-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
E0y5MT8oj/4N0JmUhK8dBQ58YKFU8DyxPyq1PGvkPhY1T9p01Ixsg1glbAkfpqs8
irGs8N0UTG822zZS71xm3w==
<SEC-DOCUMENT>/in/edgar/work/20000814/0001067312-00-000335/0001067312-00-000335.txt : 20000921
<SEC-HEADER>0001067312-00-000335.hdr.sgml : 20000921
ACCESSION NUMBER: 0001067312-00-000335
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20000531
FILED AS OF DATE: 20000814
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: NEOGEN CORP
CENTRAL INDEX KEY: 0000711377
STANDARD INDUSTRIAL CLASSIFICATION: [2835
] IRS NUMBER: 382367843
STATE OF INCORPORATION: MI
FISCAL YEAR END: 0531
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-17988
FILM NUMBER: 696251
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 620 LESHER PLACE
CITY: LANSING
STATE: MI
ZIP: 48912
BUSINESS PHONE: 5173729200
</BUSINESS-ADDRESS>
MAIL ADDRESS:
STREET 2: 620 LESHER PLACE
CITY: LANSING
STATE: MI
ZIP: 48912
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K FOR YEAR ENDING 5-31-2000
<TEXT>
<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For fiscal year ended MAY 31, 2000
------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to .
----------- -----------
Commission File Number: 0-17988
-------
NEOGEN CORPORATION
------------------
(Name of registrant in its charter)
MICHIGAN 38-2367843
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
620 LESHER PLACE, LANSING, MICHIGAN 48912
- ----------------------------------- -----
(Address of principal executive offices) (Zip Code)
517/372-9200
------------
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
----
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $ .16 PAR VALUE
-----------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
--- ----
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 31, 2000 was $30,370,000 based on the closing price as
reported by the NASDAQ National Market.
As of July 31, 2000, registrant had 5,713,717 outstanding shares.
DOCUMENTS INCORPORATED BY REFERENCE
THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE PREPARED PURSUANT TO
REGULATION 14A AND FILED IN CONNECTION WITH SOLICITATION OF PROXIES FOR ITS
OCTOBER 5, 2000 ANNUAL MEETING OF SHAREHOLDERS IS INCORPORATED BY REFERENCE INTO
PART III OF THIS FORM 10-K.
1
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Neogen Corporation develops, manufactures, and markets a diverse line of
products dedicated to food and animal safety. The Company's food safety segment
consists primarily of diagnostic test kits and related products, including
dehydrated culture media, marketed to food producers and processors to aid in
the detection of foodborne bacteria, natural toxins, food allergens, drug
residues, pesticide residues, plant disease infections and levels of general
sanitation. The diagnostic test kits are generally less expensive, easier to
use and provide greater accuracy and speed than many of the conventional
diagnostic methods currently in use. The majority of the tests are disposable,
single-use, immunoassay products that rely on Neogen's proprietary antibodies to
produce rapid and accurate test results.
The Company's animal safety segment is primarily engaged in the production and
marketing of products dedicated to animal health. These products include more
than 250 different veterinary instruments used to administer precise amounts of
antibiotics and vaccines helping to reduce drug residues in meat and milk
supplies. This segment also includes a line of consumable products marketed
primarily to veterinarians and distributors serving the professional equine
industry. These products include grooming aids, a USDA-approved vaccine to
prevent botulism in horses, a biologic used in the treatment of equine
respiratory infections and a line of premium health care products.
The Company's vision is to become a world leader in development and marketing
of products dedicated to food and animal safety. To meet this vision, the
Company has developed a growth strategy consisting of the following elements:
(i) increasing sales of existing products; (ii) introducing new products and
product lines; (iii) expanding international sales; and (iv) acquiring
businesses and forming strategic alliances.
The Company was formed as a Michigan corporation in June 1981 and actual
operations began in 1982. The Company's principal executive offices are located
at 620 Lesher Place, Lansing, Michigan 48912-1595 and its telephone number is
(517) 372-9200.
RECENT DEVELOPMENTS
Government Regulations
Federal regulations concerning food safety and food adulteration have had a
favorable impact on sales of several of the Company's food safety products.
Regulations issued by the U.S. Department of Agriculture and the U.S. Food and
Drug Administration governing federally inspected meat, poultry and seafood
processing plants require implementation of a Hazard Analysis and Critical
Control Points (HACCP) program. HACCP is a prevention-oriented system that
requires plants to identify critical control points along their production lines
and ensure that practices at those points minimize or prevent the likelihood of
bacterial contamination or growth. As HACCP plans continue to be implemented
and refined, Neogen expects facility environmental testing, product contact
surface testing and end-product testing to increase, resulting in higher sales
for several of the Company's diagnostic test kits.
Sale of Human Clinical Product Line (See Note 5 of the Notes to Consolidated
Financial Statements)
In April 1999, the Company sold its AMPCOR human clinical product line for
approximately $500,000. The sale allows management to focus resources on growth
opportunities in the Company's primary business segments of food and animal
safety. Sales of human clinical products were not material to the consolidated
sales of the Company. In conjunction with the sale of the AMPCOR human clinical
product line, the Company closed its manufacturing operations for diagnostic
test kits to detect microorganisms in Bridgeport, New Jersey. The Company
consolidated its manufacturing operations into its Lansing, Michigan facility.
2
<PAGE>
Share Repurchase Program (See Note 12 of the Notes to Consolidated Financial
Statements)
In February 2000, the Company announced that its Board of Directors increased
its authorization to repurchase Neogen common stock from the previously
authorized 500,000 shares to 750,000 shares. The Board and Neogen's management
continue to believe that the Company's shares are undervalued from time to time
by the market. As of July 31, 2000, the Company had repurchased approximately
595,000 shares in open market and negotiated transactions. However, there is no
guarantee as to the exact number of shares that may be repurchased under this
program.
ACQUISITIONS
A part of the Company's growth strategy has been to acquire products and
businesses that provide the Company with access to technology or products that
expand its core business. Since 1982, the Company has made several such
acquisitions. The information below summarizes recent acquisitions. (See Notes
3 and 14 to Consolidated Financial Statements)
AmVet Pharmaceuticals
On June 2, 2000, the Company purchased substantially all of the assets of
AmVet Pharmaceuticals of Yaphank, New York. AmVet owns formulas for 25
different veterinary products under approximately 40 labels, the majority of
which are sold under the AmVet name. The products acquired have been merged
into the Company's Animal Safety Division. The purchase will be reported as a
2001 transaction and the first sales related to this acquisition will be
reported in the Company's fiscal 2001 year.
Acumedia Manufacturers, Inc.
On February 17, 2000, the Company purchased 100% of the outstanding stock of
Acumedia Manufacturers, Inc., with principal offices in Baltimore, Maryland.
Acumedia, an internationally recognized producer of culture media, was a wholly
owned subsidiary of IDEXX Laboratories, Inc. This acquisition gives the Company
an entree to the world market for dehydrated culture media which exceeds $300
million. It also provides products that can be supplied to many of the Company's
current Food Safety customers. Sale of Acumedia products in fiscal 2000
subsequent to the acquisition were approximately $900,000.
BotVax(TM) B
In August 1998, the Company purchased seed cultures, inventories,
manufacturing protocols and a USDA license to manufacture Type B equine botulism
vaccine (BotVax B) from BioPort Corporation of Lansing, Michigan. The
inventories and technology were transferred to the Company's Tampa, Florida
facility where BotVax B is produced for sale to the professional equine market.
Prior to obtaining the manufacturing rights to BotVax B, Neogen marketed this
product under terms of a distribution agreement with the Michigan Department of
Public Health. The distribution rights to BotVax B were among the items
purchased by BioPort from the Michigan Department of Public Health in August
1998. The Company acquired the manufacturing rights to BotVax B primarily to
improve gross margins and ensure availability of future supplies of inventory.
Vetoquinol U.S.A., Inc.
In December 1997, Neogen acquired substantially all of the assets of
Vetoquinol U.S.A., Inc., a wholly-owned subsidiary of Vetoquinol S.A. of France.
Sales and administrative functions have been moved to the Company's Lexington,
Kentucky, facilities. Neogen continues to operate a Tampa, Florida, production
facility. The principal product acquired is a biologic used for the treatment
of equine respiratory infections. The acquired assets resulted in approximately
$1,250,000, $1,200,000 and $570,000 of sales during fiscal years ended May 31,
2000, 1999 and 1998.
Triple Crown(TM)
In July 1997, the Company acquired substantially all of the assets of Triple
Crown, a division of W.J. Bartus, Inc. Neogen relocated the business to its
facilities in Lexington, Kentucky. The products and technologies acquired have
been merged into the Company's professional equine division, a part of the
Animal Safety Division, and added approximately $2,600,000, $2,350,000 and
$1,930,000 in sales in the fiscal years ended May 31, 2000, 1999 and 1998.
3
<PAGE>
BUSINESS STRATEGY
The Company's vision is to become a worldwide leader in offering products
dedicated to food and animal safety. The Company's strategy to achieve this
objective includes the following:
- Increased Sales of Existing Products. The Company will continue to
expand its product offerings in multiple market segments including: grain,
nut and spice processors; meat, poultry and egg processors; seafood
processors; animal producers; fruit and vegetable producers/processors;
food service providers; pharmacologic research; and private and public
laboratories.
- Introduction of New Products. The Company has a continued commitment
to research and development programs, and has invested 7% to 8% of revenues
in this area over the past three years. The Company plans to continue to
leverage its own internal research and development efforts through
strategic relationships with other organizations and important government
contracts and grants. The majority of the Company's new product
development is focused on expanding disposable product offerings to the
Company's current markets.
- Expansion of International Sales. The Company believes that the
demand outside the United States for food and animal safety products is at
least equal to demand in this country. The Company will continue to
emphasize international sales as an important factor in its growth. The
Company is developing distribution channels to take advantage of markets
where there is a growing need for products such as those manufactured by
the Company.
- Acquisitions and Strategic Alliances. In the past, the Company has
expanded its product offerings and technology base through several
acquisitions. It also seeks to expand its products through licensing and
distribution agreements. The Company plans to continue to aggressively
pursue strategic acquisitions, and licensing and distribution agreements to
enhance its position in its existing markets. Management believes it is
more cost effective to use these strategies rather than to rely solely on
internal development of new products.
INDUSTRY OVERVIEW
Due to growing concern related to food and animal safety, animal producers,
food producers, processors, pharmaceutical and chemical companies, research
institutions, and regulatory agencies are all experiencing increased pressures
to find more efficient testing and monitoring programs. The Company's strategy
is based on its belief that there will be a continued increase in demand for
effective tools to better manage the use of biological products and to detect
harmful residues and microorganisms when present in food, animal feeds, and the
environment. Similarly, management believes that demand for products to ensure
safety in food and companion animals will continue to grow.
Industry consulting groups have estimated the total market for testing of food
and environmental safety will be in the range of $500 million within the next
several years. They estimate that a significant portion of this potential
market is represented by firms not testing and tests that are not currently
being conducted. Another significant portion of the market is represented by
older, traditional methods utilizing laborious microbiological techniques, or
time consuming and expensive, chemical analysis. Management believes that a
significant portion of this market potential will shift to rapid, easy to use
and inexpensive test systems, such as those produced by the Company.
COMPANY MARKETS
The Company has focused its strategy on the food safety and animal safety
markets. The Company is marketing and developing several types of diagnostic
tests to aid each of the individual food market areas in detecting natural
toxins, food allergens, drug residues, foodborne bacteria, pesticide residues,
disease infections and levels of general sanitation. The Company also markets a
complete line of veterinary instruments and a line of premium equine health care
products devoted to animal safety. The Company's products are sold into
definable market segments:
Grain, Nut and Spice Processors
Corn, wheat, barley, oats, milo, rice, oil seeds and various other minor grain
products become the principal ingredient for a multitude of food products. A
large variety of nuts, along with spices, chocolate, coffee and tea, are also
universally consumed. The safety of these ingredients is a significant source
of concern for snack food producers, pasta manufacturers, flour millers, animal
feed processors, bakeries, baby food producers, brewers, distillers and cereal
manufacturers, just to name a few of those whose livelihood depends upon the
abundance of safe ingredients.
The Company's diagnostic tests are used throughout these industries to monitor
for the presence of harmful natural toxins, food allergens, pesticides and
foodborne bacteria. The Company generally defines this market as products as
they leave the farm gate until they reach the consumer's plate.
4
<PAGE>
Management believes it is the leader in the sale of disposable diagnostic
tests to the grain, nut and spice industries and has a larger selection of
products available to these industries than any of its competitors.
Meat, Poultry and Egg Processors
According to the U.S. Department of Agriculture, there are approximately 114
million cattle, hogs and lambs slaughtered in the U.S. each year and over 840
million chickens processed in the United States each year. The principal
concern for meat, poultry and egg safety is contamination by foodborne bacteria.
Management believes that the meat and poultry group offers one of the best
opportunities currently to contribute to the Company's growth. The Company
offers tests for E. coli O157:H7, Salmonella, Campylobactor, Listeria bacteria,
and several tests to determine the general level of plant sanitation.
A major reorganization in testing procedures by the U.S. Department of
Agriculture's Food Safety Inspection Service was announced in July 1996.
Implementation of these HACCP regulations began in January 1997 for all meat and
poultry plants in the United States according to an adoption schedule that
continued through January 2000. These new regulations mandate certain bacteria
testing by all inspected plants, and the programs encourage the use of a number
of other rapid tests, such as those produced by the Company.
Seafood Processors
Seafood is known to cause foodborne illnesses as a result of both natural
toxins and bacteria. In December 1995, the United States Food and Drug
Administration issued final rules that established mandatory inspection programs
for the seafood industry in the U.S. effective January, 1998. The industry is
now implementing quality control procedures that include the use of rapid
diagnostic tests. The Company's tests for this market include a general
sanitation rapid test, as well as tests used to detect the presence of
Salmonella, Listeria, sulfites and histamine, which can result in serious
illness or death.
A significant portion of the world's seafood supply now comes from aquaculture
production rather than wild harvest. These producers and processors must also
be concerned about the possibilities of pesticide contamination from runoff
water into their production areas and residues of drugs that may have been used
to ensure fish health during the production process.
Animal Producers
The animal production industry promotes food safety even while the animal is
inside the farm gate. The Company manufactures and markets 250 different
products that are used to administer animal health. Developed to provide more
precise drug delivery, these instruments help minimize the presence of animal
health drugs that might find their way into the meat and milk supply.
The Company also markets a vaccine, immunostimulant, specialized testing
service, and a line of premium health care products that are sold to the
professional equine market. The Company's line of diagnostic tests to detect
drugs of abuse in racing animals are sold virtually throughout the world. Most
animal racing jurisdictions perform post-race tests on horses and greyhounds to
make certain the animals' performance was not altered by some drug.
Many integrated poultry and livestock producers also use the Company's
diagnostic tests to detect harmful residues in animal feeds. These residues can
affect overall production efficiencies.
Fruit and Vegetable Producers/Processors
As with animals, significant portions of food safety begin inside the farm
gate where plant production takes place. The Company manufactures and markets a
group of diagnostic tests that are used by fruit and vegetable producers, as
well as greenhouse and ornamental plant producers, to detect the presence of
certain infectious diseases. These diseases affect crop production and can play
a major role in the quality and safety of the final food products.
This industry's testing arises from the potential presence of harmful residues
that might affect the safety of its products. The residues that require rapid
and inexpensive test kits include foodborne bacteria, natural toxins, and
pesticides. Several of the Company's products meet these industry needs and
others are being developed.
5
<PAGE>
Pharmacologic Research
The Company sells a limited number of products used by the pharmaceutical
research industry. Since these products can be manufactured in the same
facilities as used to produce the Company's test kits, utilizing the same
equipment and personnel, the Company has continued to support this market
activity.
As a part of its immunoassay diagnostics test development programs, the
Company has discovered methods to manufacture unique, stable enzymes used in
test color development. The Company now markets these products to research
laboratories and other commercial diagnostic kit manufacturers around the world.
The Company does not anticipate being a major factor in this market. However,
its current products are profitable and synergistic to the Company's other
manufacturing activities.
Private and Public Laboratories
Private laboratories purchase diagnostic tests from the Company to provide
testing services to most of the market areas indicated in this section. These
private laboratories perform tests for firms which do not wish to do their own
testing internally. Public laboratories generally use the Company's test for
regulatory purposes. As an example, the U.S. Department of Agriculture uses
several of the Company's natural toxin test kits to determine the quality and
safety of grain products. The Company's test kit for the detection of E. coli
O157:H7 is used by the Food Safety Inspection Service to monitor for the
presence of this harmful bacteria in a number of laboratory locations. The
Company's bacteria tests are used by government animal pathology labs to aid in
determining causes of animal health problems, and plant tests are used in
regulatory labs to aid in plant quarantine situations.
PRODUCTS
FOOD SAFETY
The Company has developed and markets a number of food safety diagnostic test
kits generally characterized as immunoassay products that rely on the Company's
proprietary antibodies capable of detecting specific residues at the parts per
billion levels. Generally, the test kits are faster, less expensive, require
less laboratory equipment and less technical capabilities than conventional
testing methods.
The Company's food safety test kits aimed at the detection of harmful
foodborne bacteria are marketed under the Company's trade name, Reveal(R).
Current tests in this one-step simple format are used to detect the presence of
Salmonella, Listeria, and E. coli O157:H7. Neogen markets tests for
Campylobactor, Salmonella and E. coli O157:H7 under its Alert(R) trade name.
Company scientists are developing test kits for other harmful bacteria. Through
a marketing arrangement with Biotrace International PLC, the Company distributes
the Uni-Lite(R) XCEL, an instrument used to detect general sanitation levels.
The Company also has marketing rights from Orion Diagnostica to distribute four
different tests for microbiological contamination, including yeast and fungi.
The Company's Veratox(R), and Agri-Screen(R) diagnostic tests are used by the
food industry to detect levels of naturally-occurring toxins. These products
include both qualitative and quantitative tests for aflatoxin, DON, T-2 toxin,
zearalenone, ochratoxin, histamine and fumonisin. The Company's Agri-Screen
Ticket(R) test is used by the food industry to detect harmful residues of a
large number of plant pesticides. The seafood industry uses the Company's Alert
for Sulfites to make certain sulfite levels do not exceed federal regulatory
levels.
The Company also markets qualitative and quantitative tests to detect minute
levels of food allergens under the trade names Veratox and Alert. Currently,
tests are available for milk, peanut and egg residues, three of the most common
of all food allergies.
Marketed under the trade name Alert, the Company has several diagnostic tests
that are used to detect plant diseases. These quick tests identify the presence
of pythium, phytophthora, rhizoctonia, xanthamonas, and sclerotina. The kits
are used as an early detection device, and as a tool to limit fungicide
applications.
Following its acquisition of Acumedia Manufacturers, Inc. in February 2000,
the Company significantly expanded its presence in the dehydrated culture media
market. Standard and special formulation dry culture media products are
marketed to petri plate producers, laboratories, and other users on a world-wide
basis using direct sales, distributors and the food safety sales organization.
Sales of food safety products accounted for approximately 49%, 45% and 46% of
the Company's total revenues for fiscal years ended May 31, 2000, 1999 and 1998
respectively.
6
<PAGE>
ANIMAL SAFETY
The Company markets 70 high sensitivity immunoassay tests for drugs of abuse
in animals and residues in meat. These include tests for narcotic analgesics,
stimulants, depressants, tranquilizers, anesthetics, steroids and diuretics.
Neogen also provides a testing service for equine veterinarians to detect EPM
which affects the central nervous system of horses, and can be fatal. In
addition, the Company markets BotVax B, the only USDA approved vaccine for the
prevention of Type B botulism in horses, and a line of approximately 69 premium
health care products sold to the professional equine market, including 24
additional products that were added with the June 2, 2000 acquisition of the
assets of AmVet Pharmaceuticals. Neogen also produces and markets EqStim(R) and
ImmunoRegulin(R), biologic products used as immunostimulants to help fight
infections in horses and dogs.
Through its wholly owned subsidiary Ideal Instruments, Inc., the Company
markets a complete line of veterinary instruments and animal health delivery
systems. Ideal offers approximately 250 different products, over half of which
are instruments used to deliver animal health products, such as antibiotics and
vaccines. Most of the remaining instruments are used in obstetrics and surgery.
Included among these products is a line of disposable syringes and needles
presently custom manufactured, and imported by Ideal.
The veterinary instruments product line is designed to provide better control
of animal health products, thereby reducing the likelihood of antibiotic and
pharmaceutical residues contaminating meat or milk products. At the same time,
the use of quality, high precision delivery instruments helps producers improve
efficiency.
The Company also has several products used for the detection of biologically-
active substances in humans by researchers and pharmaceutical companies for
biomedical research purposes. These tests are used to detect cyclic
nucleotides, hormones, leukotrienes, prostaglandins and steroids. Under the
trademarks K-Blue and K-Gold, the Company sells reagents used by diagnostic test
kit manufacturers.
In fiscal years ended May 31, 2000, 1999 and 1998, sales of animal safety
products as a percentage of total revenues were 51%, 55% and 54% respectively.
RESEARCH AND DEVELOPMENT
The Company maintains a strong commitment to research and development. The
Company's product development efforts are focused on the enhancement of existing
product lines and in development of new products based on the Company's existing
technologies. The Company employs 20 individuals in its research and
development department, including immunologists, chemists, engineers and
microbiologists. Research and development expenditures were approximately $1.6
million, $1.6 million and $1.4 million, representing 7%, 7% and 8%, of total
revenues in fiscal 2000, 1999 and 1998, respectively. The Company currently
intends to maintain its research and development expenditures at approximately
7% to 8% of total revenues.
The Company has ongoing development projects for new immunoassay diagnostic
tests for the food safety, animal safety and pharamacologics markets, as well as
engineering projects for new and improved veterinary instruments. Together with
an unrelated company, the Company is currently developing rapid test kits to
identify agricultural products which have improved plant genetics (IPG's), also
known as genetically modified organisms (GMO's). The Company expects that these
products will be available for marketing in late fiscal 2001.
Collaboration with Academic Institutions
Since its inception, the Company has identified a substantial amount of
applied research in its area of interest at universities that has been developed
by researchers. The Company has worked with over 45 scientific collaborators
associated with 17 academic institutions. The Company utilizes these
relationships in three strategic ways: (i) the technology is transferred from
the scientist or university to the Company for the completion of development
from the precursor findings or laboratory prototypes; (ii) the Company seeks out
and contracts with university researchers to aid its own staff in a part of the
development activities for products previously identified by the Company; and
(iii) new products developed by the Company are tested in laboratories on a
widespread geographic basis prior to the products' market releases. The Company
believes its research strategy has enabled it to produce better products, faster
and more cost effectively than if the research, development and testing were
done exclusively by Company employees in Company facilities.
Other Collaboration Efforts
Portions of certain technologies utilized in some products marketed by the
Company were acquired from or developed in collaboration with affiliated
partnerships, independent scientists, governmental units, universities, and
other third parties. The Company has entered into agreements with these parties
which provide for the payment of royalties based upon sales of products which
utilize the pertinent technology. For fiscal 2000, 1999 and 1998, royalty
expense under these agreements amounted to $752,000, $780,000, and $713,000,
respectively.
7
<PAGE>
SALES AND MARKETING
The Company has chosen to organize its sales efforts according to market
segments rather than by product or geographic orientation. The Company's sales
and technical service organizations understand their customers' businesses and
are knowledgeable on how the Company's various products can be used within those
industries. Close relationships built with individual customers also help the
Company identify new products.
During the fiscal year ended May 31, 2000, the Company had in excess of 2,000
customers for its products. Since many of these customers are distributors, the
total number of end users of the Company's products is considerably larger.
Sales to international markets in fiscal 2000 accounted for 20% of the Company's
consolidated revenues. (See Note 11 of the Notes to the Company's Consolidated
Financial Statements.) No single distributor or customer accounted for more
than 10% of the Company's revenues in any of the past three years.
The Company markets, sells and services its products in more than 75 countries
through its own sales force, as well as through distributors in certain
geographic areas. Approximately 75 employees, or 35% of the Company's total
workforce, are engaged in these sales and marketing activities. The Company
operates its sales and distribution organization differently for given markets
and products as summarized below:
Food Safety Products. The Company has separately organized sales forces that
focus on the key industries in the food area. This group handles both sales and
technical services of the Company's disposable test kits. In the U.S. these
products are sold directly to end-users. Sales organizations are maintained for:
grain, nut and spices; feed and agriculture; meat, poultry and eggs; fruits and
vegetables; retail food services; private laboratories; seafood; and dehydrated
culture media.
Animal Safety Products. The Company maintains separately organized sales
forces that focus on the professional equine market and veterinary instruments.
Products for the professional equine market are handled by a sales force who
sell directly to equine veterinarians and also work through established
distributors selling to this market. The Company also has a sales force
specifically dedicated to marketing its veterinary instruments through a network
of domestic and international distributors.
International Sales. Virtually all of the Company's sales to customers
outside of the United States and Canada are handled by distributors, who
typically market the Company's products, as well as other products that are used
by the same customer base. The Company is expanding distribution channels in
South and Central America, Europe and Asia to increase sales. The Company does
not maintain sales offices outside the U.S.
PROPRIETARY PROTECTION AND APPROVALS
The Company applies for patents and trademarks whenever appropriate. Since
its inception, the Company has acquired and received more than 50 patents and
trademarks, and has several pending patents and trademarks. The patents expire
at various times over the next 20 years.
Management believes that the Company has adequate protection as to proprietary
rights for its products. However, the Company is aware that substantial
research in agricultural biotechnology has taken place at universities,
governmental agencies and other companies throughout the world and that numerous
patent applications have been filed and that numerous patents have been issued.
In addition, patent litigation currently exists with respect to fundamental
agricultural biotechnology and biochemistry. Accordingly, there can be no
assurance that the Company's existing patents will be sufficient to protect
completely the Company's proprietary rights.
The Company uses trade secrets as proprietary protection in numerous of its
food and animal safety products. In many cases, the Company has developed
unique antibodies capable of detecting residues at minute levels. The supply of
these antibodies, and the proprietary techniques utilized for their development,
may offer better protection than the filing of patents. Such proprietary
reagents are kept in secure facilities and stored in more than one location to
circumvent their destruction by natural disaster.
One of the major areas affecting the success of biotechnology development
involves the time, costs and uncertainty surrounding regulatory approvals.
Currently, the Company has several products requiring regulatory approval
including BotVax B, EqStim and Immuno-Regulin. On a combined bases, sales for
these products amounted to approximately 9% of total sales in fiscal year 2000.
The Company's strategy is to select technical and proprietary products which do
not require mandatory approval to be marketed.
The Company does utilize third party validations on many of its disposable
test kits as a marketing tool to provide its customers with the proper
assurances. These include validation by the Association of Official Analytical
Chemists, independently administered third-party, multi-laboratory collaborative
studies, and approvals by the U.S. Federal Grain Inspection Service and the U.S.
Food Safety Inspection Service for use of Company products in their
laboratories.
8
<PAGE>
MANUFACTURING
The Company manufactures its products in Lansing, Michigan, Lexington,
Kentucky, Schiller Park, Illinois, Baltimore, Maryland and Tampa, Florida.
There are currently 83 full-time employees assigned to manufacturing in these
five locations. All locations generally operate on a one-shift basis, but could
be increased to a two-shift basis. The Company believes it could increase the
current output of its primary product lines by more than 50% using the current
space available with minimal amounts of additional capital equipment.
Manufacturing diagnostic tests for natural toxins, microorganisms, food
allergens, pesticides and plant disease diagnostic tests takes place in Lansing,
Michigan. Proprietary monoclonal and polyclonal antibodies for the Company's
diagnostic kits are produced on a regular schedule in the Company's immunology
laboratories in Lansing. Other reagents are similarly prepared by the chemistry
group. These component parts are then transferred to another section in the
same building, where final kit assembly and quality assurance are conducted, and
shipping takes place.
The Lexington, Kentucky facility is devoted exclusively to the manufacture of
pharmacological diagnostic test kits, test kits for drug residues and
professional equine products. Proprietary antibodies for some of the diagnostic
kits were produced at the University of Kentucky under a license and supply
agreement. All other manufacturing operations, including preparation of other
reagents, quality assurance and final kit assembly, are performed by Neogen
personnel in the Lexington facilities.
The Company's Schiller Park, Illinois facility, which is used primarily to
manufacture veterinary instruments, is a complete metal working operation with
equipment to process raw materials, such as brass rod and tubing, to finished
instruments with skin-wrapped merchandisable packaging.
