. If stock is held in the
name of two or more persons, all must
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign
in full corporate name by President
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE RETURN YOUR EXECUTED PROXY TO THE COMPANY IN THE ENCLOSED ENVELOPE.
<PAGE>
STRATEGIC DIAGNOSTICS INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 30, 1996
The undersigned hereby revokes all previous proxies, acknowledges receipt of
the notice of special stockholders meeting to be held on December 30, 1996 and
appoints Richard C. Birkmeyer and Anne F. Cavanaugh as proxies, each with the
power to appoint his substitute, and hereby authorizes either of them to act and
vote at the special meeting of stockholders of Strategic Diagnostics Inc.
("SDI") to be held on December 30, 1996, and at any adjournments or
postponements thereof, as indicated upon all matters referred to on this proxy
card and described in the Joint Proxy Statement/Prospectus for the meeting, and,
in their discretion, upon any other matters which may properly come before the
meeting.
Approval and adoption of the Agreement and Plan of Merger dated as
of October 11, 1996 (the "Agreement and Plan of Merger") between EnSys
Environmental Products, Inc., a Delaware corporation ("EnSys"), and SDI,
providing for the merger (the "Merger") of SDI with and into EnSys, with
EnSys continuing as the surviving corporation, and the transactions
contemplated thereby.
FOR / / AGAINST / / ABSTAIN / /
(CONTINUED ON REVERSE SIDE)
<PAGE>
The Board of Directors recommends a vote FOR the Proposal. This proxy, when
properly executed, will be voted as specified above, and in the discretion of
the proxy holders as to any other matter that may properly come before the
meeting. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED FOR THE
PROPOSAL.
Dated: ______________________ 1996
___________________________ (SEAL)
(SIGNATURE)
___________________________ (SEAL)
(SIGNATURE)
NOTE: Please sign above exactly
as name appears on the Stock
Certificate. If stock is held in
the name of two or more persons,
all must sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE RETURN YOUR EXECUTED PROXY TO THE COMPANY IN THE ENCLOSED ENVELOPE.
<PAGE>
EXHIBIT 99.3
December 6, 1996
EnSys Environmental Products, Inc.
4222 Emperor Boulevard
Durham, North Carolina 27703
Ladies and Gentlemen:
I hereby consent to being named as a person about to become a director of
EnSys Environmental Products, Inc. ("EnSys") in connection with the
consummation of the transactions contemplated by the Agreement and Plan of
Merger dated as of October 11, 1996 between EnSys and Strategic Diagnostics
Inc. ("SDI"), providing for the merger of SDI with and into EnSys, with EnSys
as the surviving corporation (the "Merger"), in the Registration Statement on
Form S-4 to be filed with the Securities and Exchange Commission in connection
with the Merger (the "Registration Statement").
I hereby consent to the filing of this Consent as an exhibit to the
Registration Statement.
Sincerely,
/s/ RICHARD C. BIRKMEYER
_____________________________
Richard C. Birkmeyer
<PAGE>
December 6, 1996
EnSys Environmental Products, Inc.
4222 Emperor Boulevard
Durham, North Carolina 27703
Ladies and Gentlemen:
I hereby consent to being named as a person about to become a director of
EnSys Environmental Products, Inc. ("EnSys") in connection with the
consummation of the transactions contemplated by the Agreement and Plan of
Merger dated as of October 11, 1996 between EnSys and Strategic Diagnostics
Inc. ("SDI"), providing for the merger of SDI with and into EnSys, with EnSys
as the surviving corporation (the "Merger"), in the Registration Statement on
Form S-4 to be filed with the Securities and Exchange Commission in connection
with the Merger (the "Registration Statement").
I hereby consent to the filing of this Consent as an exhibit to the
Registration Statement.
Sincerely,
/s/ KATHLEEN E. LAMB
_____________________________
Kathleen E. Lamb
<PAGE>
December 6, 1996
EnSys Environmental Products, Inc.
4222 Emperor Boulevard
Durham, North Carolina 27703
Ladies and Gentlemen:
I hereby consent to being named as a person about to become a director of
EnSys Environmental Products, Inc. ("EnSys") in connection with the
consummation of the transactions contemplated by the Agreement and Plan of
Merger dated as of October 11, 1996 between EnSys and Strategic Diagnostics
Inc. ("SDI"), providing for the merger of SDI with and into EnSys, with EnSys
as the surviving corporation (the "Merger"), in the Registration Statement on
Form S-4 to be filed with the Securities and Exchange Commission in connection
with the Merger (the "Registration Statement").
I hereby consent to the filing of this Consent as an exhibit to the
Registration Statement.
Sincerely,
/s/ RICHARD J. DEFIEUX
_____________________________
Richard J. Defieux
<PAGE>
December 6, 1996
EnSys Environmental Products, Inc.
4222 Emperor Boulevard
Durham, North Carolina 27703
Ladies and Gentlemen:
I hereby consent to being named as a person about to become a director of
EnSys Environmental Products, Inc. ("EnSys") in connection with the
consummation of the transactions contemplated by the Agreement and Plan of
Merger dated as of October 11, 1996 between EnSys and Strategic Diagnostics
Inc. ("SDI"), providing for the merger of SDI with and into EnSys, with EnSys
as the surviving corporation (the "Merger"), in the Registration Statement on
Form S-4 to be filed with the Securities and Exchange Commission in connection
with the Merger (the "Registration Statement").
I hereby consent to the filing of this Consent as an exhibit to the
Registration Statement.
Sincerely,
/s/ STEPHEN O. JAEGER
_____________________________
Stephen O. Jaeger