The Baltimore, Maryland facility is an FDA-approved manufacturing plant
devoted to the production of dehydrated culture media products. Products are
blended following strict formulations or custom blended to customer
specification and shipped direct to customers from the Baltimore facility.
The Tampa, Florida facility is a USDA-approved manufacturing plant devoted to
the production of the biologic products EqStim(R) and ImmunoRegulin(R). P.
acnes seed cultures are added to media and then subjected to several stages of
further processing resulting in a product that is filled and packaged within the
Tampa facility. Final product is then shipped to Neogen's Lexington facilities
for inventory and distribution to customers. The Company's BoxVax B vaccine is
also produced in the Tampa facility, utilizing Type B botulism seed cultures and
a traditional fermentation process.
The Company purchases component parts and raw materials from over 200
suppliers. Though many of these supplies are purchased from a single source in
order to achieve the greatest volume discounts, the Company believes it has
identified acceptable alternative suppliers for all of its components and raw
materials.
Shipments of products are generally accomplished within a 48-hour turnaround
time. As a result of this quick response time, the Company's backlog of
unshipped orders at any given time is not significant.
COMPETITION
The Company knows of no competitor that is pursuing its fundamental strategy
of developing a full line of products, ranging from disposable tests and
dehydrated culture media to veterinary instruments for a large number of food
safety and animal safety concerns. However, the Company does have competitors
for each of its primary product lines. The Company competes with a large number
of companies ranging from very small businesses to divisions of large companies.
Many of these firms have substantially greater financial resources than the
Company.
Academic institutions and other public and private research organizations are
also conducting research activities and may commercialize products on their own
or through joint ventures. The existence of competing products or procedures
that may be developed in future years may adversely affect the marketability of
the products developed by the Company.
The Company believes that it maintains inventory levels and sells its products
under terms and conditions that are normal for companies against which it
competes. The Company competes primarily on the basis of ease of use, speed,
accuracy, and other similar performance characteristics of its products. The
breadth of the Company's product line, the effectiveness of its sales and
customer service organizations and pricing are also components in the Company's
competitive plan. The Company is not aware of any factors within its product
lines that place the Company in a negative competitive position relative to its
competitors.
9
<PAGE>
GOVERNMENTAL REGULATION
A significant portion of the Company's products are affected by the
regulations of various domestic and foreign government agencies, including the
U.S. Department of Agriculture and the U.S. Food and Drug Administration. A
significant portion of the Company's revenue is derived from products used to
monitor and detect the presence of residues that are regulated by various
government agencies. Furthermore, a significant portion of the Company's growth
may be affected by the implementation of new regulations such as the U.S. Food
and Drug Administration's final rule, Procedures for the Safe and Sanitary
Processing and Importing of Fish and Fishery Products, and the final rule of the
U.S. Department of Agriculture, Pathogen Reduction; Hazard Analysis and Critical
Control Point Systems.
The Company's development and manufacturing processes involve the use of
certain hazardous material, chemicals and compounds. The Company believes that
its safety features for handling and disposing of such commodities comply with
the standard prescribed by local, state and federal regulations. The Company's
cost to comply with these regulations is not significant and the Company has no
reason to believe that any such future legislation or rules would be materially
adverse to its business.
EMPLOYEES
Currently, the Company employs approximately 217 full-time persons. None of
the employees are covered by collective bargaining agreements. There have been
no work stoppages or slow downs due to labor-related problems. The Company
believes that its relationship with its employees is good. All employees having
access to proprietary information have executed confidentially agreements with
the Company.
INSURANCE
The Company maintains product liability insurance on all products with a
coverage limit of $3 million per occurrence. In addition, the Company also
maintains insurance in amounts and types which the Company believes to be
customary in its industry.
ITEM 2. PROPERTIES
The Company owns two separate buildings located in Lansing, Michigan. A
26,000 square foot building located at 620 Lesher Place is used for the
Company's corporate administrative offices, along with sales and marketing
offices and research facilities for food safety. A 14,000 square foot brick
building located at 600 Lesher Place is used primarily for production of food
safety diagnostic test kits. The Company also owns a facility comprising 1,100
square feet within one block of the existing corporate headquarters used for
various administrative functions including temporary office space and records
storage.
Veterinary instrument manufacturing operations are housed in a 34,000 square
foot building located at 9355 West Byron Street in Schiller Park, Illinois. The
Company entered into a seven-year, non-cancelable operating lease for this
property effective August 1, 1993. The lease agreement provides for annual
lease payments of $100,300 for each of the first two years with annual increases
of approximately 3.5% thereafter for the remainder of the lease. Upon
expiration of the lease of this facility, management believes it can renegotiate
a lease on the current facility or relocate to a comparable facility with lease
terms similar to those currently enjoyed. No significant disruption of
operations would be expected in the event of a move to an alternative facility.
Animal safety sales and marketing, and the Company's operations focused on the
professional equine market are located in 23,000 square feet of leased space in
a three-story building at 628 Winchester in Lexington, Kentucky. The Company
entered into a five-year, non-cancelable operating lease for the space effective
July 1, 1993. Effective July 1, 1999, the lease was amended to extend the term
of the lease to June 30, 2001 and to provide for annual lease payments,
including all utilities, of $102,000.
Dehydrated culture media manufacturing takes place in an FDA licensed
facility. The operations are located in 12,600 square feet of leased space at
9601 Pulaski Park Drive, Baltimore, Maryland. The five year lease, effective
July 1, 1998, was assumed as part of the acquisition of Acumedia by the Company.
The lease provides for annual payments beginning at $75,600 and increasing to
$81,412 in the last year of the lease.
The Company leases 5,200 square feet at 5910 Breckenridge Center Parkway in
Tampa, Florida where the manufacturing of two animal safety products takes
place. This USDA-approved facility is subject to a three-year non-cancelable
operating lease that expires on September 30, 2001. The lease provides for
annual payments of $31,422 in year one increasing 4% in years two and three
along with payments for operating expenses and property taxes estimated to be
$13,625 annually subject to increases based on actual costs incurred.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In August 1996, the Company filed a lawsuit against Vicam, LP, Vicam
Management Corporation, and Jack L. Radlo in the U.S. District Court of the
Middle District of Florida, Tampa Division.. The Company was suing to recover
damages incurred as a result of Vicam's publication of a false allegation that a
Neogen product violated two patents licensed to Vicam. Subsequently, the court
found in Neogen's favor on several pivotal issues including a summary judgement
that Neogen's product did not infringe the patents as alleged by Vicam. On
March 27, 2000, the lawsuit proceeded to trial to establish damages that Neogen
might recover. Before the trial was concluded, Vicam agreed to pay Neogen a
significant cash settlement and not to further interfere with Neogen's right to
market specific products. The lawsuit was subsequently dismissed. (See Note 4
of the Notes to the Company's Consolidated Financial Statements.)
The Company is involved in other legal proceedings, none of which, in the
opinion of the management is material to the financial statements.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the NASDAQ National Market under the symbol
"NEOG". The following table sets for, the fiscal periods indicated, the high
and low sales prices for the Common Stock as reported on the NASDAQ National
Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- ---------
FISCAL YEAR ENDED MAY 31, 2000
<S> <C> <C> <C>
First Quarter ............................................................. 7.25 6.00
Second Quarter ............................................................. 7.50 5.88
Third Quarter ............................................................. 6.75 5.00
Fourth Quarter ............................................................. 8.25 5.38
FISCAL YEAR ENDED MAY 31, 1999
First Quarter ............................................................. 9.13 6.00
Second Quarter ............................................................. 7.94 5.75
Third Quarter ............................................................. 9.25 6.63
Fourth Quarter ............................................................. 7.94 5.63
</TABLE>
As of July 31, 2000, there were approximately 500 stockholders of record of
Common Stock, which the Company believes represents a total of approximately
6,000 beneficial holders. The Company has never paid any cash dividends on its
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, for the fiscal periods indicated, selected
consolidated financial data derived from the Company's audited Consolidated
Financial Statements for each of the fiscal years ended May 31, 1996 through
2000. This information should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information included
herein.
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
------------------
1996(1) 1997(1) 1998(1) 1999(1) 2000(1)
------ ------ ------ ------ ------
Income Statement Data: (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Food Safety Sales $ 6,321 $ 8,605 $ 8,419 $ 10,069 $ 11,634
Animal Safety Sales 6,169 6,654 10,069 12,110 11,878
-------- -------- -------- -------- --------
Total Sales 12,490 15,259 18,488 22,179 23,512
Cost of Sales 5,484 6,201 7,960 9,477 10,860
Sales and Marketing 3,539 4,197 4,910 5,311 6,102
General and Administrative 1,774 2,230 2,716 3,207 2,588
Research and Development 1,238 1,320 1,424 1,640 1,600
Restructuring Charges 695 -- -- -- --
-------- -------- -------- -------- --------
Operating Income (Loss) (240) 1,311 1,478 2,544 2,362
Other Income
Litigation Settlement -- -- -- -- 1,100
Interest and Other 3 564 897 104 821
-------- -------- -------- -------- --------
Net Income (Loss) Before Tax (237) 1,875 2,375 2,648 4,283
Provision for Income Taxes 7 63 127 393 1,210
-------- -------- -------- -------- --------
Net Income $ (244) $ 1,812 $ 2,248 $ 2,255 $ 3,073
======== ======== ======== ======== ========
Net Income Per Share (diluted) $ (0.05) $ 0.32 $ 0.35 $ 0.37 $ 0.52
======== ======== ======== ======== ========
Common Shares
Outstanding (diluted) 4,514 5,649 6,397 6,141 5,922
<CAPTION>
MAY 31
1996(1) 1997(1) 1998(1) 1999(1) 2000(1)
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash and Marketable Securities $ 2,183 $ 13,044 $ 10,589 $ 10,667 $ 10,670
Working Capital 5,235 17,265 17,192 17,355 18,265
Total Assets 11,531 23,148 25,413 26,108 29,528
Long-Term Debt 279 208 174 126 77
Stockholders' Equity 8,858 21,013 23,609 23,786 25,804
</TABLE>
(1) The periods presented are not comparable due to restructuring charges in
fiscal year 1996, secondary offering of public stock in fiscal year 1997,
sale of product line, closing of manufacturing facilities and change in
effective federal income tax rate in fiscal year 1999 and 2000, the
litigation settlement in 2000 and several acquisitions. (See Notes to
Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information in this Management's Discussion and Analysis of Financial
Condition and Results of Operations contains both historical financial
information and forward-looking statements. Neogen does not provide forecasts
of future financial performance. While management is optimistic about the
Company's long-term prospects, historical financial information may not be
indicative of future financial performance.
The words "anticipate", "believe", "potential", "expect", and similar
expressions used herein are intended to identify forward-looking statements.
Forward-looking statements involve certain risks and uncertainties. Various
factors, including competition, recruitment and dependence on key employees,
impact of weather on agriculture and food production, identification and
integration of acquisitions, research and development risks, patent and trade
secret protection, government regulation and other risks detailed from time to
time in the Company's reports on file at the Securities and Exchange Commission
may cause actual results to differ materially from those contained in the
forward-looking statements.
13
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
REVENUES (DOLLARS IN THOUSANDS) 2000 Increase 1999 Increase 1998
(Decrease)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Product Sales:
Food Safety $11,634 16% $10,069 20% $ 8,419
Animal Safety 11,878 (2%) 12,110 20% 10,069
TOTAL REVENUES $23,512 6% $22,179 20% $18,488
- -----------------------------------------------------------------------------------------------
</TABLE>
In 2000, sales of food safety products increased 16% due to an increase in
sales of the newly introduced general sanitation product line, $900,000 of sales
from Acumedia, the Company's newly acquired dehydrated culture media company,
and a 22% increase in the Company's sales of test kits to detect harmful
bacteria in food, partially offset by a decrease of revenues of $650,000 from
Ampcor Diagnostics, Inc. that was sold in late 1999. Some of the products
marketed to detect mycotoxins in grains had declines in sales as a result of the
relative absence of the weather conditions that promote the occurrence of mold
in commodity crops.
The 20% increase in 1999 sales of food safety products was primarily due to
increases in sales in two areas. Weather conditions in the southern United
States promoted mold growth in corn and other commodity crops and sales of test
kits increased $623,000. Sales of test kits to detect harmful bacteria
increased $847,000 in 1999 due to strong international demand and because of
higher sales to meat processors concerned about well-publicized E. coli and
Listeria outbreaks in hamburger, hot dogs, and luncheon meats.
Animal safety sales decreased 2% in 2000 following an increase of 20% in 1999.
Vetoquinol and Triple Crown products contributed $400,000 and $1,000,000 in
increased sales in 2000 and 1999, respectively. Other products experiencing
changes in demand in 2000 included the Company's drug detection products that
increased almost 13% and the products of Ideal Instruments, which increased 14%,
exclusive of specialty needle products used to inject spices and marinades into
meat and poultry which decreased over $700,000 because of the loss of a single
customer. In 1999, changes in demand included a $450,000 increase in the
Company's vaccine to prevent Type B botulism in horses, and specialty needles
which increased $700,000.
<TABLE>
<CAPTION>
COST OF GOODS SOLD (DOLLARS IN THOUSANDS) 2000 Increase 1999 Increase 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of Goods Sold $10,860 15% $9,477 19% $7,960
- ---------------------------------------------------------------------------------------------
</TABLE>
Costs of goods sold increased 15% in 2000 and 19% in 1999, principally as a
result of increases in sales of products with higher raw material costs in 2000
and increases in product sales in 1999. Expressed as a percent of sales, cost
of goods sold was 46% in 2000 and 43% in 1999 and 1998. The percentage for 2000
was higher principally due to the introduction of Biotrace and Acumedia products
that have a lower margin than many of the Company's historical products.
<TABLE>
<CAPTION>
OPERATING EXPENSES (DOLLARS IN THOUSANDS) 2000 Increase 1999 Increase 1998
(Decrease)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and Marketing $6,102 15% $5,311 8% $4,910
General and Administrative 2,588 (19%) 3,207 18% 2,716
Research and Development 1,600 (2%) 1,640 15% 1,425
- --------------------------------------------------------------------------------------------------
</TABLE>
Many sales and marketing expense categories increased in 2000 and 1999
including salaries, fringe, royalties, commissions, trade shows and travel as
well as technical service in 1999. The increase in 2000 compared to 1999 is the
result of continued expansion of sales activities both domestically and
internationally to gain wider distribution of products dedicated to food and
animal safety. The Company expects to continue to expand its sales and
marketing efforts in the future.
The decrease in General and Administrative expense in 2000 was the result of
the recovery of legal fees in the Vicam litigation. Other factors that affected
this category of expense included expenses related to employment of additional
personnel, particularly in accounting, offset by a recovery of certain state
taxes.
The 1999 increase in General and Administrative expense was due to two
factors. Increases in sales volume and overall business activity resulted in
the need for additional administrative staff. The increase in staff, along with
higher accruals for bonuses due to improved operating performance, resulted in
$208,000 of higher salary and fringe expense. In addition, legal and
professional fees increased $259,000 compared to 1998.
Management believes that the Company is not involved in any material adverse
legal proceedings. However, Neogen is a party in lawsuits as discussed in ITEM
3. LEGAL PROCEEDINGS in this Form 10-K. Management intends to vigorously
pursue this litigation and cannot predict the outcome of these lawsuits.
Furthermore, management has no way to predict the level of expenses that may be
incurred in fiscal year 2001 in pursuing this litigation.
Management believes that research and development is critical to the Company's
future and expects to continue to incur expenses at approximately the current
percentage of revenue.
14
<PAGE>
<TABLE>
<CAPTION>
OTHER INCOME (DOLLARS IN THOUSANDS) 2000 Increase 1999 (Decrease) 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other Income:
Litigation Settlement $1,100 n/a $ -- $ --
Interest and Other 821 689% 104 (88%) 897
- ------------------------------------------------------------------------------------------------
TOTAL $1,921 1,747% $ 104 (88%) $ 897
- ------------------------------------------------------------------------------------------------
</TABLE>
Other income increased significantly in 2000. This was due to improved
interest earnings due to higher rates and the settlement of the Vicam litigation
and the absence of factors that reduced other income in the prior year.
Other income declined significantly in 1999. This was primarily due to the
loss on sale of the Company's human clinical product line and related fourth
quarter charge for closure of a manufacturing facility, which totaled
approximately $629,000. (See Note 5 of Notes to Consolidated Financial
Statements). In addition, interest income decreased during 1999 due to lower
rates and lower average invested balances.
<TABLE>
<CAPTION>
NET INCOME AND NET INCOME PER SHARE 2000 Increase 1999 Increase 1998
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income $3,073 36% $2,255 0% $2,248
Net Income Per Share - Diluted $ 0.52 $ 0.37 $ 0.35
- -------------------------------------------------------------------------------------------------------------
</TABLE>
During fiscal 2000, the Company's operating income decreased by $200,000,
principally because of less than expected operating results in the second
quarter due to unavailable BotVax B vaccine and margin declines due to product
mix changes. Additionally, the Company increased sales and marketing
expenditures but did not see substantial results therefrom until late in the
year. Other income increased from the Vicam litigation settlement and the
absence of the loss from sale of product line that reduced this category in
1999.
The Company's effective Federal Income Tax rate has historically been
significantly less than the statutory rate because of available net operating
loss and credit carryovers. These items have been substantially utilized which
will result in tax expense approaching the statutory rate in future years. The
2000 tax rate increased to 28% from 15% in 1999 as a result of these factors.
FINANCIAL CONDITION AND LIQUIDITY
At May 31, 2000 the Company had $10,670,000 in cash and marketable securities,
working capital of $18,265,000 and stockholders' equity of $25,804,000. In
addition, the Company had unused bank lines of credit totaling $10,000,000.
Cash and marketable securities increased $3,000 during fiscal 2000. Cash
provided from operations, including the settlement of the Vicam litigation
totaling $2,000,000, was offset by the aggregate of the acquisition of Acumedia
Manufacturers, Inc. for $2,650,000, the use of $1,326,000 for the purchase of
221,000 shares of the Company's common stock (See Notes 3, 4 and 12 of the Notes
to Consolidated Financial Statements) and $920,000 for purchases of property,
equipment and other assets. On June 2, 2000, the Company closed the acquisition
of substantially all of the assets of AmVet Pharmaceuticals with the payment of
$3,400,000. (See Note 14 of the Notes to Consolidated Financial Statements.)
The increase in accounts receivable resulted from $900,000 of accounts
receivable related to the Acumedia acquisition and fourth quarter 2000 sales
increases in excess of 23% when compared to the fourth quarter of 1999.
Inventory levels, exclusive of the $1,300,000 of inventory related to the
Acumedia acquisition, actually decreased during the year. This is the result of
continued effort on the part of management to control the level of this asset
while maintaining high levels of customer service.
Prepaid expenses and other current assets declined $300,000 following
application of $375,000 of prepaid Federal Income Taxes included in this
category in 1999.
Increases in property and equipment and goodwill principally resulted from the
acquisition of Acumedia.
The increase in accounts payable is due to the addition of Acumedia and higher
than normal accruals of legal fees related to the Vicam litigation.
Current maturities of long-term debt include a $450,000 note issued as part of
the acquisition of Acumedia. The note is due in February 2001.
Other than the note issued in connection with the Acumedia acquisition, the
Company did not borrow any funds during fiscal 2000 and made scheduled payments
totaling $49,000 on long-term debt. At May 31, 2000, the Company had no
material commitments for capital expenditures. Inflation and changing prices
have not had and are not expected to have a material effect on the Company's
operations.
Neogen has been profitable for 28 of its last 29 quarters and has generated
positive cash from operations during the period. Management believes that the
Company's existing cash and marketable securities at May 31, 2000, along with
available bank lines of credit and cash expected to be generated from
operations, will be sufficient to fund activities for the foreseeable future.
However, existing cash and marketable securities may not be sufficient to meet
the Company's cash requirements to commercialize products currently under
development or its plans to acquire additional technology and products that fit
within the Company's mission statement. Accordingly, the Company may be
required to issue equity securities or enter into other financing arrangements
for a portion of the Company's future capital needs.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NEOGEN CORPORATION
AND SUBSIDIARIES
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 17
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Balance Sheets 18-19
Statements of Income 20
Statements of Stockholders' Equity 21
Statements of Cash Flows 22
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23-34
16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Neogen Corporation
Lansing, Michigan
We have audited the accompanying consolidated balance sheets of Neogen
Corporation and subsidiaries as of May 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended May 31, 2000. We have also audited the
schedule listed in Item 14(b). These financial statements and the schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the schedule 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 and the schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
the schedule. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement and schedule 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 Neogen Corporation
and subsidiaries at May 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
2000 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO SEIDMAN, LLP
Troy, Michigan
July 14, 2000
17
<PAGE>
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
May 31, 2000 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 6)
CURRENT ASSETS
Cash $ 2,198,189 $ 1,062,811
Marketable securities (Note 2) 8,471,740 9,603,844
Accounts receivable, less allowance for doubtful accounts of 4,876,692 3,295,536
$361,000 and $166,000
Inventories 5,393,017 4,360,580
Prepaid expenses and other current assets 662,201 960,745
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 21,601,839 19,283,516
- ------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land and improvements 90,532 79,263
Buildings and improvements 1,344,792 786,066
Machinery and equipment 4,962,938 4,331,297
Furniture and fixtures 462,316 375,983
- ------------------------------------------------------------------------------------------------------------------
6,860,578 5,572,609
Less accumulated depreciation 4,205,333 3,424,668
- ------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 2,655,245 2,147,941
- ------------------------------------------------------------------------------------------------------------------
INTANGIBLE AND OTHER ASSETS
- ------------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $682,711 and 3,892,260 3,199,802
$511,106 (Note 3)
Other assets, net of accumulated amortization of $662,013 and 1,379,097 1,476,879
$544,600 (Note 3)
- ------------------------------------------------------------------------------------------------------------------
TOTAL INTANGIBLE AND OTHER ASSETS 5,271,357 4,676,681
- ------------------------------------------------------------------------------------------------------------------
$29,528,441 $26,108,138
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
May 31, 2000 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,742,818 $ 842,429
Accruals
Compensation and benefits 633,055 606,689
Income taxes 430,250 -
Other 32,584 430,828
Current maturities of long-term debt (Note 6) 498,672 48,672
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,337,379 1,928,618
LONG-TERM DEBT, less current maturities (Note 6) 77,048 125,720
OTHER LONG-TERM LIABILITIES 310,168 267,982
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,724,595 2,322,320
- ------------------------------------------------------------------------------------------------------------------
COMMITMENTS (Notes 3, 9 and 10)
STOCKHOLDERS' EQUITY (Notes 7 and 12)
Preferred stock, $1.00 par value, shares authorized - -
100,000, none issued and outstanding
Common stock, $.16 par value, shares authorized 20,000,000; 923,710 948,685
issued and outstanding 5,773,187 and 5,929,279
Additional paid-in capital 21,205,218 22,235,726
Retained earnings 3,674,918 601,407
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 25,803,846 23,785,818
- ------------------------------------------------------------------------------------------------------------------
$29,528,441 $26,108,138
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
================================================================================
<TABLE>
<CAPTION>
Year Ended May 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $23,512,018 $22,179,008 $18,488,389
COST OF GOODS SOLD 10,860,468 9,476,873 7,959,655
- --------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 12,651,550 12,702,135 10,528,734
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Sales and marketing 6,101,683 5,311,494 4,909,997
General and administrative (Note 4) 2,587,514 3,206,969 2,715,738
Research and development 1,599,782 1,639,600 1,424,583
- --------------------------------------------------------------------------------------------------------------------------
10,288,979 10,158,063 9,050,318
- --------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 2,362,571 2,544,072 1,478,416
- --------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Litigation settlement (Note 4) 1,100,000 - -
Interest income 560,739 493,430 605,990
Interest expense (12,106) (15,945) (22,581)
Loss on sale of product line (Note 5) - (628,839) -
Other 272,307 255,210 313,548
- --------------------------------------------------------------------------------------------------------------------------
1,920,940 103,856 896,957
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES ON INCOME 4,283,511 2,647,928 2,375,373
TAXES ON INCOME (Note 8) 1,210,000 393,000 127,000
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 3,073,511 $ 2,254,928 $ 2,248,373
==========================================================================================================================
BASIC EARNINGS PER SHARE $ .52 $ .37 $ .36
DILUTED EARNINGS PER SHARE $ .52 $ .37 $ .35
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional Retained
------------------------------------ Paid-In Earnings
Shares Amount Capital (Deficit)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, June 1, 1997 6,110,608 $977,697 $23,937,397 $(3,901,894)
Exercise of options 97,100 15,536 329,958 -
Exercise of warrants 471 76 2,194 -
Net income for the year - - - 2,248,373
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, May 31, 1998 6,208,179 993,309 24,269,549 (1,653,521)
Exercise of options 35,800 5,728 84,810 -
Repurchase of common stock (Note 12) (314,700) (50,352) (2,118,633) -
Net income for the year - - - 2,254,928
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, May 31, 1999 5,929,279 948,685 22,235,726 601,407
Exercise of options and warrants 64,931 10,389 259,823 -
Repurchase of common stock (Note 12) (221,023) (35,364) (1,290,331) -
Net income for the year - - - 3,073,511
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, May 31, 2000 5,773,187 $923,710 $21,205,218 $ 3,674,918
===============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
NEOGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Year Ended May 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,073,511 $ 2,254,928 $ 2,248,373
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 945,979 878,886 724,524
Loss on sale of product line - 628,839 -
Changes in operating assets and liabilities,
net of acquisitions
Accounts receivable (736,480) (311,541) (622,662)
Inventories 143,188 342,794 (449,877)
Prepaid expenses and other current assets 298,544 (442,881) (81,947)
Accounts payable 850,389 263,615 (264,171)
Accrued expense and other liabilities 100,558 67,121 (89,450)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,675,689 3,681,761 1,464,790
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from marketable securities 31,415,208 25,388,316 25,575,582
Purchases of marketable securities (30,283,104) (25,123,298) (23,119,531)
Purchases of property, equipment and other assets (920,201) (876,726) (624,706)
Acquisitions (2,648,059) (600,000) (3,587,033)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,436,156) (1,211,708) (1,755,688)
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common shares 270,212 90,538 347,764
Repurchase of common stock (1,325,695) (2,168,985) -
Payments on long-term borrowings (48,672) (48,672) (55,853)
- --------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,104,155) (2,127,119) 291,911
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 1,135,378 342,934 1,013
CASH, at beginning of year 1,062,811 719,877 718,864
- --------------------------------------------------------------------------------------------------------------------------------
CASH, at end of year $ 2,198,189 $ 1,062,811 $ 719,877
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
NEOGEN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
1. SUMMARY OF Nature of Operations
ACCOUNTING POLICIES
Neogen Corporation and subsidiaries (the
Company) develop, manufacture, and sell a
diverse line of products dedicated to food and
animal safety. The Company's products are
currently used for animal health applications,
food safety testing and in medical research.
Basis of Consolidation
The consolidated financial statements include
the accounts of Neogen Corporation, Ideal
Instruments, Inc. (Ideal), Acumedia
Manufacturing, Inc. (Acumedia), AMPCOR
Diagnostics, Inc. (AMPCOR - see Note 5) and two
majority owned companies which are general
partners for research limited partnerships. The
investments in partnerships are not significant
to the consolidated financial statements.
All significant intercompany accounts and
transactions have been eliminated in
consolidation.
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 (1) assets and liabilities
and the disclosure of contingent assets and
liabilities as of the date of the financial
statements, and (2) revenues and expenses
during the reporting period. Actual results
could differ from these estimates.
Risks and Uncertainties
Diagnostic products, specifically test kits for
the detection of mycotoxins, contribute a
significant portion of the Company's revenues
and profits. The Company expects that its
ability to maintain or expand its current
levels of revenues and profits in the future
will depend on various factors, including the
impact of weather on agriculture and food
production.
Concentrations of Credit Risk
Financial instruments which potentially subject
the Company to concentrations of credit risk
consist principally of accounts receivable. The
Company attempts to minimize credit risk by
reviewing all customer's credit history before
extending credit and by monitoring customer's
credit exposure on a continuing basis. The
Company establishes an allowance for possible
losses on accounts receivable based upon
factors surrounding the credit risk of specific
customers, historical trends and other
information.
23
<PAGE>
Fair Values of Financial Instruments
The carrying amounts of accounts receivable,
accounts payable, accrued expenses, and current
maturities of long-term debt approximate fair
value because of the short maturity of these
items.
The carrying amounts of the long-term debt
issued pursuant to the Company's bank credit
agreements approximate fair value because the
interest rates on these instruments change with
market rates.
Marketable Securities
All marketable securities are classified as
available-for-sale and are available to support
current operations or to take advantage of
other investment opportunities. These
securities are stated at estimated fair market
value. The cost of securities sold is based on
the specific identification method and interest
earned is included in other income.
Inventories
Inventories are stated at the lower of cost,
determined on the first-in, first-out method,
or market. The components of inventories are as
follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------
<S> <C> <C>
Raw materials $ 2,206,835 $ 1,809,725
Work-in-process 678,117 755,225
Finished goods 2,508,065 1,795,630
---------------------------------------------------------
$ 5,393,017 $ 4,360,580
=========================================================
</TABLE>
Property and Equipment
Property and equipment is stated at cost.
Expenditures for major improvements are
capitalized while repairs and maintenance are
charged to expense. Depreciation is provided on
the straight-line method over the estimated
useful lives of the respective assets,
generally twenty to thirty-one years for
buildings and improvements and three to ten
years for furniture, machinery and equipment.
Depreciation expense was $656,961, $542,024 and
$469,324 in 2000, 1999 and 1998, respectively.
Intangible Assets
Goodwill represents the excess of acquisition
costs over the estimated fair value of net
assets acquired. Goodwill is amortized on a
straight-line basis over periods ranging from
fifteen to twenty-five years.
24
<PAGE>
Other intangible assets, consisting primarily
of covenants not to compete, licenses and
patents, are recorded at fair value at the date
of acquisition. These intangible assets are
amortized on a straight-line basis over periods
ranging from five to seventeen years.
Long-lived Assets
The Company reviews the carrying values of its
long-lived assets for possible impairment
whenever events or changes in business
conditions indicate that the carrying amount of
the assets may not be recoverable. The Company
evaluates whether impairment exists on the
basis of undiscounted future cash flows from
operations before interest for the remaining
useful life of the assets. If necessary,
impairment will be measured based on the
difference between discounted future cash flows
and the net book value of the related assets.
Any long-lived assets held for disposal are
reported at the lower of these carrying amounts
or fair value less costs to sell.
Revenue Recognition
The Company recognizes product sales at the
time of shipment.
Earnings Per Share
Earnings per share is calculated according to
Statement of Financial Accounting Standards
("SFAS") No. 128 - "Earnings Per Share" which
requires companies to present basic and diluted
earnings per share. Basic earnings per share is
based on the weighted average number of common
shares outstanding during the year. Diluted
earnings per share is based on the weighted
average number of common shares and dilutive
potential common shares outstanding during the
year. The Company's dilutive potential common
shares outstanding during the year result
entirely from dilutive stock options and
warrants. The following table presents the
earnings per share calculations:
25
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended May 31, 2000 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for Basic and Diluted Earnings
Per Share
Net income $ 3,073,511 $ 2,254,928 $ 2,248,373
---------------------------------------------------------------------------------------------
Denominator
Denominator for basic earnings per
share - weighted average shares 5,905,623 6,099,129 6,176,995
Effect of Dilutive Securities
Stock options and warrants 16,859 41,734 219,860
---------------------------------------------------------------------------------------------
Dilutive Potential Common Stock
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 5,922,482 6,140,863 6,396,855
=============================================================================================
Basic Earnings Per Share $ .52 $ .37 $ 36
=============================================================================================
Diluted Earnings Per Share $ .52 $ .37 $ .35
=============================================================================================
</TABLE>
Options to purchase 616,200, 441,100, and
33,400 shares of common stock at prices ranging
from $6.50 to $13.25, $7.13 to $13.25, and
$11.31 to $13.25 in 2000, 1999, and 1998,
respectively, were outstanding, but were not
included in the computation of diluted earnings
per share because the option's exercise price
was greater than the average market price of
the common shares.
2. MARKETABLE The Company currently invests in only high
SECURITIES quality, short-term investments with maturity
dates of less than one year, which are
classified as available-for-sale. As such,
there were no significant differences between
amortized cost and estimated fair market value
at May 31, 2000 and 1999. Additionally, since
investments are short-term and are generally
allowed to mature, realized gains and losses
for both years have been minimal. The following
table presents the estimated fair value
breakdown of investment by category:
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------------------------------
<S> <C> <C>
Corporate Debt Securities $ 8,471,740 $ 9,341,730
U.S. Treasury and Agency Securities - 262,114
----------------------------------------------------------------------------
$ 8,471,740 $ 9,603,844
============================================================================
</TABLE>
26
<PAGE>
3. Acquisitions On February 17, 2000, Neogen Corporation
purchased 100% of the common stock of Acumedia
with principal offices in Baltimore, Maryland.
Acumedia is an internationally recognized
producer of culture media. The acquisition was
accounted for using the purchase method.
Initial consideration for the purchase,
including direct acquisition related expenses,
was $3,098,000, which included cash payments
and a one year 7% promissory note of $450,000
(see Note 6). The initial consideration
resulted in goodwill of approximately $660,000.
Additional consideration of up to $1,000,000
may be due to the seller in March 2001 based on
Acumedia achieving specified levels of post
closing revenues.
Unaudited proforma financial information as if
the acquisition of Acumedia had taken place on
June 1, 1998 is as follows:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 26,081,000 $ 25,856,000
Net income 2,901,000 1,843,000
-------------------------------------------------------------------------------
Earnings Per Share - Basic And
Diluted .49 .30
===============================================================================
</TABLE>
These unaudited proforma results have been
prepared for comparative purposes only and
include certain adjustments, such as additional
amortization expense as a result of goodwill
and the related effect on income tax expense.
They do not purport to be indicative of the
results of operations that actually would have
resulted had the acquisition occurred on the
date indicated, or that may result in the
future.
In August 1998, the Company purchased certain
inventory and technology from BioPort
Corporation of Lansing, Michigan. The purchase
price consisted of a single cash payment of
$600,000. All acquired assets were integrated
with the Company's Lexington, Kentucky
division.
Effective December 30, 1997, Neogen acquired
certain assets of Vetoquinol, U.S.A., Inc.
located in Tampa, Florida. The acquisition was
accounted for by the purchase method. Neogen
continues to operate the production facility in
Tampa and has relocated all sales and
administrative functions to the Company's
Lexington, Kentucky facility. The purchase
price consisted of cash payments totaling
approximately $2,188,000.
Effective July 1, 1997, Neogen acquired certain
assets of Triple Crown, a division of W.J.
Bartus, Inc. of Fort Pierce, Florida. The
acquisition was accounted for by the purchase
method and all acquired assets, consisting of
inventory, fixed assets and 20 related products
were moved to the Company's Lexington, Kentucky
division. The initial purchase price consisted
of a cash payment of approximately $1,400,000.
A second and final cash payment of $500,000 is
due provided the seller meets certain
conditions of the asset purchase agreement.
Additional consideration, if any, in connection
with the aforementioned acquisitions will be
recorded as additional goodwill and amortized
over the remaining amortization period.
27
<PAGE>
4. Litigation Settlement In the fourth quarter of fiscal 2000, the
Company reached a settlement with Vicam L.P.,
Vicam Management Corporation, and Jack C. Radlo
("Vicam") on all claims against Vicam not
previously settled. The settlement included
reimbursement of $900,000 to Neogen for legal
and professional fees and expenses, and
$1,100,000 to settle all claims.
The reimbursement of legal and professional
fees and expenses was netted against general
and administrative expenses in fiscal 2000,
which included approximately $750,000 of such
expenses.
5. SALE OF PRODUCT LINE In the fourth quarter of fiscal 1999, the
Company sold its AMPCOR human clinical product
line and related assets in exchange for notes
receivable of approximately $500,000, the
majority of which is due in monthly
installments through April 2004. In connection
with the asset sale, the Company closed the
AMPCOR facility located in Bridgeport, New
Jersey and moved its remaining AMPCOR
manufacturing operations for diagnostic test
kits to detect microorganisms to the Company's
headquarters in Lansing, Michigan. As a result
of the asset sale and related facility closure,
the Company recorded a loss of $628,839.
Included in the loss was approximately $200,000
related to lease obligations, employee
severance costs and other expenses incurred to
close the facility. Sales of human clinical
products were not material to the consolidated
sales of the Company in 1999 and 1998.
6. NOTES PAYABLE AND The Company and its subsidiaries have
LONG-TER DEBT available working capital lines-of-credit and
borrowing arrangements with banks totalling
$2,500,000. At May 31, 2000 and 1999, there
were no borrowings outstanding. These
arrangements bear interest at rates ranging
from the prime rate less .50% to the prime rate
(the prime rate was 9.5% at May 31, 2000), and
are collateralized by substantially all assets
of the Company and its subsidiaries.
In addition, the Company maintains an unsecured
acquisition line-of-credit in the amount of
$7,500,000 at the prime rate less .50%. There
were no borrowings on this line-of-credit at
May 31, 2000 and 1999.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------
<S> <C> <C>
Note payable $ 450,000 $ -
Term note payable 125,720 174,392
---------------------------------------------------------
575,720 174,392
Less current maturities 498,672 48,672
---------------------------------------------------------
Total Long-Term Debt $ 77,048 $ 125,720
=========================================================
</TABLE>
The note payable is due in February 2001 and
bears interest at 7%.
28
<PAGE>
The term note is payable in sixty monthly
installments of $4,056 plus interest at the
prime rate less .50%, is due in fiscal 2003 and
is collateralized by substantially all the
assets of Neogen.
The terms of certain financing agreements
contain, among other provisions, the
requirements to meet certain financial ratios
and levels of working capital and tangible net
worth, and restrict the payment of dividends.
Maturities of long-term debt are: 2001 -
$498,672; 2002 - $48,672; and 2003 - $28,376
7. STOCK OPTIONS AND The Company maintains Stock Option Plans (the
STOCK WARRANTS Plans) under which qualified and non-qualified
options to purchase shares of common stock may
be granted to eligible directors, members of
the Scientific Review Council, officers, or
employees of the Company at an exercise price
of not less than the fair market value of the
stock on the date of grant. The number of
shares authorized for issuance under the Plans
is 1,459,375. At May 31, 2000, options have
been granted with three to five year vesting
schedules and option terms of five to ten
years. A total of 12,000 shares were available
for future grants under the Plans.
The Company applies Accounting Principles Board
Opinion No. 25 in accounting for its stock
option plans. Accordingly, no compensation cost
has been recognized for the Plans. Had
compensation expense for the Company's stock
option plans been determined based on the fair
value at the grant dates consistent with the
method of SFAS No. 123, the Company's net
income and earnings per share would have been
the following pro forma amounts:
<TABLE>
<CAPTION>
2000 1999 1998
==================================================================
<S> <C> <C> <C>
Net Income
As reported $ 3,073,511 $ 2,254,928 $ 2,248,373
Pro forma 2,627,331 1,917,963 1,921,062
Earnings Per Share
As reported:
Basic .52 .37 .36
Diluted .52 .37 .35
Pro forma:
Basic .44 .31 .31
Diluted .44 .31 .30
==================================================================
</TABLE>
29
<PAGE>
The following is a summary of the Plan's
activity:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 1, 1997 (219,077 exercisable) 489,700 $ 5.73
Granted 145,000 9.08
Exercised (97,100) 3.56
Forfeited (10,700) 6.94
---------------------------------------------------------------------------
Outstanding at May 31, 1998 (209,544 exercisable) 526,900 7.03
Granted 161,500 7.05
Exercised (35,800) 2.71
Forfeited (52,900) 7.47
---------------------------------------------------------------------------
Outstanding at May 31, 1999 (265,518 exercisable) 599,700 7.25
Granted 198,500 6.44
Exercised (21,666) 3.55
Forfeited (70,500) 6.80
---------------------------------------------------------------------------
Outstanding at May 31, 2000 (295,182 exercisable) 706,034 $ 7.18
===========================================================================
</TABLE>
The fair value of each option granted is
estimated on the date of grant using the
Black-Scholes option pricing model with the
following weighted-average assumptions for
grants in 2000, 1999 and 1998, respectively:
dividend yield of 0%; expected volatility of
51.0%, 52.0% and 55.0%; risk free interest
rates of 5.7%, 5.2% and 6.0%; and expected
lives of four years.
The weighted-average grant date fair value of
options granted in 2000, 1999 and 1998 was
$2.97, $3.24 and $4.32, respectively.
The following is a summary of stock options
outstanding at May 31, 2000:
<TABLE>
<CAPTION>
------------------------------------------ --------------------------
Options Outstanding Options Exercisable
------------------------------------------ --------------------------
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Number Life (Years) Price Number Price
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.75 - 2.75 10,000 2.4 $ 2.75 10,000 $ 2.75
4.63 - 6.88 311,834 4.9 6.33 86,528 6.07
7.13 - 9.25 350,800 3.9 7.58 176,382 7.65
11.31 - 13.25 33,400 5.3 12.31 22,272 12.31
---------------------------------------------------------------------------------------
$ 2.75 - 13.25 706,034 4.4 $ 7.18 295,182 $ 7.37
---------------------------------------------------------------------------------------
</TABLE>
The weighted-average exercise price of the
265,518 shares which were exercisable at May
31, 1999 and 209,544 shares which were
exercisable at May 31, 1998 was $6.72 and
$5.69, respectively.
30
<PAGE>
The following table summarizes warrant activity
for the years ended May 31, 2000, 1999 and
1998. All warrants are exercisable for
unregistered common stock of the Company and
expire in 2010.
<TABLE>
<CAPTION>
Warrant
Shares Price
--------------------------------------------------------------
<S> <C> <C>
Outstanding Warrants June 1, 1997 48,592 $4.82
Warrants exercised during the year (471) 4.82
Warrants expiring during the year (4,856) 4.82
--------------------------------------------------------------
Outstanding Warrants at May 31, 1998 43,265 4.82
Warrants exercised during the year -- --
Warrants expiring during the year -- --
--------------------------------------------------------------
Outstanding Warrants at May 31, 1999 43,265 4.82
Warrants exercised during the year (43,265) 4.82
Warrants granted during the year 8,000 6.25
--------------------------------------------------------------
Outstanding Warrants at May 31, 2000 8,000 $6.25
==============================================================
</TABLE>
8. TAXES ON INCOME Income taxes are calculated using the liability
method specified by SFAS No. 109 "Accounting
for Income Taxes."
The provision for taxes on income consisted of
the following:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,180,000 $ 367,000 $ 41,000
State 30,000 26,000 86,000
Deferred -- -- --
---------------------------------------------------------
$1,210,000 $ 393,000 $ 127,000
=========================================================
</TABLE>
Deferred income taxes reflect the tax effects
of temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used for
income tax purposes. Significant components of
the Company's deferred tax liabilities and
assets as of May 31, 2000 and 1999 are as
follows:
31
<PAGE>
<TABLE>
<CAPTION>
Deferred tax liabilities:
2000 1999
--------------------------------------------------------------------------
<S> <C> <C>
Property and equipment $ 193,000 $ 165,000
Losses of affiliated partnerships 35,000 44,000
--------------------------------------------------------------------------
Total Deferred Tax Liabilities 228,000 209,000
--------------------------------------------------------------------------
Deferred tax assets:
Inventory and accounts receivable 274,000 160,000
Accruals 232,000 129,000
Tax credit carryforwards -- 232,000
--------------------------------------------------------------------------
506,000 521,000
Valuation Allowance for Deferred Tax Assets (278,000) (312,000)
--------------------------------------------------------------------------
Net Deferred Tax Assets 228,000 209,000
--------------------------------------------------------------------------
Net Deferred Tax $ -- $ --
==========================================================================
</TABLE>
The reconciliation of income taxes computed at
the U.S. federal statutory tax rates to income
tax expense for the years ended May 31, 2000,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rates $ 1,456,000 $ 900,000 $ 808,000
Adjustment of valuation allowance (34,000) (387,000) (634,000)
Prior year adjustments (71,000) -- --
Tax credits (60,000) -- --
Alternative minimum tax -- -- 41,000
Other (81,000) (120,000) (88,000)
-------------------------------------------------------------------------------------
Taxes on Income $ 1,210,000 $ 393,000 $ 127,000
=====================================================================================
</TABLE>
9. COMMITMENTS The Company has agreements with related
research limited partnerships and unrelated
third parties which provide for the payment of
royalties on the sale of certain products.
Royalty expense, primarily to related research
limited partnerships, under the terms of these
agreements for 2000, 1999 and 1998 was
$752,000, $780,000 and $713,000, respectively.
The Company leases office and manufacturing
facilities under noncancelable operating
leases. Rent expense for 2000, 1999 and 1998
was $298,000, $302,000 and $282,000,
respectively. Future minimum rental payments
for these leases are as follows: 2001 -
$244,000; 2002 - $125,000; 2003 - $82,000; and
2004 - $7,000.
10. DEFINED CONTRIBUTION The Company maintains a defined contribution
BENEFIT PLAN 401(k) benefit plan covering substantially all
employees. Employees are permitted to defer up
to 15% of compensation, with the Company
matching 100% of the first 3% deferred and 50%
of the next 2% deferred. The Company's expense
under this plan was $152,000, $117,000 and
$73,000 for the years ended May 31, 2000, 1999
and 1998, respectively.
32
<PAGE>
11. Segment Information The Company has two reportable segments: Food
Safety and Animal Safety. The Food Safety
segment produces and markets diagnostic test
kits and related products used by food
producers and processors to detect harmful
natural toxins, drug residues, foodborne
bacteria, pesticide residues, disease
infections and levels of general sanitation.
The Animal Safety segment is primarily engaged
in the production and marketing of products
dedicated to animal health, including 250
different veterinary instruments and a complete
line of consumable products marketed to
veterinarians and distributors serving the
professional equine industry.
These segments are managed separately because
they represent strategic business units that
offer different products and require different
marketing strategies. The Company evaluates
performance based on total sales and operating
income of the respective segments. The
accounting policies of the segments are the
same as those described in Note 1, Summary of
Accounting Policies.
Segment information for the years ended May 31,
2000, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Food Animal Corporate and
Safety Safety Eliminations TOTAL
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Net sales from external customers $ 11,633,844 $ 11,878,174 $ -- $ 23,512,018
Operating income 1,593,219 1,364,064 (594,712) 2,362,571
Depreciation and amortization 428,010 517,969 -- 945,979
Litigation settlement -- -- 1,100,000 1,100,000
Interest income -- 1,797 558,942 560,739
Income taxes 450,880 328,211 430,909 1,210,000
Total assets 10,757,192 10,382,817 8,388,432 29,528,441
Expenditures for long-lived assets 395,005 525,196 -- 920,201
================================================================================================
1999
Net sales from external customers $ 10,069,469 $ 12,109,539 $ -- $ 22,179,008
Operating income 1,513,369 1,754,234 (723,531) 2,544,072
Depreciation and amortization 378,581 500,305 -- 878,886
Interest income 2,350 253 490,827 493,430
Loss on sale of product line (628,839) -- -- (628,839)
Income taxes 213,042 297,415 (117,457) 393,000
Total assets 6,444,122 9,767,902 9,896,114 26,108,138
Expenditures for long-lived assets 534,733 341,993 -- 876,726
================================================================================================
1998
Net sales from external customers $ 8,418,957 $ 10,069,432 $ -- $ 18,488,389
Operating income 1,276,400 1,013,892 (811,876) 1,478,416
Depreciation and amortization 358,147 366,377 -- 724,524
Interest income 35 396 605,559 605,990
Income taxes 251,190 155,554 (279,744) 127,000
Total assets 5,611,458 10,055,351 9,745,833 25,412,642
Expenditures for long-lived assets 291,022 333,684 -- 624,706
================================================================================================
</TABLE>
(1) Includes corporate assets, consisting of
marketable securities, and overhead
expenses not allocated to specific business
segments. Also includes the elimination of
intersegment transactions and minority
interests.
33
<PAGE>
The Company has no long-lived assets outside of
the United Sates and no significant foreign
operations. Export sales amounted to $4,768,300
or 20% of consolidated sales in 2000,
$4,913,782 or 22% in 1999 and $4,039,571 or 22%
in 1998, respectively, and were derived
primarily in the geographic areas of South and
Latin America, Canada, Europe and the Far East.
The Company does not have sales to any single
foreign county or any single customer exceeding
10% of consolidated sales.
12. STOCK REPURCHASE The Company's Board of Directors have
authorized the purchase of up to 750,000 shares
of the Company's common stock. As of May 31,
2000, the Company had purchased 535,723 shares
in negotiated and open market transactions for
a total price, including commissions, of
approximately $3,500,000. Shares purchased
under this buy-back program will be retired or
used to satisfy future issuance of common stock
upon the exercise of outstanding stock options
and warrants.
13. SUPPLEMENTAL DISCLOSURE Cash paid for income taxes totaled $681,000,
OF CASH FLOWS INFORMATION $749,000, and $65,000 in 2000, 1999 and 1998,
respectively. Cash paid for interest totaled
$12,000, $16,000 and $23,000 in 2000, 1999 and
1998, respectively.
Non-Cash Investing and Financing Activities
In February 2000 the Company acquired Acumedia
for cash and a $450,000 note payable.
In the fourth quarter of fiscal 1999, the
Company sold its AMPCOR human clinical product
line and related assets in exchange for notes
receivable of approximately $500,000.
14. SUBSEQUENT EVENT On June 2, 2000, the Company acquired
substantially all of the assets of AmVet
Pharmaceuticals ("AmVet") located in Yaphank,
New York. The purchase price, subject to
certain post closing adjustments, was
$3,400,000 paid in cash, with provisions for up
to an additional $1,000,000 to be paid to AmVet
based on it achieving specified levels of past
closing revenues.
The Company intends to move the operations of
AmVet to its Animal Safety Division in
Lexington, Kentucky.
15. SUMMARY OF Quarterly Data
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Quarter Ended
---------------------------------------------
August November February May
1999 1999 2000 2000
-------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $5,340 $5,425 $6,276 $6,471
Gross profit 3,079 2,972 3,555 3,046
Net income 808 339 627 1,300
Basic earnings per share .14 .06 .11 ..22
Diluted earnings per share .14 .06 .11 .22
=========================================================================
</TABLE>
The quarter ended May 31, 2000 includes the
litigation settlement discussed in Note 4.
34
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Certain information required by Part III has been omitted from this Report since
the Company will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers
required by this Item is incorporated by reference to the Company's Proxy
Statement.
OFFICERS AND OTHER KEY INDIVIDUALS OF THE REGISTRANT
The officers of the Company are elected by and serve at the discretion of the
Board of Directors. The Board of Directors has also named a Scientific Review
Council to serve at the pleasure of the Board. The Scientific Review Council
meets several times annually to review the research progress of the Company and
to recommend or approve new research and product development activities of the
Company. The names and occupations of the Company's officers and other key
individuals are set forth below.
<TABLE>
<CAPTION>
YEAR JOINED
NAME POSITION WITH THE COMPANY THE COMPANY
- ---- ------------------------- -----------
<S> <C> <C>
James L. Herbert Chairman, President, Chief Executive Officer, Director 1982
Thomas H. Reed Secretary, Director 1995
Brinton M. Miller, Ph.D. Senior Vice President 1984
Lon M. Bohannon Vice President, Chief Operating Officer, Director 1985
Gerald S. Traynor Vice President 1990
Terri A. Morrical Vice President 1992
Edward L. Bradley Vice President 1994
Joseph M. Madden, Ph.D. Vice President, Scientific Affairs 1997
Paul S. Satoh, Ph.D. Vice President, Diagnostic Research & Development 1998
David A. Wall Vice President, Diagnostic Manufacturing 1998
Anthony E. Maltese Manager, Corporate Development 1999
Richard R. Current Vice President, Chief Financial Officer 1999
</TABLE>
There are no family relationships among officers. Information concerning the
executive officers of the Company follows:
James L. Herbert, age 60, has been President, Chief Executive Officer, and a
director of the Company since he joined Neogen in June, 1982. In 1999, he
assumed the additional position of Chairman of the Board. He previously held
the position of Corporate Vice President of DeKalb Ag Research, a major
agricultural genetics and energy company. He has management experience in
animal biologics, specialized chemical research, medical instruments,
aquaculture, animal nutrition, and poultry and livestock breeding and
production.
Thomas H. Reed, age 54, was elected to the Board of Directors in October 1995
and was elected Secretary in October 1999. Mr. Reed formerly was Vice President
of MLE Marketing, a division of Southern States Cooperative, Inc. Prior to
assuming that position, he served as President and Chief Financial Officer for
Michigan Livestock Exchange. Mr. Reed is a member of the Board of Directors of
the National Livestock Producers Association and is a former chairman of the
Michigan State University Board of Trustees.
Dr. Brinton M. Miller, age 73, joined the Company in January 1984 as Vice
President of Research and Development. He presently serves on a part-time
basis, as the Company's Senior Vice President. Prior to joining Neogen, Dr.
Miller held numerous research management positions during his 27-year career
with Merck, Sharp and Dohme Laboratories.
Lon M. Bohannon, age 47, joined the Company in October 1985 as Vice President of
Finance, was promoted to Chief Financial Officer in June 1987, was promoted to
Vice President Administration and Chief Financial Officer in November 1994, was
elected to the Board of Directors in October 1996, and was named Chief Operating
Officer in September 1999. He is responsible for all Company operations except
research, finance, and corporate development. A CPA, he was Administrative
Controller for Federal Forge, Inc., a metal forging and stamping firm, from
March 1980 until October 1985, and a member of the public accounting firm of
Ernst & Young from June 1975 to March 1980.
35
<PAGE>
Gerald S. Traynor, age 65, joined Neogen in July 1990 as General Manager for
Ideal Instruments, Inc. He was promoted to Vice President of Instrument
Development and Manufacturing in January 1991 with responsibility for the
Company's veterinary instrument and electronic instrument manufacturing
operations. He was Vice President of Manufacturing for Martin Yale Industries
for three years before joining Neogen and filled the same position for The
Hedman Company from 1983-1987. Earlier, he served 16 years in various
manufacturing management positions at ITT.
Terri A. Morrical, age 35, joined Neogen Corporation on September 1, 1992 as
part of the Company's acquisition of WTT, Incorporated. She currently serves as
Vice President and General Manager of the Company's Lexington division and is
responsible for all sales pertaining to animal safety. Mrs. Morrical graduated
from Miami University in 1986. From 1986 to 1991, she was Controller for Freeze
Point Cold Storage Systems and concurrently served in the same capacity for
Powercore, Inc. In 1990, she joined WTT, Incorporated as VP/CFO and then became
President, the position she held at the time Neogen acquired the business.
Edward L. Bradley, age 40, joined Neogen in February 1995 as Vice President of
Sales and Marketing for AMPCOR Diagnostics, Inc. In June 1996, he was made a
Vice President of Neogen Corporation. Currently, Mr. Bradley is responsible for
all sales and marketing activities focused on food safety products on a
worldwide basis. From 1988 to 1995, Bradley served in several sales and
marketing capacities for Mallinckrodt Animal Health, including the position of
National Sales Manager responsible for 40 employees in their Food Animal
Products Division. Prior to joining Mallinckrodt, Bradley held several sales
and marketing positions for Stauffer Chemical Company.
Dr. Joseph M. Madden, age 51, joined Neogen in December 1997 as Vice President
of Scientific Affairs after retiring from the Food and Drug Administration as
its Microbiology Strategic Manager. He joined the FDA in 1978 and spent his
first 10 years as a research microbiologist for the agency. Dr. Madden has
served on numerous committees on food safety, including his current appointment
to the National Advisory Committee on Microbiological Criteria for Foods. He is
regarded by regulatory agencies and the food industry as being one of the
nation's top experts on both scientific and regulatory issues relating to food
safety.
Dr. Paul S. Satoh, age 63, became Neogen's Vice President for Research and
Development in March 1998 after having spent 26 years as a senior scientist and
research manager at Pharmacia & Upjohn Inc. Dr. Satoh joined Neogen after
serving nearly six years on the Company's Scientific Review Council as an
immunology specialist. At Upjohn, Dr. Satoh also taught immunopharmacology at
the University of Michigan in Ann Arbor, and general studies in chemistry and
social issues in biology at Western Michigan University. His most recent
positions at Pharmacia & Upjohn included senior scientist in drug metabolism
research and senior scientist for strategic information analysis and competitive
intelligence.
David A. Wall, age 52, joined Neogen Corporation in October 1998 as Vice
President and General Manager of Ampcor Diagnostics Incorporated. In May 1999,
he assumed his current position as Vice President of Diagnostic Manufacturing
and Quality Control. Before joining Neogen, he served as Manager of the
immunodiagnostics operations for REMEL, Inc. in Augusta, GA, a position he held
since 1992. Prior to that, Mr. Wall served as founder, President and Chairman
of the Board for Medical Diagnostic Technologies Inc. also in Augusta. Earlier,
Mr. Wall served as Laboratory Director for Zeus Scientific, Inc. and in the
early 1980's participated in the development of the first commercially available
test for Legionnaire's Disease.
Anthony E. Maltese, age 57, joined Neogen on June 1, 1999 as Manager of
Corporate Development. Prior to joining Neogen, Mr. Maltese served as Vice
President of Business Development for Creatogen Biosciences, GmbH of Angsburg,
Germany. From 1990 to 1998, he worked in production and special project
management positions for REMEL, Inc. including Manager of Business Development.
Prior to REMEL, Mr. Maltese spent 20 years at Difco Laboratories, where he
served in several management positions in the areas of purchasing, technical
sales support, production and research.
Richard R. Current, age 56, joined the Company in November 1999 as Vice
President and Chief Financial Officer. Prior to joining Neogen, Mr. Current
served as Executive Vice President and Chief Financial Officer of Integral
Vision, Inc. from 1994 to 1999 and as Vice President and Chief Financial Officer
of the Shane Group, Inc., a privately held company from 1991 to 1994. Mr.
Current was associated with the public accounting firm of Ernst & Young for 24
years and served as Managing Partner of the Lansing, Michigan office from 1986
to 1991.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jack C. Parnell, a Company Director, is a governmental relations advisor to
the law firm of Kahn, Soares & Conway. Kahn, Soares & Conway has been retained
by the Company to represent it in governmental relations matters. The Company
pays Kahn, Soares & Conway a monthly fee of $1,750 for ten hours of consulting.
The agreement with Kahn, Soares & Conway is terminable by either party at the
end of any month.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Exhibits. The Exhibits listed on the accompanying Index to
Exhibits immediately following the signatures are filed as part
of, or incorporated by reference into, this Report.
(b) Schedule II - Valuation and Qualifying Accounts.
(c) Reports on Form 8-K. The Company filed reports on April 12, 2000 on Form
8-K reporting under Item 5 the settlement of litigation with Vicam L.P. and
on April 28, 2000 on Form 8-K reporting under Item 7 financial information
of business to be acquired.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEOGEN CORPORATION
/s/ James L. Herbert /s/ Richard R. Current
-------------------- ----------------------
James L. Herbert, President Richard R. Current, Vice President
Chief Executive Officer Chief Financial Officer
Dated: August 10, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James L. Herbert Chairman, Board of Directors, August 10, 2000
- ---------------------------- President, Chief Executive Officer,
James L. Herbert Director (Principal Executive Officer)
/s/ Lon M. Bohannon Vice President and Chief Operating Officer August 10, 2000
- ----------------------------
Lon M. Bohannon
* Secretary and Director
- ----------------------------
Thomas H. Reed
* Director
- ----------------------------
Herbert D. Doan
* Director
- ----------------------------
Robert M. Book
* Director
- ----------------------------
Gordon E. Guyer
* Director
- ----------------------------
G. Bruce Papesh
* Director
- ----------------------------
Leonard E. Heller, Ph.D.
* Director
- ----------------------------
Jack C. Parnell
*By: /s/ James L. Herbert August 10, 2000
------------------------
James L. Herbert, Attorney-in-fact
</TABLE>
38
<PAGE>
Neogen Corporation
Annual Report on Form 10-K
Year Ended May 31, 2000
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
3 (a) (1) Articles of Incorporation, as restated
3 (a) (1) By-Laws, as amended
10 (a) (2) Neogen Research Limited Partnership II/Neogen Corporation Agreement for the Sale of Patent Rights
and Related Know How, dated October 14, 1988
10 (b) (8) Neogen/Vetoquinol U.S.A., Inc. Asset Purchase Agreement dated December 31, 1997
10 (c) (8) Neogen 1997 Stock Option Plan
10 (d) Tenner Incorporated/AMPCOR Diagnostics, Inc. Asset Purchase Agreement dated April 28, 1999
10 (e) (6) Neogen Corporation/United States Department of Agriculture License Agreement, dated June 29, 1994
10 (f) (4) Ideal Instruments, Inc. Lease Agreement for 9355 West Byron Street, Schiller Park, Illinois,
dated June 29, 1993
10 (g) (2) Neogen Research Limited Partnership II First Amended and Restated Partnership Agreement, dated
December 30, 1985
10 (h) (9) Neogen/BioPort Corporation Product Purchase Agreement dated May 22, 1998
10 (i) (8) Lease Agreement for Florida Manufacturing facilities
10 (j) (3) Amended and Restated Incentive Stock Option Plan II and Sample Individual Incentive Stock Option
agreement
10 (k) (5) Neogen/International Diagnostic Systems Asset Purchase Agreement, dated June 27, 1995
10 (l) (4) ELISA Technologies Lease Agreement for space at 628 East Third Street, Lexington, Kentucky, dated
May 19, 1993
10 (m) Amendment to ELISA Technologies Lease Agreement
10 (n) (6) Neogen Corporation/Kahn, Soares and Conway contract
10 (o) (8) NBD Bank Loan Documents
10 (p) (8) Comerica Bank Loan Documents
10 (q) (7) Neogen Corporation/W.J. Bartus, Inc. Asset Purchase Agreement, dated July 3, 1997
10 (r) (7) Neogen Corporation/Orion Diagnostica Distribution Agreement
10 (s) (7) Neogen Corporation/Oxoid Distribution Agreement
10 (t) (1) Stock Purchase Agreement between Registrant and IDEXX Laboratories, Inc., dated February 17, 2000
10 (u) Lease Agreement for Acumedia Facility
10 (v) Neogen/AmVet Asset Purchase Agreement, dated June 2, 2000
10 (x) Amendment to 1997 Neogen Stock Option Plan
21 List of Subsidiaries
23 Consent of Independent Auditors
24 Power of Attorney (included on Signature Page)
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q dated February 29, 2000.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-18 (No. 33-29844C) filed July 17, 1989 and
amended on August 17, 1989 and August 22, 1989, which Registration became
effective August 30, 1989.
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended May 31, 1992.
(4) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1993.
(5) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1995.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-2 (No. 333-12193) filed September 17, 1996
and amended on October 18, 1996, which Registration became effective
October 22, 1996.
(7) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1997.
(8) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-KSB for the year ended May 31, 1998.
(9) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended May 31, 1999.
39
<PAGE>
Neogen Corporation and Subsidiaries
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Charged To Balance
at Beginning Costs and at End
Description of Year Expenses Acquisition (1) Write-Offs of Year
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year Ended May 31:
2000 $166,000 $162,000 $90,000 $57,000 $361,000
1999 227,000 6,000 67,000 166,000
1998 320,000 (11,000) 82,000 227,000
===============================================================================================================
</TABLE>
(1) Acquisition of Acumedia Manufacturers, Inc. on February 17, 2000.
40
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.U
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>LEASE AGREEMENT FOR ACUMEDIA FACILITY
<TEXT>
<PAGE>
LEASE BY AND BETWEEN
MERRITT-038, LLC, LANDLORD and
ACUMEDIA MANUFACTURERS, INC., TENANT
TABLE OF CONTENT
1. Payment of Rental............................... 2
2. Use............................................. 2
3. Utilities....................................... 3
4. Compliance with Laws............................ 3
5. Assignment and Subletting....................... 4
6. Loading Capacity................................ 6
7. Increase in Landlord's Insurance Rates.......... 6
8. Insurance - Indemnity........................... 6
9. Alterations..................................... 11
10. Ownership of Alterations........................ 11
11. Repairs and Maintenance......................... 12
12. Tax and Insurance Escalation.................... 15
13. Default......................................... 17
14. Damage or Destruction........................... 21
15. Possession...................................... 22
16. Exterior or Premises - Signs.................... 23
17. (Intentionally Omitted)......................... 24
18. For Rent/Sale Signs............................. 24
19. Water and other Damage.......................... 25
20. Right of Entry.................................. 25
21. Termination of Term............................. 25
22. Condemnation.................................... 26
23. Subordination................................... 27
24. Landlord's Right to Perform Tenant's Covenants.. 28
25. Attornment...................................... 28
26. Non-Waiver of Future Enforcement................ 30
27. Personal Property Taxes......................... 30
(i)
<PAGE>
28. Recordation of Lease............................ 31
29. Notices......................................... 31
30. Waiver of Jury Trial............................ 31
31. Severability.................................... 32
32. Non-Waiver...................................... 32
33. Successors and Assigns.......................... 33
34. (Intentionally Omitted)......................... 34
35. Notices to Mortgagee............................ 34
36. Estoppel Certificate............................ 34
37. Environmental Provisions........................ 35
38. Captions........................................ 37
39. (Intentionally Omitted)......................... 37
40. Final and Entire Agreement...................... 37
41. Representatives of the Parties.................. 37
42. Additional Rent................................. 37
43. Renewal Options................................. 37
44. Termination Option.............................. 38
45. Option to Lease Contiguous Space................ 38
46. Brokerage Commissions........................... 39
(ii)
<PAGE>
THIS LEASE, made this 16th day of April, 1998, by and between MERRITT-038,
LLC, a Maryland limited liability company, hereinafter called "Landlord" and
ACUMEDIA MANUFACTURERS, INC., a Maryland corporation, hereinafter called
"Tenant".
WITNESSETH, that in consideration of the rental hereinafter agreed upon and
the performance of all the conditions and covenants hereinafter set forth on the
part of the Tenant to be performed, the Landlord does hereby lease unto the said
Tenant, and the latter does hereby rent from the former the following premises
(hereinafter sometimes called the "premises"):
BEING THOSE PREMISES OUTLINED IN RED ON THE PLAT ATTACHED HERETO AS EXHIBIT
A, SAID PREMISES BEING LOCATED WITHIN THE BUILDING KNOWN AS 9601 PULASKI PARK
DRIVE, BALTIMORE, MARYLAND 21220; SAID PREMISES CONTAINING APPROXIMATELY TWELVE
THOUSAND SIX HUNDRED (12,600) SQUARE FEET AND BEING KNOWN AS SUITE 112-114;
for the term of five (5) years, beginning on the first day of July, 1998, and
ending on the last day of June, 2003, at and for the rental as follows:
<TABLE>
<CAPTION>
Per Rentable
Term Annually Monthly Square Foot
---- -------- ------- ----------
<S> <C> <C> <C>
Year 1 $75,600.00 $6,300.00 $6.00
Year 2 75,600.00 6,300.00 6.00
Year 3 77,490.00 6,457.50 6.15
Year 4 79,380.00 6,615.00 6.30
Year 5 81,412.93 6,784.41 6.46
</TABLE>
All such rentals shall be payable in advance on the first day of each and every
month during the term of this Lease, without setoff or deduction whatsoever. If
the term of this Lease shall commence on a date other than the first day of a
month, the rental for the period from the date of commencement of the term to
the first day of the first full calendar month of the term shall be prorated and
shall be payable on the first day of the term; if the term of this Lease shall
end on a date other than the last day of the month of
1
<PAGE>
the term to the date the term ends shall be prorated and shall be payable on
the first day of the last month of the term.
All rentals shall be paid to Merritt Properties, LLC at 2066 Lord Baltimore
Drive, Baltimore, Maryland 21244, or at such other place or to such appointee of
the Landlord as the Landlord may from time to time designate in writing.
This lease is made subject to the following additional terms, covenants and
conditions:
1. PAYMENT OF RENTAL. Tenant covenants and agrees to pay the rental
herein reserved and each installment thereof promptly when and as due, without
setoff or deduction whatsoever. Tenant further agrees that it will not prepay
rent more than one (1) month in advance without Landlord's prior written
consent.
2. USE. Tenant covenants and agrees to use and occupy the premises solely
for the following purposes: receiving, manufacturing, storing, shipping and
selling (other than retail) products, materials and merchandise made and/or
distributed by Tenant or Tenant's affiliates, including, without limitation, the
operation of a clinical laboratory by Tenant or Tenant's affiliates. Tenant
agrees to comply with all applicable zoning and other laws and regulations, and
provide and install at its own expense any additional equipment or alterations
required to comply with all such laws and regulations as required to comply with
all such laws and regulations as required from time to time necessitated solely
as the result of Tenant's use and occupancy of the premises and/or any
alterations or installations made by Tenant thereto. Tenant will not permit,
allow or cause any public or private auction sales or sheriffs' or constables'
sales to be conducted on or from the premises. Subject to all of the provisions
of this Lease and any causes beyond Landlord's control, Tenant shall be entitled
to access to the premises and the common areas of the project twenty-four (24)
hours per day, seven (7) days per week, during the Lease term.
2
<PAGE>
3. UTILITIES.
(a) Tenant agrees to pay as additional rent for Tenant's use of water,
based upon a separate water meter for the premises, and Tenant will pay all
water charges for the premises based on such meter readings. Tenant shall also
pay its pro rata share of sewer service charges, based upon the size of the
premises in proportion to the total square footage of the building in which the
premises is located.
(b) Tenant shall pay all costs of electricity, gas, telephone and
other utilities used or consumed exclusively on or for the premises, together
with all taxes, levies or other charges on such utilities. If Tenant defaults
in payment of any such utilities, charges or taxes, Landlord may, at its option,
pay the same for and on Tenant's account, in which event Tenant shall promptly
reimburse Landlord therefor.
(c) In addition, Tenant shall pay, as additional rent, ten and
sixteen-hundredths percent (10.16%) (being the same percentage which the square
foot floor area of the premises bears to the entire leasable area of the
building) of actual out-of-pocket costs incurred by Landlord for electric usage,
for lighting the parking and other common areas, which sum shall be due within
fifteen (15) days after Landlord's demand.
4. COMPLIANCE WITH LAWS.
(a) Subject to Landlord's covenants, warranties and representations
set forth in this Lease and the Exhibits thereto, Tenant covenants and agrees
that it will, at its own expense, observe, comply with and execute all laws,
orders, rules, requirements and regulations of any and all governmental
departments, bodies, bureaus, agencies and officers, and all rules, directions,
requirements and recommendations of the local board of fire underwriters and the
fire insurance rating organizations having jurisdiction over the area in
which the premises are situated, or other bodies or agencies now or hereafter
exercising similar functions in the area in
3
<PAGE>
which the premises are situated, in any way pertaining to the premises or the
use and occupancy of the premises. In the event Tenant shall fail or neglect to
comply with any of the aforesaid laws, orders, rules, requirements or
recommendations, Landlord or its agents may, after giving Tenant written notice
of such failure and thirty (30) days to cure the same (provided that in case of
emergency, the time for cure by Tenant shall be reduced commensurate with the
emergency) enter the premises and take all such action and do all such work in
or to the premises and take all such action and do all such work in or to the
premises as may be necessary in order to cause compliance with such laws,
orders, rules, requirements or recommendations, and Tenant covenants and agrees
to reimburse Landlord promptly upon demand for the actual out-of-pocket expense
incurred by Landlord in taking such action and performing such work.
(b) Landlord covenants and agrees that, at the time Landlord delivers
possession of the premises to Tenant, the building, including the premises, will
be in compliance with all applicable governmental laws, statutes, ordinances,
codes and regulations.
5. ASSIGNMENT AND SUBLETTING.
(a) Except as hereinafter provided, Tenant covenants and agrees not to
assign this Lease, in whole or in part, nor sublet the premises, or any part or
portion thereof, nor grant any license or concession for all or any part
thereof, without the prior written consent of the Landlord in each instance
first had and obtained, which consent shall not be unreasonably withheld,
conditioned or delayed.
If such assignment or subletting is permitted, Tenant shall not be
relieved from any liability whatsoever under this Lease. In the event that the
amount of the rent or other consideration to be paid to the Tenant by any
assignee or sublessee for the premises is greater than the rent required to be
paid by the Tenant to the Landlord pursuant to this Lease, Tenant shall pay to
Landlord fifty percent (50%) of any such
4
<PAGE>
excess as is received by Tenant from such assignee or sublessee after deducting
therefrom the costs and expenses incurred by Tenant in connection with any such
assignment or sublease, including, without limitation, any brokerage commission,
tenant improvement allowance and any legal fees and costs. Landlord shall have
the right, after reasonable advance written notice to Tenant, to examine
Tenant's books and records pertaining to all of such costs and expenses, as well
as all documents pertaining to the assignment or sublease. Any consent by
Landlord to an assignment or subletting of this Lease shall not constitute a
waiver of the necessity of such consent as to any subsequent assignment or
subletting. An assignment for the benefit of Tenant's creditors or otherwise by
operation of law shall not be effective to transfer or assign Tenant's interest
under this Lease unless Landlord shall have first consented thereto in writing.
(b) Notwithstanding paragraph 5(a) above, Tenant may, without the
Landlord's consent, assign this Lease, or sublease the premises in whole or in
part, to any of the following (collectively, "Permitted Transfers"): (i) any
entity which has the power to direct Tenant's management and operation, or any
entity whose management and operation are controlled by Tenant; (ii) any entity
a majority of whose stock or beneficial ownership interest is owned by Tenant;
(iii) any entity in which, or with which, Tenant, or its successors or assigns,
is merged or consolidated, in accordance with applicable statutory provisions
for merger or consolidation of entities; (iv) any entity acquiring all, or
substantially all, of Tenant's assets; (v) any successor to a successor entity
becoming such by either of the methods described in clauses (iii) or (iv)
hereof; or (vi) any other affiliate of Tenant. Tenant shall notify Landlord in
writing of any Permitted Transfer. Tenant shall remain fully liable for all of
Tenant's obligations and covenants under this Lease notwithstanding any such
Permitted Transfer unless Tenant's corporate existence is extinguished as the
result thereof. Notwithstanding the
5
<PAGE>
foregoing, if, as a result of a Permitted Transfer, Tenant's corporate existence
would be extinguished, such transfer shall only be permitted if the successor
entity has a net worth which is at least equal to Tenant's net worth prior to
such transfer, as certified to Landlord by Tenant's certified public accountant
not less than five (5) business days prior to the proposed transfer.
6. LOADING CAPACITY. Tenant covenants and agrees not to load the premises
beyond its carrying or loading capacity, which capacity Landlord represents to
be not less than one hundred seventy-five (175) pounds per square foot.
7. INCREASE IN LANDLORD'S INSURANCE RATES. Tenant will not do, or suffer
to be done, anything in or about the premises, or keep or suffer to be kept,
anything in or about the premises which will contravene or affect any policy of
insurance against loss by fire or other hazards, including, but not limited to,
public liability, now existing or which the Landlord may hereafter place
thereon, or which will prevent the Landlord from procuring such policies in
companies acceptable to Landlord at standard rates. Notwithstanding the
foregoing, Landlord represents and warrants to Tenant that, as of the date
hereof, the permitted uses of the premises by Tenant, as set forth in Section 2
hereof, do not violate any of the provisions of the immediately preceding
sentence so long as Tenant complies with all requirements of Landlord's insurer.
8. INSURANCE - LIABILITY.
(a) Tenant covenants and agrees that from and after the date of
delivery of the premises from Landlord to Tenant, Tenant will carry and
maintain, at its sole cost and expense and in the amounts specified and in the
form hereinafter provided, the following type of insurance:
(i) Public Liability and Property Damage.
Commercial General Liability Insurance covering the premises and tenant's
use thereof against claims for personal injury or death and property damage
6
<PAGE>
occurring upon, in or about the premises, such insurance to afford
protection to the limit of not less than $2,000,000 arising out of any one
occurrence, and against property damage to afford protection to the limit
of not less than $2,000,000; or such insurance may be for a combined single
limit of $2,000,000 per occurrence. The insurance coverage required under
this Section 8 (a) (i) shall, in addition, extend to any liability of
Tenant arising out of Tenant's indemnities hereinafter provided, as well as
Independent Contractors' Liability, Products/Completed Operations
Liability, Personal Injury Liability and Contractual Liability.
(ii) Tenant Improvements and Property. Insurance covering all
leasehold improvements and other improvements installed by Tenant upon the
premises, trade fixtures and personal property from time to time in, on or
upon the premises and any alterations, improvements, additions or changes
made by Tenant thereto in an amount not less than one hundred percent
(100%) of their full replacement cost from time to time during the Lease
term, providing protection against perils included within the standard form
of fire and extended coverage insurance policy issued by a company
authorized to do business in Maryland, together with insurance against
sprinkler leakage or other sprinkler damage, vandalism and malicious
mischief. Any policy proceeds from such insurance, so long as this Lease
shall remain in effect, shall be held in trust by Tenant's insurance
company first for the repair, reconstruction, restoration or replacement of
the property damaged or destroyed.
(iii) Plate Glass. Plate glass insurance covering all plate
glass in the premises. Tenant shall be and remain liable for the repair
and restoration of all such plate glass.
7
<PAGE>
(b) All polices of insurance to be provided by Tenant shall be issued
in form acceptable to Landlord by insurance companies with general policyholder
's rating of not less than A and a financial rating of AAA as rated in the most
current available "Best's" Insurance Reports, and qualified to do business in
Maryland. Each such policy shall be issued in the name of Tenant with Landlord
named as an additional insured on the liability policy only. A certificate shall
be delivered to Landlord within ten (10) days after delivery of possession of
the premises to Tenant and thereafter at least fifteen (15) days prior to the
expiration of each such policy. As often as any such policy shall expire or
terminate, renewal or additional policies shall be procured and maintained by
Tenant in like manner and to like extent. All such policies of insurance shall
contain a provision that the company writing said policy will give to Landlord
at least thirty (30) days' notice in writing in advance of any cancellations, or
lapse, or the effective date of any reduction in the amounts of insurance. In
the event Tenant shall fail to promptly furnish any insurance herein required,
Landlord may effect the same for a period not exceeding one (1) year and Tenant
shall promptly reimburse Landlord upon demand, as additional rent, the premium
so paid by Landlord. If, upon Tenant's failure, rather than purchase separate
insurance coverage, Landlord chooses to include Tenant's coverage under
Landlord's insurance policies, then Tenant shall promptly reimburse Landlord
upon demand, as additional rent, the actual increase in Landlord's premium
resulting therefrom. All such public liability, property damage and other
casualty policies shall be written as primary policies which do not contribute
to and are not in excess of coverage which Landlord may carry. All such public
liability and property damage policies shall contain a provision that Landlord
shall nevertheless be entitled to recover under said policies for any loss
occasioned to it, its servants, agents and employees by reason of the negligence
of Tenant or any other named assured. Any insurance provided for may be affected
by a policy or policies of blanket insurance, covering additional items or
8
<PAGE>
locations; provided, however, that (i) Landlord shall be named as additional
assured thereunder as its interests may appear; (ii) the coverage afforded
Landlord will not be reduced or diminished by reason of the use of such blanket
policy of insurance; (iii) any such policy or policies (except any covering the
risks referred to in paragraph (i), shall specify therein (or Tenant shall
furnish Landlord with a written statement from the insurers under such policy
specifying) the amount of the total insurance allocated to the "Tenant
Improvements and Property" more specifically detailed in paragraph (iii), above;
and (iv) the requirements set forth herein are otherwise satisfied.
(c) Tenant shall, and does hereby, defend, indemnify and hold harmless
Landlord and any other parties in interest set forth in paragraph (b), above,
from and against any and all liabilities, fines, claims, damages and actions,
costs and expenses of any kind or nature (including attorney's fees) and of
anyone whatsoever (collectively, "Liabilities") (i) relating to or arising from
the use and occupancy of the premises; (ii) due to or arising out of any
mechanic's lien filed against the building, or any part thereof, for labor
performed or for materials furnished or claimed to be furnished to Tenant (other
than the work to be performed by Landlord pursuant to Exhibit B hereof), or
(iii) due to or arising out of any breach, violation or nonperformance of any
covenant, condition or agreement in this Lease set forth and contained on the
part of Tenant to be fulfilled, kept, observed or performed, except to the
extent such damage or injury shall be occasioned by the negligence or willful
act or omission of the Landlord, in which event, Landlord shall defend,
indemnify and hold harmless Tenant to the extent of such negligence or willful
act or omission.
(d) Landlord shall maintain insurance through individual or blanket
policies insuring the premises against fire and extended coverage (including
"all risk" coverage) for not less than ninety percent (90%) of the replacement
cost of the building of which the premises is a part, with deductibles in the
form and endorsements of such
9
<PAGE>
coverage as selected by Landlord, together with rental abatement insurance
against loss of rent in an amount equal to the amount of rent for a period of at
least twelve (12) months commencing on the date of loss. Landlord shall also
carry Commercial General Liability Insurance in the same amounts and forms as
that required of Tenant under paragraph 8 (a) hereof. Landlord may also carry
such other insurance as Landlord may deem prudent or advisable. The insurance
required to be carried by Landlord hereunder may be carried instead by
Landlord's general contractor during the period of construction of the building.
(e) Landlord shall, and does hereby, indemnify, defend and hold
harmless Tenant and Tenant's officers, directors, employees and agents
(collectively, "Tenant Parties") from and against all Liabilities (as defend in
paragraph 8 (c) above) relating to, or arising from, (i) the use and occupancy
of any part of the project of which the premises is a part by Landlord or
Landlord's agents or employees, and (ii) the breach, violation or nonperformance
of any covenant, condition or agreement in this Lease set forth and contained on
the part of Landlord to be fulfilled, kept, observed or performed, as the case
may be.
(f) Notwithstanding any other provision in this Lease to the contrary,
Landlord and Tenant each waive any right to recover against the other for claims
for damages to Tenant's personal property or the premises/building, as
applicable, whether or not covered by insurance, regardless of the cause or
origin, including, without limitation, the negligence of either Landlord or
Tenant. This provision is intended to waive fully, and for the benefit of
Tenant and Landlord, any rights and/or claims which might give rise to a right
of subrogation in favor of any insurance carrier. The coverage obtained by
Landlord and Tenant, respectively, pursuant to this Lease shall include, without
limitation, a waiver of subrogation endorsement attached to the certificate of
insurance. Notwithstanding any of the foregoing provisions of this paragraph,
if either
10
<PAGE>
party cannot procure such waiver of subrogation endorsement without substantial
increased premium cost, the provisions of this paragraph shall no longer be
applicable unless the other party agrees to pay such increased premium cost.
9. ALTERATIONS. Tenant shall not make any alterations to the premises, or
any part thereof, without prior written consent of Landlord in each instance
first had and obtained. If Tenant shall desire to make such alterations, plans
for the same shall first be submitted to and approved by Landlord, such approval
not to be unreasonably withheld, conditioned or delayed, and all work and
installations shall be performed by Tenant at its own expense in accordance with
approved plans. Tenant agrees that all such work shall be done in a good and
workmanlike manner, that the structural integrity of the building shall not be
impaired, and that no liens shall attach to the premises by reason thereof.
Tenant agrees to obtain, at Tenant's expense, all permits required for such
alterations. Notwithstanding the foregoing, Tenant shall be entitled to make
non-structural interior alterations to the premises without Landlord's consent
if (i) Landlord's mortgage or deed of trust permits such alterations to be made
without the consent of the mortgagee or holder of the deed of trust, (ii) such
alterations do not cost in excess of Twenty-five Thousand Dollars ($25,000.00)
per occurrence, and (iii) do not affect the mechanical systems within the
building or impair the structural integrity thereof. Tenant shall, however,
submit plans and specifications to Landlord for all such alterations, whether or
not the same are subject to Landlord's approval.
10. OWNERSHIP OF ALTERATIONS. Unless Landlord shall elect in writing that
all or part of any alteration made by Tenant to the premises (including any
alteration consented to by Landlord pursuant to Section 9 hereof) excluding,
however, Landlord's work and installations in accordance with Exhibit B hereto,
which Tenant shall have no obligation to remove, shall remain on the premises
after the termination of this Lease (which election shall be made by Landlord,
if at all, at the time Tenant seeks Landlord's
11
<PAGE>
consent), the premises shall be restored by Tenant before the expiration of this
Lease, at Tenant's sole expense to the condition that existed as of the date
Tenant took possession of the premises, reasonable wear and tear and/or damage
from casualty or condemnation excepted. Upon such written election by Landlord,
any such alterations, improvements, betterments or mechanical equipment,
including but not limited to, heating and air conditioning systems, excluding,
however, Tenant's trade fixtures, equipment, furniture and other personal
property, shall become the property of Landlord as soon as they are affixed to
the premises, and all right, title and interest thereof of Tenant shall
immediately cease, unless otherwise agreed to in writing by Landlord. Tenant
shall promptly pay any franchise, minor privilege or other tax or assessment
resulting directly or indirectly from any alterations or improvements made by
Tenant to the premises. Tenant shall repair promptly, at its own expense, any
damage to the premises caused by bringing into the premises any property for
Tenant's use, or by the installation or removal of such property, regardless of
fault or by whom such damage shall be caused, except to the extent that such
damage was caused by Landlord, its agents, contractors or employees.
11. REPAIRS AND MAINTENANCE.
(a) Except for the work to be performed by Landlord in accordance with
Exhibit B hereto ("Landlord's work"), the premises hereby leased are leased to
Tenant "as is". Except for Landlord's Work and as otherwise set forth in this
Section 11, Landlord shall be under no liability, nor have any obligation to do
any work or make any repairs in or to the premises, and any work which may be
necessary to outfit the premises for Tenant's occupancy or for the operation of
Tenant's business therein is the sole responsibility of Tenant and shall be
performed by Tenant at its own cost and expense. Tenant acknowledges that it
has fully inspected the premises prior to the execution of this Lease, and
Tenant further acknowledges that Landlord has made no
12
<PAGE>
warranties or representations with respect to the condition or state of repairs
of the premises, except for warranties provided by Landlord in Exhibit B.
(b) Tenant will, during the term of this Lease, keep the premises
(including windows, doors, plumbing, heating and electrical facilities and
installations exclusively serving the premises) in good order and repair and
will make all necessary repairs thereof at its own expense. Landlord will,
during the term of this Lease, keep, maintain and make all necessary repairs
(except painting) to the exterior masonry walls and roof of the premises, the
roof membrane, flashings and downspouts, all load-bearing walls (including load-
bearing demising walls), all utility systems not serving the premises
exclusively and all common areas of the project, at Landlord's sole cost and
expense, after being notified in writing by Tenant of the need for such repairs,
and shall have a reasonable time in which to complete such repairs. Tenant
agrees to carry a maintenance and/or service agreement or policy on the HVAC
system in the demised premises. This agreement or policy shall be carried
throughout the term of this Lease and any renewals or extensions thereof.
Tenant shall provide Landlord with a copy of such policy or a certificate
evidencing such coverage. In the event that the repairs required to be made by
Landlord are necessitated as a result of negligence or misuse by Tenant, its
agents, servants, employees, licensees or guests, or by any contractor engaged
by or on behalf of Tenant, such repairs shall be made by and be paid for by
Tenant. Tenant agrees to pay, as additional rent, Tenant's pro rata share of
snow and ice removal expense, based upon the size of the premises in proportion
to the total square footage of the building in which the premises are located.
Tenant will, at the expiration of the term or at the sooner termination thereof
by forfeiture or otherwise, deliver up the premises in the same good order and
condition as they were at the beginning of the tenancy, reasonable wear and tear
and damage from casualty or condemnation excepted. Tenant further agrees that
it will maintain the premises at its
13
<PAGE>
own expense in a clean, orderly and sanitary condition, free of insects,
rodents, vermin, and other pests; and that it will not permit undue accumulation
of garbage, trash, rubbish or other refuse, but will remove the same at its own
expense and will keep such refuse in proper containers within the interior of
the premises until called for to be removed other than one (1) exterior trash
container which Tenant may maintain in a location mutually acceptable to
Landlord and Tenant. Tenant further agrees that it will not install any
additional electrical wiring, other than minor circuitry/wiring for Tenant's
equipment used at the premises, or plumbing unless it has first obtained
Landlord's written consent thereto, and, if such consent is given, Tenant will
install the same at its own cost and expense, and Tenant shall obtain, at
Tenant's expense, all permits required for such installation.
(c) In the event Tenant shall not proceed promptly and diligently to
make any repairs or perform any obligation imposed upon it by subparagraphs (a)
and (b) hereof within thirty (30) days after receiving written notice from
Landlord to make such repairs or perform such obligation (provided that in the
event of an emergency, the time for cure by Tenant shall be reduced commensurate
with the emergency), then and in such event, Landlord may, at its option, enter
the premises and do and perform the things specified in said notice, without
liability on the part of Landlord for any loss or damage resulting from any such
action by Landlord, and Tenant agrees to pay promptly upon demand any actual
out-of-pocket cost or expense incurred by Landlord in taking such action.
(d) If (i) Landlord fails to commence the on-site physical performance
of any item of repair or maintenance required to be performed by Landlord under
this Lease, fails to correct any defect or deficiency that is subject to any
warranty of Landlord under this lease, or fails to restore any utilities serving
the premises that are interrupted as a result of the willful act or negligence
of Landlord or its agents,
14
<PAGE>
employees or contractors, (ii) such failure exceeds thirty (30) days after
written notice from Tenant to Landlord setting forth the need for same (provided
that in the event of an emergency, the time for Landlord's performance in
accordance with clause (i) shall be reduced commensurate with the emergency),
and (iii) the need for such repair or maintenance materially affects Tenant's
use or enjoyment of the premises or access to or parking for the premises, then
Tenant may (as its non-exclusive remedy), but shall not be obligated to, perform
such item of repair or maintenance, in which event Landlord shall reimburse
Tenant for Tenant's actual out-of-pocket costs and expenses within thirty (30)
days following receipt by Landlord of an itemized list of such costs and
expenses, together with copies of paid bills or receipts.
12. TAX AND INSURANCE ESCALATION.
(a) The premises hereby leased comprise approximately ten and sixteen-
hundredths percent (10.16%) of the total land and building within which the
premises is located.
(b) Tenant covenants and agrees to pay Landlord, as additional rent,
ten and sixteen-hundredths percent (10.16%) of any increase in real estate taxes
assessed against the land and/or building in excess of the taxes for the
1998/1999 fiscal year (provided that if the building is not assessed as a
"completed improvement" during the 1998/1999 fiscal year, then the base year for
purposes of such computation shall be the first fiscal year in which such
assessment is made), whether as a result of an increase in the tax rate, or the
levy, assessment or imposition of any tax on real estate as such not now levied,
assessed or imposed, which payment shall be due and payable within thirty (30)
days after Landlord's written demand. The foregoing shall apply to increases in
real estate taxes assessed against the land or building(s) generally, and not
resulting from improvements placed thereon by Tenant. In the event of any
increases in real estate taxes resulting from improvements, alterations or
additions
15
<PAGE>
made by Tenant, Tenant shall pay the entire amount of said increase. If this
Lease shall be in effect for less than a full fiscal year, Tenant shall pay a
pro rata share of taxes, based upon the number of months that this Lease is in
effect. "Taxes" as used herein shall include, but not by way of limitation, all
paving taxes, special paving taxes, Metropolitan District charges, and any and
all other benefits or assessments which may be levied on the premises or the
land or building(s) in which the same are situate, but shall not include any
income tax on the income or rent payable hereunder. "Taxes" shall also include
all reasonable expenses incurred by Landlord (including attorney's fees and
costs) in contesting any increase in, or applying for any reduction of, a tax
assessment, if, and only to the extent, such contest results in a reduction of
the assessed value of the project. In addition to any other limitations
contained in this Lease, Tenant's proportionate share of taxes levied or
assessed against the premises and/or the project shall exclude (i) any federal,
state or local documentary transfer taxes or stamps or similar taxes relating to
the sale, transfer or other change in ownership in ownership of the premises or
the property, or any portion thereof or interest therein, and (ii) any late or
delinquency fees, penalties or costs associated with the late payment taxes.
(c) Tenant also covenants and agrees to pay Landlord, as additional
rent, ten and sixteen-hundredths percent (10.16%) of any increase in insurance
premiums (as hereinafter defined) in excess of the annualized premiums for the
most recent policy period in which the premium includes a charge for the
completed building, which payment shall be due and payable within thirty (30)
days after Landlord's written demand. As used herein, "insurance premiums"
means the total premium cost of all insurance carried by Landlord with respect
to the building within which the premises is located, together with adjacent
parking area used exclusively for the said building, including, but not limited
to, all Real Property and Rental Value perils insured against
16
<PAGE>
under an "All Risk" insuring agreement, primary General Liability insurance and
Umbrella and/or Excess Liability insurance.
13. DEFAULT.
(a) Any of the following events shall constitute a default by Tenant:
(i) If the rent (basic or additional) shall be in arrears, in
whole or in part, for ten (10) days after written default notice from
Landlord to Tenant (provided that Landlord shall be required to only give
two (2) such written default notices during any calendar year within the
Lease term); or
(ii) If Tenant shall have failed to perform any other term,
condition, or covenant of this Lease on its part to be performed for a
period of thirty (30) days after written notice of such failure from
Landlord; provided, however, that if any such failure cannot reasonably be
cured within such thirty (30) day period, Tenant shall not be deemed in
default hereunder so long as Tenant commences to cure such failure within
such thirty (30) day period and continues diligently thereafter until the
failure is fully cured; or
(iii)If Tenant is adjudicated as bankrupt or insolvent by any
court of competent jurisdiction, or if any such court enters an order,
judgment or decree finally approving any petition against Tenant seeking
reorganization, liquidation, dissolution or similar relief, or if a
receiver, trustee, liquidator or conservator is appointed for all or
substantially all of Tenant's assets and such appointment is not vacated
within sixty (60) days after the appointment, or if Tenant seeks or
consents to any of the relief hereinabove enumerated in this subparagraph
(iii) or files a voluntary petition in bankruptcy or insolvency or makes an
assignment of all or substantially all of its assets for the benefit of
creditors or admits in writing of its inability to pay its debts generally
as they come due or files Articles of Dissolution, or similar writing
indicating its intention
17
<PAGE>
to wind up or liquidate its business, with the appropriate authority of the
place of its incorporation; or
(iv) If Tenant's leasehold interest under this Lease is sold under
execution, attachment or decree of court to satisfy any debt of Tenant, or
if any lien (including a mechanic's lien) is filed against Tenant's
leasehold interest and is not discharged or bonded over within ten (10)
business days after Tenant's actual knowledge thereof.
(b) In the event of default as defined in paragraph (a) hereof,
Landlord, in addition to any and all legal and equitable remedies it may have,
shall have the following remedies:
(i) To distrain for any rent or additional rent in default;
provided such right of distraint shall be subordinate to the rights of any
lender of Tenant having a security interest in Tenant's property as set
forth in paragraph (d) of this Section 13.
(ii) At any time after default, without notice, to declare this
Lease terminated and enter the premises with legal process; and in such
event Landlord shall have the benefit of all provisions of law now or
hereafter in force respecting the speedy recovery of possession form
Tenant's holding over or proceedings in forcible entry and detainer, and
Tenant waives any and all provisions for notice under such laws.
Notwithstanding such re-entry and/or termination, Tenant shall
immediately be liable to Landlord for the sum of the following: (a) all rent an
additonal rent then in arrears, without apportionment to the termination date,
including Tenant's contribution to taxes under paragraph 12 for the year of
termination, whether such termination is before or after July 1st of such year;
(b) all other liabilities of Tenant and damages sustained by Landlord as a
result of Tenant's default, including, but not limited
18
<PAGE>
to, the reasonable costsof reletting the premises and any broker's commissions
payable as a result thereof; (c) all of Landlord's costs and expenses (including
reasonable counsel fees) in connection with such default and recovery of
possession; (d) the difference between the rent reserved under this Lease for
the balance of the term and the fair rental value of the premises for the
balance of the term to be determined as of the date of re-entry, if the rent
reserved under this Lease for the balance of the term exceeds the fair rental
value of the premises for the balance of the term as of such date; or at
Landlord's option in lieu thereof, Tenant shall pay the amount of the rent and
additional rent reserved under this Lease at the times herein stipulated for
payment of rent and additional rent for the balance of the term, less any amount
received by Landlord during such period from others to whom the premises may be
rented on such terms and conditions and at such rentals as Landlord, in its sole
discretion, shall deem proper; and (e) any other damages recoverable by law. In
the event Landlord brings any action against Tenant to enforce compliance by
Tenant with any covenant or condition of this Lease, including the covenant to
pay rent, and it is judicially determined that Tenant has defaulted in
performing or complying with any such covenant or condition, then and in such
event, Tenant shall pay to Landlord all costs and expenses incurred by Landlord
in bringing and prosecuting such action against Tenant, including reasonable
attorney's fees.
(c) In the event Tenant fails to pay Landlord any rental payment or
other charge due hereunder within five (5) days from the date on which any such
payment was due, Landlord may, at its option, charge Tenant a late charge equal
to ten percent (10%) of the rental payment or other such charge, which late
charge shall be collectible as additional rent and shall be payable by Tenant to
Landlord within ten (10) days after written notice from Landlord to Tenant
assessing the same; provided tha tno late charge shall be due on the first
delinquent installment of base rent during each
19
<PAGE>
Lease year so long as tenant pays to Landlord such delinquent installment of
base rent within five (5) days after written notice from Landlord that such base
rent amount is past due. After such first delinquent notice during any Lease
year, Landlord may assess a late charge without prior notice to Tenant if any
rental installment is not paid within five (5) days from the due date. In
addition, any such rental payment or other charge which is delinquent for ten
(10) days or more, shall bear interest from the date on which same was due at
the prime rate of interest then being charged by NationsBank to its most favored
commercial customers.
(d) Landlord hereby agrees to subordinate Landlord's right of
distraint with respect to the personal property (trade fixtures, equipment and
merchandise) of Tenant from time to time located within the premises ("Tenant's
Property") to a contractual lien or other security interest given by Tenant to a
lender ("Tenant's Lender") whose loan is secured by such lien or security
interest in Tenant's Property. Landlord agrees to permit Tenant's Lender to go
upon the premises at such times and under such conditions as shall be reasonably
designated by Landlord for the purpose of removing Tenant's Property after the
effective date of any termination of this Lease or any repossession of the
premises by Landlord, provided such removal does not waive or defeat Landlord's
right of distraint (which shall at all times be subordinate to the prior rights
of Tenant's Lender) provided Tenant's Lender agrees in writing to repair any
damage to the premises caused by the removal of Tenant's Property and to
indemnify, protect, defend (with counsel reasonably acceptable to Landlord) and
hold harmless Landlord from and against any and all claims, actions, losses,
costs and fees (including reasonable attorney's fees) and liabilities resulting
from or in connection with the entry onto the premises by Tenant's Lender or its
agents. Landlord further agrees to execute and deliver such instruments
reasonably requested by Tenant's Lender, and in form and
20
<PAGE>
content reasonably satisfactory to Landlord, from time to time to evidence or
effect the aforesaid subordination and agreements of Landlord.
14. DAMAGE OR DESTRUCTION.
(a) If, during the Lease term, the premises hereby leased are damaged
by fire or other casualty, but not to the extent that Tenant is prevented from
carrying on business in the premises, Landlord shall promptly cause such damage
to be repaired; if such damage renders a substantial portion of the premises
untenantable, the rent reserved hereunder shall be reduced during the period of
its untenantability proportionately to the amount by which the area so rendered
untenantable bears to the entire area leased hereunder, and such reduction shall
be apportioned from the date of the casualty to the date when the leased
premises are rendered fully tenantable. Notwithstanding the foregoing, in the
event such fire or other casualty damages or destroys any of Tenant's leasehold
improvements (other than Landlord's Work), alterations, betterments, fixtures or
equipment, Tenant shall cause the same to be repaired or restored at Tenant's
sole cost and expense and Landlord shall have no liability for the restoration
or repair thereof except for Landlord's work.
(b) If , during the Lease term, a substantial portion of the building
in which the premises is situated (including all, or a portion of, the premises
itself) are rendered wholly untenantable as the result of fire, the elements,
unavoidable accident or other casualty (collectively, "Casualty"), Landlord
shall have the option either to restore the premises to their condition
immediately prior to the casualty or to terminate this Lease, such option shall
be exercised by Landlord by written notice to Tenant within thirty (30) days
after the Casualty. In the event of such termination, the rent reserved
hereunder shall be adjusted as of the date of the Casualty. If Landlord elects
to restore the premises, such restoration shall be completed as promptly as
reasonably possible
21
<PAGE>
and the rent reserved hereunder shall abate until the premises are again
rendered tenantable.
(c) Notwithstanding the foregoing provisions of this Section 14, if
(i) following a Casualty, Tenant requests notice from Landlord as to the
probable time for completion of the repair or restoration of the premises,
Landlord notifies Tenant in writing (which notice shall be given within thirty
(30) days following Tenant's request) that Landlord in good faith estimates that
the repair or restoration will not be substantially completed within one hundred
twenty (120) days from the date of the Casualty, or (ii) the Casualty occurs
during the final year of the Lease term, then and in such event, Tenant shall
have the right to terminate this Lease, provided Tenant gives Landlord written
termination notice after the expiration of such one hundred twenty (120) day
period, (but prior to substantial repair or restoration of the premises), or
within fifteen (15) days after a Casualty occurring in the last year of its
term, whichever is applicable, in which event the rent and other charges
payable hereunder shall be adjusted as of the date of the Casualty.
15. POSSESSION.
(a) In case possession of the premises, in whole or in part, cannot be
given to Tenant on or before the commencement of the term of this Lease,
landord agrees to abate the rent until possession is given to Tenant with
Landlord's Work substantially completed in accordance with Exhibit B hereto, and
Tenant agrees to accept such abatement as liquidated damages (and the additional
damages that may become due under paragraph 15(c) below) for the failure to
obtain possession on the commencement date herein specified. The parties hereto
covenant and agree that if the term of this Lease commences on a date other than
the date herein specified, they will, upon the request of either of them,
execute an agreement setting for the the new commencement and termination dates
of the Lease term. Under no circumstances
22
<PAGE>
shall Landlord be under any liability for failure to deliver possession of the
premises to Tenant on the date herein specified, except as expressly provided in
paragraph 15(c) below.
(b) Notwithstanding anything to the contrary contained in this Lease,
Tenant shall have the right to enter the premises at least thirty (30) days
prior to the Lease commencement date to install phone systems, furniture,
fixtures and equipment, etc. (collectively, the "Early Entry Activities") and
such early entry for such purposes shall not trigger the commencement date.
Tenant agrees (i) any such early entry by Tenant shall be at Tenant's sole risk,
(ii) Tenant shall not substantially interfere with Landlord or Landlord's
contractors completing work within the premises, and (iii) Tenant shall comply
with and be bound by all provisions of this Lease during the period of such
early entry, except for payment of rent which shall begin to accrue as of the
Lease commencement date.
(c) In the event Landlord's Work has not been substantially completed
in accordance with Exhibit B hereto by August 1, 1998, Tenant shall be entitled
to an abatement of rent equal to two (2) days abatement for each day of delay
beyond August 1, 1998, until the date of substantial completion of Landlord's
Work. Further, notwithstanding anything to the contrary contained herein, if
possession of the premises is not tendered to Tenant will all of Landlord's Work
substantially completed in accordance with Exhibit B hereto on or before October
1, 1998, Tenant shall be entitled to terminate this Lease by delivering written
termination notice to Landlord so long as such notice is delivered to Landlord
prior to Landlord's substantial completion of Landlord's Work.
16. EXTERIOR OF PREMISES - SIGNS.
(a) Tenant covenants and agrees that it will not place or permit any
sign, billboard, marquee, lights, awning, poles, placard, advertising matter, or
other
23
<PAGE>
thing of any kind, in or about the exterior of the premises or the building in
which the premises are situate, nor paint or make any change in, to or on the
exterior of said premises to change the uniform architecture, paint or
appearance of the building, without in each such instance obtaining the prior
written consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed. In the event such consent is given, Tenant agrees to pay
any minor privilege or other tax that may be chargeable by any governmental
authority arising as a result of any such installation immediately when due.
Tenant shall obtain, at Tenant's expense, all permits required for such
installation. Tenant further agrees to maintain any sign, billboard, marquee,
awning, decoration, placard, or advertising matter or other thing of any kind as
may be approved by Landlord in good condition and repair at all times.
(b) Tenant further covenants and agrees not to pile or place anything
on the sidewalk, parking lot or other exterior portion of the premises or
building or in the front, rear or sides of the building, nor block the sidewalk,
parking lot or other exterior portion of the premises or building, nor do
anything that directly or indirectly will materially interfere with any of the
rights of ingress or eqress or of light from any other tenant, nor do anything
which will, in any way, change the uniform and general design of any property of
Landlord in which the premises are situate.
17. (Intentionally Omitted)
18. FOR RENT/SALE SIGNS. Landlord shall have the right to place a "For
Rent" sign on any portion of said premises for six (6) months prior to
termination of this Lease and to place a "For Sale" sign thereon at any time.
During such six-month period, Landlord may show the premises and all parts
thereof to prospective tenants between the hours of 9:00 a.m. and 5:00 p.m. on
any day, except Sunday or any day on which Tenant shall not be open for
business, provided that if Tenant has closed for business
24
<PAGE>
prior to the Lease termination date, then Landlord shall have the right to show
the premises at any time after Tenant's closing for business.
19. WATER AND OTHER DAMAGE. Landlord shall not be liable for, and
Landlord is hereby released and relieved from, all claims and demands of any
kind by reason of or resulting from damage or injury to person or property of
Tenant or any other party, directly or indirectly caused by (a) dampness, water,
rain or snow, in any part of the premises or in any part of any other property
of Landlord or of others, and/or (b) falling plaster, steam, gas, electricity,
or any leak or break in any part of the premises or from any pipes, appliances
or plumbing or from sewers or the street or subsurface or from any other place
or any part of any other property of Landlord or of others or in the pipes of
the plumbing or heating facilities thereof, except to the extent caused by the
negligence or willful misconduct of Landlord or Landlord's employees, agents or
contractors.
20. RIGHT OF ENTRY. Landlord and its agents, servants, employees,
including any builder or contractor employed by Landlord, shall have the right,
license and permission, at any and all reasonable times, but upon twenty-four
(24) hours' prior notice to Tenant (except in case of emergency when no such
prior notice shall be required), to enter and inspect the premises or any part
thereof, and at the option of Landlord, to make such reasonable repairs and/or
changes in the premises as Landlord may deem necessary or proper and/or to
enforce and carry out any provision of this Lease, provided that any such entry
by Landlord or its agents or contractors shall be accomplished in such a manner
as to not unreasonably interfere with Tenant's use or enjoyment of or access to
the premises.
21. TERMINATION OF TERM. It is agreed that the term of this Lease shall
expire and terminate at the end of the original term hereof (or at the
expiration of the last renewal term, if this Lease contains a renewal option and
the same is properly
25
<PAGE>
exercised), without the necessity of any notice by or to any of the parties
hereto, unless otherwise provided herein. If Tenant shall occupy the premises
after such expiration or termination, it is understood that Tenant shall hold
the premises as a Tenant from month-to-month, subject to all the other terms and
conditions of this Lease, at an amount equal to one hundred fifty percent (150%)
times the highest monthly rental installment reserved in this Lease. Landlord
shall, upon such expiration or termination of this Lease, be entitled to the
benefit of all public general or local laws relating to the speedy recovery of
possession of lands and tenements held over by tenants that may be now in force
or may hereafter be enacted.
22. CONDEMNATION.
(a) If, during the term of this Lease, all or a substantial part of
the premises shall be taken by or under power of eminent domain, this Lease
shall terminate as of, and the rent (basic and additional) shall be apportioned
to and abate from and after, the date of taking. Tenant shall have no right to
participate in any award or damages for such taking and hereby assigns all of
its right, title and interest therein to Landlord, except as provided in
paragraph 22(d) hereof. For the purposes of this paragraph, "a substantial part
of the premises" shall mean such part that the remainder thereof is rendered
inadequate for Tenant's business and that such remainder cannot practicably be
repaired and improved so as to be rendered adequate to permit Tenant to carry on
its business with substantially the same efficiency as before the taking.
(b) If, during the Lease term, less than a substantial part of the
premises (as hereinabove defined) is taken by or under power of eminent domain,
this Lease shall remain in full force and effect according to its terms; and
Tenant shall not have the right to participate in any award or damages for such
taking and Tenant hereby assigns all of its right, title and interest in and to
the award to Landlord, except as provided in paragraph 22(d) below. In such
event Landlord shall, at its expense,
26
<PAGE>
promptly make such repairs and improvements as shall be necessary to make the
remainder of the premises adequate to permit Tenant to carry on its business to
substantially the same extent and with substantially the same efficiency as
before the taking; provided that in no event shall Landlord be required to
expend an amount in excess of the award received by Landlord for such taking.
If, as a result of such taking, any part of the premises is rendered permanently
unusable, the basic annual rent reserved hereunder shall be reduced in such
amount as may be fair and reasonable, which amount shall not exceed the
proportion which the area so taken or made unusable bears to the total area
which was usable by Tenant prior to the taking. If the taking does not render
any part of the premises unusable, there shall be no abatement of rent.
(c) For purposes of this section, "taking" shall include a negotiated
sale or Lease and transfer of possession to a condemning authority under bona
fide threat of condemnation for public use, and Landlord alone shall have the
right to negotiate with the condemning authority and conduct and settle all
litigation connected with the condemnation. As hereinabove used, the words
"award or damages" shall, in the event of such sale or settlement, include the
purchase or settlement price.
(d) Nothing herein shall be deemed to prevent Tenant from claiming and
receiving from the condemning authority, if legally payable, compensation for
the taking of Tenant's own tangible property and such amount as may be payable
by statute or ordinance toward Tenant's damages for Tenant's loss of business,
removal and relocation expenses.
23. SUBORDINATION. Tenant covenants and agrees that all of Tenant's
rights hereunder are and shall be subject and subordinate to the lien of any
first mortgage hereafter placed on the leased premises or any part thereof,
except the Tenant's property or trade fixtures, and to any and all renewals,
modifications, consolidations,
27
<PAGE>
replacements, extensions or substitutions of any first mortgage, provided Tenant
receives a "Non-Disturbance Agreement" as defined in paragraph 25(b) hereof.
Such subordination shall be automatic, without the execution of any further
subordination agreement by Tenant. If, however, a written subordination
agreement, consistent with this provision, is required by a mortgage, Tenant
agrees to execute, acknowledge and deliver the same subject to receipt by Tenant
of such Non-Disturbance Agreement, and in the event of failure so to do,
Landlord may, in addition to any other remedies for breach of covenant
hereunder, execute, acknowledge and deliver the same as the agent or
attorney-in-fact of Tenant, and Tenant hereby irrevocably constitutes Landlord
its attorney-in-fact for such purpose.
24. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant shall fail
to perform any covenant or duty required of it by this Lease or by law following
any applicable cure period set forth in this Lease, Landlord shall have the
right (but not the obligation) to perform the same, and if necessary to enter
the premises for such purposes without notice. The reasonable cost thereof to
Landlord shall be deemed to be additional rent hereunder payable by Tenant, and
Landlord shall have the same rights and remedies with respect to such additional
rent as Landlord has with respect to the rental reserved hereunder.
25. ATTORNMENT.
(a) If Landlord assigns this Lease or the rents hereunder to a
creditor as security for a debt, Tenant shall, after notice of such assignment
and upon demand by Landlord or the assignee, pay all sums thereafter becoming
due landlord hereunder both to Landlord and such assignee. Tenant shall also,
upon receipt of such notice, have all policies of insurance required hereunder
endorsed so as to protect the assignee's interest as it may appear and shall
deliver such policies, or certificates thereof, to the assignee.
28
<PAGE>
(b) If, at any time during the term of this Lease, the Landlord of the
leased premises shall be the holder of a leasehold estate covering premises
which include the leased premises, and if such leasehold shall terminate or be
terminated for any reason, or if, at any time during the term of Lease a
mortgage to which this Lease is subordinate shall be foreclosed, Tenant agrees
at the election and upon demand of any owner of the premises which include the
leased premises, or of any mortgage in possession thereof, or of any holder of a
leasehold thereafter affecting premises which include the leased premises, or of
any purchaser at foreclosure, to attorn, from time to time, to any such owner,
mortgagee, holder or purchaser upon the terms and conditions set forth herein
for the remainder of the term demised in this Lease. Provided, however, that
Tenant shall not be obligated to attorn unless, if Tenant shall so request in
writing, such holder, owner, mortgagee or purchaser shall execute and deliver to
Tenant an instrument (the "Non-Disturbance Agreement") wherein said holder,
owner, mortgagee or purchaser agrees that so long as Tenant performs all the
terms, covenants and conditions of this Lease, on Tenant's part to be performed,
Tenant's possession under the provisions of this Lease shall not be disturbed by
such holder, owner, mortgagee or purchaser.
(c) The foregoing provisions shall inure to the benefit of any such
owner, mortgagee, holder or purchaser and shall apply notwithstanding that this
Lease may terminate upon the termination of any such leasehold estate or upon
such foreclosure, and shall be self-operative upon any such demand, without
requiring any further instrument to give effect to such provisions. Tenant,
however, upon demand of any such owner, mortgagee, holder and purchaser, agrees
to execute, from time to time an instrument in confirmation of the foregoing
provisions, satisfactory to any such owner, mortgagee, holder or purchaser, in
which Tenant shall acknowledge such
29
<PAGE>
attornment and set forth herein and shall apply for the remainder of the term
originally demised in this Lease.
26. NON-WAIVER OF FUTURE ENFORCEMENT. The receipt of rent by Landlord,
with knowledge of any breach of this Lease by Tenant or of any default on the
part of Tenant in the observance or performance of any of the conditions or
covenants of this Lease, shall not be deemed to be a waiver of any provisions of
this Lease. No failure on the part of Landlord or of the Tenant to enforce any
covenant or provision herein contained nor any waiver of any right hereunder by
Landlord or Tenant, shall discharge or invalidate such covenant or provision or
affect the right of Landlord or Tenant to enforce the same in the event of any
subsequent default. The receipt by Landlord of any rent or any sum of money or
any other consideration hereunder paid by Tenant after the termination, in any
manner, of the term herein demised, or after the giving by Landlord of any
notice hereunder to effect such termination, shall not reinstate, continue or
extend the term herein demised, or destroy, or in any manner impair the efficacy
of any such notice of termination as may have been given hereunder by Landlord
to Tenant prior to the receipt of any such sum of money or other consideration,
unless so agreed to in writing and signed by Landlord. Neither acceptance of
the keys nor any other act or thing done by Landlord or any agent or employee
during the term herein demised shall be deemed to be an acceptance of a
surrender of said premises, excepting only an agreement in writing signed by
Landlord accepting or agreeing to accept such surrender.
27. PERSONAL PROPERTY TAXES. Tenant shall be responsible for and shall
pay any taxes or assessments levied or assessed during the term of this Lease
against any leasehold interest of Tenant or personal property or trade fixtures
of Tenant of any kind, owned by Tenant or placed in, upon or about the premises
by Tenant.
30
<PAGE>
28. RECORDATION OF LEASE. Neither Tenant nor Landlord will record this
Lease or a memorandum of the Lease.
29. NOTICES. Any notice required by this Lease shall be sent by certified
mail to Landlord at: 2066 Lord Baltimore Drive, Baltimore, Maryland 21244. Any
notice required by this Lease shall be sent by certified mail to Tenant at:
Acumedia Manufacturers, Inc.
9601 Pulaski Park Drive
Baltimore, Maryland 21220
With a copy to:
IDEXX Laboratories,Inc.
One IDEXX Drive
Westbrook, Maine 04092
Attention: Facilities Manager and General Counsel
Either party may, at any time, or from time to time, designate in writing a
substitute address for that above set forth, and thereafter to all notices to
such party shall be sent by certified mail to such substitute address.
30. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, THE LANDLORD AND
THE TENANT WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, COUNTERCLAIM, OR
PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS LEASE. THIS
WAIVER APPLIES TO ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS AND
PROCEEDINGS, INCLUDING PARTIES WHO ARE NOT PARTIES TO THIS LEASE. THIS WAIVER IS
KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE TENANT AND THE Tenant
ACKNOWLEDGES THAT NEITHER THE LANDLORD, NOR ANY PERSON ACTING ON BEHALF OF THE
LANDLORD, HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY
JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE TENANT FURTHER
ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE
31
<PAGE>
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF
THIS WAIVER BY INDEPENDENT COUNSEL, SELECTED OF ITS OWN FREE WILL, IN THAT IT
HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. THE TENANT FURTHER
ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF
THIS WAIVER PROVISION AND AS EVIDENCE OF THIS FACT SIGNS ITS INITIALS.
------------------------
(initials of party signing for Tenant)
31. SEVERABILITY.
(a) It is agreed that, for the purpose of any suit brought or based on
this Lease, this Lease shall be construed to be a divisible contract, to the end
that successive actions may be maintained thereon as successive periodic sums
shall mature or be due hereunder, and it is further agreed that failure to
include in any suit or action any sum or sums then matured or due shall not be a
bar to the maintenance of any suit or action for the recovery of said sum or
sums so omitted; and Tenant agrees that it will not, in any suit or suits
brought or arising under this Lease for a matured sum for which judgment has not
previously been obtained or entered, plead, rely on or interpose the defenses of
res adjudicata, former recovery, extinguishment, merger, election of remedies or
other similar defense as a default to said suit or suits.
(b) If any terms, clause or provision of this Lease is declared
invalid by a court of competent jurisdiction, the validity of the remainder of
this Lease shall not be affected thereby but shall remain in full force and
effect.
32. NON-WAIVER. It is understood and agreed that nothing herein shall be
construed to be a waiver of any of the terms, covenants or conditions herein
contained, unless the same shall be in writing, signed by the party to be
charged with such waiver and no waiver of the breach of any covenant herein
shall be construed as a waiver of
32
<PAGE>
such covenant or any subsequent breach thereof. No mention in this Lease of any
specific right or remedy shall preclude Landlord or Tenant from exercising any
other right or from having any other remedy or from maintaining any action to
which it may be otherwise entitled either at law or in equity.
33. SUCCESSORS AND ASSIGNS.
(a) Except as herein provided, this Lease and the covenants and
conditions herein contained shall inure to the benefit of an be binding upon
Tenant, its successors and assigns, and shall inure to the benefit of Tenant and
only Permitted Transferees of Tenant or assignees of Tenant to whom an
assignment by Tenant has been consented to in writing by Landlord.
(b) In the event Landlord's interest under this Lease is transferred
or assigned and written notice thereof is given to Tenant, the Landlord herein
named (or any subsequent assignee or transferee of the Landlord's interest under
this Lease who gives such notice to Tenant) shall automatically be relieved and
released from and after the date of such transfer or conveyance from all
liability hereunder arising or accruing after such transfer or conveyance.
Further, Tenant specifically agrees to look solely to Landlord's interest in the
building, the land upon which the building is located and the proceeds and
income derived therefrom, for the recovery of any judgment from Landlord, it
being agreed that Landlord shall never be personally liable for any such
judgment. The provision contained in the foregoing sentence is not intended to,
and shall not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or Landlord's successors in interest or any
other action not involving the personal liability of Landlord to respond in
monetary damages from assets other than Landlord's interest in the building, the
land upon which the building is located and the proceeds and income derived
therefrom, or any suit or action in connection with
33
<PAGE>
enforcement or collection of amounts which may become owing or payable under or
on account of insurance maintained by Landlord.
34. (Intentionally Omitted)
35. NOTICES TO MORTGAGEE. Tenant agrees that a copy of any notice of
default from Tenant to Landlord shall also be sent to the holder of any mortgage
or deed of trust on the premises; provided Tenant has been given written notice
of the fact that such mortgage or deed of trust has been made; and Tenant shall
allow said mortgage or holder of the deed of trust a reasonable time, not to
exceed an additional thirty (30) days from the time Landlord is otherwise
obligated to cure such default, to cure, or cause to be cured, any such default.
If such default cannot reasonably be cured within the time specified herein,
then such additional time as may be necessary shall be allowed, provided the
curing of such default is commenced and diligently pursued (including, but not
limited to, commencement of foreclosure proceedings if necessary to effect such
cure) in which event this Lease shall not be terminated while such remedies are
being thus diligently pursued.
36. ESTOPPEL CERTIFICATE. Tenant shall, at any time and from time to time
during the term of this Lease or any renewal thereof, upon request of Landlord,
execute, acknowledge, and deliver to Landlord or its designee, a statement in
writing, certifying that this Lease is unmodified and in full force and effect
if such is the fact (or if there have been any modifications thereof, that the
same is in full force as modified and stating the modifications), the dates to
which the rents and other charges have been paid in advance, if any, and any
defaults or claimed defaults by Landlord. Any such statement delivered pursuant
to this paragraph may be relied upon by any prospective purchaser of the estate
of Landlord or by the mortgagee or any assignee of any mortgagee or the trustee
or beneficiary of any deed of trust constituting a lien on the premises or upon
property in which the premises are situate.
34
<PAGE>
37. ENVIRONMENTAL PROVISIONS.
(a) Tenant and its successors and assigns shall use and occupy the
leased premises at all times during the term hereof, under and in compliance
with the laws of the State of Maryland and in compliance with all applicable
Environmental Legal Requirements. "Environmental Legal Requirements" shall mean
any applicable law relating to public health, safety or the environment,
including, without limitation, relating to releases, discharges or omissions to
air, water, land or groundwater, to the withdrawal or use of groundwater, to the
use and handling of polychlorinated biphenyls ("PCB's") or asbestos, or asbestos
containing products, to the disposal, treatment, storage or management of solid
or other hazardous or harmful wastes or to exposure to toxic, hazardous or other
harmful materials (collectively "Hazardous Substances") to the handling,
transportation, discharge or release of gaseous or liquid substance and any
regulation or final order or directive issues pursuant to such statue or
ordinance, in each case applicable to the premises, the building or its
operation, construction or modification, including without limitation the
following: the Clean Air Act, the Federal Water Pollution Control Act ("FWPCA"),
the Safe Drinking Water Act, the Toxic Substances Control Act, the Comprehensive
Environmental Response Compensation and Liability Act, as amended by the Solid
and Hazardous Waste Amendments of 1984 ("RCRA"), the Occupational Safety and
Health Act, the Emergency Planning and Community Right-to-Know Act of 1986, the
Solid Waste Disposal Act, and any state statutes addressing similar matters, and
any state statute providing for financial responsibility for clean-up or other
actions with respect to the release or threatened release of any of the above-
referenced substances.
(b) Tenant hereby indemnifies and saves Landlord harmless from all
liabilities and claims arising from the use, storage or placement of any
Hazardous Substances upon the premises or elsewhere within the building or
property of Landlord
35
<PAGE>
(only if and to the extent brought or placed thereon by Tenant, its agents,
employees, contractors or invitees); and Tenant shall (i) within fifteen (15)
days after written notice thereof, take or cause to be taken, at its sole
expense, such actions as may be necessary to comply with all Environmental Legal
Requirements and (ii) within fifteen (15) days after written demand therefor,
reimburse Landlord for any amounts expended by Landlord to comply with any
Environmental Legal Requirements with respect to the premises or with respect to
any other portions of Landlord's building or property as the result of, and only
if and to the extent of, the placement or storage of Hazardous Substances by
Tenant, its agents, employees, contractors or invitees, or in connection with
any judicial or administrative investigation or proceeding relating thereto,
including, without limitation, reasonable attorney's fees, fines or other
penalty payments.
(c) Tenant hereby grants Landlord, and Landlord's agents and employees
(including, but not limited to, any engineers or other parties engaged in the
testing of Hazardous Substances) the right to enter upon the premises for the
purpose of determining whether Tenant, its agents, employees, contractors or
invitees, has violated any of the provisions of this Section.
(d) Landlord represents and warrants, to the best of Landlord's
knowledge, that Landlord has not received any written notice of any violation of
any Environmental Legal Requirements with respect to the premises or project,
nor is Landlord aware of any existing violation of any Environmental Legal
Requirements with respect to the premises or the project. Further, to the best
of Landlord's knowledge, no Hazardous Substances are located in, on, under or
about the premises or the project. Landlord hereby indemnifies Tenant against,
and agrees to hold Tenant harmless from, any and all loss, cost or expense that
Tenant may incur (including reasonable attorney's fees) as a result of the
presence or existence of Hazardous Substances in, on, under or
36
<PAGE>
about the premises and/or the project that do not result from the acts or
omissions of Tenant, or Tenant's agents, employees or contractors.
38. CAPTIONS. The captions of the various sections of this Lease are for
convenience only and are not a part of this Lease. Such captions shall not be
construed to define or limit any of the provisions of this Lease.
39. (Intentionally Omitted)
40. FINAL AND ENTIRE AGREEMENT. This Lease contains the final and entire
agreement between the parties hereto, and neither they nor their agents shall be
bound by any terms, conditions or representations not herein written.
41. REPRESENTATIVES OF THE PARTIES. The name of Tenant's representative
to be contacted in event of emergency: Richard Daigle. The name of Landlord's
representative to be contacted in event of emergency: Stephen W. Shaw.
42. ADDITIONAL RENT. All sums of money required to be paid by Tenant to
Landlord pursuant to the terms of this Lease, unless otherwise specified herein,
shall be considered additional rent and shall be collectible by Landlord as
additional rent, in accordance with the terms of this Lease. Nothing herein
contained shall be deemed to suspend or delay the payment of any amount of money
or charge at the time the same becomes due and payable hereunder or to limit any
other remedy of Landlord.
43. RENEWAL OPTIONS. If Tenant is not then in default under this Lease or
any of the provisions hereof, Tenant may extend the term of this Lease for two
(2) additional successive periods of three (3) years each, by notifying Landlord
in writing of its intention to do so at least one hundred eighty (180) days
prior to the expiration of the then current term. Each such renewal term shall
be under the same terms and conditions as are herein set forth except that the
annual base rental for each year of each such renewal term shall be the greater
of (i) a sum equal to one hundred two and one-half percent (102.5%) times the
annual base rental for the preceding Lease year or
37
<PAGE>
(ii) the then "prevailing market rental" as defined in Section 45 hereof. All
said rental shall be payable, in advance, in equal monthly installments on the
first day of each month during said renewal term or terms, without setoff or
deduction. There shall be no additional right to renew or extend the Lease term
except as provided herein.
44. TERMINATION OPTION. Tenant is hereby granted a one (1) time option to
terminate this Lease at the end of the third year of the original Lease term,
provided Tenant gives Landlord one hundred eighty (180) days prior written
notice of its intent to terminate, together with a termination fee equal to
Forty-Five Thousand Two Hundred Two Dollars Fifty Cents ($45,202.50) plus the
"unamortized value" of the Landlord funded improvements above the base building
cost. Such "unamortized value" shall be equal to the total cost of the Landlord
funded improvements (above the base building cost), amortized at twelve percent
(12%) per annum from the commencement of the Lease term.
45. OPTION TO LEASE CONTIGUOUS SPACE.
(a) Landlord hereby grants Tenant the right of first offer (the
"Option") to Lease space contiguous to the premises ("Contiguous Space") under
the following terms and conditions: If Tenant advises Landlord in writing that
Tenant desires to Lease Contiguous Space, then when and as such Contiguous Space
becomes available, Landlord shall, prior to leasing any such Contiguous Space to
another tenant, give Tenant written notice ("Landlord's Notice") specifying the
Contiguous Space which Landlord contemplates leasing and offering to lease such
Contiguous Space to Tenant for the unexpired term of this Lease (including any
renewal option term) at a rental which shall be equal to the then "prevailing
market rental" of the leased premises, as hereinafter defined, and otherwise
under the same terms and conditions as are set forth in this Lease. As used
herein, the "prevailing market rental" shall be the same square foot rental
which Landlord or its affiliates is then offering to Lease similar space in
38
<PAGE>
similar buildings within the Baltimore Metropolitan Area. Tenant shall have ten
(10) business days from the date of Landlord's Notice to elect whether or not to
exercise the Option. If Tenant elects to exercise the Option, Tenant shall give
Landlord written notice exercising the Option within such ten (10) business day
period, and the parties shall promptly enter into an amendment or addendum to
this Lease with respect tot he Contiguous Space. If Tenant does not exercise
the Option within such ten (10) business day period following the Notice, Tenant
shall no longer have any option with respect to the Contiguous Space, and
Landlord shall be free to lease the Contiguous Space to a third party, which
leasing shall be on such terms and conditions as Landlord and the third party
may agree.
(b) The Option shall remain in effect only if, at the time of
Landlord's Notice, there remain at least three (3) years of the unexpired Lease
term, including any renewal term exercised by Tenant.
46. BROKERAGE COMMISSIONS. Tenant represents and warrants to Landlord
that the only broker or brokerage firm it has dealt or negotiated with in
connection with this Lease is Grubb & Ellis of Metropolitan Washington, D.C.
(the "Broker"). In the event Tenant takes possession of the premises and
commences payment of rent, Landlord agrees to pay the Broker a commission in
accordance with a separate agreement between Landlord and the Broker. Tenant
agrees to indemnify and hold Landlord harmless from any claims or liability,
including reasonable attorneys' fees, in connection with a claim by any person
for a real estate broker's commission, finder's fee or other compensation (other
than to Broker) based upon any statement, representation or agreement of Tenant,
and Landlord agrees to indemnify and hold Tenant harmless from any such claim or
liability, including reasonable attorneys' fees, based upon any statement,
representation or agreement of Landlord.
39
<PAGE>
AS WITNESS the hands and seals of the parties hereto the date and year
first above written.
WITNESS: MERRITT-038, LLC
By: (SEAL)
- ------------------------------ -------------------------------
LANDLORD
ACUMEDIA MANUFACTURERS, INC.
By: (SEAL)
- ------------------------------ -------------------------------
TENANT
40
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.V
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>NEOGEN/AMVET ASSET PURCHASE AGREEMENT
<TEXT>
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT is made on June 2, 2000 between NEOGEN
CORPORATION, a Michigan corporation whose address is 620 Lesher Place, Lansing,
Michigan 48912 ("Buyer"), J.D.T INC. d/b/a AM-VET PHARMACEUTICALS, a New York
corporation whose address is 200 Old Dock Road, Yaphank, New York 11980
("Seller"), and JOHN J. DETEMPLE, a New York resident whose address is 14
Dickerson Drive, Shoreham, New York 11786 ("DeTemple") ("Agreement").
RECITALS
A. Seller is engaged in the pharmaceutical business primarily for animals.
Seller uses the assumed name "AmVet" in the business of manufacturing and
marketing various products to improve the health and performance of animals.
Seller's business is collectively referred to as the "Business".
B. Buyer desires to purchase and Seller desires to sell, those assets of
Seller described in this Agreement upon the terms, conditions and covenants
contained in this Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF ASSETS. Based upon the representations, warranties
and agreements contained in this Agreement and subject to the terms and
conditions set forth in this Agreement, at the Closing Date, as defined in
Paragraph 4, Seller shall sell, transfer and deliver to Buyer, and Buyer shall
purchase and accept from Seller, the following assets used or employed by Seller
in the conduct of the Business (collectively referred to as the "Purchased
Assets"):
(a) MACHINERY AND EQUIPMENT. All manufacturing, laboratory, and office
machinery and equipment, furniture, fixtures, supplies, fixed assets and all
other tangible personal property used in the Business including, but not limited
to, the equipment listed on attached Exhibit 1.(a) ("Machinery and Equipment");
(b) INTANGIBLE PROPERTY. All of the intangible property of Seller used in
the Business, including, but not limited to, the following listed on attached
Exhibit 1.(b):
(1) Patents, trademarks, service marks, trade names, trade dress and
copyrights and all applications therefore;
(2) Trade secrets, secret processes, proprietary processes and technology
and secret manufacturing processes;
1
<PAGE>
(3) To the extent assignable, all permits and licenses used or employed by
Seller in the Business; and
(4) The name "AM-VET PHARMACEUTICALS" and all derivations thereof, and the
associated goodwill throughout the world, formulas, product formulations,
designs, research and development, production, sales, and credit reports, data,
models, catalogs, technical specifications, files, business and accounting
records, customer lists, supplier lists, sales literature, marketing materials,
budgets, forecasts and all other business documents and information and computer
programs which relate primarily to the Business.
Subparagraphs 1(b)(1) to (4) are collectively referred to as "Intangible
Property".
(c) ACCOUNTS RECEIVABLE. All receivables generated from sales of inventory in
the ordinary course of Seller's Business that are neither disputed nor have
invoice dates earlier than 90 days prior to the Closing, including but not
limited to, those listed on attached Exhibit 1.(c) ("Receivables");
(d) INVENTORIES. All inventories, including, but not limited to, merchandise,
materials, component parts, manufacturing supplies, work in process and finished
goods relating to the Business including, but not limited to, the inventories
listed on attached Exhibit 1.(d) ("Inventories");
(e) CONTRACT RIGHTS. All rights, benefits and causes of action in favor of
Seller resulting or arising from contracts, purchase orders, sales orders,
service agreements, commission agreements, dealership or distribution
agreements, marketing agreements, licensing agreements, warranties, guaranties
or otherwise, which relate primarily to the Business ("Contract Rights"). These
include, but are not limited to, those listed on Exhibit 1.(e).
(f) OTHER CURRENT ASSETS. All prepaid insurance, deposits, prepaid expenses
and other current assets relating to the Business including, but not limited to,
those listed on Exhibit 1.(f) ("Other Current Assets").
(g) EXCLUDED ASSETS. The Purchased Assets do not include the following: (I)
cash; and (II) the assets and the products listed on attached Exhibit 1.(g)
("Vet Research Products").
2. NON-ASSUMPTION OF LIABILITIES.
(a) GENERAL NON-ASSUMPTION OF LIABILITIES. Buyer shall not assume,
expressly or implicitly, pay, perform or discharge any debts, liabilities or
obligations of any nature of Seller, whether or not related to the Business,
other than those specifically
2
<PAGE>
listed in Exhibit 2.(a) ("Assumed Liabilities"). All the debts, liabilities and
obligations of Seller, whether fixed or contingent, accrued or unaccrued, known
or unknown shall continue to be the responsibility of Seller, which shall pay,
perform and discharge them in accordance with their terms, and nothing contained
in this Agreement shall be construed in any fashion as imposing, directly or
indirectly, responsibility for any such debt, liability and obligation on Buyer
except the Assumed Liabilities.
(b) PRODUCT LIABILITIES; WARRANTY CLAIMS. Without limiting the generality
of Subparagraph 2(a), Buyer shall not assume, nor be liable whatsoever for,
liabilities, obligations or claims for losses, damages, liabilities, costs or
expenses exceeding Five Hundred Dollars ($500) per claim and Two Thousand
Dollars ($2,000) in the aggregate based upon, or arising out of, any claim
alleging defect or negligence in the assembly, processing, manufacture or sale
of products, goods or services by Seller in connection with the Business on or
prior to the Closing Date, including, but not limited to, negligence, product
liability, whether based on contract or tort, or warranty claims regarding such
products, goods or services arising out of transactions, accidents or events on,
prior to, or after the Closing Date, and regardless of any claim was filed or
made known to the Seller or Buyer prior to the Closing Date ("Product Claims").
(c) ADDITIONAL LIABILITIES. Notwithstanding the provisions of Subparagraph
2(a) to the contrary, and as an express exception thereto, Buyer shall assume,
perform and discharge Seller's liability, existing as of the Closing Date, with
respect to all duties and obligations of Seller with respect to the distribution
and sales agreements listed in Exhibit 1.(e), the assumption of which Buyer
expressly and separately acknowledges to Seller on the Closing Date ("Sales
Agreement Liabilities").
(d) ASSETS FREE OF LIENS. The Purchased Assets shall be transferred by
Seller to Buyer free and clear of any and all claims, liens, mortgages, security
interests, encumbrances, charges or other restrictions of title or ownership,
except as otherwise specifically provided in this Agreement.
3. PURCHASE PRICE AND METHOD OF PAYMENTS. The purchase price to be paid by
Buyer to Seller for the Purchased Assets shall be computed and paid as provided
in this Paragraph 3.
(a) Buyer shall pay Seller an initial payment of Three Million One Hundred
Thousand Dollars ($3,100,000), of which Buyer has already paid $100,000
("Remaining Cash Payment"). The Remaining Cash Payment shall be paid in cash at
Closing. Buyer shall pay Seller Three Hundred Thousand Dollars ($300,000) on the
terms and conditions contained in Paragraph 3.(k).
(b) Buyer shall pay an additional cash payment at Closing equal to the
excess of the sum of (I) Receivables, determined in accordance with generally
accepted accounting principles ("GAAP"), as of the close of business the day
before the Closing
3
<PAGE>
Date ("Closing Receivables"); and (II) Inventories, determined in accordance
with paragraph 5.(h), as of the close of business the day before the Closing
Date ("Closing Inventories"), over Seven Hundred Twenty Five Thousand Dollars
($725,000) ("Target Closing Amount"). If Target Closing Amount exceeds the sum
of the (I) Closing Receivables; and (II) Closing Inventories ("Target Deficit"),
the Remaining Cash Payment at Closing to be paid by Buyer shall be reduced by
the amount of the Target Deficit.
(c) The purchase price to be paid by Buyer shall be reduced by the
aggregate dollar amount of all Receivables that are not collected by Buyer
within 90 days following the Closing Date ("Uncollected Receivables"). Buyer
shall use its best efforts (which shall not include an obligation to commence
collection litigation) to collect the Receivables. Payments shall be applied to
the oldest invoice first, unless the customer otherwise indicates. All
Uncollected Receivables shall be reassigned to Seller and their value shall be
deducted from any future purchase price payments owed to Seller by Buyer;
provided if no future purchase price payments are owed to Seller by Buyer, then
Seller shall pay Buyer the amount of Uncollected Receivables within 10 business
days ("Receivables Payment") (plus interest at eight percent (8%) if the
Receivables Payment is not paid timely).
(d) If Buyer's Net Sales from Business Products (as defined in Paragraph
3.(g) for the one year period immediately following the Closing Date exceed Four
Million Dollars ($4,000,000) (the excess is referred to as the "Excess One Year
Sales"), then Buyer shall pay Seller Two Hundred Thousand Dollars ($200,000) in
Buyer's common stock, determined by dividing $200,000 by the average publicly-
quoted "closing" price of Buyer's common stock, as published in the Wall Street
Journal, rounded to the nearest whole share, for the 20 trading days preceding
the date that is 3 business days prior to the Closing Date ("Earnout Shares"),
which the parties agree is $6.1752 per share. The Earnout Shares shall be
delivered to Seller within 30 days following the first anniversary of the
Closing Date.
(e) Buyer shall pay Seller 15% of the Excess One Year Sales, up to a
maximum additional payment of Three Hundred Thousand Dollars ($300,000)
("Earnout Cash Portion"). Buyer shall pay Seller the Earnout Cash Portion in
cash within 30 days following the first anniversary of the Closing Date.
(f) Buyer shall issue Seller a warrant to purchase up to Ten Thousand
(10,000) shares of Buyer's common stock pursuant to the terms and conditions of
the Warrant contained in attached Exhibit 3.(f). ("Warrant"). Buyer's shares of
common stock issued pursuant to the exercise of the Warrant are referred to as
the "Warrant Shares".
(g) The term "Net Sales" shall mean the total of the aggregate gross
invoice prices of products of Buyer less the sum of (i) cash, trade or quantity
discounts; (ii)
4
<PAGE>
sales, use, tariff, import/export duties or other excise taxes imposed upon
particular sales; (iii) transportation charges; and (iv) allowances or credits
to customers because of rejections or returns. The term "Business Products"
shall mean the sum of (A) Net Sales of Seller's products listed on attached
Exhibit 5.(n)-2 for which Buyer has no comparable product; (B) Net Sales of
Seller's products listed on attached Exhibit 5.(n)-2 for which Buyer has a
comparable product ("Buyer Comparable Products") in excess of Buyer's Net Sales
from Seller's comparable products for the twelve months ended May 31, 2000; and
(C) Net Sales of Buyer's Comparable Products in excess of Net Sales of Buyer's
Comparable Products for the twelve months ended May 31, 2000. The Buyer
Comparable Products are listed on attached Exhibit 3.(g). Buyer and Seller agree
that the term "Business Products" does not include any Net Sales attributable to
any products that Buyer or its subsidiaries acquire in the future.
(h) An amount equal to One Hundred Thousand Dollars ($100,000) of the
Remaining Cash Payment shall be assigned to a Covenant Not To Compete from
Seller and DeTemple pursuant to Paragraph 23. An amount equal to twenty Thousand
Dollars ($20,000) of the Remaining Cash Payment shall be assigned to a Covenant
Not To Compete from Lisa Peterson pursuant to Paragraph 25(b).
(i) The purchase price to be paid by Buyer shall be allocated in the
manner required by Section 1060 of the Internal Revenue Code of 1986, as amended
("Code"), and the Treasury Regulations promulgated thereunder. In making the
allocation, Buyer and Seller shall apply the fair market values set forth on the
Certificate of Allocation substantially in the form of attached Exhibit 3.(i)
This allocation shall be conclusive and binding on the Buyer and Seller for all
purposes, including the reporting and disclosure requirements of the Code.
(j) Buyer agrees to maintain books and records to permit the calculation
of the amounts due Seller pursuant to this Paragraph. Also, Buyer agrees to use
its best efforts and sound business judgment to generate Net Sales. Seller shall
have the right, at its sole cost and expense, to review Buyer's books and
records regarding the determination of Net Sales. If it is determined that Buyer
has underpaid Seller, then Buyer shall promptly pay the unpaid amount to Seller
plus interest at eight percent (8%).
(k) Buyer agrees to pay Seller an additional Three Hundred Thousand
Dollars ($300,000) if and only if Seller provides Buyer with all of the items
required by attached Exhibit 3.(k) on or before the 6th month anniversary of the
Closing Date.
4. THE CLOSING. The parties agree that the effective date of the
completion of the transaction shall be as of the close of business on the 1st
day of June, 2000. The closing of the purchase and sale provided for in this
Agreement shall be held at the offices of Buyer, or at such other place as may
be fixed by mutual agreement of Buyer and Seller, within 10 days of the date of
execution of this Agreement by Seller. The
5
<PAGE>
date and event of closing are respectively referred to in this Agreement as the
"Closing Date" and "Closing." At the Closing:
(a) Seller shall deliver to Buyer a Warranty Bill of Sale, substantially
in the form of attached Exhibit 4.(a)-1, for the Purchased Assets ("Warranty
Bill of Sale"), Assignment and Assumption of Contracts, substantially in the
form of Exhibit 4.(a)-2 ("Assignment Agreement"), and the certificates, opinions
and other matters required by Paragraph 7; and
(b) Buyer shall deliver to Seller the Remaining Cash Portion and the
certificates, opinions and other matters required by Paragraph 8.
5. REPRESENTATIONS AND WARRANTIES OF SELLER AND DETEMPLE. In order to
induce Buyer to enter into this Agreement, Seller and DeTemple, jointly and
severally, make the following representations and warranties, each of which
shall be deemed to be independently material and relied upon by Buyer,
regardless of any investigation made by, or information known to, Buyer:
(a) ORGANIZATION AND QUALIFICATION. Seller is validly existing and in good
standing under the laws of the State of New York. No failure on the part of
Seller to be qualified as a foreign corporation in any jurisdiction materially
and adversely affects the Business or financial position or results of the
operation of the properties of Seller by reason of any disability affecting its
right to own property, collect receivables, enforce contracts or otherwise.
Seller has the requisite corporate power and authority to own or hold under
lease or similar agreement all of the Purchased Assets and to carry on the
Business as it is now being conducted.
(b) NO VIOLATION. Except as disclosed in Exhibit 5.(b), the execution and
delivery of this Agreement by Seller and the consummation of the transactions
contemplated by it will not violate any provision of law, order, or regulation
of any governmental authority, the corporate charter or by-laws of Seller or
constitute a default under any judgment, order or decree of any court of
governmental agency or instrumentality, or conflict or constitute a breach or a
default under any agreement to which the Seller is a party or by which it is
bound.
(c) FINANCIAL INFORMATION. Seller has provided in Exhibit 5.(c) its (i)
unaudited balance sheet and statements of income as of and for the period ended
December 31, 1999 ("Unaudited Financial Statements"); and (ii) interim financial
statements for the periods ending April 30, 2000 ("Interim Financial
Statements") (collectively, "Financial Statements"). The Financial Statements:
(1) Have been prepared in accordance with the books of account and
records of Seller.
6
<PAGE>
(2) Fairly present and are true, complete and correct statements of
Seller's financial position, the results of its operation, stockholder's equity
and cash flows of Seller as of and for the periods specified in the Financial
Statements.
(3) Have been prepared in accordance with GAAP consistently applied.
(4) Do not include or omit to state any fact that renders them
misleading.
(5) Make full and adequate disclosure of all Seller's obligations and
liabilities (fixed or contingent, known or unknown).
(6) Do not contain any items of special or non-recurring income except
as expressly stated in the Financial Statements.
(d) TITLE TO ASSETS. Seller owns and has corporate power to own, and has
good and marketable title to all of the Purchased Assets free and clear of
liens, security interests, mortgages, pledges, claims or encumbrances of any
kind whatsoever, except as shown in Exhibit 5.(d).i. Seller has delivered to
Buyer true and complete copies of all leases, contracts, agreements, options,
purchase orders, instruments, and commitments relating to the Purchased Assets
or the Business, whether written or oral, binding or non-binding, as evidenced
in Exhibit 5.(d).ii (collectively, "Contracts"). All Contracts are legally valid
and binding and in full force and effect, and there are no defaults or breaches
by Seller or counterclaims or defenses against it. Seller has received no notice
of any default, breach, counterclaim or offset by any other party to any of the
Contracts, nor does Seller or DeTemple have any knowledge thereof. All Contracts
will continue in full force and effect on the same terms as currently exist,
notwithstanding the consummation of the sale contemplated by this Agreement.
(e) CONDITION OF ASSETS. All Purchased Assets utilized in the Business
conform in all material respects with all applicable building, zoning,
environmental, health and safety rules and other rules and regulations. All of
the Purchased Assets utilized in the Business, including all their components
and parts, are ready for operation, and, taking into account their ages, are in
normal operating condition and good order and repair. There are no conditions or
events, except for normal wear and tear and the age of the Purchased Assets,
which would prevent the continued normal operation of the Purchased Assets or
would otherwise materially and adversely affect their operation or use by Buyer
after the Closing as currently used by Seller.
(f) INTELLECTUAL PROPERTY. Seller owns, or is licensed to use, or otherwise
has the right to use all patents, trademarks, service marks, trade names, trade
secrets, franchises, and copyrights, and all applications for any of the
foregoing, and all technology, know-how and processes necessary for the conduct
of the Business as now
7
<PAGE>
conducted (collectively, "Proprietary Rights"). With respect to Seller's
Proprietary Rights:
(1) All license arrangements relating in any manner to any of the
Proprietary Rights (whether or not in writing) are set forth on Exhibit
5.(f)(1). Except as disclosed in Exhibit 5.(f)(1), Seller is in compliance with
and is not in default under any of such license agreements, and all other
parties to any of such license agreements are in full compliance with and are
not in default under any of the license agreements.
(2) Exhibit 5.(f)(2) sets forth a complete list of all patents,
trademarks, service marks, and copyrights used by Seller in the conduct of the
Business that are currently registered in any jurisdiction, and Seller has good
and marketable title to all such assets free and clear of all liens, charges and
encumbrances (except for such license agreements listed in Exhibit 5.(f)(1) and
all filing or maintenance fees that are required to maintain such registrations
that are due and payable as of the date of this Agreement have been paid and all
associated maintenance filings have been made.
(3) Exhibit 5.(f)(3) sets forth a complete list of all unregistered
trademarks, service marks, and trade names used by Seller in the conduct of the
Business, and Seller has good and marketable title to all such assets free and
clear of all liens, charges and encumbrances (except for such license agreements
listed in Exhibit 5.(f)(1)).
(4) For each trademark, service mark, copyright or trade name listed
in Exhibit 5.(f)(2) and 5.(f)(3), Exhibit 5.(f)4) sets forth the dates of first
use and the geographic territory of use for each trademark, service mark, or
trade name, and Seller represent that such marks and trade names have been in
continuous use in their respective territories since the listed dates of first
use;
(5) Exhibit 5.(f)(5) sets forth a complete list of all software that
the Seller has had written or developed by any person or entity not an employee
of Seller, lists the current owner of the copyright interest in such software,
and if Seller is the current owner, lists the date of the written assignment of
the copyright interest to Seller;
(6) Seller, except as disclosed in Exhibit 5.(f)(6), has not
infringed, misappropriated, or otherwise used in an unauthorized manner the
proprietary rights (including but not limited to the patent, trade secret,
trademark, trade dress, or copyright rights) of any third party.
(7) Seller has not granted or committed to grant any rights in
Seller's Proprietary Rights of any nature whatsoever to any third party except
as disclosed in Exhibit 5.(f)(7);
(8) Except as disclosed in Exhibit 5.(f)(8), no claim has been
asserted by any person or entity (i) to the effect that any action by Seller
infringes on the
8
<PAGE>
intangible or intellectual property rights of any other person or entity; or
(ii) that challenges or questions the right of Seller to usan any of the
Proprietary Rights being used by it; or (iii) which asserts the right of any
third party to use such Proprietary Rights.
(9) Except as disclosed on Exhibit 5.(f)(9), there is no basis for any
claim against Seller that any of its operations, activities, products, or
publications infringes on any patent, trademark, service mark, trade name,
copyright, or other proprietary right of a third party, or that it is illegally
or in any unauthorized manner using the trade secrets or any proprietary rights
of others.
(10) Seller has not any knowledge that any other person or entity is
infringing upon or has misappropriated any of Seller's Proprietary Rights.
(11) Buyer will be able to federally register the "Am-Vet" trademark
without opposition by any third party based upon any grounds occurring between
March 22, 1988 and September 23, 1996.
(g) RECEIVABLES. The list of Receivables attached as Exhibit 1.(c) is a
complete and accurate list of all the Receivables as of May 31, 2000. All of the
Receivables listed on Exhibit 1.c arose from bona fide sales transactions of
Seller, and no portion of the Receivables is subject to counterclaim or offset
or is otherwise in dispute. All of the Receivables are good and collectible in
full in the ordinary course of business at the net aggregate amounts disclosed
on Exhibit 1.(c).
(h) INVENTORIES. The inventories reflected on the Financial Statements and
the Inventories are accurately and consistently valued at the last invoice
amount for (i) raw materials; and (ii) material content, cost of packaging,
components and labels for finished goods, plus, for finished goods, the costs of
conversion, all of which approximates the first-in, first-out method of
accounting for inventories in accordance with GAAP. The inventory of Seller will
have an aggregate value at least equal to that shown on Exhibit 1.(d) as of the
Closing Date. The Inventories, in the aggregate, are usable and saleable in the
ordinary course of the Business within 90 days following the Closing and contain
no slow-moving or obsolete items. No Inventories have been consigned to others.
(i) CONTRACTS. Exhibit 5.(d).ii describes all Contract Rights and
Contracts to which Seller is a party or to which it is bound and which arose out
of, or relate to, the Purchased Assets or the Business that extend beyond the
Closing Date. Seller has delivered true and correct copies of all such documents
evidencing the Contract Rights and Contracts to Buyer. If Buyer assumes such
Contract Rights or Contracts, the benefits thereof may be assigned to Buyer and
Buyer shall be vested with Seller's rights thereunder notwithstanding the
consummation of the transactions contemplated by this Agreement, except as
described on Exhibit 5.(d).i.
9
<PAGE>
(j) LITIGATION. Except as disclosed in Exhibit 5.(j), there are no
actions, suits, proceedings or investigations pending or threatened against
Seller at law or in equity, or before any federal, state or municipal or other
governmental department, commission, board, agency or instrumentality, domestic
or foreign, which involves a demand for any judgment or liability and which
could materially affect the Business, the Purchased Assets or the transactions
contemplated by this Agreement. Seller is not in default with respect to any
order, writ, injunction or decree of any court of federal, state, or municipal
or other governmental department, commission, board, agency or instrumentality,
domestic or foreign, and that there are no such orders, decrees, injunctions or
regulations issued specifically against Seller which may affect, limit or
control the method or manner of the Business, the Purchased Assets or any
transactions contemplated by this Agreement.
(k) COMPLIANCE WITH LAW. Seller has complied with all applicable laws,
orders and regulations of any federal, state or municipal or other governmental
department, commission, board, agency or instrumentality, domestic or foreign,
having jurisdiction, including, but not limited to, laws, orders and regulations
thereof relating to antitrust, wage, hours, collective bargaining, environmental
protection, employee safety, or legislation pertaining to illegal bribes or
kickbacks.
(l) PAYMENT OF TAXES. Other than those taxes specifically listed in Exhibit
5.(l), Seller has timely filed all required declarations, returns, and reports
with foreign, federal, state and local taxing authorities ("Returns"). All
taxes, interest and penalties owed (whether or not shown on the Returns) have
been paid. There is no tax audit or examination now pending or threatened with
respect to the Business. As of the Closing date, Seller did not have any
liability for taxes of any sort other than taxes for which full provision has
been made in the Interim Financial Statements. True, accurate and complete
copies of Seller's 1998 - 1999 U.S. and New York Corporate Income Tax Returns
have been provided to Buyer.
(m) NO ADVERSE CHANGES. Since December 31, 1999, except as disclosed in
Interim Financial Statements, there has been no material adverse change in the
condition, financial or otherwise, of the Seller or the Purchased Assets or in
the Business other than changes (not in the aggregate adverse) occurring in the
ordinary course of business.
(n) WARRANTIES AND PRODUCT LIABILITY. Seller has previously delivered to
Buyer true, correct and complete copies of all outstanding standard product
warranties and guaranties given by Seller with respect to the Business and true,
correct and compete copies of all other product warranties and guaranties now in
effect with respect to products manufactured or sold by Seller concerning the
Business. Except as fully described in Exhibit 5.(n)-1, there are no pending
claims or actions against the Seller for breach of warranty or based upon
product liability (whether based on tort or contract
10
<PAGE>
principles) and, to the best of Seller's knowledge, no such claims or actions
are threatened. There are no defects in craftsmanship, design or engineering
with respect to any product now or previously sold or manufactured by Seller in
the Business which may constitute the basis for any such claim against Seller or
Buyer. All of Seller's products being sold to Buyer as part of the Purchased
Assets are listed in attached Exhibit 5.(n)-2. The only products not being sold
to Buyer as part of the Purchased Assets are those listed in Exhibit 1.(g).
(o) CONTINGENT AND UNDISCLOSED LIABILITIES. Seller has no debts,
obligations or liabilities, whether known or unknown, fixed or contingent, of
any nature whatsoever, relating to the Business or the Purchased Assets not
disclosed in writing to Buyer and Seller knows of no basis for any assertion of
any claim against the Seller or Buyer for any liability relating to the Business
or Purchased Assets except those disclosed in Exhibit 5.(o).
(p) PERFORMANCE OF CONTRACTS. Except as disclosed in Exhibit 5.(p), Seller
is not in default, nor has it breached any provision of, any contract,
agreement, lease, obligation, license or permit (including the Contracts and the
Contract Rights) with regard to all agreements relating to the Business to which
it is a party or by which it is bound. Except as disclosed in Exhibit 5.(p),
Seller has fully performed each material term, condition and covenant of each
such contract, agreement, lease, obligation, license or permit required to be
performed on or prior to the date of this Agreement (including the Contract
Rights and the Contracts). Except as disclosed in Exhibit 5.(p), Seller knows of
no state of facts which, with or without the giving of notice or the passage of
time, or both, would give rise to any default or revocation. Except as disclosed
in Exhibit 5.(p), Seller is neither subject to any penalty, discount or
liquidated damages due to the delayed delivery of products, goods or services of
the Business, nor has it received any notice that any of the Business's customer
relations are in jeopardy because of such late deliveries or otherwise.
(q) EVENTS SUBSEQUENT TO DECEMBER 31, 1999. Except as disclosed in Exhibit
5.(q), Seller has not, since December 31, 1999:
(1) INCURRED LIABILITIES. Incurred any obligation or liability (absolute,
contingent, accrued or otherwise) or guaranteed or become a surety of any debt,
except in connection with the performance of this Agreement or in the ordinary
course of business;
(2) DISCHARGED DEBT. Discharged or satisfied any lien or encumbrance,
pertaining to the Purchased Assets or the Business, or paid or satisfied any
obligation or liability (absolute, contingent, accrued or otherwise) other than
(i) liabilities shown on Seller's accounting records on December 31, 1999 or
(ii) liabilities incurred since December 31, 1999 in the ordinary course of
business;
11
<PAGE>
(3) ENCUMBRANCES. Mortgaged, pledged or subjected to any lien, charge,
security interest or other encumbrance any of the Purchased Assets;
(4) DISPOSITION OF ASSETS. Sold or transferred any of the Purchased Assets,
or canceled any debts or claims or waived any rights, except in the ordinary
course of business;
(5) SALE OF BUSINESS. Entered into any contract for the sale of the
Business or the Purchased Assets, or any part thereof, or for the purchase of
another business, whether by merger, consolidation, exchange of capital stock or
otherwise (other than negotiations with respect to this Agreement);
(6) ACCOUNTING PROCEDURE. Changed or modified the accounting methods or
practices relating to the Business; or
(7) CAPITAL EXPENDITURE. Purchased or made a commitment for the purchase of
capital assets for use or employment in the Business.
(r) CUSTOMER RELATIONS. Seller knows of no state of facts, nor have any
communications been made to it, which would indicate that (i) any current
customer of Seller which accounted for more than 5% of Seller's sales relative
to the Business for the most recent fiscal year ending, or (ii) any current
supplier of Seller (if such supplier could not be replaced by Seller at
comparable cost), will terminate its business relations with Seller.
(s) BROKERAGE. Seller has made no commitments for a brokerage fee in
connection with the transactions contemplated by this Agreement.
(t) BOOKS AND RECORDS. The books and accounts of Seller relating to the
Business are true, complete and correct in all material respects and fully and
fairly reflect all of the transactions entered into by or on behalf of Seller to
which it is a party or by which it is affected.
(u) USE OF CLOSING PROCEEDS. Seller shall apply the proceeds to be received
at Closing first toward any unpaid taxes that are presently due and payable and
then to the taxes generated from this transaction.
(v) BINDING EFFECT. The Agreement and all related documents have been duly
executed, made and delivered by Seller and DeTemple, as appropriate, and
constitute legal, valid and binding obligation of Seller and DeTemple, as
appropriate, enforceable against them, as appropriate, in accordance with their
respective terms, subject to the laws of general application affecting
creditors' rights.
12
<PAGE>
(w) AUTHORIZATION. The execution and delivery of this Agreement and the
transactions contemplated by this Agreement have been duly authorized by the
Board of Directors of Seller and on the Closing Date all of the necessary
corporate action to authorize the execution and delivery of this Agreement will
have been taken. DeTemple has the authority to enter into this Agreement.
(x) EMPLOYEE RELATIONS. Exhibit 5.(x) sets forth a list of all of the
officers, employees and agents of Seller and, for each individual, indicates his
or her position, salary or wage rate and respective fringe benefits and any
other remuneration paid or payable. Except as disclosed on Exhibit 5.(x):
(1) There is not now in existence or pending, nor has there been within
the last three years, any grievance, arbitration, administrative hearing, claim
of unfair labor practice, wrongful discharge, employment discrimination or
sexual harassment or other employment dispute of any nature pending or, to the
best of Seller's knowledge, threatened against Seller.
(2) Seller is, and during all applicable limitation periods has been, in
material compliance with all applicable Federal, state, local or foreign laws,
executive orders and regulations respecting employment and employment practice,
terms and conditions of employment, occupational safety, wages and hours and
there is no existing but unasserted claim for violation of any such laws,
executive orders or regulations nor, to the best of Seller's knowledge, is there
any factual basis upon which such a claim could be asserted.
(3) Seller has no collective bargaining agreements and is not a party to
any written or oral, express or implied, other contract, agreement or
arrangement with any labor union or any other similar arrangement that is not
terminable at will by Seller without cost, liability or penalty.
(4) Seller is not a party to any written or oral contract, agreement or
arrangement with any of its present or former directors, officers, employees or
agents with respect to length, duration or conditions of employment (or the
termination thereof), salaries, bonuses, percentage compensation, deferred
compensation or any other form of remuneration, or with respect to any matter
not disclosed on Exhibit 5.(x)(4).
(5) There is no pending claim or, to the best of Seller's knowledge,
threatened or existing but unasserted claim, against Seller for violation of any
contract, agreement or arrangement described in Exhibit 5.(x)(4), nor to the
best of Seller's knowledge, is there any factual basis upon which such a claim
could be asserted.
(6) Upon termination of the employment of any of the Seller's employees
by Seller, Buyer shall not incur any liability for severance or termination pay
or any other obligation to Seller's employees.
13
<PAGE>
(y) EMPLOYEE BENEFIT PLANS.
(1) Exhibit 5.(y) sets forth all "employee pension benefit plans",
"employee welfare benefit plans" and "multi-employer plans" within the
respective meanings of Sections 3(1) and 3(2() and 3(37) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), all incentive
compensation plans, benefit plans for retired employees and all other employee
benefit plans maintained by Seller, or to which Seller has made payments or
contributions on behalf of its employees since 1974, including, without
limitation, all plans or contracts providing for bonuses, pensions, profit-
sharing, stock options, stock purchase rights, deferred compensation, insurance
and retirement benefits of any nature, whether formal or informal and whether
legally binding or not (each such plan is referred to individually as a "Plan",
collectively as the Plans").
(2) Except for any multi-employer plans, all Plans covered by the Code
and ERISA are, and during all applicable limitation periods have been, in
compliance with the Code and ERISA, and all retirement or pension Plans and
welfare benefit plans are qualified plans under the Code and each Plan is in
compliance with the applicable provisions of the Code.
(3) There has been no transaction in connection with which Seller or any
of its directors, agents, officers, or employees could be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code or any similar provision of foreign law.
(4) No Plan that is a qualified plan under Section 401(a) of the Code
and no trust created thereunder has been terminated, partially terminated,
curtailed, discontinued or merged into another plan or trust, except in
compliance with notice and disclosure to the Internal Revenue Service ("IRS"),
the Department of Labor and the Pension Benefit Guaranty Corporation ("PBGC");
and any such termination, partial termination, curtailment, discontinuance or
merger has been accompanied by the issuance of a current favorable determination
letter by the IRS and, where applicable, has been accompanied by plan
termination proceedings with and through the PBGC.
(5) There are no payments that have become due from any Plan, the trusts
created thereunder, or from Seller which have not been paid through normal
administrative procedures to the Plan participants or beneficiaries entitled
thereto.
(6) Seller has made full and timely payment of all required and
discretionary contributions to the Plans, and no unfunded liability exists with
respect to any Plan.
(7) There has been no "reportable event" as defined in Section 4043 of
ERISA with respect to any Plan or any trust created thereunder.
14
<PAGE>
(8) None of the Plans is a "defined benefit plan" within the meaning of
Section 3(35) of ERISA and none is subject to Title IV of ERISA.
(9) Neither Seller nor any of its directors, officers, employees, or
agents have any outstanding liabilities of any nature to the PBGC, the IRS, or
the Department of Labor in any way relating to the Plans, and all annual returns
required to be filed with respect to the Plans have been timely filed.
(10) Seller is not a party to or otherwise subject to any express or
implied agreement or plan to provide health coverage or other benefits to
retired or current employees except as set forth in Exhibit 5.(y).
(11) Seller is not a party to or otherwise subject to any express or
implied agreement or plan to provide any employee benefits, wages, deferred
compensation, or any other form of benefit or remuneration beyond the date of
Closing (other than the simplified employee pension plan contribution to be made
on behalf of DeTemple, for which Seller shall be solely responsible).
(12) With respect to all of its employees, former employees and qualified
beneficiaries as of the Closing Date, Seller has or will comply with all
applicable health care continuation requirements under the Code, ERISA and
current and proposed Federal Regulations. Accordingly, Seller will be
responsible for providing continuation coverage to any employees of Seller that
elect continuation coverage. Seller represents that Buyer will not be
responsible for providing continuation coverage to any of Seller's employees.
Seller agrees to use its best efforts expeditiously to provide Buyer with all
information that Buyer deems necessary to determine whether there have been any
failures to comply with the continuation health care requirements of section
162(k)/4980B of the Code and sections 601 through 609 of ERISA as such
requirements have applied to any group health plan maintained by or for Seller
which failure occurred with respect to any current or former employee of Seller
or any spouse, former spouse, dependent child, or former dependent child of any
such employee, on or prior to the Closing Date. Seller further agrees to use its
best efforts expeditiously to provide to Buyer all information that Buyer deems
necessary to correct any failures to comply with such continuation health care
coverage requirements. Such information shall include, without limitation, the
identification of all covered employees (as defined in section
162(k)(7)(B)/4980B(f)(7) of the Code) and their qualified beneficiaries (as
defined in section 162(k)(7)(B)/4980B(g)(1) of the Code), the identification of
all qualifying events with respect to such covered employees or qualified
beneficiaries (as defined in section 162(k)(3)/4980B(f)(3) of the Code, and
information otherwise demonstrating compliance with all of the continuation
health care coverage requirements of section 162(k)/4980B of the Code and
sections 601 through 608 of ERISA. For purposes of this provision, references to
the Code and ERISA shall include
15
<PAGE>
references to any provisions of such statutes as they may be amended from time
to time.
(z) ENVIRONMENTAL MATTERS. Except as disclosed on Exhibit 5.(z):
(1) Seller has never conducted or operated any business from any
location other than the Premises.
(2) Seller and the Premises comply with all applicable Environmental
Laws.
(3) No Hazardous Substances have been or are currently generated,
stored, transported, utilized, disposed of, managed, released or located on,
under or from the Premises or any other parcel of real estate (collectively,
"Seller Properties") (whether or not in reportable quantities) by Seller or its
agents or invitees, or in any manner introduced onto Seller Properties by Seller
or its agents or invitees, including, without limitation, the septic, sewage or
other waste disposal systems serving the Premises and all Hazardous Substances
disclosed on Exhibit 5.z have been generated, stored, transported, utilized,
disposed of, managed, released or located on, under or from the Seller
Properties only in accordance with all applicable Environmental Laws.
(4) Seller has no knowledge of any threat of Release of any Hazardous
Substances on, under or from the Premises. There is no threat of Release of any
Hazardous Substances which Seller or any of its agents or invitees generated,
stored, transported, utilized, disposed of, managed or owned.
(5) Seller has no liability for response or corrective action, natural
resource damage, or other harm pursuant to any Environmental Laws; Seller is not
subject to, has no notice or knowledge of, and is not required to give any
notice of any Environmental Claim involving Seller or the Seller Properties;
there are no conditions or occurrences at the Seller Properties which could form
the basis for an Environmental Claim against the Seller.
(6) Seller has not received any notice from the United States
Environmental Protection Agency or any other Governmental Authority claiming
that (i) the Seller Properties or any use thereof violates any of the
Environmental Laws, or (ii) Seller or any of its employees or agents have
violated any of the Environmental Laws.
(7) Seller has not incurred any liability to the State of New York, the
United States of America or any other Governmental Authority under any of the
Environmental Laws.
(8) The Seller Properties are not subject to any, and neither Seller nor
DeTemple has any knowledge of any imminent, restriction on the ownership,
16
<PAGE>
occupancy, use, or transferability of the Premises in connection with any (i)
Environmental Laws or (ii) Release, threatened Release, or disposal of Hazardous
Substances.
(9) The Premises do not contain and have not contained any: (i)
underground storage tanks, (ii) any amount of asbestos-containing building
material, (iii) any landfills or dumps, (iv) Hazardous Substances resulting in
its classification as a hazardous waste management facility as defined pursuant
to RCRA or any comparable state law, or (v) Hazardous Substances resulting in
its classification as a site on or nominated for the National Priority List
promulgated pursuant to CERCLA or any state remedial priority list promulgated
or published pursuant to any comparable state law.
(10) There are no Environmental Enforcement Actions pending or, to the
best of Seller's knowledge, threatened.
(11) There are no conditions or circumstances at or migrating from the
Premises which pose a risk to the environment or the health or safety of
persons.
(12) There are no environmental reports, investigations and audits
relating to the Seller Properties (whether conducted by or on behalf of Seller,
DeTemple or a third party, and whether done at the initiative of Seller or
DeTemple or directed by a governmental or other third party) (collectively,
"Reports"). A true, complete and accurate copy of each of the Reports has been
provided to Buyer.
(13) The following definitions apply to this paragraph.
(A) "CERCLA" shall mean the Comprehensive Environmental Response
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorizations Act of 1986, 42 USC 9601 et seq., and future amendments;
(B) "Environmental Claim" shall mean any investigation, notice,
violation, demand, allegation, action, suit, injunction, judgment, order,
consent decree, penalty, fine, lien, proceeding, or claim (whether
administrative, judicial, or private in nature) arising (A) pursuant to, or in
connection with, an actual or alleged violation of, any Environmental Laws, (B)
in connection with any Hazardous Substances, (C) from any abatement, removal,
remedial, corrective, or other response action in connection with Hazardous
Substances, Environmental Laws or other order of a Governmental Authority or (D)
from any actual alleged damage, injury, threat, or harm to health, safety,
natural resources, or the environment;
(C) "Environmental Enforcement Actions" means actions or orders
instituted, threatened, required or completed by any Governmental Authority and
all claims made or threatened by any person against Seller with respect to the
Premises arising out of or in connection with any of the Environmental Laws or
the assessment,
17
<PAGE>
monitoring, clean-up, containment, re-mediation or removal of,or damages caused
or alleged to be caused by, any Hazardous Substances (A) located on or under the
Premises, (B) emanating from the Premises or (C) generated, stored, transported,
utilized, disposed of, managed or released by Seller on, under or from the
Premises;
(D) "Environmental Laws" means federal, state and local laws,
statutes, ordinances, rules, regulations, codes, orders, judgments, orders and
the like applicable to (A) environmental conditions on, under or emanating from
the Premises including, but not limited to, (a) laws of the State of New York;
and the associated rules and regulations promulgated in connection with any of
these laws, and (b) laws of the federal government commonly known as CERCLA,
RCRA, the Toxic Substance Control Act, as amended, the Federal Water Pollution
Control Act, as amended, and the Federal Clean Air Act; and the associated rules
and regulations promulgated in connection with any of these laws; and (B) the
generation, storage, transportation, utilization, disposal, management or
release of Hazardous Substances by Seller (whether or not on, under or from the
Premises) or Seller (on, under or from the Premises);
(E) "Governmental Authority" means agencies, authorities, bodies,
boards, commissions, courts, instrumentalities, legislatures and offices of any
nature whatsoever for any government unit or political subdivision, whether
federal, state, county, district, municipal, city or otherwise, and whether now
or later in existence;
(F) "Hazardous Substances" shall mean, collectively, (A) any
"hazardous material," "hazardous substance," "hazardous waste," "oil,"
"regulated substance," "toxic substance," "restricted hazardous waste," "special
waste" or words of similar import as defined under any of the Environmental
Laws; (B) asbestos in any form; (C) urea formaldehyde foam insulation; (D)
polychlorinated biphenyls; (E) radon gas; (F) flammable explosives; (G)
radioactive materials; (H) any chemical, contaminant, solvent, material,
pollutant or substance that may be dangerous or detrimental to the environment
or the health and safety of occupants of the Premises or of the owners or
occupants of any other real property nearby the Premises, and (I) any substance,
the generation, storage, transportation, utilization, disposal, management,
Release or location of which on, under or from the Premises is prohibited or
otherwise regulated pursuant to any of the Environmental Laws;
(G) "Premises" shall mean all locations listed on Exhibit 5.(z).
(H) "RCRA" shall mean the Solid Waste Disposal Act, as amended by
the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste
Amendments of 1984, 42 USC 6901 et seq., and any future amendments; and
18
<PAGE>
(I) "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping, or
disposing into the indoor or outdoor environment, including, without limitation,
the abandonment or discarding of barrels, drums, containers, tanks, and other
receptacles containing or previously containing any Hazardous Substances.
(aa) SHAREHOLDER LIST. Attached as Exhibit 5.(aa) is a complete and
accurate list of each shareholder of Seller and the number of shares owned by
the shareholder.
(bb) INSURANCE. Exhibit 5.(bb) lists all policies of liability, property
damage, fire, workers' compensation/employer's liability, title or other forms
of insurance owned or carried by Seller ("Policies") and insurance agents or
brokers providing such insurance coverage. Seller has received no notice from
any insurance carrier regarding the possible cancellation of or premium increase
with respect to the Policies. Seller has no claim pending or anticipated against
any of the insurance carriers under any of the Policies and there has been no
actual or alleged occurrence of any kind that may give rise to any such claim.
(cc) PURCHASE FOR INVESTMENT.
(1) Seller is acquiring the Earnout Shares, the Warrant and the Warrant
Shares for investment for its own account and not with the view to distribution
or resale.
(2) Seller is qualified by previous experience to evaluate the risks of
investing in the Earnout Shares and Warrant.
(3) Seller acknowledges that in connection with its acquisition of the
Earnout Shares and Warrant, it has had access to information concerning Buyer,
including the annual report and Form 10-K filed with the SEC for the fiscal year
ending May 31, 1999, and the Form 10-Q's filed with the SEC for the quarters
ended August 31, 1999, November 30, 1999 and February 29, 2000.
(4) Seller acknowledges that the Earnout Shares, the Warrant and the
Warrant Shares are not registered under the Securities Act of 1933, as amended
("1933 Act") or any applicable state securities acts ("State Acts").
(5) Seller agrees that it will not sell the Earnout Shares, the Warrant or
the Warrant Shares unless they are first registered or exempt from registration
under the 1933 Act and State Acts.
(dd) RULE 144.
(1) Seller acknowledges that the Earnout Shares, Warrant and Warrant Shares
must be held subject to provisions of Rule 144 promulgated under the 1933 Act
19
<PAGE>
which permits limited resale of stock purchased in a private placement subject
to the satisfaction of certain conditions.
(2) Seller acknowledges that the stock certificates to be issued to Seller
will bear a restrictive legend as follows:
"These securities have not been registered under the Securities Act of
1933, as amended, or under any state securities act. These securities may
not be sold, assigned or transferred unless there is an effective
registration statement covering the shares under the Securities Act of
1933, as amended, and all applicable state securities acts, or the
corporation has received satisfactory evidence that the transaction is
exempt from registration under all applicable securities laws."
(ee) REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The representations
and warranties contained herein, and all statements or information disclosed by
any of the Exhibits, do not include any untrue statement or material fact nor
omit to state a material fact required to be stated herein or therein or
necessary in order to make the statements herein or therein, in light of the
circumstances under which they are made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF BUYER. In order to induce Seller and
DeTemple to enter into this Agreement, Buyer makes the following representations
and warranties, each of which shall be deemed to be independent materially and
relied upon by Seller and DeTemple, regardless of any investigation made by, or
information known to, Seller:
(a) ORGANIZATION. Buyer is, and on the Closing Date shall be, a
corporation validly existing and in good standing under the laws of the State of
Michigan.
(b) AUTHORIZATION. The execution and delivery of this Agreement and the
transactions contemplated by it have been duly authorized by the Board of
Directors of Buyer and on the Closing Date all of the necessary corporate action
to authorize the execution and delivery of this Agreement will have been taken.
(c) NO VIOLATION. The execution and delivery of this Agreement by the
Buyer and the consummation of the transactions contemplated by it will not
violate any law, order or regulation of any governmental authority, or corporate
charter or bylaws of Buyer or constitute a default under any judgment, order or
decree of any court or governmental agency or instrumentality, or conflict with
or constitute a breach or default under any agreement to which Buyer is a party
or by which it is bound.
(d) BROKERAGE. Buyer has not made a commitment for a brokerage, finders or
similar fees in connection with the transactions contemplated by this Agreement.
20
<PAGE>
(e) BINDING EFFECT. The Agreement and all related documents have been duly
executed, made and delivered by Buyer and constitute legal, valid and binding
obligations of Buyer enforceable against Buyer in accordance with their
respective terms, subject to the laws of general application affecting
creditors' rights.
(f) ISSUANCE OF BUYER'S SHARES. The Earnout Shares and the Warrant Shares,
once issued in accordance with this Agreement, will be free and clear of any
claims and encumbrances (except restrictions imposed by applicable securities
laws) and fully paid and non-assessable.
(g) RESERVATION OF SHARES. Buyer currently has reserved sufficient
authorized but unissued shares of its common stock to provide for its issuance
upon exercise of the Warrant or entitlement of the Earnout Shares.
(h) REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The representations
and warranties contained in this Agreement do not include any untrue statement
or material fact nor omit to state a material fact required to be stated herein
or therein or necessary in order to make the statements herein or therein, in
light of the circumstances under which they are made, not misleading.
7. CONDITIONS OF BUYER'S OBLIGATION TO CLOSE. The obligations of Buyer
pursuant to this Agreement are subject to the following conditions having been
met, or waived in writing by Buyer, at or prior to the Closing Date:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Seller in Paragraph 5 shall be true and correct in all material respects
on and as of the Closing Date.
(b) APPROVALS AND CONSENTS. All necessary approvals and consents with
respect to the transactions contemplated by this Agreement, the absence of which
would have a material and adverse effect on Buyer's rights under this Agreement,
or which would result in the forfeiture or breach of any material rights
acquired by Buyer pursuant to the provision of any material contract or
agreement assumed by Buyer, or without which the Buyer would be precluded or
materially impeded from conducting the Business, shall have been received by
Buyer.
(c) DELIVERY OF INSTRUMENTS OF CONVEYANCE OF THE PURCHASED ASSETS. Seller
shall have delivered to Buyer, satisfactory to Buyer in form and substance,
conveyancing documents to transfer title to the Purchased Assets to Buyer.
(d) NO LITIGATION. No investigation, suit, action or other proceedings
shall be threatened or pending before any court or governmental agency in which
it is sought to
21
<PAGE>
restrain, prohibit or obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
(e) NO ADVERSE CHANGE. There shall have been no change or development
related to the Business, the Purchased Assets, results of operations or in the
condition, financial or otherwise, of the Business, which has had or may
reasonably be expected to have a material adverse effect on the condition,
financial or otherwise, of the operation of the Business or ownership of the
Purchased Assets.
(f) RELATED DOCUMENTS. All of the related documents are executed at or
prior to closing, including the DeTemple Consulting Agreement, the Peterson
Covenant Agreement, the Warranty Bill of Sale and the Assignment Agreement.
(g) OPINION OF COUNSEL. Buyer shall have received an opinion of counsel of
Seller and DeTemple, dated the Closing Date, satisfactory in form and substance
to Buyer and its counsel substantially in the form of attached Exhibit 7.(g).
8. CONDITIONS TO SELLER'S AND DETEMPLE'S OBLIGATION TO CLOSE. The
obligations of Seller and DeTemple pursuant to this Agreement are subject to the
following conditions having been met, or waived in writing by Seller and
DeTemple, at or prior to the Closing Date:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Buyer in Paragraph 6 shall be correct in all material respects on and as of the
Closing Date.
(b) PAYMENT OF PURCHASE PRICE. Buyer shall have delivered to Seller the
Remaining Cash Payment, as adjusted pursuant to Paragraph 3 and the Warrant.
(c) NO LITIGATION. No investigation, suit, action or other proceedings
shall be threatened or pending before any court or governmental agency in which
it is sought to restrain, prohibit or obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
(d) OPINION OF COUNSEL. Seller shall have received an opinion of Buyer's
counsel, dated the Closing Date, satisfactory in form and substance to Seller
and its counsel substantially in the form of attached Exhibit 8.(d).
(e) RELATED DOCUMENTS. All of the related documents are executed at or
prior to closing, including the DeTemple Consulting Agreement and the Peterson
Covenant Agreement.
22
<PAGE>
(f) APPROVALS AND CONSENTS. All necessary approvals and consents with
respect to the transactions contemplated by the Agreement, the absence of which
would have a material adverse effect of Seller's rights will have been received
by Buyer.
9. SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATION.
(a) SURVIVAL OF REPRESENTATIONS. Buyer and Seller agree that all
representations, warranties and covenants of Seller and DeTemple
("Representations") shall survive the execution and delivery of this Agreement,
the Closing Date and any investigation or audit made by Buyer. The
Representations given in Paragraphs 5.(a), (d), (f), (j), (k), (l), (v), (w),
(z), (aa), (cc) and (dd) shall continue indefinitely and all others shall expire
upon the fifth anniversary of the Closing Date.
(b) INDEMNIFICATION BY SELLER AND DETEMPLE. Seller and DeTemple, jointly
and severally, agree to indemnify and hold Buyer harmless from and against any
and all Damages (as defined in Paragraph 9.(c)) incurred by Buyer or which Buyer
may sustain at any time arising out of or by reason of:
(1) The breach of any of the Representations made by Seller or
DeTemple in or pursuant to this Agreement (in each case without giving effect to
any disclosure to matters contained in the Exhibits);
(2) Any failure by Seller or DeTemple to perform any obligation or
comply with any covenant or agreement of Seller or DeTemple specified in this
Agreement or in any other document executed at Closing;
(3) Any claim (i) for wages or fringe benefits made by any employee of
Seller with respect to the period ending immediately preceding the Closing Date;
(ii) for severance payments or other liabilities with respect to the termination
of any employees of Seller; (iii) with respect to the injury or death of any
such employee arising out of events occurring prior to the Closing Date;
(4) Any claim (including, without limitation, claims alleging death or
injury to persons or damage to property), whether based in tort, contract or
otherwise resulting from or caused by any product sold, or service provided, by
Seller prior to the Closing Date;
(5) Any debt, obligation or liability, whether known or unknown, fixed
or contingent, of any nature whatsoever before the Closing Date, including but
not limited to all environmental liabilities of any nature (collectively, "Pre-
Closing Debts"), other than any Pre-Closing Debts which are part of the Assumed
Liabilities, Product Claims or Sales Agreement Liabilities;
(6) Any of the matters disclosed on any of the Exhibits; or
23
<PAGE>
(7) Buyer being deemed to be a "successor" employer to Seller for the
purpose of COBRA obligations.
Seller and DeTemple specifically acknowledges and agrees that Buyer may
proceed against either of them under Paragraph 9.(b) without contemporaneously,
or at any time, proceeding against the other.
(c) INDEMNIFICATION BY BUYER. Buyer agrees to defend, indemnify and
hold harmless Seller and DeTemple from and against any Damages incurred by
reason of (I) any breach of any representation, warranty or covenant of Buyer,
(II) any liabilities arising from the operation or conduct of the Business by
Buyer subsequent to the Closing Date and (III) any product shipped or
manufactured by or any services provided by the Buyer with respect to the
Business subsequent to the Closing Date.
(d) DAMAGES. An Indemnified Party shall be entitled to recover the
full amount of any liabilities, losses, debts, obligations, monetary damages,
fines, fees, penalties, deficiencies, expenses (including amounts paid in
settlement, interest obligations, court costs, the reasonable costs of
investigators, the reasonable fees and expenses of attorneys, accountants,
financial advisors or other experts, and other reasonable expenses of litigation
or administrative proceedings) incurred due to the matter for which
indemnification is sought, but any recovery shall be net of any economic benefit
to which the Indemnified Party is entitled due to such liabilities, expenses,
costs or loss, including, without limitation, (i) any tax refund, reduction or
benefit, (ii) any insurance proceeds to which the Indemnified Party is entitled
and (iii) any warranty reimbursements (collectively, "Damages").
(e) ASSERTION AND DEFENSE OF INDEMNIFICATION CLAIMS.
(1) ASSERTION OF CLAIM. Buyer or Seller and DeTemple under
Paragraphs 9.(b) and (d), respectively ("Indemnified Party"), shall give notice
to the other ("Indemnifying Party") as soon as reasonably possible after the
Indemnified Party has actual knowledge of any claim to which the Indemnifying
Party has an obligation to indemnify, including the amount, if known, and shall
promptly supply any other information in possession of the Indemnified Party
supporting the claim. The omission by the Indemnified Party to give Notice as
soon as reasonably possible will not relieve the Indemnifying Party of its
indemnification obligations, unless the failure to give notice to the
Indemnifying Party materially prejudices the Indemnifying Party or notice is
given after the end of the survival period of the applicable representation of
warranty or other basis of the claim. All indemnification claims must be
asserted by giving notice within the survival period of the applicable
representation or warranty or other basis for the claim. Buyer shall have the
right to set off any Damages it may incur against the amount it owes Seller.
This right of set off shall be in addition to any other rights or remedies Buyer
may have against Seller.
24
<PAGE>
(2) DEFENSE OF UNDISPUTED CLAIM. The Indemnified Party will permit the
Indemnifying Party (at its expense) to assume the defense of any third party
claim in any litigation. The Indemnifying Party may settle or compromise any
third party claim or litigation only with the consent of the Indemnified Party,
which consent shall not be unreasonably withheld. The Indemnified Party shall
have the right at all times to participate in the defense, settlement,
negotiations or litigation relating to any third party claim or demand at its
own expense. If the Indemnifying Party does not assume the defense of any matter
which it has an obligation to indemnify, then the Indemnified Party shall have
the right to defend any such third party claim or demand, and will be entitled
to settle any such claim or demand in its discretion, all at the expense of the
Indemnifying Party. In any event, the Indemnified Party will cooperate in the
defense of any such action at the expense of the Indemnifying Party and the
pertinent records of each party shall be available to the other with respect to
the defense.
(3) DEFENSE OF DISPUTED CLAIM. Should an Indemnifying Party provide
Notice to the Indemnified Party regarding a claim or action by a third party for
which the Indemnifying Party denies liability, the Indemnified Party shall give
the Indemnifying Party a reasonable opportunity: (1) to conduct any proceedings
or negotiations in connection therewith; (2) to take all other required steps or
proceedings to settle or defend any third party action; or (3) to employ counsel
to contest any third party claim or action in the name of the Indemnified Party
or otherwise. If the Indemnifying Party desires to assume the defense of the
third party claim or action, it shall promptly give Notice to the Indemnified
Party. The Indemnifying Party and the Indemnified Party may participate in the
defense at their own expense.
10. COVENANTS.
(a) DETEMPLE'S AND SELLER'S COVENANTS. Seller and DeTemple covenant and
agree with Buyer as follows:
(1) ACCESS TO PROPERTIES AND RECORDS OF SELLER. Seller will give Buyer
and its representatives full access during normal business hours to all of its
properties, books, contracts, documents and records, the opportunity to make
reasonable investigation, and any additional financial statements of, and all
information with respect to the business and affairs of, Seller that Buyer may
reasonably request.
(2) CONDUCT OF SELLER'S BUSINESS PENDING CLOSING. Between the date of
the Agreement and the Closing Date, Seller shall operate its business in the
usual, regular and ordinary manner on a basis consistent with prior years and
shall use it best efforts to preserve its present business organization intact,
keep available the services of its present officers an employees and preserve it
present business relationships with persons having business relationships with
it.
25
<PAGE>
(3) RIGHT OF FIRST REFUSAL. Seller and DeTemple agree to give Buyer
the right of first refusal to purchase or license the Vet Research Products (as
defined in Paragraph 1.(g)) on mutually acceptable terms and conditions.
(b) BUYER'S COVENANTS. Buyer shall at all times prior to issuance of the
Earnout Shares and the Warrant Shares maintain sufficient shares of authorized
but unissued common stock to issue the Earnout Shares and the Warrant Shares.
11. SELLER'S TERMINATION OF EMPLOYEES.
(a) Seller agrees to terminate the employment of all of its employees on or
the day before the Closing Date.
(b) Seller agrees that Buyer has no obligation to hire any current employee
of Seller; provided Buyer agrees to use its best efforts to make an acceptable
offer of employment to Lisa Peterson ("Peterson").
(c) Between the date this Agreement is executed and the Closing Date, Seller
shall permit Buyer to, or shall, on behalf of Buyer, distribute Buyer's
employment information and have access to Seller's employees for purposes of
determining whether Buyer will hire Seller's employees.
12. TRANSACTIONS SUBSEQUENT TO CLOSING.
(a) FURTHER ASSURANCES. Buyer and Seller agree that, from time to time after
Closing, and upon request, they shall execute, acknowledge and deliver such
other instruments as reasonably may be required to more effectively transfer and
vest in Buyer the Purchased Assets or to otherwise carry out the terms and
conditions of this Agreement.
(b) MAINTENANCE OF SELLER. Until the Federal, state and local income tax
liabilities of Seller attributable for all periods ending on or prior to the
Closing have been examined and reported on by the Internal Revenue Service (or
closed by applicable statute of limitations) and finally determined, DeTemple
agrees to maintain at all times sufficient working capital to insure Seller's
ability to pay its tax obligations on a punctual basis.
(c) LEASE OF SPACE. Buyer agrees to lease Seller's current space on a month-
to-month basis for up to three months immediately following the Closing Date.
Buyer agrees to pay the monthly rent and all other amounts payable by Seller
solely for the period during which Buyer occupies Seller's current space. Seller
and DeTemple covenant that they have provided Buyer with a true, complete and
accurate copy of the Lease Agreement ("Lease") pursuant to which Seller leases
the current space and that neither the lessor nor Seller is in default in any
respect of the Lease.
26
<PAGE>
13. NOTICES. All notices and other communications required or permitted
under this Agreement shall be given if mailed by registered or certified mail,
postage prepaid, or otherwise delivered by hand or messenger, to the parties at
the following addresses, or to such other changed address as such party may have
given by notice:
Buyer: Neogen Corporation
620 Lesher Place
Lansing, Michigan 48912
Attn: President
Facsimile: 517-372-0108
And a copy to: Fraser Trebilcock Davis & Foster, P.C.
Attention: Richard C. Lowe
1000 Michigan National Tower
Lansing, MI 48933
Facsimile 517-482-0887
Seller: J.D.T. Inc.
200 Old Dock Road
Yaphank, New York 11980
Attn: President
Facsimile: 631-345-0404
And a copy to: Carter, Hogan, Sullivan, Bernstein and Auerbach, PC
Attention: William J. Bernstein
77 Medford Avenue (Route 1120
PO Box 919
Patchogue, New York 11772-0919
Facsimile: 631-654-0724
14. APPLICABLE LAW; VENUE. This Agreement has been executed, delivered and
accepted at and shall be deemed to have been made at Lansing, Michigan and shall
be interpreted and the rights and liabilities of the parties shall be determined
in accordance with the laws of the State of Michigan. The parties waive
personal service of any and all process upon them and consent that all such
service of process be made by registered mail directed to the parties at their
addresses set forth on page 1 of the Agreement and service so made shall be
deemed to be completed five business days after the material shall have been
deposited in the U.S. mail, postage prepaid. The parties agree that any action
shall be brought in the court of appropriate jurisdiction in Ingham County,
Michigan or U.S. District Court for the Western District located in Lansing,
Michigan. The parties consent to jurisdiction and waive all claims of improper
venue and forum non-conviens.
27
<PAGE>
15. BULK TRANSFER. Buyer agrees to waive compliance with the provisions of
any applicable bulk sale or transfer of law in exchange for Seller's covenant to
indemnify and hold Buyer harmless from and against all liabilities Buyer may
incur arising from such non-compliance.
16. INTEGRATION. This Agreement and the Confidentiality Agreement, dated on
or about September 27, 1999 sets forth the entire agreement and understanding
between the parties as to the subject matter, and supersedes all prior
discussions, representations, amendments or understandings of every kind and
nature between them.
17. AMENDMENTS. Any amendment, alteration, supplement, modification or
waiver shall be invalid unless it is set forth in writing, signed by the party
intending to be bound thereby.
18. SEVERABILITY. If any provision of this Agreement becomes or is declared
by a court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without the provision.
19. ASSIGNABILITY. This Agreement may be assigned by Buyer without the
prior written consent of Seller; provided, Buyer shall continue to be liable for
the performance of all obligations pursuant to the Agreement. This Agreement may
not be assigned by Seller or DeTemple without the prior written consent of
Buyer.
20. BENEFIT. This Agreement shall be binding upon and inure to the benefit
of Buyer and Seller and their respective successors and permitted assigns and on
DeTemple and his heirs, personal representatives, successors and permitted
assigns.
21. CAPTIONS. Captions contained in this Agreement are inserted for
reference and in no way define, limit, extend or describe the Agreement or the
intent of any provision in this Agreement.
22. PRONOUNS. All pronouns and any variation thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural as the identity of
the parties may require.
23. COVENANT NOT TO COMPETE. Without prior written consent of Buyer, Seller
and DeTemple each agree that, for a ten year period from and after the Closing
Date, they shall not individually or jointly, alone, or as an officer, agent,
employee, or director, of any other corporation, university, or other entity,
directly or indirectly, own, manage, operate, or control in the ownership,
management, operation, or control of or work for, or permit the use of their
names by, or be connected in any manner with any business or activity in any
country which is at the time competitive with any product of the Business as
defined in Recital A. Anything in the preceding sentence to the contrary
28
<PAGE>
notwithstanding, Seller and DeTemple shall be permitted to develop and sell the
Vet Research Products (as defined in Paragraph 1.(g)) without being in violation
of this Paragraph 23. While the restrictions set forth above are considered by
the parties to be reasonable in all circumstances, it is recognized that
restrictions of the nature in question may fail for technical reasons unforeseen
and accordingly it is hereby agreed and declared that if any of such
restrictions shall be adjudged to be void as going beyond what is reasonable in
all the circumstances for the protection of the interests of the Buyer but would
be valid if part of the wording were deleted or the periods reduced or the range
of activities or area dealt with reduced in scope, these restrictions shall be
applied with such modifications as may be necessary to make them valid and
effective.
As consideration for this agreement not to compete, One Hundred Thousand
Dollars ($100,000) as a part of the Remaining Cash Payment shall be deemed as
payment for this covenant not to compete. No additional consideration shall be
paid by Buyer.
Without limiting the provisions of this Section 23 and the DeTemple
Consulting Agreement, DeTemple may submit in writing all ideas for products that
are not competitive with the Business to Buyer for written approval or
rejection. Buyer agrees to approve or reject the proposed products in writing
within 30 days of submission. Buyer's failure to approve or reject in writing
within the 30 days period shall be deemed to be an acceptance of the proposed
product. Subject to the terms of this Agreement and the DeTemple Consulting
Agreement, DeTemple may commercialize the proposed product following Buyer's
rejection of it.
24. CONFIDENTIAL INFORMATION. It is agreed that the products, information
relating to the Business and anticipated improvements relating to them
constitute trade secrets. Seller and DeTemple agree that they shall not
individually or jointly disclose to any person any Confidential Information
regardless of nature, type or physical manifestation or any other information
concerning the business affairs of Buyer and the Business, including, but not
limited to, information related to the products identified in Recital A and
improvements made thereto, except as specifically consented to in advance in
writing by Buyer. This restriction shall include information imparted or
divulged to, gained or developed by, or otherwise discovered by Seller or
DeTemple in executing this Agreement. Anything in this Agreement to the
contrary notwithstanding, Seller and DeTemple shall not be bound by this
Paragraph 24 to the extent that the information they desire to divulge is or
becomes publicly known, other than through a breach of their obligations
pursuant any agreement with Buyer or as required by law.
25. CONTINUED AFFILIATION.
(a) DeTEMPLE. On or before the Closing Date, DeTemple and Buyer shall have
entered into the Consulting Agreement attached as Exhibit 25.(a) ("DeTemple
Consulting Agreement").
29
<PAGE>
(b) PETERSON. On or before the Closing Date, Peterson and Buyer shall have
entered into the Covenant Not To Compete Agreement attached as Exhibit 25.(b)
("Peterson Covenant Agreement").
26. EXHIBITS. The parties agree that the Exhibits attached to this
Agreement shall be treated for all purposes as part of this Agreement.
27. PREVAILING PARTY. The prevailing party in any litigation involving this
Agreement shall be entitled to recover, in addition to any other relief
obtained, the costs and expenses, including reasonable attorney's fees and
expenses, incurred by the prevailing party.
[THE REST OF THIS PAGE HAS INTENTIONALLY LEFT BLANK.]
30
<PAGE>
The parties have executed this Agreement as of the date first above written.
SELLER: DeTEMPLE:
J.D.T. INC.
By:
--------------------------------- -----------------------------------
John J. DeTemple, its President John J. DeTemple
BUYER:
NEOGEN CORPORATION
By:
---------------------------------
James L. Herbert, its President
31
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.X
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>AMENDMENT TO NEOGEN STOCK OPTION PLAN
<TEXT>
<PAGE>
AMENDMENT
NEOGEN CORPORATION
1997 STOCK OPTION PLAN
Subject to the approval of the stockholders of Neogen Corporation, the 1997
Stock Option Plan is hereby amended to increase from 400,000 to 1,400,000 the
number of shares available for grant.
Approved by the Board of Directors at its meeting on July 20, 2000.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NEOGEN CORPORATION AND SUBSIDIARIES
MAY 31, 2000
<TABLE>
<CAPTION>
PERCENTAGE OWNED
STATE INCORPORATED BY NEOGEN CORPORATION
================================================================================
<S> <C> <C>
Neogen Research Corporation II Michigan 90%
Neogen Research Corporation IV Michigan 100%
Ideal Instruments, Inc. Michigan 100%
AMPCOR Diagnostics, Inc. Michigan 100%
Acumedia Manufacturers, Inc. Maryland 100%
================================================================================
</TABLE>
All of the subsidiaries listed above are included in the consolidated financial
statements of Neogen Corporation.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Neogen Corporation
Lansing, Michigan
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement (Form S-8) of our reports
dated July 14, 2000, relating to the consolidated financial statements and
schedule of Neogen Corporation and subsidiaries, appearing in the Company's
Annual Report on Form 10-K for the year ended May 31, 2000.
BDO SEIDMAN, LLP
Troy, Michigan
August 11, 2000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> MAY-31-2000
<CASH> 2,198,189
<SECURITIES> 8,471,740
<RECEIVABLES> 5,237,692
<ALLOWANCES> 361,000
<INVENTORY> 5,393,017
<CURRENT-ASSETS> 21,601,839
<PP&E> 6,860,578
<DEPRECIATION> 4,205,333
<TOTAL-ASSETS> 29,528,441
<CURRENT-LIABILITIES> 3,337,379
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 923,710
<OTHER-SE> 24,880,136
<TOTAL-LIABILITY-AND-EQUITY> 29,528,441
<SALES> 23,512,018
<TOTAL-REVENUES> 23,512,018
<CGS> 10,860,468
<TOTAL-COSTS> 21,149,447
<OTHER-EXPENSES> (1,933,046)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,106
<INCOME-PRETAX> 4,283,511
<INCOME-TAX> 1,210,000
<INCOME-CONTINUING> 3,073,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,073,511
<EPS-BASIC> .52
<EPS-DILUTED> .52
</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----